Risk numbers take the complicated notion of portfolio risk and distill it down to one, easy-to-understand number. This innovative solution was pioneered by Riskalyze, which basically named the genre with their flagship Risk NumberĀ®.
The #1 Good:
Most people find it to be intuitive. Portfolio risk is a very difficult concept, even for professionals. The huge innovation of the risk number is that it is intuitive to most people. If you understand speed limits on the highway (or school zone), you can now understand portfolio risk. This is basically the essence of trying to explain complicated financial topics to people without any financial training.
The #1 Bad:
Occasionally, you may need to fill out some of the context around what the number actually means in terms of risk. While a client may understand that a risk number of 85 is more risky than a risk number of 55, they may not really have a sense of just how risky that is in general. Advisors should be prepared to help such clients put the absolute number in perspective.
Read the full article on Advisor Perspectives at https://www.advisorperspectives.com/articles/2022/03/07/using-analytics-in-wealth-management-the-good-and-bad
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