Effective risk management apparently is more important to financial advisors than generating the highest returns in client portfolios, according to the results of a new survey.
Allianz Life’s inaugural RIA Retirement Risk Review Study reveals that 88% of financial advisors report that it is more important to effectively manage risk in client portfolios than generate the highest gains.
The survey also found that advisors are increasingly concerned about their clients’ retirement income. Nearly 60% of advisor respondents believe that clients need to accumulate more money in order to have a financially secure retirement, but are too close to retirement to take on the risk of investing in high-risk/high-reward financial products.
“Financial advisors 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, advisors 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 adds.
Longevity Risk
When analyzing some of the biggest threats to retirement income, nearly 8 in 10 advisors (79%) report that clients in or nearing retirement are concerned about outliving their money in retirement. Other top risks vary depending on the client’s proximity to retirement.
The top three biggest risks to retirement security based on proximity to retirement include the following:
|
10+ years from retirement |
Retirees and near-retirees (<10 years from retirement) |
|
Outliving their money (57%) |
Spending too much and running out of money in retirement (56%) |
|
Spending too much and running out of money in retirement (56%) |
Outliving their money (54%) |
|
How much they will have to spend on health care in retirement (43%) |
Stock market dropping and losing a lot of money in their retirement accounts (53%) |
“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,” notes Kelly, who suggests that advisors must communicate regularly with clients about these risks and the evolving set of investment solutions available.
To that end, Allianz also explored some of the biggest threats to investment portfolios. Advisor respondents said clients who are 10-plus years from retirement have the highest risk in terms of high-equity valuations (36% high risk), taxes (31%) and inflation (30%). In contrast, the greatest portfolio risks to those in or nearing retirement are longevity risk (47%) and low interest rates (44%).
Allianz further reports that 4 in 10 advisors are considering new risk management solutions for 2021. Of those advisors, low volatility ETFs (52%), Buffered Outcome ETFs (44%) and annuities (37%) are under consideration, according to the findings.
The findings are based on an online conducted by Allianz Life and Zeldis Research in February and March 2021 among a nationally representative sample of 289 financial advisors, including IARs and hybrid advisors with at least five-plus years of experience who make product recommendations to clients.
