Automated assessment of personal financial risk tolerance6859788Abstract A method and system for the automated assessment of personal financial risk tolerance comprises a data means for receiving responses to a series of questions, with each response being one of a number of choice represented by a numerical value falling within a predetermined range, spanning least risk tolerance to most risk tolerance. Software instructions, implemented on a computer, are used to automatically substitute a z-score for each of the numerical value responses, based on predetermined norms, and then to determine a risk tolerance score from the z-scored answers by summing the z-scored answers, and z-scoring and scaling the calculated sum. The risk tolerance score is categorized within one of a number of pre-defined risk group bands, and a report is generated to the respondent containing information particular to the relevant risk group band and the individual's characteristics in relation to that band. Claims What is claimed is: Description BACKGROUND OF THE INVENTION
Spread of Investments in Portfolio
High Medium Low
Portfolio Risk/Return Risk/Return Risk/Return
1 0% 0% 100%
2 0% 30% 70%
3 10% 40% 50%
4 30% 40% 30%
5 50% 40% 10%
6 70% 30% 0%
7 100% 0% 0%
17. You are considering placing one-quarter of your investment funds into a single investment. This investment is expected to earn about twice the term deposit rate. However, unlike a term deposit, this investment is not protected against loss of the money invested. How low would the chance of a loss have to be for you to make the investment? 1. Zero, i.e., no chance of any loss. 2. Very low chance of loss. 3. Moderately low chance of loss. 4. 50% chance of loss. 18. With some types of investment, such as cash and term deposits, the money value of the investment is fixed. However inflation will cause the purchasing power of this money value to decrease. With other types of investment, such as shares and property, the money value is not fixed. It will vary. In the short term it may even fall below the purchase price. However over the long term, the money value of the shares and property should certainly increase by more than the rate of inflation. With this in mind, which is more important to you--that the money value of your investments does not fall or that it retains its purchasing power? 1. Much more important that the money value does not fall. 2. Somewhat more important that the money value does not fall. 3. Somewhat more important that the money value retains its purchasing power. 4. Much more important that the money value retains its purchasing power. 19. In recent years, how have your personal investments changed? 1. Always toward lower risk. 2. Mostly toward lower risk. 3. No changes or changes with no clear direction. 4. Mostly toward higher risk. 5. Always toward higher risk. 20. When making an investment, return and risk usually go hand-in-hand. Investments which produce above average returns are usually of above-average risk. With this in mind, how much of the funds you have available to invest would you be willing to place in investments where both returns and risks are expected to be above average? 1. None. 2. 10%. 3. 20%. 4. 30%. 5. 40%. 6. 50%. 7. 60%. 8. 70%. 9. 80%. 10. 90%. 11. 100%. 21. Think of the average rate of return you would expect to earn on an investment portfolio over the next ten years. How does this compare with what you think you would earn if you invested the money in term deposits? 1 About the same rate as from term deposits. 2 About one and a half times the rate from term deposits. 3 About twice the rate from term deposits. 4 About two and a half times the rate from term deposits. 5 About three times the rate from term deposits. 6 More than three times the rate from term deposits. 22. People often arrange their financial affairs to qualify for a government benefit or obtain a tax advantage. However a change in legislation can leave them worse off than if they'd done nothing. With this in mind, would you take a risk in arranging your affairs to qualify for a government benefit or obtain a tax advantage? 1 I would not take a risk if there was any chance I could finish up worse off. 2 I would take a risk if there was only a small chance I could finish up worse off. 3 I would take a risk as long as there was more than a 50% chance that I would finish up better off. 23. Imagine that you are borrowing a large sum of money at some time in the future. It's not clear which way interest rates are going to move--they might go up, they might go down, no one seems to know. You could take a variable interest rate that will rise and fall as the market rate changes. Or you could take a fixed interest rate which is 1% more than the current variable rate but which won't change as the market rate changes. Or you could take a mix of both. How would you prefer your loan to be made up? 1 100% variable. 2 75% variable, 25% fixed. 3 50% variable, 50% fixed. 4 25% variable, 75% fixed. 5 100% fixed. 24. Insurance can cover a wide variety of life's major risks--theft, fire, accident, illness, death etc. How much cover do you have? 1 Very little. 2 Some. 3 Considerable. 4 Complete. 25. This questionnaire is scored on a scale of 0 to 100. When the scores are graphed they follow the familiar normal distribution (ie. FIG. 3). The average score is 50. Two-thirds of all scores are within 10 points of the average. Only 1 in 1000 is less than 20 or more than 80. What do you think your score will be? Gathering of Norms According to one or more embodiments as described herein, as part of developing and implementing an automated system for personal financial risk tolerance, a set of "norms" is initially derived based on an evaluation and analysis of answers to completed questionnaires (such as the preferred one set forth above) from a statistically meaningful group of respondents. Using the answers from the initial "test group" of respondents, a z-score value is determined for each possible answer to each of the questions in the questionnaire, and the z-score values are stored (in a look-up table or other convenient data structure) for later use by the automated system. An overall standard deviation for the entire group is also calculated and stored for later use by the automated system. The z-score values and the overall standard deviation are used in various embodiments to obtain a categorization of a respondent to the questionnaire within one of several predetermined risk groups, according to techniques described below. According to an embodiment as disclosed herein, completed questionnaires taken from a statistically significant sample group of respondents form the data for developing a set of "norms" that determine the parameters to be used in the risk tolerance scoring algorithm. These norms are preferably calculated, on a question-by-question basis, according to the following steps: a) The mean and standard deviation of each question's scores is calculated. b) The calculated mean and standard deviation are used, question-by-question, to calculate z-score mappings for each of the choices. For example, for Question 1 in the questionnaire, a sample set of respondents resulted in a normal distribution function having a mean value of 3.5461, with a standard deviation of 0.8902. The z-score value expresses the number of standard deviations that each answer of "1" to "7" is away from the population mean of 3.5461. In this case the results, as set forth in Table 1 below, are:
TABLE 1
Answer Z-score value
1 -2.8601
2 -1.7368
3 -0.6135
4 +0.5099
5 +1.6332
6 +2.7566
7 +3.8799
The same process is used for Questions 2 through 25 to obtain z-score values for each possible answer to each question, based upon the normal distribution function for the responses to each question. c) Questionnaire-by-questionnaire, each answer is re-scored using the z-score mappings (as derived above) in substitution, and a "raw" score equal to the sum of the z-score mappings is calculated. d) The overall standard deviation of these "raw" scores is calculated. Because the component variables are z-scores, the mean of the "raw" score must be 0. The set of norms thus derived is embodied as (i) a set of Answer-to-z-score mappings for each question, and (ii) an overall standard deviation across the whole sample population. Once the "norms" are gathered in a statistically meaningful sample, they can be used to assess a respondent's risk tolerance score. Scoring A preferred methodology for accomplishing scoring of a respondent's questionnaire is illustrated in flow diagram form in FIG. 2, and includes the following steps: a) Each question's answer is mapped to a corresponding z-score using the respective norm, previously derived according to the procedure described above (block 65). b) The z-scores for all of the answers to the questionnaire are summed to a "raw" score (block 70). c) The "raw" score is z-scored (block 75). d) The z-scored "raw" score is scaled to a mean of 50, and a standard deviation of 10, resulting in what may be referred to for convenience as a 50/10 scaled score (block 80). e) The 50/10 scaled score is rounded down to the nearest integer (block 85). Worked Example The following table (Table 2) gives an example of the calculations for a respondent using the above scoring methodology. The norms for Question 1 are as given in Table 1 above, while the norms for Questions 2 through 25 are obtained in a manner similar to that described for Question 1 above. The overall standard deviation obtained from the norm data used in this example is 10.726541.
TABLE 2
Question 1 Question 2 Question 3 Question 4 Question 5
Answers 5 2 2 1 3
Z-scored 1.633 -0.314 -0.146 -0.499 0.065
answers
Question 6 Question 7 Question 8 Question 9 Question 10
Answers 3 3 3 3 3
Z-scored 0.420 -0.078 1.025 0.689 -0.689
answers
Question Question Question Question Question
11 12 13 14 15
Answers 1 3 4 3 2
Z-scored 0.865 -0.071 -1.138 0.113 0.410
answers
Question Question Question Question Question
16 17 18 19 20
Answers 5 2 3 3 6
Z-scored -0.968 -0.438 0.650 0.134 0.713
answers
Question Question Question Question Question
21 22 23 24 25
Answers 3 2 2 3 60
Z-scored -.226 0.010 -0.733 -0.040 1.359
answers
Sum of Z-scores 8.211
Z-scored Sum (Sum/10.726541) 0.76547
Scaled Sum (Z-scored Sum * 10 + 50) 57.6547
Reported Score (Scaled Sum Rounded Down) 57
As illustrated in Table 2, each answer for Questions 1 through 25 is mapped to a corresponding z-score. In the above example, the sum of all z-scores for Questions 1 through 25 for the particular respondent is 8.211. The z-scored sum is calculated as the sun of all z-scores divided by the overall standard deviation obtained from the norm data (in this example, 10.726541), resulting in a z-scored sum in this example of 0.76547. The scaled score or sum is derived by multiplying the z-scored sum by ten and adding 50 (i.e., by scaling the z-scored sum to a mean of 50 and a standard deviation of 10), resulting in this example in a scaled score or sum of 57.6547. The reported score is the scaled score rounded down to the nearest integer--in this example, 57. In step 90 of the flow diagram depicted in FIG. 2, the respondent's score is allocated to or categorized in one of a number of predetermined Risk Groups. The division of scores into various Risk Group categories or bands may be accomplished in many different ways, based upon the objectives of the risk assessor and the desired granularity of the personal risk assessment. According to a preferred methodology, the possible risk scores (from 1 to 100) are divided into seven Risk Groups, as illustrated in FIG. 3, although other numbers of Risk Groups may be selected. A choice of seven Risk Groups has been selected as having enough categories so as to result in meaningful risk assessment to the respondent, while having few enough categories so that financial advisors or other evaluators will be able to relatively easily memorize the general characteristics of each Risk Group. In the particular example illustrated in FIG. 3, the middle of the seven Risk Groups (i.e., Risk Group 4) was selected so as to straddle the mid-point (i.e., a score of 50) and spread across a width equal to a standard deviation (i.e., 10 points), with each of Risk Groups 2, 3, 5 and 6 being separated by a standard deviation and being of the same width as Risk Group 4. Both of the outer extreme Risk Groups (i.e., Risk Groups 1 and 7) span a width equal to 25 points. In the particular example illustrated in FIG. 3, the percentage of respondents falling in each of Risk Groups 1 through 7 are 1%, 6%, 24%, 38%, 24%, 6% and 1%, respectively. While an effort could be made to make the populations of each Risk Group equal, the result might be to group individuals having widely disparate risk behavior in the same group--for example, a respondent having a score of 1 would be placed in the same category as an individual having a score in the mid-thirties or possibly more, even though their risk behavior would generally be very different. Therefore, a preferred division of scores into risk group bands preferably maintains, to the extent possible, individuals with similar risk behavior in the same group. Accordingly, in a preferred embodiment, the respondent's score in step 90 would be categorized in one of the seven possible Risk Groups shown in FIG. 3. That is, the respondent would be categorized in Risk Group 1 if the respondent's score were between 0 and 24, in Risk Group 2 if the score were between 25 and 34, and so on. In the above example relating to Table 2, wherein the respondent's rounded-down scaled score was 57, the respondent would be categorized in Risk Group 5 (i.e., scores between 55 and 64). FIG. 2 also shows the further steps of comparing the respondent's estimate (Question 25), in step 90, with the actual (rounded) score obtained from step 85. Additionally, in step 100, each individual's actual answer (e.g. whichever 1-7 for Question 1) for selected questions may be compared against an expected range for the risk group in question (determined by step 90). The reporting for the respondent, in step 105, preferably utilizes the three sources as indicated in FIG. 2. Reporting The results of the automated assessment of a respondent's risk tolerance are preferably described to the respondent in a report. By way of example, the form of reporting can be as a screen display, data file or in printed form. As noted above, the Reported Score will fall within one of a number of "Risk Groups" (or bands) on the normal distribution curve. The number of Risk Groups may be seven, as represented in FIG. 3, or any other convenient number. In reporting the particular individual's financial risk tolerance, the rounded reported score can be presented, along with an appropriate commentary, such as the following: Your risk tolerance score enables you to compare yourself to a representative sample of the adult population. Your score is 57. This is a higher-than-average score, higher than 71% of all scores. A comment also can be made comparing the estimated score (from step 95) with the Reported Score. For example: In answer to the last question, you estimated your score would be 60. Congratulations! You were close. Most people under-estimate their score by a few points. Also accompanying the individual score and commentary, a generalized description specific to each individual risk group (i.e. Risk Groups 1-7) is preferably presented as part of the report. The following text represents examples of the report for each Risk Group; in the present example illustrated by the response data set forth in Table 2, the particular respondent falls in Risk Group No. 5. Risk Group No. 1 Making Financial Decisions They usually think of "risk" as "danger" and have, at most, little confidence in their ability to make good financial decisions. They usually feel at least somewhat pessimistic about their major financial decisions after they make them. They are prepared to take, at most, a small degree of risk with their financial decisions and are always more concerned about the possible losses than the possible gains. Financial Disappointments Typically, when things go wrong financially they adapt very uneasily. Financial Past They have taken no more than a small degree of risk with their past financial decisions and have never borrowed money to make an investment. Investment Most feel that it is much more important that the money value of their investments does not fall than that it retains its purchasing power. Over ten years, most expect an investment portfolio to earn, on average, not more than about one and a half times the rate from term deposits. Any fall in the total value of their investments would make them feel uncomfortable. Given these portfolio choices,
Expected Return and Risk
High Medium Low
Portfolio 1 0% 0% 100%
Portfolio 2 0% 30% 70%
Portfolio 3 10% 40% 50%
Portfolio 4 30% 40% 30%
Portfolio 5 50% 40% 10%
Portfolio 6 70% 30% 0%
Portfolio 7 100% 0% 0%
where shares and property are high return/high risk and cash and term deposits are low return/low risk, their most common choices are Portfolios 1 and 2. Borrowing If they were borrowing a large sum of money at a time when it was not clear which way interest rates were going to move and when the fixed interest rate was 1% more than the then variable rate, they would choose to have not less than 75% of the loan at fixed interest. Government Benefits and Tax Advantages If there was any chance they could finish up worse off than if they'd done nothing, they would not take a risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage. Risk Group No. 2 Making Financial Decisions They usually think of "risk" as "danger" or "uncertainty" and have, at most, little confidence in their ability to make good financial decisions. They usually feel at least somewhat pessimistic about their major financial decisions after they make them. They are prepared to take, at most, a small degree of risk with their financial decisions and are usually, if not always, more concerned about the possible losses than the possible gains. Financial Disappointments Typically, when things go wrong financially they adapt somewhat or very uneasily. Financial Past They have taken no more than a small degree of risk with their past financial decisions and have never borrowed money to make an investment. Investment Most feel that it is at least somewhat more important that the money value of their investments does not fall than that it retains its purchasing power. Over ten years, most expect an investment portfolio to earn, on average, not more than about one and a half times the rate from term deposits. Any fall in the total value of their investments would make them feel uncomfortable. Given these portfolio choices,
Expected Return and Risk
High Medium Low
Portfolio 1 0% 0% 100%
Portfolio 2 0% 30% 70%
Portfolio 3 10% 40% 50%
Portfolio 4 30% 40% 30%
Portfolio 5 50% 40% 10%
Portfolio 6 70% 30% 0%
Portfolio 7 100% 0% 0%
where shares and property are high return/high risk and cash and term deposits are low return/low risk, their most common choice is Portfolio 2. Borrowing If they were borrowing a large sum of money at a time when it was not clear which way interest rates were going to move and when the fixed interest rate was 1% more than the then variable rate, they would choose to have not less than 75% of the loan at fixed interest. Government Benefits and Tax Advantages If there was any chance they could finish up worse off than if they'd done nothing, they would not take a risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage. Risk Group No. 3 Making Financial Decisions They usually think of "risk" as "uncertainty". They have a reasonable amount of confidence in their ability to make good financial decisions and usually feel somewhat optimistic about their major financial decisions after they make them. They are prepared to take a small to medium degree of risk with their financial decisions and are usually more concerned about the possible losses than the possible gains. Financial Disappointments Typically, when things go wrong financially they adapt somewhat or very uneasily. Financial Past They have taken a small to medium degree of risk with their past financial decisions. Two-thirds of this group have never borrowed money to make an investment. Investment With regard to the money value of their investments, they feel that retaining its purchasing power is of comparable importance to its not falling. Over ten years, most expect an investment portfolio to earn, on average, from one and a half to twice the rate from term deposits. Typically, they would begin to feel uncomfortable if the total value of their investments went down by 10%. Given these portfolio choices,
Expected Return and Risk
High Medium Low
Portfolio 1 0% 0% 100%
Portfolio 2 0% 30% 70%
Portfolio 3 10% 40% 50%
Portfolio 4 30% 40% 30%
Portfolio 5 50% 40% 10%
Portfolio 6 70% 30% 0%
Portfolio 7 100% 0% 0%
Where shares and property are high return/high risk and cash and term deposits are low return/low risk, their most common choice is Portfolio 3. Borrowing If they were borrowing a large sum of money at a time when it was not clear which way interest rates were going to move and when the fixed interest rate was 1% more than the then variable rate, most would choose to have a 50/50 mix of fixed and variable interest. Government Benefits and Tax Advantages So long as there was only a small chance they could finish up worse off than if they'd done nothing, they would take a risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage. Risk Group No. 4 Making Financial Decisions They usually think of "risk" as "uncertainty". They have a reasonable amount of confidence in their ability to make good financial decisions and usually feel at least somewhat optimistic about their major financial decisions after they make them. They are prepared to take a medium degree of risk with their financial decisions and are usually, if not always, more concerned about the possible gains than the possible losses. Financial Disappointments Typically, when things go wrong financially they adapt at least somewhat easily. Financial Past They have taken a small to medium degree of risk with their past financial decisions. Most have never borrowed money to make an investment. One in five has invested a large sum in a risky investment mainly for the "thrill" of seeing whether it went up or down in value, but then only rarely or somewhat rarely. Investment Most commonly they feel it is somewhat more important that the money value of their investments retains its purchasing power than that it does not fall. Over ten years, most expect an investment portfolio to earn, on average, from one and a half to twice the rate from term deposits. Typically, they would begin to feel uncomfortable if the total value of their investments went down by 20%. Given these portfolio choices,
Expected Return and Risk
High Medium Low
Portfolio 1 0% 0% 100%
Portfolio 2 0% 30% 70%
Portfolio 3 10% 40% 50%
Portfolio 4 30% 40% 30%
Portfolio 5 50% 40% 10%
Portfolio 6 70% 30% 0%
Portfolio 7 100% 0% 0%
where shares and property are high return/high risk and cash and term deposits are low return/low risk, their most common choice is Portfolio 4. Borrowing If they were borrowing a large sum of money at a time when it was not clear which way interest rates were going to move and when the fixed interest rate was 1% more than the then variable rate, they would choose to have 50% to 75% of the loan at variable interest. Government Benefits and Tax Advantages So long as there was only a small chance they could finish up worse off than if they'd done nothing, they would take a risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage. Risk Group No. 5 Making Financial Decisions Most think of "risk" as "opportunity" and have a reasonable amount, if not a great deal, of confidence in their ability to make good financial decisions. They usually feel at least somewhat optimistic about their major financial decisions after they make them. They are prepared to take a medium degree of risk with their financial decisions and are usually, if not always, more concerned about the possible gains than the possible losses. Financial Disappointments Typically, when things go wrong financially they adapt at least somewhat easily. Financial Past They have taken a medium degree of risk with their past financial decisions. About half have borrowed money to make an investment. About half have also invested a large sum in a risky investment mainly for the `thrill` of seeing whether it went up or down in value, but then only rarely or somewhat rarely. Investment Most feel that it is at least somewhat more important that the money value of their investments retains its purchasing power than that it does not fall. Over ten years, most expect an investment portfolio to earn, on average, from two to two and a half times the rate from term deposits. Typically, they would begin to feel uncomfortable if the total value of their investments went down by 20%. Given these portfolio choices,
Expected Return and Risk
High Medium Low
Portfolio 1 0% 0% 100%
Portfolio 2 0% 30% 70%
Portfolio 3 10% 40% 50%
Portfolio 4 30% 40% 30%
Portfolio 5 50% 40% 10%
Portfolio 6 70% 30% 0%
Portfolio 7 100% 0% 0%
where shares and property are high return/high risk and cash and term deposits are low return/low risk, their most common choice is Portfolio 5. Borrowing If they were borrowing a large sum of money at a time when it was not clear which way interest rates were going to move and when the fixed interest rate was 1% more than the then variable rate, they would choose to have at least 50% of the loan at variable interest. Government Benefits and Tax Advantages So long as there was only a small chance they could finish up worse off than if they'd done nothing, they would take a risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage. Risk Group No. 6 Making Financial Decisions Most commonly they think of "risk" as "opportunity". They have a great deal of confidence, if not complete confidence, in their ability to make good financial decisions and usually feel very, or at least somewhat, optimistic about their major financial decisions after they make them. They are prepared to take a large degree of risk with their financial decisions and are usually, if not always, more concerned about the possible gains than the possible losses. Financial Disappointments Typically, when things go wrong financially they adapt somewhat, if not very, easily. Financial Past Most have taken a large degree of risk with their past financial decisions. The great majority of this group have borrowed money to make an investment. Two-thirds have invested a large sum in a risky investment mainly for the `thrill` of seeing whether it went up or down in value, but usually only rarely or somewhat rarely. Investment They feel it is much more important that the money value of their investments retains its purchasing power than that it does not fall. Over ten years, they expect an investment portfolio to earn, on average, at least three times the rate from term deposits. Typically, they would begin to feel uncomfortable if the total value of their investments went down by 33%. Given these portfolio choices,
Expected Return and Risk
High Medium Low
Portfolio 1 0% 0% 100%
Portfolio 2 0% 30% 70%
Portfolio 3 10% 40% 50%
Portfolio 4 30% 40% 30%
Portfolio 5 50% 40% 10%
Portfolio 6 70% 30% 0%
Portfolio 7 100% 0% 0%
where shares and property are high return/high risk and cash and term deposits are low return/low risk, their most common choice is Portfolio 6. Borrowing If they were borrowing a large sum of money at a time when it was not clear which way interest rates were going to move and when the fixed interest rate was 1% more than the then variable rate, they would choose to have at least 50% of the loan at variable interest. Government Benefits and Tax Advantages So long as there was more than a 50% chance they would finish up better off than if they'd done nothing, they would take a risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage. Risk Group No. 7 Making Financial Decisions Most commonly they think of "risk" as "opportunity" or "thrill". They have complete confidence, or at least a great deal of confidence, in their ability to make good financial decisions and usually feel very optimistic about their major financial decisions after they make them. Most are prepared to take a very large degree of risk with their financial decisions and are always more concerned about the possible gains than the possible losses. Disappointments Typically, when things go wrong financially they adapt very easily. Financial Past They have taken a large to very large degree of risk with their past financial decisions. The great majority of this group have borrowed money to make an investment. Four out of five have at least once invested a large sum in a risky investment mainly for the "thrill" of seeing whether it went up or down in value, some have done so very frequently. Investment Most feel that it is much more important that the money value of their investments retains its purchasing power than that it does not fall. Over ten years, most expect an investment portfolio to earn, on average, more than three times the rate from term deposits. Typically, they would begin to feel uncomfortable if the total value of their investments went down by 50% or more. Given these portfolio choices,
Expected Return and Risk
High Medium Low
Portfolio 1 0% 0% 100%
Portfolio 2 0% 30% 70%
Portfolio 3 10% 40% 50%
Portfolio 4 30% 40% 30%
Portfolio 5 50% 40% 10%
Portfolio 6 70% 30% 0%
Portfolio 7 100% 0% 0%
Where shares and property are high return/high risk and cash and term deposits are low return/low risk, their most common choice is Portfolio 7. Borrowing If they were borrowing a large sum of money at a time when it was not clear which way interest rates were going to move and when the fixed interest rate was 1% more than the then variable rate, they would choose to have at least 75% of the loan at variable interest. Government Benefits and Tax Advantages So long as there was more than a 50% chance they would finish up better off than if they'd done nothing, they would take a risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage. Referring to step 100 of FIG. 3, further reporting can be provided to the respondent based on differences in individual answers from those expected of members of the same Risk Group. For each Risk Group, lower and upper ranges for certain of the Questions are recorded from the sample population. For Risk Group 5, in which the Respondent fell, for some number of the questions the upper and lower answers are recorded amongst the norm data. The respondent's actual answer may be compared against the upper and lower values to identify any outlying exceptions, in a report form such as follows:
TABLE 3
Question Respondent's Group 5 Group 5 Respondent's
No. Answer Lower Upper Difference
1 5
2 2 3 4 Below
3 2 3 3 Below
4 1 2 3 Below
5 3
6 3 3 4
7 3 3 4
8 3
9 3 3 3
10 3 3 3
11 1 2 2 Below
12 3 3 4
13 4
14 3 3 3
15 2
16 5 5 5
17 2
18 3 3 4
19 3
20 6
21 3 3 4
22 2 2 2
23 2 1 3
24 3
25 60
For any exceptions (four in this case), a special reporting aspect (text) is triggered. The narratives are based on empirical experience of the host. Referring then to the relevant headings in the risk Group 5 report above, under Making Financial Decisions, the added report is: You think of "risk" as "uncertainty". Under Financial Disappointments, the added report is: When things go wrong financially you usually adapt somewhat uneasily. Under Financial Past, the added report is: You have never made a "thrill" investment. Under Borrowing, the added report is: You have never borrowed to make an investment. This aspect of the reporting is significant, in that it readily highlights an individual's specific needs or aversions from amongst the normed members of the same Risk Group, thus providing an extra level of granularity that is of great commercial use to respondent and adviser alike. Implementation of the methodology described above in computer code would be readily carried out by a person skilled in the art as a matter of routine design. As constructed in accordance with its preferred embodiments, advantages of the present invention over the prior art discussed above are that the questionnaire is easier to answer, and that the report is more meaningful and useful. The questionnaire is easier to answer because the scoring algorithm permits the number of questions to be greatly reduced over the prior art, without compromising accuracy. Additionally, the questions themselves are easier to answer. There are far fewer questions involving unlikely hypothetical situations and no need for questions requiring mental arithmetic on probabilities. The time typically taken to do the questionnaire has been reduced over the prior art by roughly one-half (i.e., from 25-30 minutes to 10-15 minutes, on average). The particular use of z-scoring of individual questions results in greater accuracy, notwithstanding the reduced number of questions. Reliability too is achieved, as the effect of weighting between questions (i.e. questions having two alternatives outweigh questions having five alternatives) is removed. In addition, the report is far more meaningful and useful for individuals and their advisers because of the scoring scale and the specific text customization that pertains to the group to which the individual belongs. Further, for an individual's responses it is possible to identify differences beyond the expected range of answers by members of the same risk group, which can give a deeper insight into a respondent's risk attitude. This can demonstrate contemporaneous changes in attitude, for example. The scale, by incorporating a normal distribution, provides a graphic representation of the distribution of risk tolerance. People are typically more comfortable with a scale which has a mean of 50 and a standard deviation of 10. The segmentation of the scale allows people to think of risk tolerance in terms of a manageable number of discrete groups for which generalized descriptions can be developed. While preferred embodiments are disclosed herein, many variations are possible which remain within the concept and scope of the invention. Such variations would become clear to one of ordinary skill in the art after inspection of the specification and drawings herein. The invention therefore is not to be restricted except within the spirit and scope of any appended claims.
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