top of page
  • Writer's pictureDavid H. Kinder, RFC®, ChFC®, CLU®

FINRA studies confirms emotional bias when determing consumer investment risk tolerance!

This image comes from Tom Hegna's new book "Who wants to be a millionaire?" (where I am also quoted extensively). What does this graph say? It shows how emotions guide most people's financial decision making. People feel good AFTER the biggest run-ups in whatever market they are considering, whether it's the stock market, real estate market, or anything else.

The FINRA (Financial Regulatory Authority that regulates broker/dealer and their licensees) has been doing a National Financial Capability study over the years... and frankly, they inadvertently say the same thing. You can find the links to the full studies in my Helpful Strategy Links, but I want to highlight the YEAR of the study and what their study says their respondents say about their willingness to take risks.


Let's take a look at the FINRA 2009 National Financial Capability Study:

Download PDF • 540KB

This is after the biggest fall of the stock market back in 2008, where from September to November 2008, the market did a freefall -50% in just two months!

What did respondents say about their willingness to take on risks? On page 16 of the study (page 19 of the PDF), you'll find this image:

Only 12% are highly willing, which are probably the only ones who may understand that you buy when the market is LOW. However, I must admit that I don't know the AGES of those responding to this study. The 45% that are NOT willing... certainly represent the majority of respondents. The 42% who responded as 'neutral'... as a financial consultant I MUST err on the side of being more conservative if I was advising them. By default, I'd assume that they are NOT willing, but may be convinced to take on SOME risk.


Let's look at the 2012 FIRNA National Financial Capability study. This is three to four years after that prior study.

FINRA Financial Capability Study 2012
Download PDF • 6.03MB

The market is improving, but according to my own (admittedly amateur) research and observation, the market hasn't rebounded quite yet.

On page 16 (page 20 of the PDF), we find the following graph:

Look at the shifting responses: Now 17% are 'willing'. Why are they willing? The stock markets are growing, so people are feeling more at ease with the idea of investing.

Now only 35% are 'not willing' compared to 42% was 'not willing'. Neutral grew from 42% to 44%... which again, must be considered on the more conservative side of investment advice if I was working with a client as an investment professional.


One more study: The 2016 Financial Capability Study. Another three to four years after the past study.

FINRA Financial Capability Study 2016
Download PDF • 818KB

The market has fully rebounded by this time.

On page 18 of the study (page 19 of the PDF), you'll find this graphic:

Now 21% are "willing' to take on risk. I wonder why that is now?

Those who are not willing is now only 30%. Again, I wonder why that's lower in 2016 than it was in 2009? I personally don't believe that it's not hard to figure that out.

It is interesting that 'neutral' did grow again to 46%.


What I do find interesting... is that they don't ask that question anymore! If you look at their current National Capability study (and the 2018 study which I have in my helpful links section), the question of investment risk isn't even mentioned! (I wonder why that is? Hmmm...)

What is the bottom line? Emotions still regulate how willing we are to take on market risk. The securities regulator themselves (FINRA) is substantiating that through their own studies. My real question is this: Are you overstating your willingness to take on investment or market risk with your hard-earned lifetime savings?



bottom of page