Is risk profiling an art or a science? I strongly suspect it qualifies as both. It’s essentially quantitative, but it also entails a fair amount of subjective judgement. I guess what really matters is that it works.

It’s interesting to reflect on what risk profiling’s principal purpose actually is. We all appreciate the general idea is to identify investment solutions suitable for each client’s specific needs and preferences, but how might we neatly sum up the raison d’être of such efforts?

One suggestion is this: the principal purpose of risk profiling is to encourage good investment decisions. To put it another way: the principal purpose of risk profiling is to guard against bad investment decisions.

I can try to explain what I mean by quickly recounting a heroic misadventure or two. My original plan was to draw on a saga from the annals of Arctic exploration, but I’m instead going to regale you with a slightly less spectacular tale of a colleague’s bike-riding exploits.

For some years now the hardy soul in question has participated in an annual cycling trip. Previous routes have included London to Cologne, coast to coast in France and a COVID-constrained trundle from Oxford to Cambridge. The 2025 edition took him and his friends from Nice to Genoa.

You may immediately notice a theme here: no hills. They’re not the sort of cyclists who derive pleasure from huffing and puffing their way up Mont Ventoux. They know exactly what they want to get from these endeavours – and it isn’t a heart attack.

The same might be said about risk profiling. Someone seeking the serenest financial journey imaginable doesn’t plump for the investment equivalent of the Tour de France – just as someone who dreams of “big wins” doesn’t choose the equivalent of a leisurely glide across the flattest of flatlands.

Yet selecting a preferred route is only part of the challenge. It’s also vital to consider and prepare for what might go wrong subsequently, because the overwhelming likelihood is that any lengthy journey won’t be incident-free.

Take the aforementioned excursion to Paris. The group was roughly halfway to its destination, breezing through the beautiful French countryside, when my colleague came to a halt and promptly keeled over sideways.

Most cyclists have suffered this indignity. It usually occurs when you forget to unclip a shoe from its cleats. You suddenly realise you can’t put your foot down, and before you know it you topple over and end up looking – and feeling – like an absolute numpty.

On this occasion my colleague was trapped beneath his bike, bravely offering his finest impression of an upturned tortoise, for several minutes. Meanwhile, his fellow riders searched for a hex key capable of unscrewing the cleat, which turned out to be defective.

Fortunately, it was hardly the end of the world. Such incidents are commonplace and pretty easily addressed – rather like, say, everyday market volatility.

It was a slightly different story on the road to Genoa. Another member of the group was moving through the gears when his bike’s derailleur pulleys abruptly fell to pieces.

These pulleys guide the chain around the gear mechanism. A bike is useless without them. Repairs normally involve ordering specialist replacement parts, waiting for them to arrive and then painstakingly disassembling and refitting both the mechanism and the chain.

Thankfully, since civilisation wasn’t too far away, a replacement bike could be hired. This was time-consuming and expensive, but the outcome could have been much worse.

The point is that the group has never put itself in a situation where it’s relying on everything to go right. Within reason, the riders are comfortable that they’ll be able to deal with whatever mishaps come their way.

Some of those mishaps will be more troublesome than others. Some might test both their patience and their limits. Overall, though, they’re confident that they have the tools, the know-how and the all-round wiggle room to cope.

Investors have to feel similarly secure. For this to happen, clients must be made fully aware of all the choices available to them.

In many cases the options are likely to revolve around an array of risk-graded portfolios. For example, Marlborough’s own MPS range targets seven levels of risk and return, with three types of underlying investment offered for each portfolio.

Some investors may need a more personalised strategy. Others might wish to move to such an approach over time. We increasingly see evidence of this in demand for our bespoke services.

This brings us back to decisions. Taking all of the above into account, it strikes me that the principal purpose of risk profiling is to ensure that an initial investment decision is a good one and, crucially, that there remains scope for further good decisions thereafter.

Ultimately, the worst position an investor can be in is one in which it’s impossible to make a good decision. This is why providers must keep refining the art of science of risk profiling – and why advisers must stay abreast of continued developments in this ever-evolving field.

Edward Kennedy is Head of Marlborough’s Personal Portfolio service

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.