Know Your Client! Investor Profile and Tailor‐made Asset Allocation Recommendations

Abstract

We study how the investor profile influences the asset allocation recommendations of professional advisors. We find the investor's perceived risk attitude influences more the mix of risky assets, whereas the socioeconomic variables influence more the cash percentage. The recommendations are consistent with a diversification behavior driven by actual asset correlations. These findings support the utility of investor advisory that may help enhance the risk and return trade-off. The main drawback of the recommendations may consist in the degree of customization that is limited by the small number of investor characteristics actually influencing the asset allocation. JEL Classification: G11

Financial Risk Tolerance Analysis of Indonesian Retail Investors

“…Young investors have more human capital than older investors. This is because the correlation between human capital (which is the future flow of labor income) and market returns is usually low, so young investors can diversify capital market risks (Zakaria, et al, 2017 andCavezzali &Rigoni, 2012) so that their risk tolerance decreases after diversified risk. For older investors, their financial capacity is more in line with the amount of material and non-material wealth (such as the number of families) they have so that when exposed to great risk, they have adequate "cushion" for risk.…”

Individual financial risk tolerance and the global financial crisis

“…A negative relationship has generally been observed between FRT and age, being married/partnered and number of financial dependents (Palsson, ; Yao and Curl, ). Cavezzali and Rigoni () investigate the separate contribution of these demographic variables, grouped as indicative of investors’ risk capacity, in explaining recommended asset allocations. They highlight that an individual's risk attitude, self‐reported in their case, was not reliably proxied by risk capacity…”

“…In the UK, the Financial Services Authority has a similar requirement for advisers to determine the client's appetite for risk as well as capacity for loss. Cavezzali and Rigoni () recently calibrate the role that an individual's assessed risk tolerance plays in an adviser's recommended asset allocations.…”

Interplay of Investor Cognition, Financial Literacy, and Neuroplasticity in Investment Decision Making: A Study of Nepalese Investors

“…Similarly, fewer studies have looked at the problem of luring potential and unsuccessful investors back into the market. On the other hand, ample number of prior studies (Abideen et al, 2023;Cruciani & Cruciani, 2017;Cavezzali et al, 2012) have predominantly focused on Western settings (i.e. developed countries), with fewer studies concentrating on developing countries (Behera et al, 2021;Naiwen et al, 2021;Nadeem et al, 2020), underscoring the growing need to investigate these concepts in such economies highlighting empirical and knowledge gap issues.…”