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

Trian and General Catalyst to purchase Janus Henderson for $7.4bn

Trian and General Catalyst to purchase Janus Henderson for $7.4bn

Will continue to be led by current management team

Patrick Brusnahan
clock 23 December 2025 • 2 min read
2025 reflections: How strong companies trumped politics

2025 reflections: How strong companies trumped politics

Fears of an AI market bubble persist

Ryan Hughes
clock 23 December 2025 • 3 min read
What does 2026 hold for investment?

What does 2026 hold for investment?

‘The disruptors of yesterday are now the establishment’

Jen Frost
clock 17 December 2025 • 3 min read