Advice firms applying a capital growth mindset to clients at and in-retirement are likely to be targeted by tougher regulation to improve management of key later life financial risks.
A new report by the specialist research and consultancy practice NextWealth shows that, while the risk-profiling and risk-management processes used for clients in the accumulation phase of life are generally robust, many firms are leaning on these same processes when advising clients in the decumulation phase when they face different and more complex risks.
The report – ‘Guarding Financial Futures’ – reveals that most advisers use the same profiling tool and set of questions for clients in accumulation and decumulation and that 56% take a manual approach to managing risk around income generation, compared to about a third who use a tool.
Kavi Myladoor, Retirement Income Director – Retail at retirement specialist Just Group, commented: “This research by NextWealth suggests many retiring clients are shoehorned into the processes designed for savers rather than spenders. The use of tools and processes specifically designed to manage retirement risks – sequencing risk, longevity, income risk, etc – is far less common than could be expected.
“Where risk profiling is not picking up key differentiation between capital and income risk and advisers need to fill in the gaps manually, there is far more chance of misunderstandings, preconceptions and bias creeping in. Currently there is a high likelihood that two clients with similar resources and objectives could receive wildly different retirement recommendations, not only from different firms but from different advisers within the same firm.”
