CII J10 Practice Questions - Discretionary Investment Management (J10) Exam

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When assessing a retail client's suitability for a discretionary growth portfolio, how should a investment manager distinguish between 'Attitude to Risk' (ATR) and 'Capacity for Loss'?

ATR measures emotional willingness to accept risk, whereas Capacity for Loss measures the financial ability to absorb capital declines without impacting standard of living. ATR is a quantitative legal calculation, whereas Capacity for Loss is a subjective psychological assessment. ATR applies only to fixed income investments, while Capacity for Loss applies strictly to equity investments. ATR and Capacity for Loss are synonymous terms under FCA FG11/5 guidelines.

Correct Answer:

ATR measures emotional willingness to accept risk, whereas Capacity for Loss measures the financial ability to absorb capital declines without impacting standard of living.

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