The meaningless and blindingly stupid world of investment product ‘risk assessment’ annual questionnaires

Our columnist (only just) manages to keep his cool under a barrage of questions over the phone which in the end, admits the caller, are effectively meaningless

PUBLISHED : Wednesday, 11 January, 2017, 11:22am
UPDATED : Wednesday, 11 January, 2017, 10:50pm

Are you happy about revealing your income and net worth to someone trying to sell you investment products or anything else for that matter? I guess the answer is, of course not.

Yet, because in the dim and distant past I was weak-minded enough to have trusted some of my cash to fund managers I find myself regularly confronted with something called a ‘risk assessment questionnaire’. Does that ring a bell?

It probably does if you were also careless enough to trust a large American company to make investments on your behalf.

These companies, the names of which are very familiar, claim to be conducting these annual reviews in order to protect you and ensure that you do not take unwarranted investment risks. Moreover at least one of these companies sends it request for information with the threat that if you do not fill out their questionnaire they will neither accept new orders nor allow you to switch your investment portfolio.

This is a pretty pathetic threat because I have little interest in transacting further or any business with companies that make threats. However maybe, and it’s a very big maybe, the company is genuinely trying to be helpful.

That may explain why they ask a range of risk tolerance and investment knowledge questions, the problem is they make little sense: for example, you are asked “what potential loss on your original investment is generally acceptable”.

There is a choice of five answers, starting with the obvious position of “none” and going up to “toleration of losses exceeding 30 per cent”.

Typical question: ‘What potential loss on your original investment is generally acceptable’.
There is a choice of five answers, starting with ‘none’ and going up to ‘toleration of losses exceeding 30 per cent’.

The stupidity here is blindingly obvious because loss toleration is very much a relative matter. I will, for example, tolerate quite a high level of loss on what is obviously a high risk investment but equally can see no reason to contemplate a loss on some low yielding and “safe” form of investment.

Another question related to “investment horizon”; the company’s clients are patronisingly informed that the longer the investment horizon, the possibility of loss decreases. Gosh, who knew?

Again the questionnaire provides a fixed list of answers ranging from “below 1 year” to “over 10 years”. My answer would be all of the above because, as in questions of risks, your investment horizon varies with the type of investment, other demands on your funds, changes in the fiscal environment and then there are contingencies for the unexpected and so on.

Added to this are demands for details of your financial situation – which I assume are primarily made for the purpose of getting you to buy more.

I have tried to fill in one of these forms by stating that I have no intention of sharing my financial situation with anyone other than the tax authorities and even there some circumspection needs to be exercised. As for most of the other questions, well, they are also pretty meaningless.

Making a response on these lines elicited a phone call from some unidentified person saying that I had filled in the form incorrectly and warning me that my errors needed to be rectified forthwith.

When I explained that I had no intention of doing this I was told that his manager would be getting in touch.

Another question related to ‘investment horizon’; clients are patronisingly informed that the longer the horizon, the possibility of loss decreases

The manager duly called but seemed unhappy when I said I was not prepared to answer his questions before he answered mine.

“Why do you want to do that”, he asked. “Because I am your customer not a supplicant”, I replied.

I am not sure he quite understood what a supplicant is but he cautiously asked me what I wanted to know.

First up, I wanted to know whether the information contained in this form would be used for the purpose of selling the company’s products.

The manager said that all information is relevant, but relevant to what, I wanted to know. How about a simple yes or no?

Apparently nothing is simple but after much to-ing and fro-ing he reluctantly conceded that the possibility of this information being used for sales purposes could not be ruled out.

Now, about that form, why was I being difficult over answering the questions that did not relate to my financial situation? I explained that I could no see point in choosing one of the company’s selected answers when they were meaningless.

And what about my finances? None of your business, I replied.

Ok, he said, how about this: why don’t you just fill out the form with random answers? “You mean mislead and lie?”, I asked. A pause followed then I was told that this form simply needed to be filled in; that was the objective of the exercise. And what if the information were meaningless?

“Ah, well, um, then at least you will have filled in the form.”

We appear to have reached an impasse.

Steven Vines runs companies in the food sector and moonlights as a journalist and broadcaster