Risk Profiling

This analysis represents Index Funds Advisors' opinion on the comparison of IFA's Risk Capacity Survey (RCS) to FinaMetrica's Risk Tolerance Questionaire (RTQ) and discusses the following topics:

• Questions
• Results
• Scoring
• Historical Asset Allocations

IFA created it's survey in October 1999 after extensive research by Mark Hebner and the assistance of a survey expert who validated the survey techniques and questions so that it was valid and reliable based on statistical principles. As of February 4, 2010, IFA has recorded 145,153 risk capacity surveys in it's online database. About 1,800 of those survey participants have become clients of IFA. Over the 11 years, IFA has carefully refined the process to most accurately measure how much risk is appropriate for each client at the time the survey is taken. After reviewing all the alternative methods available to investors, we believe this to be the best system available. USA Today financial journalist Matt Krantz thinks IFA's RCS is a good way to measure your taste for risk. In early 2008 he said, "If you're OK with the idea of index mutual funds, check out Index Funds Advisors at ifa.com. Like Vanguard, IFA provides a questionnaire that measures your taste for risk. However, unlike Vanguard, IFA.com provides detailed portfolios with precise index mutual funds to get you the maximum returns for your level of risk. IFA is an investment adviser and will help you buy the index mutual funds and manage your portfolio if you choose. To get answers to your questionnaire, you will have to give up some personal information."

FinaMetrica was launched in 1998, and is a subscription service to investment advisors that provides a psychometric test of personal financial risk tolerance to be incorporated, along with other critical information, into the process of selecting a portfolio to recommend to their clients. There have been over 370,000 of the RTQ taken. Risk tolerance is not a driver of investment strategy, but rather acts as a constraint on the strategy that would otherwise be selected by an advisor using the FinaMetrica test. FinaMetrica assumes that advisors will have additional processes for selecting investment strategies and asset allocations. What most advisors lack is a valid and reliable reading on their clients’ risk tolerance. IFA believes that most investments advisors also lack a valid and reliable quantification of the other crucial factors that lead to a recommendation of an asset allocation.

FinaMetrica states that it does not provide investment advice by way of a set of asset allocations to be implemented depending upon a score from their test. It also states that the FinaMetrica portfolios are for illustrative purposes only. However, on their website riskprofiling.com the video interview with Paul Resnik, Co-Founder of FinaMetrica states at 30 seconds into the video that "the preferred way to use it, which is to assess a clients risk tolerance, take into account that in the giving of advice and link that to historical asset allocation to frame the investment experience the client might expect and use it to help look at potential portfolios..." Also, FinaMetrica provides a Linking Spreadsheet is a tool that enables advisors to objectively incorporate a client’s’ risk tolerance scores into the process of selecting investment strategies.

This is what IFA does with their RCS, as well. We collect the answers, score them, review the clients overall situation, identify potential range of outcomes and use all of this information to identify a portfolio that best suits the client. The RCS is used by advisors at IFA, as well as subscribers who are independent advisors. This is similar to the FinaMetrica business strategy.

FinaMetrica states on their FAQs page that "to the best of our knowledge, FinaMetrica delivers the highest levels of validity, reliability and accuracy of the available Web based alternatives we have reviewed."

IFA does not believe this to be the case. The IFA Risk Capacity Survey along with an advisor's review of a client's situation should result in a better match of risk capcity to risk exposure. IFA also has Network Members who subscribe to the use of the IFA Risk Capacity Survey and the maching Index Portfolios to match people with portfolios. Network members can match their own model portfolios to the IFA portfolios, if they elect not to use the historical asset allocations provided. Network Members license all the intellectual property on the ifa.com website to use for investor education, investor risk capacity profiling, 100 asset allocations and over 80 years of monthly risk and return data of 100 index portfolios.

In the analysis of the two methodologies, we have made the following conclusions:

• FinaMetrica focuses only on one dimension of risk capacity as identified by IFA: the respondents attitude towards risk, leaving the other four dimensions of risk capacity up to a subjective analysis of the subscribing advisor
• FinaMetrica focuses heavily on hypothetical situations while the IFA Risk Capacity Survey (RCS) asks portfolio specific questions
• FinaMetrica’s broadly defined seven risk groups mean that otherwise very similar investors who happen to fall on either side of the cusp of two risk groups, can be recommended portfolios with very different long-term risks and returns.  These are less than ideal portfolios as they direct the investors into one portfolio group or another. This results in wide ranges of ending wealth, dependent upon which portfolio was recommended and selected. Of course, the advisor must do their analysis before a final recommendation is made.
  

Survey Questions

The IFA Risk Capacity Survey analyzes five dimensions of risk capacity:

Time


Knowledge

Attitude

Income

Worth

The FinaMetrica test focuses almost exclusively on attitude towards risk, a single dimension of risk capacity. It does not address time, wealth, knowledge, or income, nor does it assess a respondent’s understanding of efficient markets, the negative effects of market timing, stock picking, or fund selection.

FinaMetrica’s analysis of attitude is based on four different categories of questions:

• Self Assessment of Attitude Toward Risk
• Analysis of Previous Behavior
• Hypothetical Situations
• Direct Questioning

IFA has at least one question that relates to each of these categories. However, as can be seen from Table 1 below, the number of questions related to each category and how those questions are divided between categories is approached differently.

Table 1: Comparison of IFA and FinaMetrica Questions

Category	Number of Questions by FinaMetrica	Number of Questions by Index Funds Advisors
Self Assessment of Attitude Toward Risk	4	2
Analysis of Previous Behavior	6	1
Hypothetical Situations	9	1
Direct Questioning	6	3

Below are detailed examples comparing IFA and FinaMetrica questions. It is necessary to find similar questions between IFA and FinaMetrica in order to compare the two scoring algorithms.

Self Assessment of Attitude Toward Risk

FinaMetrica has four questions that ask the respondent to make a self assessment of their attitude towards risk. For example, “Compared to others, how do you rate your willingness to take financial risks?” and “When you think of the word 'risk' in a financial context, which of the following words comes to mind first?” 

These types of questions are similar to IFA questions such as, “How do you feel about this statement? ‘I want my investments to be risk free.’”

Analysis of Previous Behavior

FinaMetrica has six questions that ask the respondent to think about risk based decisions made in the past.  Rather than opinion based, these are factual questions seeking definitive answers. An example is, “What degree of risk have you taken with your financial decisions in the past,” and “Have you ever borrowed money to make an investment (other than for your home)?”

These types of questions are similar to IFA questions such as, “How do you feel about this statement? ‘During time periods of market declines, I prefer to sell off my riskier assets and put the money into safer assets.’”

Hypothetical Situations

FinaMetrica has nine questions that ask the respondent to imagine and provide a response to a hypothetical situation, regardless of actually having had such an experience. These “What would you do?” type questions typically present a cost-benefit analysis where the potential benefits are higher the more cost (risk) a respondent is willing to take. For example, “Imagine you were in a job where you could choose whether to be paid salary, commission or a mix of both. Which would you pick?” and “If you had to choose between more job security with a small pay rise and less job security with a big pay rise, which would you pick?”  Such questions don’t assess more targeted and specific levels of investment risk a respondent would actually be willing to accept in a real life situation.

IFA presents one  hypothetical question, but it is connected directly to the respondent’s portfolio, rather than other risk behaviors. For example, “In October 1987, stocks fell by over 20% in one day. If you owned a globally diversified portfolio of equity indexes that fell by 20% over a very short period, what would you do?” 

Direct Questioning

FinaMetrica presents six direct questions relating specifically to the risk and/or return of an investment portfolio and asking what is the respondents’ preference.  For example, “What degree of risk are you currently prepared to take with your financial decisions?” and “From 0 to 100, what do you think your score will be?”

IFA’s approach to this category of question asks respondents to review several portfolio scenarios and then narrow down their choice to the one that they would be most comfortable with. For example, “Based on $100,000 invested over the last 50 years ending February 2009, the following choices show the highest 12-month dollar loss, the highest-12 month dollar gain, and the annualized returns of 5 different index portfolios. Which portfolio would you choose?”

Results Comparison

Based on their analysis, FinaMetrica presents seven portfolio groups. For further information on US portfolios, see HERE.

Table 2: FinaMetrica Scoring and Recommended Portfolios

	Score Range	Recommended Asset Mix
		High Risk	Medium Risk	Low Risk
Portfolio 1	Less than 25	0%	0%	100%
Portfolio 2	25-34	0%	30%	70%
Portfolio 3	35-44	10%	40%	50%
Portfolio 4	45-54	30%	40%	30%
Portfolio 5	55-64	50%	40%	10%
Portfolio 6	65-74	70%	30%	0%
Portfolio 7	75 or More	100%	0%	0%
High Risk assets are stocks and real estate. Medium Risk assets are bonds and fixed income. Low Risk assets are cash and CDs.

To link FinaMetrica Portfolio recommendations to the 100 IFA Index Portfolios recommendations, see below:

• FinaMetrica Portfolio 1 = Money Market Account
• FinaMetrica Portfolio 2 = IFA Fixed Income
• FinaMetrica Portfolio 3 = Index Portfolio 01
• FinaMetrica Portfolio 4 = IFA Index Portfolio 20 (Both have 30% High Risk assets)
• FinaMetrica Portfolio 5 = IFA Index Portfolio 40 (Both have 50% High Risk assets)
• FinaMetrica Portfolio 6 = IFA Index Portfolio 60 (Both have 70% High Risk assets)
• FinaMetrica Portfolio 7 = IFA Index Portfolios 90 to 100

FinaMetrica Portfolios 1 through 5 include Cash and CD’s.  An IFA Portfolio with the same amount of High Risk assets will be riskier overall but will also generate higher expected returns.

Scoring Comparison

To examine how a similarly answered sample survey would compare between FinaMetrica and IFA, it is necessary to use the following methodology:

Assume the respondent selects the answer corresponding to the highest risk possible in the IFA survey related to investor knowledge, income, wealth, and time horizon.  This will generally result in the highest level of risk tolerance being selected by the IFA survey respondent.

Where questions are similar between the two surveys, take the answer from the Finamatrica survey and select the corresponding answer in the IFA survey that provides the best match.  This is challenging because there could be one IFA question that would reasonably match to more than one FinaMetrica question, and there are several IFA “Attitude” questions that have no corresponding FinaMetrica questions.

Table 4 below shows questions in both the IFA and FinaMetrica surveys close enough to match, along with the resulting answers.

Table 4: Matched Questions Between the IFA and FinaMetrica Surveys

FinaMetrica Question	FinaMetrica Answer	IFA-Loosely Comparable Question	IFA Comparable Answer
What degree of risk have you taken with your financial decisions in the past?  Very small.  Small.  Medium.  Large.  Very large.	Medium	How do you feel about this statement? "I want my investments to be risk free."	Somewhat Agree
What degree of risk are you currently prepared to take with your financial decisions?  Very small.  Small.  Medium.  Large.  Very large.	Medium	Based on $100,000 invested over the last 50 years ending February, 2009, the following choices show the highest 12-month dollar loss, the highest-12 month dollar gain, and the annualized returns of 5 different index portfolios. Which portfolio would you choose?	Question 25: Equivalent Answer: C (Index Portfolio 50)
Suppose that 5 years ago you bought stock in a highly regarded company. That same year the company experienced a severe decline in sales due to poor management. The price of the stock dropped drastically and you sold at a substantial loss. The company has been restructured under new management, and most experts now expect it to produce better than average returns. Given your bad past experience with this company, would you buy stock now?  Definitely not.  Probably not.  Not sure.  Probably.  Definitely.	Probably	In October 1987, stocks fell by over 20% in one day. If you owned a globally diversified portfolio of equity indexes that fell by 20% over a very short period, what would you do?	Sell 25% of the remaining investment
Investments can go up or down in value, and experts often say you should be prepared to weather a downturn. By how much could the total value of all your investments go down before you would begin to feel uncomfortable?  Any fall would make me feel uncomfortable.  10%.  20%.  33%.  50%.  More than 50%.	20%	What is the worst twelve-month percentage loss you would tolerate for your long-term investments, beyond which you would be inclined to sell some or all of your investment?	Index Portfolio 30 also 20%
Which spread of investments do you find most appealing? Would you prefer all low-risk/low-return, all high-risk/high return, or somewhere in between? Risk           High Med Low Portfolio 1: 0% 0% 100% Portfolio 2: 0% 30% 70% Portfolio 3: 10% 40% 50% Portfolio 4: 30% 40% 30% Portfolio 5: 50% 40% 10% Portfolio 6: 70% 30% 0% Portfolio 7: 100% 0% 0%	Portfolio 5 50% 40% 10%	On a scale of 5 to 100, with 100 being the most risk, what is your estimate of a proper risk exposure for your entire investment portfolio?	Index Portfolio 50 60% Equity 40% Fixed Income

The sample FinaMetrica Survey used in this analysis placed the respondent into their Risk Group 5 portfolio consisting of 50% High Risk Assets, 40% Medium Risk Assets, and 10% Low Risk Assets.

Based on the assumption and matching questions above, IFA would recommend a Index Portfolio 40 consisting of 50% High Risk assets along with 50% Medium Risk assets (IFA does not recommend Low Risk assets in their index portfolios).

The IFA survey assumed that the highest risk capacity responses to the time, income, wealth, and knowledge dimensions of risk were selected, and matched (where possible) FinaMetrica only on the attitude questions. While it might therefore be expected that the IFA survey would provide a higher risk-capacity than FinaMetrica, the risk levels recommended between the two surveys are roughly equivalent. This indicates IFA deducts more points in its survey for similar answers in its “attitude” section. For example, when a respondent indicates in the FinaMetrica survey that they are only willing to lose 20% before they start to feel uncomfortable, IFA views this response as being more risk averse than does FinaMetrica.

IFA survey respondents are generally indicating a willingness to accept more risk in order to obtain higher expected returns. The reason may be that IFA questions are directly related to a respondent’s actual portfolio and are therefore more real world and action oriented compared to FinaMetrica’s questions which are more general and emotion oriented.
 
For example, amongst comparable questions:

• FinaMetrica asks at what point a respondent begins “to feel uncomfortable.” This is an indirect, emotion based, and subjective question. By contrast, IFA asks the respondent at what point in a situation they will be moved to act, e.g., when would they be “inclined to sell.”
• FinaMetrica asks “Suppose you bought a stock…”, which is a hypothetical question.  Contrast that with IFA asking “In October 1987, stocks fell by over 20% in one day,” which is a fact based inquiry many respondents relate to because they actually experienced it.
• FinaMetrica asks, “What degree of risk are you currently prepared to take?” By contrast, IFA illustrates several differing dollar gains and losses on a $100,000 portfolio and asks, “Which portfolio would you choose?”

FinaMetrica also asks questions that relate to a respondent’s work remuneration, job security, decision uncertainty, confidence, etc.  In reality, such questions may have little correlation to a respondents investment philosophy.  Consider the following:

• A respondent could be willing to take big risks in their retirement portfolio, but (for example) not be willing to “work on commission” 
• A respondent could accept losing 50% of their portfolio in one year and never (as FinaMetrica asks) have borrowed money to make an investment
• A respondent could be willing to suffer heavy losses in their portfolio and (as FinaMetrica asks) act very differently with real estate passed to them from a relative
  

Overall, IFA asks fewer, but direct questions about a respondent’s attitude towards their portfolio and attaches greater weight to that response. IFA believes that it's survey questions allow the respondent to feel a more direct connection to an actual portfolio. Additionally, respondents educated about passive investing and markets may likely obtain higher scores with IFA than FinaMetrica if they are willing to assume more risk in their investment portfolio than they are in other life matters.

Recommended Portfolio Performance Comparison

IFA and FinaMetrica survey respondents will each be recommended portfolios whose subsequent performance will likely differ considerably. To repeat what was mentioned in the introduction, risk tolerance is not a driver of investment strategy, but rather acts as a constraint on the strategy that would otherwise be selected by an advisor using the FinaMetrica test. FinaMetrica assumes that advisors will have additional processes for selecting investment strategies and asset allocations. What most advisors lack is a valid and reliable reading on their clients’ risk tolerance. IFA believes that most advisors also lack a valid and reliable quantification of the other crucial factors that lead to a recommendation of an asset allocation.

FinaMetrica does provide a Linking Spreadsheet (see here) that shows how to link FinaMetrica risk tolerance scores to up to eleven asset allocations. FinaMetrica's system does not produce a portfolio recommendation. What the Linking Spreadsheet does is show which one of an advisor's standard portfolio's matches your client's risk tolerance. This does sound a lot like IFA's motto of matching people with portfolios.

FinaMetrica goes on to say that "with that information you can make an 'apples-to-apples' comparison between risk tolerance (the portfolio that matches your client's risk tolerance) and investment risk (the portfolio that will most likely reach your client's goals), enabling your client to make properly informed risk/return trade-off decisions because the elements are separate, understandable and comparable." The FinaMetrica System Resources page provides a Linking Spreadsheet to be used by subscribing advisors. The end result of that process is comparable to the IFA risk capacity survey results.

FinaMetrica survey respondents will have a much broader range of outcomes than IFA respondents, provided they both follow the respective survey recommendations. Unfortunately, there is no data to allow a comparison of what advisors have done with the the results of the Risk Tolerance Questionaire and their own analysis. Since Investment Policy and the resulting asset allocation is the primary determinate of returns, this is a critical element of investment advice.

To illustrate some differences between IFA and Finametrica:

• IFA provides one hundred historical asset allocations, whereas FinaMetrica provides seven in the test and up to eleven in the Linking Spreadsheet. Of course advisors can do what they want with these results, but we have no way to measure that. Over time, the FinaMetrica plus an advisors recommendations can lead to large differences in ending wealth for a respondent.  Assuming that advisors link up to eleven portfolios to the test score or one of these seven, as FinaMetrica recommends, consider the case where a respondent’s survey results fall at the cusp between two potential portfolios. The choice of one portfolio over the other will result in a greatly different allocation and therefore investment experience, i.e., range of outcomes and expected return.
• FinaMetrica treats all equity and real estate funds as High Risk, bond funds as Medium Risk, and Cash and CD’s as Low Risk. To make an actionable decision based on their recommendation leaves wide room for interpretation by investment advisors.
• The volatility of various investments labeled “High Risk” and “Medium Risk” vary widely.  For example, small growth is more volatile than large growth and 30 year bonds are more volatile than one-year bonds. Thus, two investors with 50% “High Risk” investments could experience large differences in volatility in their portfolios, but have identical High, Medium, and Low portfolio weights.
• The returns of various investments labeled “High Risk” and “Medium Risk” vary widely. Two investors that have portfolios with identical weights could experience large differences in their ending wealth.  FinaMetrica accounts for risk, but does not account for the fact that some portfolios make more efficient use of risk than other portfolios. This decision is up to the advisor, but client's have no way to compare the recommendations. IFA provides such a comparable process.
• FinaMetrica does not tie their survey to a recommended overall portfolio standard deviation – thus their recommendations cannot be benchmarked or compared to actual investment portfolios by their respondents. However, this may be provided by an advisor.
  

IFA’s risk capacity survey links an investor directly to a portfolio of investments that can be purchased, benchmarked, and analyzed on a risk and return basis.  FinaMetrica leaves this decision up to advisors.

This leaves investors and clients of investment advisors using FinaMetrica test recommendations with a much greater variance of potential investing outcomes and without the ability to “invest in the historical asset allocation recommendation” or “benchmark the recommendation.”  This decision is left up to the advisor and therefore hard to measure.

Appendix A

Table 7: Sample FinaMetrica Question and Risk Category

FinaMetrica Question	Risk Category
Compared to others, how do you rate your willingness to take financial risks? Extremely low risk taker. Very low risk taker. Low risk taker. Average risk taker. High risk taker. Very high risk taker. Extremely high risk taker.	Self Assessment Attitude Toward Risk
How easily do you adapt when things go wrong financially? Very uneasily. Somewhat uneasily. Somewhat easily. Very easily.	Analysis of Previous Behavior
When you think of the word 'risk' in a financial context, which of the following words comes to mind first?   Danger. Uncertainty. Opportunity. Thrill.	Self Assessment Attitude Toward Risk
Have you ever invested a large sum in a risky investment mainly for the "thrill" of seeing whether it went up or down in value? No. Yes, very rarely. Yes, somewhat rarely. Yes, somewhat frequently. Yes, very frequently.	Analysis of Previous Behavior
If you had to choose between more job security with a small pay rise and less job security with a big pay rise, which would you pick? Definitely more job security with a small pay rise. Probably more job security with a small pay rise. Not sure. Probably less job security with a big pay rise. Definitely less job security with a big pay rise.	Hypothetical Situations
When faced with a major financial decision, are you more concerned about the possible losses or the possible gains?   Always the possible losses. Usually the possible losses. Usually the possible gains. Always the possible gains.	Self Assessment Attitude Toward Risk
How do you usually feel about your major financial decisions after you make them? Very pessimistic. Somewhat pessimistic. Somewhat optimistic. Very optimistic.	Analysis of Previous Behavior
Imagine you were in a job where you could choose whether to be paid salary, commission or a mix of both. Which would you pick? All salary. Mainly salary. Equal mix of salary and commission. Mainly commission. All commission.	Hypothetical Situations
What degree of risk have you taken with your financial decisions in the past?   Very small. Small. Medium. Large. Very large.	Analysis of Previous Behavior
What degree of risk are you currently prepared to take with your financial decisions?   Very small. Small. Medium. Large. Very large.	Direct Questioning
Have you ever borrowed money to make an investment (other than for your home)?   No. Yes.	Analysis of Previous Behavior
How much confidence do you have in your ability to make good financial decisions?   None. A little. A reasonable amount. A great deal. Complete.	Self Assessment Attitude Toward Risk
Suppose that 5 years ago you bought stock in a highly regarded company. That same year the company experienced a severe decline in sales due to poor management. The price of the stock dropped drastically and you sold at a substantial loss. The company has been restructured under new management, and most experts now expect it to produce better than average returns. Given your bad past experience with this company, would you buy stock now?   Definitely not. Probably not. Not sure. Probably. Definitely.	Hypothetical Situations
Investments can go up or down in value, and experts often say you should be prepared to weather a downturn. By how much could the total value of all your investments go down before you would begin to feel uncomfortable? Any fall would make me feel uncomfortable. 10%. 20%. 33%. 50%. More than 50%.	Direct Questioning
Assume that a long-lost relative dies and leaves you a house which is in a poor condition but located in a suburb that's becoming popular. As is, the house would probably sell for $300,000, but if you were to spend about $100,000 on renovations, the selling price would be around $600,000. However, there is some talk of constructing a major highway next to the house, and this would lower its value considerably. Which of the following options would you take? Sell it as is. Keep it as is, but rent it out. Take out a $100,000 mortgage and do the renovations.	Hypothetical Situations
Most investment portfolios have a spread of investments - some of the investments may have high expected returns but with high risk, some may have medium expected returns and medium risk, and some may be low-risk/low-return. (For example, stocks and real estate would be high-risk/high-return whereas cash and CDs (certificates of deposit) would be low-risk/low-return.) Which spread of investments do you find most appealing? Would you prefer all low-risk/low-return, all high-risk/high return, or somewhere in between? Spread of Investments in Portfolio High Risk/Return Medium Risk/Return Low Risk/Return   Portfolio 1 0% 0% 100% Portfolio 2 0% 30% 70% Portfolio 3 10% 40% 50% Portfolio 4 30% 40% 30% Portfolio 5 50% 40% 10% Portfolio 6 70% 30% 0% Portfolio 7 100% 0% 0%	Direct Questioning
You are considering placing one-quarter of your investment funds into a single investment. This investment is expected to earn about twice the CD (certificate of deposit) rate. However, unlike a CD (certificate of deposit), this investment is not protected against loss of the money invested. How low would the chance of a loss have to be for you to make the investment? Zero, i.e. no chance of any loss. Very low chance of loss. Moderately low chance of loss. 50% chance of loss.	Hypothetical Situations
With some types of investment, such as cash and CDs (certificates of deposit), the value of the investment is fixed. However inflation will cause the purchasing power of this money value to decrease. With other types of investment, such as stocks and real estate, the value is not fixed. It will vary. In the short term it may even fall below the purchase price. However over the long term, the value of the stocks and real estate should certainly increase by more than the rate of inflation. With this in mind, which is more important to you - that the value of your investments does not fall or that it retains its purchasing power?   Much more important that the value does not fall. Somewhat more important that the value does not fall. Somewhat more important that the value retains its purchasing power. Much more important that the value retains its purchasing power.	Hypothetical Situations
In recent years, how have your personal investments changed?   Always toward lower risk. Mostly toward lower risk. No changes or changes with no clear direction. Mostly toward higher risk. Always toward higher risk.	Analysis of Previous Behavior
When making an investment, return and risk usually go hand-in-hand. Investments which produce above-average returns are usually of above-average risk. With this in mind, how much of the funds you have available to invest would you be willing to place in investments where both returns and risks are expected to be above average?   None. 10%. 20%. 30%. 40%. 50%. 60%. 70%. 80%. 90%. 100%.	Direct Questioning
Think of the average rate of return you would expect to earn on an investment portfolio over the next ten years. How does this compare with what you think you would earn if you invested the money in one-year CDs (certificates of deposit)?   About the same rate as from CDs. About one and a half times the rate from CDs. About twice the rate from CDs. About two and a half times the rate from CDs. About three times the rate from CDs. More than three times the rate from CDs.	Hypothetical Situations
People often arrange their financial affairs to qualify for a government benefit or obtain a tax advantage. However a change in legislation can leave them worse off than if they'd done nothing. With this in mind, would you take a risk in arranging your affairs to qualify for a government benefit or obtain a tax advantage?   I would not take a risk if there was any chance I could finish up worse off. I would take a risk if there was only a small chance I could finish up worse off. I would take a risk as long as there was more than a 50% chance that I would finish up better off.	Hypothetical Situations
Imagine that you are borrowing a large sum of money at some time in the future. It's not clear which way interest rates are going to move - they might go up, they might go down, no one seems to know. You could take a variable interest rate that will rise and fall as the market rate changes. Or you could take a fixed interest rate which is 1% more than the current variable rate but which won't change as the market rate changes. Or you could take a mix of both. How would you prefer your loan to be made up? 100% variable. 75% variable, 25% fixed. 50% variable, 50% fixed. 25% variable, 75% fixed. 100% fixed.	Hypothetical Situations
Insurance can cover a wide variety of life's major risks - theft, fire, accident, illness, death etc. How much coverage do you have? Very little. Some. Considerable. Complete.	Direct Questioning
This questionnaire is scored on a scale of 0 to 100. When the scores are graphed they follow the familiar bell-curve of the Normal distribution shown below. The average score is 50. Two-thirds of all scores are within 10 points of the average. Only 1 in 1000 is less than 20 or more than 80.   What do you think your score will be? Response was 60.	Direct Questioning

 

 

 

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