Explain how a client's requirements and attitudes toward particular investment risks can be built into an asset allocation

Clients care about more than variance, so their preferences are written into the allocation as objectives or constraints. Risk aversion sets λ in the utility function; a minimum acceptable return becomes a shortfall constraint or safety-first criterion; a maximum tolerated loss becomes a drawdown or value-at-risk limit. Concern about specific exposures can be addressed directly: hedging a concentrated stock position or human capital tied to one industry, limiting currency or illiquidity risk, excluding sectors on ESG grounds, or capping leverage and short positions. Behavioural preferences such as loss aversion may justify goals-based sub-portfolios that clients understand. Each added constraint costs expected return. The trap is ignoring a stated preference because the optimiser's solution looks superior.