Financial Planners and the Risk Tolerance Gap

Abstract

Aligning an investor’s attitude toward risk and his investment behavior is integral to his financial well-being; however, a significant number of U.S Households do not possess the human capital necessary to adequately allocate their financial assets. This paper examine the role a financial planner plays in minimizing the risk tolerance gap i.e. the difference between an investor’s subjective and objective risk tolerance. Using the 2007 Survey of Consumer Finances, we find that the use of a financial planner reduces the likelihood that an investor would see a difference between his subjective and objective.

Keywords: financial planner, financial advice, risk tolerance, risk tolerance gap, 2007 Survey of Consumer Finances