An Evaluation of the Risk-Taking Characteristics of Affluent Households

Journal of Financial Planning: July 2017

Executive Summary

• The purpose of this study was to test whether affluent households differ in the frequency of engaging in certain financial risk-taking tasks and to evaluate the association between net worth and performance of risk-taking tasks.
• Data from two survey samples showed that affluent respondents reported more frequently taking above-average investment risk, 
  understanding risk levels, and understanding the risk and return characteristics of investments. Less affluent respondents reported taking fewer financial risks.
• Results also showed that net worth was associated with conceptualizing and understanding risk and return trade-offs.
• Under both FINRA and SEC rules and guidelines, financial planners are required to evaluate their clients’ risk tolerance profiles prior to making recommendations. The results from this study suggest that this requirement may be more important than previously thought.

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