Financial advisers questioning risk profiling
Thought leaders among dealer groups are increasingly questioning the "one-dimensional" practice of risk profiling for clients in the face of increasing longevity and inflation risk, according to Challenger chief executive - life, Richard Howes.
While a client in the retirement phase will clearly have a different situation and risks compared to one in the accumulation phase, the practice of allocating them to standardised asset allocations based on a risk profile is becoming less popular.
Instead, advisers are increasingly adopting more of an objective-based advice model that focuses on the minimum level of required income, Howes said.
So in advising retirees, advisers end up seeking something that looks a lot like the aged pension, which in many ways is the perfect retirement product - it's just not big enough, he said.
That's leading to a big increase in demand for "private aged pensions" or inflation-linked lifetime annuities, he said.
Adopting that model allows advisers to take a layered approach - taking care of the minimum required income then liberates the adviser and client to use the growth assets to meet aspirational objectives, Howes said.
He said that recently a whole cohort of retirees had been selling their growth assets, which illustrated sequencing risks - if a retiree suffered big losses early in retirement, that could render the remaining assets incapable of servicing retirement needs.
Recommended for you
Wealth Data has examined which advice business model has seen the most growth since the start of the year including those that offer holistic advice.
Research conducted by Elixir Consulting and Lonsec has quantified the efficiency gains of using managed accounts in financial advice practices in hours per week saved.
With only one-quarter of advice practices actively seeking feedback from clients, the Financial Advice Association Australia has emphasised why this is a critical tool for client retention.
As the government announces a public inquiry into the collapse of Dixon Advisory, risk adviser Richard Silberman has detailed the three areas that typically lead to an AFSL's collapse.