Advisers Confront Risk

That advisers face a complex dual challenge was underscored in the inaugural Allianz Life “RIA Retirement Risk Review Study.” Fifty-nine percent of registered investment advisers (RIAs) said their clients need to accumulate more money to have a financially secure retirement. Yet, most clients are too close to retiring to take on the risk of investing in a high-risk/high-reward financial product.

The biggest threats for retirees and near-retirees, the RIAs said, are longevity risk (47%) and low interest rates (44%). Perhaps for that reason, 88% said they are more concerned about efficiently managing the risk in their clients’ portfolios than about generating the highest gains.

Heather Kelly, senior vice president of advisory and strategic accounts at Allianz Life says, “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.”

Forty percent said they may suggest new risk management solutions, including low-volatility exchange-traded funds (ETFs) (52%), buffered outcome ETFs (44%) and annuities (37%).

Granted, adjusting a client’s portfolio in that way may not be easy, says Kelly, “Advisers should conduct extensive due diligence and leverage the expertise of industry providers to help ease concerns and educate clients about evolving strategies available.”

Among clients 10 years or more from retirement, 57% worry that they will outlive their money and 56% that they will overspend; 43% worry about high medical bills. Among clients who plan to retire in the next 10 years or who are already retired, 54% worry about outliving their money and 56% about overspending; 53% worry that the stock market could plummet, depleting much of their savings.

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

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