February 25, 2016

Emerging Concerns About Risk Tolerance and Suitability

These two things have not fallen off FINRA's radar

Tyler D. Nunnally

The year 2016 is off to a shaky start. Stock indexes around the globe dropped sharply on the opening day of trading and markets continue to be volatile. As 2016 unfolds, no one really knows whether the beginning of the new year is going to mark the start of a prolonged bear market or simply be dismissed as inconsequential. Markets can be very unpredictable.

One certainty, however, is that volatile markets make investors emotionally uncomfortable. A measure of a person’s financial risk tolerance is supposed to determine just how uncomfortable an investor is likely to feel relative to market movements and the risks inherent in investing. In that sense, risk tolerance assessment is meant to be predictive by design.

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