To sort this out, you’ll want to revisit the model portfolio assumptions that comprise your efficient frontier. We observe that different advisory firms use a range of assumptions that represent sometimes very different efficient frontiers.

Those firms with rosier assumptions (i.e., higher relative returns and lower relative volatility) will find a higher percentage of their clients score into more aggressive model portfolios. Why? Because even clients with high loss aversion will have their “disutility” or “pain” associated with losses (= volatility) more than offset by the “utility” or “benefit” of the larger gains. In other words, there’s not enough volatility assumed to offset the gains on offer.

The opposite holds true for firms with very conservative assumptions underneath their model portfolios.

If the scoring distribution causes you concern, we suggest revisiting your portfolio model assumptions, or reaching out to us for further analysis.