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Should Men and Women have different Risk Profiling questions?

When it comes to risk it’s assumed that men like taking more risk than women.  Call it bravado, biology or a simple untruth those of us who are tasked with assessing how much risk our clients should take need to consider the facts. So we commissioned a survey of 400 people in the UK to find out the truth. Survey details
at the end of this article.
 
We asked a range of questions mostly based off the Pocket Risk questionnaire, covering attitude to risk, capacity for loss and need to invest.
 
Questions covered a theoretical perspective by asking people how they would feel if they suffered losses as well as a practical perspective by asking them about buy-to-let investing. We scored the final results from 0-10 and calculated the average result. 0 being those who are extremely risk averse and 10 being those with the highest propensity for risk. Here is what we found…
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average result scored from 0-10
 
 
So the results were clear, if not a little marginal. Men had a higher propensity for risk than women. This is in line with the assumptions most people have about financial risk and gender. In fact a question that saw one of largest differences between men and women illustrates it perfectly.
 
“When I think of the word “risk” I associate it with the word “opportunity”.
 
Men were 19% more likely to answer in the affirmative as opposed to women.  Though men have a higher propensity for risk something interesting emerges when you look a little closer at the data.
 
The largest difference between the genders is on tolerance/attitude to risk rather than capacity for loss or need. Therefore, it’s the psychology of men rather than their cash flow or how much risk they need to take that sets them apart from women. It’s all in the brain. So what action can we take with this insight?
 
Firstly, we can’t start generalising male and female traits. The data above is based on averages and each individual has a different case. I don’t believe we can start asking women and men different questions. However, given the tendency of bravado to appear in men, you should closely examine their answers to ensure you get an accurate reflection of their true risk profile. Software for all its graces cannot pick up on all the nuances of human communication.
 
 
Written by John Ndege. Founder of Pocket Risk. Risk profiling software for financial advisers.
 
 
 
 
 
 
 
 
 
 
 
-----Survey Details-----
 
The survey was completed in March 2013 and was run by Ask Your Target Market. 400 people were polled in the UK from a cross section of society. 55% of respondents were female and 45% were male. Ages ranged from 18-65 and income from £0 to over £320,000. 
 
 
 

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Author: John Ndege
Posted: Monday, April 22, 2013 | 11:13:40 AM


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Comments

03 November 2013 | 6:54:45 PM  Adeline Luther wrote:
In general, the risk tolerance in women is lower than men. They are less likely to invest in what may appear to be harebrained projects ( they are also likely to lose out on the resultant big bucks). They are also likely to sell off stocks once it reaches a preset limit. However by doing so, they are more likely to make better returns than men when averaged out over a period of time.
22 April 2013 | 3:08:23 PM  John Ndege wrote:
@ Haydn Morgan - I agree with you that risk profiling based software alone cannot give us the answers we need. Face to face discussion and getting to "know your client" over time is essential.

However, I do believe there is a place for software to add some objectivity and rigour to the process.

As you say questionnaires should be simple, balance accuracy and brevity and be interesting.

Thanks for the comment.
22 April 2013 | 3:01:53 PM  Haydn Morgan wrote:
Interesting stuff - unfortunately an individual’s approach to risk is, in all likelihood, affected by a number of unquantifiable and unmeasurable things, there is a body of evidence that suggests that mood, confidence and even posture will have an influence. Levels of testosterone and cortisone in the brain will play a part in a person’s attitude towards their attitude to risk.

It would seem logical that a man in his own home, sat in his own chair talking to an adviser about risk will display a different attitude to that same man in an impersonal professional adviser’s office environment. Now it may be that the man has more testosterone surging around his brain because he feels out of control in the unfamiliar surroundings, or it may be his cortisone levels are higher because he feels a need to be compliant in the unfamiliar surroundings, either way the measurement will be effected in unmeasurable way. This phenomenon will effect both sexes.

Although I’m sceptical of Jung based psychometrics I do believe in the necessity of risk profiling. But, I’m not convinced that protracted risk profiling has much benefit – keep it short, keep it simple and try to keep it at least a little bit interesting…

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