Which of the following is NOT one of the three main elements of a client’s risk profile?

• A. Risk Tolerance
• B. Attitude to Risk
• C. Capacity for Loss
• D. Investment Horizon

Answer: (D)

The three main elements of a client’s risk profile are risk tolerance, attitude to risk, and capacity for loss. Risk tolerance describes how much risk the client is willing to take, including their willingness to endure potential losses for potential gains. Attitude to risk captures the client’s feelings and behavior toward risk—some may be comfortable with volatility, others risk-averse, and this can influence decision-making beyond raw numbers. Capacity for loss is about the client’s financial ability to withstand losses without compromising goals or lifestyle, based on their resources, income, and obligations.

Investment horizon, while crucial for choosing an appropriate portfolio and asset mix, is not counted as one of the three main elements of the risk profile in this context. It informs how long the client can stay invested and thus affects strategy, but the risk profile’s core triad is defined by tolerance, attitude, and capacity for loss.