Oxford Risk, a UK behavioural finance fintech serving wealth managers, advisors, banks, and pension providers, has published new research revealing that standard risk-profiling approaches can underestimate the level of investment risk that is suitable for many investors.

Oxford Risk's analysis of more than 87,000 investors finds 55 per cent have a higher suitable risk level than their attitude to risk alone would indicate, exposing a critical blind spot in wealth management suitability

The analysis, based on 87,109 investors assessed using Oxford Risk’s suitability tools, compares each investor’s attitude with risk with their suitable risk level. It finds that, where suitability is assessed only by reference to attitude to risk, or where risk capacity is not modelled systematically, many investors would be placed in portfolios that are too cautious for their overall financial position.

Oxford Risk’s modelling suggests that placing investors at their modelled suitable risk level, fully accounting for both upward and downward differences from attitude to risk, produces an aggregate projected growth differential of 7.5 per cent over 10 years in an average market, rising to 17.6 per cent in a very good market. These figures compare modelled outcomes from investing clients according to attitude to risk alone with investing them according to their suitable risk level.

Attitude to risk reflects an investor’s stable, long-term willingness to accept the possibility of lower long-term outcomes for a greater chance of higher long-term returns, the firm said in a statement. Suitable risk level is the risk level appropriate for the investor’s investable assets once the full suitability picture is considered, including risk capacity, behavioural capacity, knowledge and experience, and relevant preferences.

Put simply, attitude to risk is not being changed. It remains the anchor for the investor’s overall willingness to take risk, the firm continued. But where an investor has strong wider financial circumstances – including total wealth, future earnings, spending resilience, and limited reliance on current investable assets – those investable assets may need to take more risk to ensure that the investor’s overall financial position is aligned with that willingness.

The cost of under-risking
The findings show a significant asymmetry in how suitability may affect investment risk levels. Across the sample, 55 per cent of investors had a higher suitable risk level than their attitude to risk alone would indicate, compared with 14 per cent whose suitable risk level was lower.

This matters because the industry has traditionally focused heavily on preventing investors from taking too much risk. That remains essential. But Oxford Risk’s analysis shows that the opposite problem can also be material: investors may be left too conservatively positioned if their financial capacity to take risk is not properly captured and systemised.

Even across the full sample, where upward and downward differences partly offset each other, the modelled effect remains material. For individual investors whose suitable risk level differs significantly from their attitude to risk, the difference in long-term outcomes can be much larger.

For wealth managers and advisors, these figures represent a client outcome issue, and a commercial one. Across a client base of meaningful scale, systematic under-risking can become a significant drag on assets under management growth and on the long-term value that advice delivers, the firm said.

“The industry has spent years making sure investors are not put into portfolios that are too risky for them. That is right. But it is only half the suitability challenge,” Greg Davies, head of Behavioural Finance at Oxford Risk, said. “Our research shows that more than half of investors in this sample had a higher suitable risk level than their attitude to risk alone would indicate. This is not about encouraging reckless risk-taking. It is about recognising that attitude to risk is only one part of suitability.”

“For many investors, especially those with strong risk capacity, their investable assets need to take more risk so that their overall wealth position is aligned with their underlying willingness to take risk,” he added.

“For wealth managers, this is not a niche modelling issue. It is a growth, client outcome, and Consumer Duty issue. Firms need to show that they are helping clients take the right level of risk, not simply avoiding excessive risk,” James Pereira-Stubbs, chief client officer at Oxford Risk, said.

Oxford Risk argues that addressing this blind spot requires a more systematic approach to suitability: one that treats attitude to risk as a stable anchor, models risk capacity at the level of the investor’s total wealth and financial circumstances, and applies the same rigour to identifying when investors can appropriately take more risk as it does to identifying when they should take less.

In practical terms, this means moving beyond risk questionnaires that produce a single score, towards suitability frameworks that combine psychological willingness, total-wealth risk capacity, behavioural resilience, knowledge and experience, and relevant investor preferences, the firm said.

The model compares projected 10-year outcomes from investing according to attitude to risk alone with projected outcomes from investing according to Oxford Risk’s suitable risk level, using Oxford Risk’s risk-level return assumptions under average and very good market scenarios. The analysis assumes a standard investment value of £100,000 ($135,000) for each investor, so that the results reflect differences in suitable risk positioning rather than differences in client wealth.