Advisers serve as financial therapists, seeing clients when they are at their best and their most vulnerable.

Discussions about debt, end-of-life care, and retirement, are personal and intimate conversations, and for many clients, building open communication and trust is vital to keeping their adviser throughout their lives. To maintain that relationship for the long haul, it is important for advisers to incorporate various life factors into building a client’s portfolio.

To build a better portfolio that is robust and fits the needs of each unique client, advisers must use a risk tolerance questionnaire that asks more than just the desired retirement age and current income level.

Advisers must account for the “what if’s” and consider unique factors such as the client’s family health history, financial responsibility, industry they work in, and even their location. These characteristics can best be referred to as, “human capital factors.”

Why consider a client’s job sector and location? Clients who work for technology companies in Silicon Valley, for instance, should be diversified and not have a portfolio too heavily weighted with tech stocks.

In addition to incorporating human capital factors, advisers must work with clients to plan for both the expected and unexpected ways that these factors will change risk capacity over time. This leads to having more meaningful, and at times difficult, conversations.

Although it is never easy discussing the loss of a spouse or a job, it is vital for a client’s financial future to have a cushion for unexpected or catastrophic events. On top of accounting for personal life changes, advisers must have in-depth conversations with clients and discuss how much risk they should be taking within the market.

It is hard to spell out what a 20% loss would look like to a client, but it is a critical conversation to have. This is where the adviser must hash out how this would directly affect the client.

To build a portfolio that is both balanced and robust, advisers must calculate true risk while also incorporating the unique idiosyncratic factors of each client.

This story is part of a 30-30 series building a better portfolio.

Larry Shumbres

Larry Shumbres

Larry Shumbres is the chief revenue officer of Totum Risk in Atlanta.
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