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When it comes to risk and investment, some choices can feel daunting, especially when they can impact short-term financial health. This is a balancing act that many financial advisers need to navigate: how to prioritise short-term financial needs with long-term investments and financial goals. To help aid the process, here are some insights on evaluating risk tolerance while simultaneously aligning investments with long-term goals

Understanding client risk tolerance

As a financial adviser, one of the first things to prioritise is understanding your client’s risk tolerance, as this will ultimately become a crucial part of your decision-making process when considering where to spend your attention (and money). Risk tolerance is how comfortable your client is with enduring uncertainty in their investment returns. Age, financial goals, investment knowledge, and emotional temperament influence this risk tolerance.

As the adviser, it’s crucial to define the risk tolerance for each client to ensure that you can strike the right balance between potential returns and acceptable risk. This will vary depending on the client, but it will also ensure their portfolio better aligns with their financial goals and peace of mind. 

Navigating long-term financial goals

After accurately assessing your client’s risk tolerance, you must help them navigate through long-term financial goals. Long-term financial goals typically refer to financial objectives that span more than five years, such as retirement planning, wealth building, purchasing a home, etc.

Understanding these goals is quintessential to ensure that the client’s investments always align with these goals. It’s important to note that it shouldn’t be as black and white as immediate financial health and long-term goals. Many advisers help clients create an investment horizon with short-term, medium-term and long-term goals. 

Short-term financial health

Prioritising short-term financial health is one of the most critical aspects of financial planning. Regarding short-term goals, these investments are generally focused on lower-risk, liquid assets like savings accounts or short-term bonds. However, even so, almost every investment comes with a degree of risk.

That said, most investors put enough money away in a savings product to act as an emergency fund in the case of an unexpected event like sudden unemployment. This can help serve as a safety blanket to ensure you’re protected when things go awry without impacting long-term investments. 

Mitigating risks for long-term success

As a financial adviser, you are responsible for proactively identifying potential risks within a client’s investment portfolio and implementing the right strategies to minimise them. This could include anything from diversification to asset allocation. Regardless of the relevant strategy, your client’s goals or specific investment opportunities, none succeed without the correct data and information. However, keeping tabs on client information and data sets while managing revenue streams and commission statements can be time-consuming and overwhelming. 

That is, without Commspace, of course. 

The ultimate solution for managing, tracking, splitting and analysing financial adviser revenue

We offer specialised commission management software and revenue analytics for financial advisers in the Life, Investment, Health, Short Term and Employee Benefits sectors. Balance short-term health and long-term investments easily, knowing nothing will slip through the cracks or jump out unexpectedly. 

Take your client segmentation to the next level and forecast and leverage opportunities fully. At the same time, our automated revenue tracking system reduces the tension of unknowns.