Financial planners need to change their focus from wealth accumulation to the management of risks faced by clients during their life, consultancy firm Milliman said.
"Evolving market conditions and the increasing shift toward asset de-cumulation by the baby boomers have highlighted flaws in existing approaches to financial planning and their ability to appropriately communicate risk," the firm said in a report published yesterday.
"Advisers are certainly more aware of the risks that their customers are bearing, and the challenge is to find solutions that clearly manage these risks in line with risk preferences within the framework of meeting retirement objectives."
In the report, titled A Holistic Framework for Life Cycle Financial Planning, Milliman argues the shift to fee-for-service remuneration and the increase in self-funded retirees would increase the demand for a risk-based approach.
The firm does not suggest planners should sell more insurance products, but rather take a long-term approach to retirement planning.
"The challenge is to find an approach that can engage people early in planning for a retirement that may be 20 or 30 years away," Milliman practice leader Wade Matterson said.
"A framework that incorporates current assets with future earnings (human capital) will demonstrate the impact that early planning can have on retirement outcomes," he said.
This also requires the development of new products, such as capital protection within superannuation, or products that combine the benefits of market-based pensions and annuities.
"Where I think [Australia] is really lacking is in products that provide sustainable incomes to retirees that also help them manage market [and] longevity risk," Matterson said.
He would like to see products that combine the benefits of both market-based pensions and annuities.
