Quick question.. I know that if ability > willingness we are supposed to honor willingness and educate the client right? And if ability < willingness honor ability. Here is a review question in the back of the CFA books, it clearly states that their willingness to take risk is “below average”, yet they sum them up as having an average ability to take risk.
“Muellers are in the middle-stage of the investor life cycle. Their income (relative to expense), total financial resources, and long time horizon give them the ability to assume at least an average, if not above average, level of investment risk. Their stated preference of “minimal volatility” investments, however, apparently indicates a below average willingness to assume risk. The large realized losses they incurred in previous investments may contribute to their desire for safety. Also, their need for continuing cash outflow to meet their daughter’s college expense may temporarily and slightly reduce their risk-taking ability. In sum, the Muellers’ risk tolerance is average.”
I understand the explanation but it kind of violates the rule of thumb A>W honor W and if A
“Muellers are in the middle-stage of the investor life cycle. Their income (relative to expense), total financial resources, and long time horizon give them the ability to assume at least an average, if not above average, level of investment risk. Their stated preference of “minimal volatility” investments, however, apparently indicates a below average willingness to assume risk. The large realized losses they incurred in previous investments may contribute to their desire for safety. Also, their need for continuing cash outflow to meet their daughter’s college expense may temporarily and slightly reduce their risk-taking ability. In sum, the Muellers’ risk tolerance is average.”
I understand the explanation but it kind of violates the rule of thumb A>W honor W and if A