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.
