Risk Preference Elicitation and Financial Advice Taking

David J. Streich

Journal of Behavioral Finance, 2023, vol. 24, issue 3, 259-275

Abstract: Financial advisors rely on accurate measures of investor risk preferences. This study compares different risk elicitation methods (REMs) in terms of their perceived suitability and impact on financial advice taking. The results suggest that the perceived suitability of the suggested risk profile strongly predicts delegation to an advisory tool. REMs differ in terms of their perceived process similarity with the investor, which positively affects suitability (and thus, delegation) directly and through its positive effect on source credibility. Differences were also found with regards to the perceived complexity of the risk profiling task, which is positively related to suitability. In summary, the findings imply that applying suitable REMs matters not only because it avoids misrepresentation of an investor’s true risk preferences, but because it directly affects the propensity to delegate financial decision-making.

Date: 2023
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DOI: 10.1080/15427560.2021.1974444

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