Everyone measures the investments. The bigger exposures are usually somewhere the risk questionnaire never looks.
Human capital — the client's future earnings — is the largest asset most people under fifty own, and it is entirely undiversified.
A portfolio allocation debate is a conversation about the smaller asset.
A client whose income, employer stock, and career all depend on one company has three exposures to the same event. See concentration.
Inadequate disability cover, no term life where dependants rely on income, or a liability exposure with no umbrella policy.
Each of these can undo a plan more completely than any market decline, and none appears in a risk score.
The questionnaire measures the part of their life that is diversified.
Sustained spending above what the plan assumes is one of the most reliable ways a plan fails, and it is almost never described as risk.
It is also the one the client controls entirely, which makes it the highest-leverage thing to discuss.
An out-of-date beneficiary designation, no power of attorney, no will. Administrative gaps with consequences out of all proportion to the effort of fixing them.
Portfolio risk is measurable, so it gets measured, and measurement attracts attention. The larger exposures are less tractable and get less time.
A firm that reviews the whole balance sheet — including the parts that are not investments — is addressing more risk than one running a more sophisticated portfolio analysis.
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