Risk Tolerance-- CFA rec's person, states, standard

joehogue

If a person states that they haven’t liked the high volatility of the markets the last few years and they don’t want their portfolio to see a shortfall portfolio loss of more than 11.5% (using 2 standard deviations)
How would you classify their willingness?
Below/Average/Above Average.

MonkeyBusiness

average - just on this information

joemoran

Here’s a hint that was given to me and I haven’t seen it fail yet (not that I’ve taken many tests yet): Investor statements override anything else when it comes to willingness. So, by mentioning that they dislike volatility, that’s pretty much automatically below average.
FWIW, I think the shortfall requirement piece sounds more related to ability to take risk. Willingness is pretty much based on feelings and attitudes and (again, I haven’t taken many tests yet, but) I have yet to see anything with numbers that affects willingness.

kseniaru

Anectdotally, it seems to me that CFAI tries to avoid cases that are average, but rather moves towards the extremes. Just saying, if a case seems borderline average to above or average to below, I will always go with the non-average answer. It would be telling to look through the guidline answers of past exams and see how many times average was the correct answer….
Aimee - you’ve been on fire lately!

morebeans

Haha, only because I stay away from the FI and derivative questions ;)
Greg Filbeck (self described CFA historian) said that in the last 19 years there has been only 1 IPS where the client’s risk tolerance was average. So, take what you will from that, but I know I will be double checking my answer if I think “average” the answer.