Abstract

Client risk tolerance is universally assessed in the advisory process to help financial advisers provide suitable advice that assists clients in their investment decision-making. Although there is a well-established literature on risk tolerance and decision-making, little is known about financial risk tolerance and its influence on investor decisions in the financial advice context. Thus, the purpose of this study is to examine this influence with a focus on the key expected risk tolerance determinants: client financial literacy, trust in the financial advice service, and relationship length with the service. A new theoretical model and related hypotheses were proposed and tested using survey data from financial adviser clients in Australia (N=538). Results revealed a positive relationship between client risk tolerance and investment decision-making. Further, client trust and relationship length with the service were found to be positively associated with client financial literacy and risk tolerance. These findings, which provide a more comprehensive understanding of how risk tolerance and its antecedents influence client decisions, have the potential to improve advice in the financial services industry.

Keywords: Risk tolerance, individual investment decisions, client-adviser relationship, financial advice context, financial planning

How to Cite:

Nguyen, L. T., Gallery, G. & Newton, C., (2016) “The Influence of Financial Risk Tolerance on Investment Decision-Making in a Financial Advice Context”, Australasian Accounting, Business and Finance Journal 10(3), 3-22. doi: https://doi.org/10.14453/aabfj.v10i3.2