The Academy of Financial Services 35th Annual Meeting

Value-at-risk, Portfolio management, Financial advice

Financial advisors use questionnaires and discussions with clients to determine a suitable portfolio of assets that will allow clients to reach their investment objectives. This paper compares client Know Your Client (KYC) profile risk allocations to their investment portfolio risk selections using a value-at-risk discrepancy methodology. Value-at-risk is used to measure elicited and revealed risk to show whether clients are over-risked or under-risked, changes in KYC risk lead to changes in portfolio configuration, and cash flow affects a client's portfolio risk. We demonstrate the effectiveness of value-at-risk at measuring clients' elicited and revealed risk on a dataset provided by a private Canadian financial dealership of over 50,000 accounts for over 27,000 clients and 300 advisors. By measuring risk discrepancy, we can determine how well a client's portfolio aligns with their stated goals.