Report reveals risk conflict and complaints are rife in US adviser firms

Research published today by Cerulli Associates, a global research and consulting firm, finds that the biggest challenge for US financial advisers is bridging the gap between their endorsement of appropriate risk to maximize long-term portfolio returns and investors’ risk aversion.

Advisors must balance education and guidance to help reach an agreement that results in optimal returns. Advisors’ objective is to supply sufficient information to help clients better understand the inevitable uncertainties that come with longer-term investing.

“When investors who work closely with advisors were asked about their self-reported risk tolerance over time, only 4% classified themselves as aggressive investors,” explained Scott Smith, director at Cerulli. “This result underscores the paradox of risk in investment management relationships; advisors embrace a long history of research indicating that higher levels of equity risk will maximize long-term portfolio returns, but those interested in using advisors are the most reluctant to embrace portfolio risk.”


Formal complaints often arise from disagreements between advisors and clients regarding the appropriate level of risk in the clients’ portfolios. “Advisors are obligated to act in the investor’s best interest, but they must also get to know their clients to craft the best possible investment solution for each,” continued Smith. “Advisors must balance expected returns with objections or complaints.”

The findings are from the January issue of The Cerulli Edge – U.S. Asset and Wealth Management Edition, which discusses investors’ focus on downside protection and assumption of appropriate levels of risk in an aging bull market.


Christopher Copper-Ind
Christopher Copper-Ind is Publisher and Editor of International Investment. His previous publishing experience focused largely on the Middle East and emerging markets, and he was Editorial Director of The Business Year, based in Istanbul, for three years before moving back to London in 2017. He is the author of How to Negotiate, to be published by Macmillan in 2019.

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