FinaMetrica Debuts Financial Risk Lexicon

Oct 7 2016 | 8:37pm ET

Risk analysis specialist FinaMetrica has launched the first lexicon of financial risk for investment community with the goal of having industry-agreed risk lexicon for the global financial services sector.

The company has launched the effort around an academic report, entitled Moving Towards a Consistent Risk Language, which was created in collaboration with economist Stuart Erskine and input from London School of Economics professor Dr. Andrea Vedolin. The paper examines how clear, consistent, standards around the language of risk are essential for effective communication between the industry and its clients.

A wide range of terminology associated with both an investor’s risk tolerance and the wider concept of investment risk are set out in the paper, according to the company, to use as the starting point for what FinaMetrica believes will grow to become an industry-wide, workable vocabulary, all of which can be easily understood by the end consumer.

From there, the company wants to encourage relevant representatives from businesses across financial services to come together for development of a practical toolkit for the industry.

“The whole premise around investing is that you largely get paid a return for taking on risk,” commented Paul Resnik, co-founder and director of FinaMetrica, in the statement. “Yet, bizarrely, there is no agreed way for how the industry discusses risk with clients and no agreement on what different risk terms might mean. The result is that any two people can derive very different meanings from the same risk concept.

“FinaMetrica has long argued that a sound understanding of clients’ risk tolerance can help discourage portfolio churn and, ultimately, ensure that financial firms keep their customers longer,” he added. “We see the standardization of risk language as the missing link that can ensure there are no negative investment surprises for the customer.”

“The paper is not intended as a set dictionary of terms, but more as the outline for a vocabulary that is designed to kick-off conversations in the industry,” said Erskine. 

“With this in mind, we invite readers to share their thoughts on the report before establishing a working group in the next step towards developing the first ever risk language for financial services.”

Founded in 1998 and headquartered in London, FinaMetrica’s risk tolerance toolset has been used by more than a million users in more than 20 nations. 

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