18th June 2026

Panacea Conversations - Beyond the Questionnaire: Rethinking Attitude to Risk

Episode 2

In this episode of Panacea Conversations, we explore one of the most fundamental, and often misunderstood, aspects of the advice process: Attitude to Risk.

Joining us is Tony Catt, author of The Catt’s View, who explains why risk questionnaires should only ever be the starting point. Together, we discuss how adviser bias, client psychology, capacity for loss and vulnerability all influence the quality of advice, and why documenting the conversation is every bit as important as recording the outcome.

If you want to move beyond risk scores and build a more robust, client-centred advice process, this is a conversation worth hearing.

Transcript

00:00:06 Sarah Paul: Hello and welcome to the Panacea Conversations podcast. Today, I'm delighted to be joined by Tony Catt, author of The Catt's View, and expert on compliance, regulation and advisor best practice. Today, we're going to be talking about the findings from his recent attitude to risk study. Attitude to risk is something every advisor deals with. Yet it's also an area that continues to generate FCA scrutiny and perhaps more importantly, misunderstanding. Too often, the conversation becomes centred around questionnaires, forms, and processes when the real objective is understanding the client in front of you. In today's episode, we're going to explore what a robust attitude to risk process really looks like. Find out where advisors often fall short, how unconscious bias can influence advice, and why documenting the journey is every bit as vital as the outcome. Tony, thank you for joining us.

00:01:02 Tony Catt: Thank you for inviting me. I've found attitude to risk quite intriguing over the years because it is so important. And I've seen with the advisors that I've worked with over the years, how they've dealt with it and how some of them have done it very well and others not so. The FCA did a study many years ago about the various questionnaires that are available, and said that actually none of them really fit for purpose or not entirely fit for purpose. And the weird thing was that they wouldn't actually tell us which ones were good and which ones weren't. The questionnaire itself is really just very much the basis of a much more nuanced conversation. Or it should be. There are some advisers that actually send the questionnaire out for the clients to fill themselves. And I think that's quite a dangerous thing to do, because most questionnaires probably need quite a lot of translation into ordinary language for the clients to understand. A lot of the statements come into the realms of general attitude statements. Things like my friends would say I'm cautious or I prefer my money to be safe from risk, or they've had previous experience of things going badly or not, as the case may be.

00:02:20 Sarah Paul: If they're taking away and completing it, the answers could differ from day to day if they're having a bad day.

00:02:26 Tony Catt: Indeed, it's quite emotional. Some of the questions and if you're having a bad day, the answers wouldn't be as positive as they would be if you were on top of the world. So the accuracy of the questionnaires themselves needs to be questioned. And also, what it does give is it gives a tolerance score, which is calibrated against various other questionnaires and results that the software has had over the years, which then gives you a level of risk that is accepted. So you've scored fifty. Risk level is five, which would normally be classified as medium, which in itself is all very well and good as being your tolerance, but it doesn't really explain anything much about your attitude to risk. So for example, if you've got a medium risk and you're flipping a coin, heads or tails, fifty over fifty risk, you flip the coin for a pound and you win a pound. Great. Do double or quits. My risk is greater than yours because I could go to two pounds down, whereas you'd just go back to evens. But if we decided to make it more interesting and say, okay, we'll do one thousand pounds on this flick, then suddenly you're fifty over fifty. Medium risk is rather a lot more risk to you than it would have been for a pound. So that doesn't cover a lot of the things that are more important than the tolerance, which would be the capacity for loss, but also people's attitude to different types of risk.

00:04:14 Sarah Paul: What would you say is the most important element of the risk questionnaire? Is it understanding the psychology, the emotive side or the volume of the risk?

00:04:26 Tony Catt: Well, there's an awful lot of psychology in it about whether you're meeting your questionnaire on a positive or negative day. But there's also other things about preferences that come into it as well regarding things like sustainable investment and other preferences that you may have. You might like certain companies, you might like certain countries you've just been to Japan, you might think. I actually quite like Japan. Let's find me a medium risk investment based on Japan, but it then has its other nuances as to what risk would then be added to what you've just decided would be a medium risk investment. So there's an awful lot of nuance about preferences, about experience. Then again, the advisors can also be quite influential on this in that if an advisor has specific expertise and they're telling you, go and invest in Japan, and then they tell you lots and lots of stories about good investments in Japan. Now that medium risk investment to them might be thought to be considerably lower risk because they understand the risks behind what they're investing in. So that nuance comes out. Their tolerance is there, but their preferences could be quite different.

00:05:53 Sarah Paul: So when you say that an advisors own bias and assumptions can influence how they present a risk, how aware do you think the profession is of this and what can an advisor do to check this Themselves.

00:06:08 Tony Catt: The advisor needs to try to remain impartial, at least while they're answering the basic questions of how much risk are you willing to tolerate? Then they need to have a certain amount of academic curiosity to find out a lot more about the background of the clients, and what the clients might think of as risk, and how comfortable the client is with various elements of risk.

00:06:39 Sarah Paul: When you say various elements, what would you mean by that?

00:06:43 Tony Catt: Well, for example, within the investment universe, we have all sorts of investment products. So you've got bonds and ISAs and GIA's. You've got the underlying funds that would be used also within the funds equities, bonds, government bonds. Within that there's a geographical split of UK, US, Japan, Asia, emerging markets, all of that. So there's quite a lot of different pinch points within the system. And actually trying to match up those quite accurately to what the people will find a successful investment for them is quite a lot more nuanced than simply saying, you filled in this questionnaire. It's come up as a five. I'm going to put you into a risk rated five managed portfolio service. Thank you very much. Job done.

00:07:42 Sarah Paul: What do you think then, that advisers should be doing to get a genuinely robust compliance file?

00:07:50 Tony Catt: The first thing, I guess, is to use the questionnaire as the basis of finding out what the risk tolerance is, and then they should be doing a separate questionnaire for the preferences relating to sustainability or whatever investment preferences the clients might have from time to time, or whatever the client brings up within the conversation. Because you'll find, certainly with some clients, they may think, oh, I don't like the sound of that. That sounds awfully risky, but mainly because they don't understand it. Rather than it is risky. And then what we also need to work on is clients capacity for loss, which is actually different from their attitude to loss in that if I toss this coin for a pound and I lose, well, I lost a pound. Now, if I've tossed that coin and lost a thousand, I'm thinking, oh, that wasn't so good, was it? And that comes into my capacity to lose that thousand pounds, or how I feel about any particular loss, because most clients, they will invest with an advisor and everything's lovely, lovely, lovely. Whilst the funds going up and a great. I can report you've had a five percent increase this year. Isn't that lovely, Mr. Client? That then becomes a much more difficult conversation when they have to say your investment has gone down by five percent. The tolerance questionnaire may well say they're medium risk. They can afford to lose fifteen or twenty percent. But on a practical basis, people's actual attitude to loss is minimal. They don't want to hear that they've ever made a loss, and they get quite upset at the thought that you've allowed them to make a loss. So you need to try to build that in as far as you reasonably can. And this is where your excellent fact finding skills come in and asking more questions about their preferences. Certainly, if you're talking about sustainable investment, you've got positive and negative things to think about. I want ecological firms. I don't want tobacco. So all of those should be reflected in the file that you have. So you would have your attitude to risk questionnaire your sustainability questionnaire. And then also the file note, hopefully recording the conversation that you have in order to be able to play it back and think, right, what were they saying about that? What is important to these clients that will enable this investment to be entirely comfortable for them?

00:10:46 Sarah Paul: It's making sure that you've got all of these steps and that it doesn't get siloed into the investment conversation.

00:10:53 Tony Catt: Yes. Well, that's the thing is quite interesting as well. What you talk about siloing into investment because there's risk involved also in borrowing. So you've got interest risk given financial resilience protection, underwriting risk, correct levels and types of insurance. The risk of being underinsured. Savings. You've got interest rates, fixed rate terms, liquidity and such like. So the risk is in absolutely everything. And if you think about risk on the basis of we all undertake risk on a daily basis. You cross the road this morning, presumably now depending on what road it is, if it's a little road with no cars, then there's no risk. If it's Marble Arch or Hyde Park Corner, then there's considerably more risk. But you can minimise that risk by looking in both directions. And your experience will tell you, I can get across the road because I know how fast I can walk. And so all of these things represent risk that you take on a daily basis, but your experience enables you to mitigate it, minimise it. So Just saying it only refers to investment is not at all correct because every part of financial services are involved in risk.

00:12:18 Sarah Paul: So looking at vulnerable clients, vulnerable clients get a lot of attention, um, in FCA guidance, but it can be a difficult subject, particularly with understanding their levels of risk. How should an advisor approach this with care and still get the information that they need to make that um assessment.

00:12:43 Tony Catt: Well, vulnerability is covered a lot within the consumer duty and it's rammed down our throats one way or another. You need to be looking towards vulnerable clients and how to deal with them. Vulnerability comes in various forms. It can be health, lifestyle events and such like. So all sorts of things come into vulnerability. A simple vulnerability would be inexperience. They are vulnerable because they don't understand what you're about to be telling them. And with vulnerable clients, you do need to take care. But you can't really tell the clients that you think they're vulnerable because that would be seen to be patronising and probably quite insulting. So I can remember dealing with a lady. She must have been seventy five, eighty. And in those days, that sort of age was thought to be the vulnerable client. If I'd ever said to her, I think you're vulnerable. It would have been the quickest way of me wearing that cup of tea she'd made me. Um, so.

00:13:52 Sarah Paul: And you probably wouldn't have seen her again.

00:13:54 Tony Catt: Yeah. So you need to be quite careful about how you deal with it. But the main thing is, once you've identified it, you've then got to think, what am I going to do to, to help this client, to the extent that we can then make a meaningful decision. And once you've done that, you actually record the steps that you've taken. It could be something as simple as somebody like yourself wearing glasses. Now, I could say probably you'd find it quite patronising if I then said, I'll send you a letter in large print for you. But it could be that that's the very thing that the client actually needs. So. So how do you get around that? I've also recently seen horrible statistics about people's literacy, age and numeracy, age and average UK numeracy. Age is about age eleven. So how do we then talk about compound interest rates to people like those? They are vulnerable simply because they are unable to understand. So we need to make it as simple as possible to take them through every step.

00:15:07 Sarah Paul: Because.

00:15:09 Sarah Paul: They may not understand themselves what their attitude to risk is.

00:15:13 Tony Catt: They probably don't know themselves. Most people, when they go to their first meeting with an advisor, are unlikely to have ever been asked, what is your attitude to risk? In normal day to day life? So it's quite a new thing for an awful lot of people. The first time you do actually get to speak about it. Getting them to understand the risks involved and possibly the impacts of those risks on the plans that they're making. If a client has a certain objective. Our job is to at least pursue the objective or achieve the objective. They then need to be schooled into the fact that things can go wrong, which is the risk that would be involved in anything that they're doing, and then told in simple terms how they can minimise the risk.

00:16:08 Sarah Paul: Some of technologies that can help with that.

00:16:11 Tony Catt: Well, if you're giving them a questionnaire, you should probably accompany them through the questionnaire. So they've got the technology of the questionnaire which will provide them with a risk tolerance score. But it's about building up that understanding.

00:16:27 Sarah Paul: And that goes back to what we were saying at the beginning, that you really need to be there with somebody if they are going to be utilising these tools, you need to be sitting there and talking them through it and maybe giving some real life examples.

00:16:43 Tony Catt: Well, I think people that allow the clients to do the questionnaires on their own are missing a fantastic opportunity to get to know those clients. And once you start talking to people about their preferences and the things that they like and don't like, you build that relationship around that picture. And if you just let them go on the questionnaire on their own. You've missed that whole opportunity to get those soft facts. And personally, I always think that the soft facts are far more interesting than hard facts in every case I've ever seen.

00:17:21 Sarah Paul: The study that you've done recently, the Attitude to Risk Study, what would you say is the biggest finding that came out of that?

00:17:30 Tony Catt: I think the major thing is really that advisors could do more to help the clients. The fact that risk is involved in every element of financial planning, which I think a lot of advisors don't think about if they're doing a mortgage, they don't do an attitude to risk questionnaire, or some of them don't because they don't see it as a problem. And what would be considered a higher risk mortgage, something like a lifetime mortgage, they should really be doing an attitude to risk about what their attitude is to having any doubt that that was one of the takeaways that I got recently from that research. Just thinking about the elements of risk in all the other parts of financial services rather than just investment. Everybody knows about investment attitude to risk, but very few people actually think about the other elements and the risk that you need to think about. If you get somebody that says, I'm going to take money out of my mortgage on an equity release to put into a deposit account so that I can spend it whenever I want. You'd think that sounds reasonable. They're asset rich, cash poor, so they get a load of cash to play with. What you've got to remind them is that they're probably going to be borrowing at six percent. And if they're doing well on their interest rate, they may be getting two percent. So in actual fact, they're paying to borrow their own money, their four percent out on a daily basis on that, just purely on the maths of it. Having said that, the lifestyle element of that is that they do then have the money that they can use at the time that they wouldn't otherwise have it. But that element of risk of just borrowing at a higher rate than you're actually getting on deposit makes it absolutely mad. The thing about risk is that the more you look into it, the more interesting I find it. But then I work in compliance. So how would I know that?

00:19:41 Sarah Paul: I find that the psychology of it really interesting, because you could ask me one day what my views were on something, and then the next day it could be completely different. So you can ask the standardised question, but you need to dig deeper into why you're making those decisions. You know.

00:19:59 Tony Catt: You hit the nail on the head with digging deeper. And some advisors just don't dig deep enough. And if you've got an advisor that have a more laissez faire attitude as far as attitude to risk, they can project that onto the client who's actually filling in the questionnaire. So there's behavioural psychology comes into this with both the client and the advisor.

00:20:27 Sarah Paul: I guess when you're working with clients to think about what their own mindset is versus your own.

00:20:34 Tony Catt: Well, the chances are that you'd probably get on best with clients who are most like you, because it may well be that if they're not at all like you, you might simply not understand where they're coming from. Similarly, they need to like the advisor for exactly the same reasons. But psychology does come into an awful lot.

00:20:55 Sarah Paul: It's really it's been a really interesting conversation, Tony. I've really enjoyed it. And I think that people listening to this will have a lot to think about. So thank you for your time today. It's been really good to catch up.

00:21:08 Tony Catt: You're welcome.

00:21:09 Sarah Paul: Thank you.

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