Oxford Risk, the leading behavioural finance fintech serving wealth managers, advisers, banks, and pension providers, today publishes new research revealing that standard risk-profiling approaches can materially underestimate the level of investment risk that is suitable for many investors.
The analysis, based on 87,109 investors assessed using Oxford Risk’s suitability tools, compares each investor’s Attitude to 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% over 10 years in an average market, rising to 17.6% 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. Suitable Risk Level is the risk level appropriate for the investor’s investible 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. But where an investor has strong wider financial circumstances, including total wealth, future earnings, spending resilience, and limited reliance on current investible assets, those investible assets may need to take more risk to ensure 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% of investors had a higher Suitable Risk Level than their Attitude to Risk alone would indicate, compared with 14% 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 advisers, these figures represent not just a client outcome issue, but a commercial one. Across a client base of meaningful scale, systematic under-risking can become a significant drag on AUM growth and on the long-term value that advice delivers.
A structural gap in suitability practice
Greg Davies, Head of Behavioural Finance at Oxford Risk, 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.
“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 investible assets need to take more risk so that their overall wealth position is aligned with their underlying willingness to take risk. If firms only systemise the reasons to reduce risk, but not the reasons to take more, clients can be left too conservatively positioned. The cost compounds quietly over time.”
James Pereira-Stubbs, Chief Client Officer at Oxford Risk, said:
“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.
“At scale, small systematic errors in risk matching can compound into material foregone wealth for clients and lower AUM growth for firms. Better suitability is not a brake on growth. Done properly, it is one of the foundations of it.”
The research highlights the particular challenge in the mid-range Attitude to Risk bands, including Medium Low, Medium, and Medium High, where investors with apparently similar Attitudes to Risk can have very different Suitable Risk Levels. This reflects the complexity of factors that bear on suitability at these levels, including current wealth, future earnings, spending needs, reliance on investible assets, Knowledge and Experience, and Behavioural Capacity.
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.
Methodology note
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 for each investor, so that the results reflect differences in suitable risk positioning rather than differences in client wealth.
