Performance risk assessment is necessary because a manager's investment style and the risks they consider appropriate in order to enhance returns, may not be the risks that the individual can stomach. 

Because investment discipline is key to managing risk and return, the individual when assessing their aversion to risk will be faced with a choice of reducing the risk of under performing while increasing other risks.

For example, the manager that looks to global diversification to increase return and reduce risk.  If part of this strategy is to invest in markets which are under valued and/or have an earlier economic cycle than the domestic market, then increasing domestic market allocation would increase the portfolio's exposure to higher market valuations and economic risks in the domestic economy.

For example, the manager that allocates to under valued areas of each market they invest in.  If the investor does not want to take the risk of under performance that the manager is exposed to, they will need to increase their allocation to more highly valued investments, which may end up increasing risk and reducing return.

A positive aspect of performance risk assessment is that the manager must justify the rationale for their allocation and strategy in terms of risk reduction and valuation. 

They must also have a good grasp of the strengths and weaknesses of their investment style as well as an understanding of where they stand in the investment universe.   They must also be able to illustrate the risks and returns of their style.

In order for the use of performance risk aversion is to be successful in educating clients and allowing them to adjust allocations in a disciplined framework,  the manager must operate within a sophisticated portfolio construction, planning and management system and have specific investment planning disciplines which relate asset allocation and liability management to performance risk aversion while maintaining the integrity of the portfolio. 

Assessment of performance risk aversion should never result in a portfolio which does not have a solid and fundamental investment structure.  

Why?

Because allowing investors to adjust asset allocation to reduce performance risk increases the number of decisions that a portfolio needs to consider at all three key stages; construction, planning and management.

Their are of course numerous benefits

Performance risk structures allow a manager to focus on their core investment discipline without having to research multiple investment styles and allocations and no investor is forced to accept a performance profile they are unhappy with.