Understanding the underlying reason why a client would like to start investing is one of the key aspects of the investment decision-making process.
Imagine a client that considers to start investing his money. Today, there are several steps that he encounters before he can actually open an investment account or any related product that involves risk. At first, several disclaimers make the client aware of the fact that he may lose a significant amount of money. Second, in addition to these disclaimers, risk questionnaires have been designed to investigate whether he’s not only willing to but also is able to undertake this risk. Often, the outcome directly leads to an investment product or strategy selection. Is that all? Do these risk questionnaires provide all necessary information for a client to make proper investment decisions? Probably not. The challenge is to figure out what additional information or insights are necessary for the client to make better informed investment decisions.

In this article, we evaluate how financial institutions deal with this challenge today. In addition, we explain how Ortec Finance believes scenario analysis can be of great value to private investors when making their investment decision. Instead of relying on a generic risk questionnaire, we are convinced that this method provides the necessary insights to base their decisions on. We illustrate the essence and added value of this approach by some practical examples. Scenario analysis enables financial institutions to communicate about risks and opportunities in a more transparent and understandable way. This leads to better informed clients, improved investment advice and increased client experience. In addition, the method also helps advisors to focus on growing their client base and therefore increased revenue.

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