Risk Identification Tools: Supporting Your Planning Discussions with Clients

Once you've determined strategy suitability, VelocityIQ's 73 validation rules help identify planning risks and data quality issues—providing systematic analysis to support your client discussions. You determine which risks to address and how to document your disclosure.

Legal Notice:

VelocityIQ provides risk identification and analysis tools. Advisors determine which risks to discuss with clients, how to address identified risks, and are solely responsible for all client communications and recommendations.

Suitability Analysis vs. Risk Identification: Different Tools, Both Support Your Work

Analysis System	Purpose	What It Evaluates	Output	Advisor Uses It To
FINRA 2111 Suitability Analysis	Support suitability determination	Reasonable-basis, Customer-specific, Quantitative fit	Analysis framework showing alignment/concerns	Evaluate whether strategy is suitable; make determination
73 Validation Rules	Identify planning risks	Data quality, calculation accuracy, planning exposures	Risk identification analysis	Identify risks to discuss with clients; determine disclosure approach

How They Support Your Work Together:

Suitability Analysis → Supports your determination that strategy is appropriate

↓

Risk Identification → Helps you identify specific risks within that strategy

↓

Your Professional Judgment → You determine which risks to discuss, how to address them

↓

Your Documentation → You document client discussions and decisions

Example:

Strategy: Business exit with diversification

Suitability Analysis Framework Provides:

→ Prong 1: Strategy characteristics evaluated
→ Prong 2: Client profile alignment analyzed
→ Prong 3: Transaction pattern assessed
→ YOU DETERMINE: Strategy is suitable for this client

Risk Identification Analysis Provides:

→ IDENTIFIED: 87% concentration during transition period
→ IDENTIFIED: Potential AMT exposure from ISO exercise timing
→ IDENTIFIED: Estate tax exposure ($18.5M estate, $13.6M exemption)
→ IDENTIFIED: Transition liquidity considerations

YOU DETERMINE:

→ Which risks to discuss with client
→ How to frame risk discussion
→ What disclosures to provide
→ How to document client understanding
→ Whether risks require strategy modification

Outcome:

✓ Strategy suitable (your determination)
✓ Risks identified (system analysis)
✓ Risks discussed (your client conversation)
✓ Client informed (your disclosure)
✓ Decisions documented (your file)

Learn About Suitability Analysis Framework →

Legal Notice:

System identifies potential risks for your consideration. You determine risk significance, appropriate disclosure, and client communication approach. You are responsible for all risk management and disclosure decisions.

Systematic Risk Detection Supporting Your Client Discussions

The Challenge:

Even experienced advisors can overlook planning risks due to:

• Time pressure in client meetings
• Complexity of business owner situations
• Multiple interconnected financial factors
• Evolving tax and regulatory landscape
• Human oversight in manual review processes

How Risk Identification Tools Help:

Systematic analysis flags potential issues for your consideration:

• Data quality problems that could affect accuracy
• Planning risks that may warrant client discussion
• Tax exposure areas requiring attention
• Calculation inconsistencies needing resolution
• Documentation gaps requiring clarification

Your Role:

→ Review identified risks and flagged issues
→ Determine which are material for this client
→ Decide which risks to discuss with client
→ Frame risk discussion appropriately
→ Document client understanding and decisions
→ Take responsibility for risk management approach

Data Quality and Calculation Integrity Checks

73 Critical Rules

What These Rules Identify:

Issues that could affect accuracy of analysis or calculations:

• Data integrity violations (mathematically impossible scenarios)
• Missing required information for calculations
• Logical inconsistencies in client profile
• Regulatory requirement timeline violations
• Calculation input errors or conflicts

System Response:

If critical rule identifies issue:

→ Analysis process flags the problem
→ Issue description provided for your review
→ You determine how to address the issue
→ You decide whether to proceed, modify inputs, or gather additional information

Examples:

→ ISO exercise date before grant date (data conflict)
→ Age entered outside reasonable range (data quality)
→ Total assets less than stated liabilities (inconsistency)
→ Required tax information missing (incomplete data)
→ 83(b) election timing violation (regulatory deadline missed)

Your Responsibility:

→ Review identified data quality issues
→ Verify information with client
→ Correct data or gather additional information
→ Determine whether to proceed with analysis
→ Document resolution of identified issues

Planning Risk Identification for Client Discussion

28 Warning Rules

What These Rules Identify:

Planning considerations that may warrant client discussion:

• Portfolio concentration concerns (>40% single position)
• Insurance coverage gaps (life, disability, umbrella)
• Tax exposure areas (AMT, estate, gift implications)
• Retirement savings shortfalls relative to goals
• Asset allocation concerns for stated risk profile
• Planning deficiencies requiring attention

System Response:

If warning rule identifies potential risk:

→ Risk description provided for your review
→ Context and implications outlined
→ Considerations highlighted
→ You determine risk significance and disclosure approach

Examples:

→ 87% net worth concentrated in single equity
→ No umbrella liability coverage with $10M+ net worth
→ Potential AMT exposure of $126K from ISO exercise timing
→ Estate value exceeds exemption threshold by $4.9M
→ Retirement savings rate below target for stated goals

Your Responsibility:

→ Review identified potential risks
→ Assess materiality for this specific client
→ Determine which risks to discuss with client
→ Frame discussion appropriately for client understanding
→ Document client discussion and acknowledgment
→ Decide on appropriate follow-up actions

What the System Provides for Your Review

Advisor reviewing risk analysis with flagged items

Sample Risk Identification Analysis:

VELOCITYIQ RISK IDENTIFICATION ANALYSIS

Generated: 2025-12-15 14:32:15

Advisor: [Name] | Client: [Name]

=== DATA QUALITY ISSUES (0) ===

No critical data quality issues identified.

=== PLANNING RISKS IDENTIFIED (4) ===

IDENTIFIED RISK: High Portfolio Concentration

87% of net worth in single equity position (Company XYZ stock)
Industry benchmark: <40% in single position typically recommended
Consideration: Lack of diversification increases volatility and downside exposure
For advisor review: Determine if concentration level appropriate for this client's situation, risk tolerance, and objectives

IDENTIFIED RISK: Potential AMT Exposure

ISO exercise of $500,000 may trigger Alternative Minimum Tax
Bargain element: $450,000 exceeds AMT exemption threshold
Estimated AMT impact: $126,000
For advisor review: Assess if client aware of AMT implications; consider exercise timing strategies

IDENTIFIED RISK: Estate Tax Exposure

Estimated estate value: $18.5M
Current estate tax exemption: $13.61M (2025)
Potential estate tax on excess: $1.96M on $4.89M over exemption
For advisor review: Evaluate if estate planning strategies warranted

IDENTIFIED RISK: Umbrella Liability Coverage Gap

Net worth exceeds $10M with no umbrella policy identified
Standard auto/home liability limits may be insufficient for wealth level
For advisor review: Assess if additional liability coverage appropriate

=== END OF ANALYSIS ===

ADVISOR ACTION REQUIRED:

→ Review all identified risks
→ Assess significance for this client
→ Determine which risks to discuss
→ Plan client discussion approach
→ Document discussion and client decisions

How You Use This Analysis:

Step 1: Review

Read all identified risks and considerations

Step 2: Assess

• Determine which risks are material for this client
• Consider client sophistication, objectives, and circumstances
• Apply your professional judgment about significance

Step 3: Prioritize

• Decide which risks are most important to discuss
• Determine appropriate timing for discussions
• Consider whether risks require immediate attention

Step 4: Discuss

• Frame risk discussion appropriately for client
• Explain implications in client-appropriate language
• Ensure client understanding
• Discuss potential mitigation strategies

Step 5: Document

• Document which risks were discussed
• Record client responses and understanding
• Note any decisions or action items
• Maintain documentation in client file

Step 6: Act

• Follow through on any agreed actions
• Monitor risks on ongoing basis
• Update risk analysis as circumstances change

What You're Responsible For:

Reviewing system-identified risks
Assessing risk materiality and significance
Determining which risks to discuss with clients
Framing risk discussions appropriately
Ensuring client understanding of risks
Documenting risk discussions and client decisions
Following through on risk mitigation strategies
Monitoring risks on ongoing basis
All risk management and disclosure decisions

What the System Provides:

Systematic identification of potential risks
Structured risk analysis output
Context and considerations for your review

System does NOT:

Determine which risks are material
Make disclosure decisions
Communicate with clients
Replace your professional judgment
Eliminate your responsibility

Three Analysis Checkpoints Supporting Data Quality

Layer 1: Input Validation

When:

During data entry in client questionnaire

What It Identifies:

• Missing required fields
• Impossible values (dates, percentages, ages)
• Mathematical conflicts
• Logical inconsistencies
• Regulatory timeline issues

Advisor Experience:

• Inline notifications appear immediately
• Issues highlighted for correction
• Suggested resolutions offered
• You determine how to address flagged items

Example:

Advisor enters ISO exercise date: 2020-01-15. System shows grant date: 2021-06-01. → System identifies: "Exercise date before grant date appears inconsistent" → You verify correct dates with client → You correct data as appropriate

Your Responsibility:

→ Review identified data quality issues
→ Verify information with client
→ Correct data or gather additional information
→ Determine accuracy before proceeding

Layer 2: Processing Validation

When:

During analysis generation

What It Checks:

• All 73 rules evaluated
• Cross-validation between calculations
• Range checks on computed values
• Consistency across analysis

System Response:

• Data quality issues → Flagged for your attention
• Planning risks → Identified in analysis output
• Both → Documented for your review

Your Responsibility:

→ Review all identified issues and risks
→ Determine appropriate response
→ Make decisions about proceeding

Layer 3: Output Validation

When:

Final check before advisor review

What It Confirms:

• Analysis consistency maintained
• All risks properly documented
• No issues overlooked
• Documentation integrity complete

Your Responsibility:

→ Final review of complete analysis
→ Verification of output quality
→ Determination of next steps

Bottom Line:

Traditional approach: Single manual review (may miss issues)

VelocityIQ: Three automated checkpoints identifying issues for your review

Result: You have systematic analysis to support your quality control, but you make all decisions about how to address identified issues.

Audit Trail of Risk Identification Analysis

Split visualization linking system-generated audit trail with advisor documentation

What Gets Documented:

System maintains record of:

→ Risk identification analysis performed
→ Date and time of analysis
→ Which rules were evaluated
→ What risks or issues were identified
→ Analysis output provided to advisor

What You Must Document:

→ Your review of identified risks
→ Your assessment of risk materiality
→ Which risks you discussed with client
→ Client's understanding and responses
→ Decisions made regarding risks
→ Follow-up actions planned or taken
→ Ongoing monitoring approach

How This Supports Your Practice:

When asked about risk management, you can show:

Systematic approach: "I used risk identification tools"
Comprehensive review: "All 73 rules checked my client situation"
Documented analysis: "Here's what was identified for my review"
Professional judgment: "Here's my assessment of materiality"
Client discussion: "Here's documentation of our risk conversation"

This demonstrates thoroughness while showing you made all risk management decisions.

Important Clarification:

System documentation shows systematic risk identification was performed. Your documentation shows you reviewed, assessed, and acted on identified risks. Combined: Demonstrates professional risk management approach.

System analysis supports but does not replace your documentation of risk management decisions and client discussions.

Understanding Risk Identification Tools and Your Responsibilities

What Risk Identification Tools Do:

Systematically analyze client situations against 73 rules
Identify potential data quality issues for your review
Flag planning risks that may warrant consideration
Provide analysis output for your professional evaluation
Support documentation of systematic approach

What Risk Identification Tools Do NOT Do:

Do NOT determine which risks are material for specific clients
Do NOT make disclosure decisions
Do NOT communicate with clients about risks
Do NOT guarantee all risks will be identified
Do NOT replace professional risk assessment
Do NOT eliminate advisor responsibility for risk management

Your Responsibilities:

You are solely responsible for:

→ Reviewing system-identified risks
→ Assessing risk materiality and significance
→ Determining appropriate disclosure
→ Communicating risks to clients effectively
→ Ensuring client understanding
→ Documenting risk discussions
→ Implementing risk mitigation strategies
→ Monitoring risks on ongoing basis
→ All risk management decisions
→ All client communications about risks

Limitations:

Risk identification analysis:

→ Is based on rules and data you provide (accuracy depends on inputs)
→ May not identify all risks relevant to specific clients
→ Cannot assess materiality or significance for individual situations
→ Cannot determine appropriate disclosure for specific clients
→ Cannot replace your professional judgment and expertise
→ Cannot guarantee complete risk identification
→ Cannot eliminate possibility of unidentified risks

Legal Disclaimer:

VelocityIQ provides risk identification and analysis tools. VelocityIQ does not assess risk materiality, make disclosure decisions, or manage client risks. Advisors must review all system analysis, apply independent professional judgment, assess risk significance, determine appropriate disclosure, and take full responsibility for all risk management decisions and client communications.

System analysis is provided "as is" without warranties. VelocityIQ disclaims liability for advisor risk management decisions, client outcomes, adequacy of risk identification, or any damages arising from use of risk identification tools.

Use of risk identification tools does not ensure complete risk identification, appropriate risk disclosure, or eliminate advisor liability for risk management.

Systematic Risk Identification Supporting Your Client Service

See how VelocityIQ's 73-rule risk identification system helps you identify planning risks and data quality issues systematically—supporting your professional judgment about which risks to address and how to discuss them with clients.

Watch Risk Tools Demo Apply for January Pilot

VelocityIQ provides risk identification tools. Advisors assess risk materiality, determine disclosure approach, and are solely responsible for all risk management decisions.