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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Risk Profiling for Investors

Mr. Raghav Iyer, 58, is a salaried manager retiring in two years. He scores high on a psychometric willingness-to-take-risk questionnaire, but he has no other retirement corpus and his sole income will stop at retirement. What is the most appropriate way for the adviser to set his risk profile?

The adviser should set the profile using the lower of risk willingness and risk capacity. Raghav's short horizon and lack of other retirement funds give him low capacity, so his high stated willingness should not lead to an aggressive allocation that he cannot afford to see fall.

  1. AUse the higher score because the questionnaire reflects his true preference
  2. BAverage the willingness score and an assumed neutral score of zero
  3. CIgnore the questionnaire and assign the most aggressive profile because he is experienced
  4. DBase the profile on the lower of willingness and capacity, so a low capacity restricts risk takenCorrect

Explanation

When willingness exceeds ability, the prudent approach is to let the lower of the two govern the recommended risk level. Raghav's short horizon and absence of other corpus mean low capacity, so high willingness should not drive an aggressive allocation. Option A ignores capacity.

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