The effect of risk literacy and visual aids on portfolio choices among professional financial planners

Abstract

Financial planners and their clients come together regularly to discuss financial decisions, which are inherently risky. Yet, financial planning research has not explored the impact of risk literacy (i.e., objective numeracy)—the ability to understand and interpret probabilistic trade-offs—and graph literacy on client-planner decision-making quality. This study uses an experimental design to test financial planners’ risk literacy and their ability to select the most resilient portfolio based on whether they were given probabilistic information and a visual representation or only probabilistic information. Results indicate that visual representation do help financial planners determine the appropriate choice, but risk literacy does not. Implications for financial planners and future research in this area are discussed.