Determinants of Risk-suitable Investment Portfolios: Evidence from a Sample of Italian Householders

According to the MiFID, financial intermediaries are requested to assess the suitability of the products they sell to retail clients. One of the main problems in the practical implementation of the MiFID suitability rule stems from omission or impreciseness of the questions specifically addressed to know the risk profile. Prompted by this evidence, the purpose of this paper is to shed light on the information an intermediary should collect in order to properly define a client’s risk profile. We analyze a sample of 1149 subjects interviewed in the 2008 Bank of Italy survey whose portfolios are risk-suitable; then, we relate the portfolio risk composition to some characteristics of the owner. By using the Heckit two-steps estimation procedure we set apart the variables that mainly explain the risk-holding decision (whether to acquire risky assets) and the risk-allocation decision (how much to invest in risky assets). We find that the former is essentially related to a set of ‘background’ variables correlated with the capability of understanding and emotionally bearing the risk, while the latter depends on ‘foregone’ variables mainly related to the economic and financial capacity of each individual.