In the world of investing, risk isn’t a single concept; it’s a spectrum. At its core, risk is divided into two main categories:
Unsystematic Risk
These are risks specific to a company or industry, like a CEO scandal, a product recall, or a supply chain disruption. They’re unpredictable, but they can be managed. A good advisor will encourage you to diversify to minimize the impact of unsystematic risk.
Systematic Risk
These are the big-picture forces—such as inflation, interest rates, recessions, or geopolitical conflicts—that affect the entire market. They can’t be diversified away. A good advisor will stay up to date on this macro-data, but won’t pretend they can see the future.
Why Clients Hire Advisors
Mastering the Controllable
People don’t hire advisors because they expect them to predict the future. They hire them because they know advisors are uniquely qualified to manage the risks that can be controlled.
Advisors bring insight, experience, and a strategic lens to unsystematic risk. They know how to build diversified portfolios, spot red flags in business models, and adjust plans when industries shift. More importantly, they keep a close eye on:
Business Risk
Are a business’s earnings healthy? Are their management decisions poor, or even irrational?
Regulatory Risk
Are there upcoming policy changes that could impact investments or tax strategies?
Liquidity Risk
Will the client have access to cash when they need it most?
These are the risks that can derail a financial plan—but with the right advisor, they’re often avoidable.
Systematic Risk: The Uncontrollable – and the Edge of Preparedness
Then there’s the other side of the coin: systematic risk. No advisor can prevent a war, steer inflation, or set interest rates. These are forces outside of anyone’s control. But here’s the key: while we can’t control these events, we can help clients prepare for how they might impact their financial lives.
As investor Howard Marks wisely said, “You can’t predict. You can prepare.” That’s exactly what financial advisors focus on. We stay informed, vigilant, and ready to make adjustments when the landscape begins to shift. Whether it’s responding to rising interest rates, navigating inflationary trends, or managing risks during global uncertainty, we aim to keep clients positioned with purpose – even in the face of unpredictability.
Final Thought: The Power of Perspective
In today’s fast-changing environment, vigilance is more than awareness – it’s about readiness. Financial advisors analyze macroeconomic data, monitor policy developments, and keep a close eye on world events. Our role is to translate what’s happening into meaningful guidance. It’s not about predicting the next move; it’s about being prepared for a range of outcomes.
If you’re looking to bring more resilience and perspective into your financial plan, consider a complimentary consultation with a financial advisor. Let’s move forward with confidence – together.
What Are the 2 Types of Risk – And Can an Advisor Do Anything About It?
June 30, 2025
Joseph Browning
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