MINNEAPOLIS – May 19, 2021 – Effective risk management is more important to financial advisors than generating the highest returns in client portfolios, according to the inaugural RIA Retirement Risk Review Study from Allianz Life Insurance Company of North America.
Nine out of ten financial advisors surveyed believe it is important to manage risk in client portfolios. Moreover, 88% believe it is more important to effectively manage risk in their clients’ portfolios than have the highest gains. In addition, the survey found that advisors are increasingly concerned about their clients’ retirement income. Nearly 60% of advisors note 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. 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,” said Heather Kelly, senior vice president of Advisory and Strategic Accounts at Allianz Life. “This dual mandate has only become more complex in today’s historic low-interest-rate environment.”
Longevity Risk Poses Biggest Threat To Retirement Security
When analyzing some of the biggest threats to retirement income, 79% of advisors report 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:
Top Three Biggest Risks To Retirement Security (% Rank Top Three)
|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 healthcare in their retirement (43%)||The stock market dropping and losing a lot of money in their retirement accounts (53%)|
“The threat of outliving your money in retirement, also known as longevity risk, is top of mind for financial advisors and clients of all ages,” added Kelly. “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. Advisors must communicate regularly with clients about these risks and the evolving set of investment solutions available to help meet clients’ needs.”
Additionally, Allianz explored some of the biggest threats to investment portfolios. Advisor respondents said clients 10+ 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%).
Interest in exploring new risk management solutions
With risk management at the forefront of financial planning, four in ten 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. Despite the growing interest in new tools, significant barriers remain for advisors to implement new risk-management solutions. At 28%, fear of sacrificing returns was the biggest barrier for advisors, followed by cost and lack of familiarity, both at 22%.
“Incorporating new risk-management tools and solutions into a client’s portfolio is not always easy,” said Kelly. “Advisors should conduct extensive due diligence and leverage the expertise of industry providers to help ease concerns and educate clients about new, evolving strategies.”
*Allianz Life and Zeldis Research conducted an online survey in February and March of 2021 with a nationally representative sample of 289 financial advisors. Respondents included IARs and hybrid advisors with 5+ years of experience who make product recommendations to clients, have at least half of their business from individual clients, as well as an AUM of more than $25 million and 97% with AUM of more than $50 million.