What exactly is a risk capacity?

RISK CAPACITY

clock

Rick Eling, head of investment solutions at Sanlam Distribution UK, explains how to separate your clients' risk capacity from their risk tolerance.

Markets fall 5%, capacity for loss 50%, result: indifference; markets fall 50%, capacity for loss 5%, result: misery. Everyone is talking about client risk capacity. The FSA has made it clear that it expects advisers to consider this concept. So, what is it and how do we assess it? The first step is to separate risk capacity from risk tolerance. Tolerance is about feelings and is impossible to observe directly. You have to ask targeted questions to try to tease out the client’s mental willingness to bear risk. Writing, testing and structuring these questions is a specialised task fall...

To continue reading this article...

Join Professional Adviser for free

  • Unlimited access to real-time news, industry insights and market intelligence
  • Stay ahead of the curve with spotlights on emerging trends and technologies
  • Receive breaking news stories straight to your inbox in the daily newsletters
  • Make smart business decisions with the latest developments in regulation, investing retirement and protection
  • Members-only access to the editor’s weekly Friday commentary
  • Be the first to hear about our events and awards programmes

Join

 

Already a Professional Adviser member?

Login

More on Investment

Partner Insight: UK small-cap opportunities are 'The best for more than 30 years', Downing's Judith MacKenzie says

Partner Insight: UK small-cap opportunities are 'The best for more than 30 years', Downing's Judith MacKenzie says

Growing interest in IPOs and a surge in pension fund interest put UK small-caps on course for strong growth.

Judith Mackenzie, Partner and Head of Downing Fund Managers
clock 28 November 2025 • 4 min read
'It's been frantic – in a good way': Orbis' Matt Spencer on maintaining momentum

'It's been frantic – in a good way': Orbis' Matt Spencer on maintaining momentum

Advisers in the UK are ‘exceptionally high quality’

Jenna Brown
clock 25 November 2025 • 8 min read
Why 'bubble talk' doesn't always burst markets

Why 'bubble talk' doesn't always burst markets

What’s really driving recent returns?

Eleanor Ingilby
clock 20 November 2025 • 4 min read