Advisers Have Their Eyes Keenly Trained on Risk Management

The inaugural Allianz Life “RIA Retirement Risk Review Study” reveals that registered investment advisers (RIAs) are increasingly concerned about their clients’ retirement security and are willing to explore risk management solutions. In fact, 88% of RIAs are more concerned about efficiently managing the risk in their clients’ portfolios than they are generating the highest possible gains, according to the study.

Fifty-nine percent believe that their clients need to accumulate more money in order to have a financially secure retirement. However, these advisers say most of their clients are too close to retirement to take on the risk of investing in a high-risk/high-reward financial product.

Seventy-nine percent of advisers said clients who are at or nearing retirement are worried about outliving their money in retirement.

Among those 10 years or more away from retirement, 57% are worried about outliving their money in retirement, 56% are worried about spending too much in retirement and 43% say they are concerned about high health care bills in retirement. Among those who plan to retire in less than 10 years or who are already retired, 56% are worried about spending too much in retirement, 54% are worried they will outlive their money and 53% are worried that the stock market could plummet, causing them to lose a lot of money in their retirement accounts.

“Financial advisers are grappling with a difficult challenge,” says Heather Kelly, senior vice president of advisory and strategic accounts at Allianz Life. “First and foremost, their priority is to protect their clients’ assets. However, advisers also need to ensure clients are generating enough income to enjoy their golden years without financial worries. This dual mandate has only become more complex in today’s historic low-interest-rate environment.”

She continues: “The threat of outliving your money in retirement—also known as longevity risk—is top of mind for financial advisers and clients of all ages. Factors such as inflation and the rising cost of living are raising red flags for many near-retirees and retirees when it comes to longevity risk. Advisers must communicate regularly with clients about these risks and the evolving set of investment solutions available to help meet clients’ needs.”

The survey also asked the advisers what risks their clients’ portfolios face. Thirty-six percent of advisers said that for those more than 10 years away from retirement, it is high equity valuations, followed by taxes (31%) and inflation (30%).

Advisers said the biggest threats for retirees and near-retirees are longevity risk (47%) and low interest rates (44%).

Forty percent of advisers are considering suggesting new risk management solutions to their clients, including low volatility exchange-traded funds (ETFs) (52%), buffered outcome ETFs (44%) and annuities (37%).

“Incorporating new risk-management tools and solutions into a client’s portfolio is not always easy,” Kelly says. “Advisers should conduct extensive due diligence and leverage the expertise of industry providers to help ease concerns and educate clients about evolving strategies.”

Allianz’s findings are based on an online survey it conducted in partnership with Zeldis Research in February and March among 289 advisers.