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April 23, 2014 at 01:16 PM
A new technology platform allows advisors to show their clients and prospects a clear picture their financial path to retirement with 95% probability, according to RiskAlyze, a technology provider that serves financial advisors.
The Retirement Map platform measures a client’s chance of success with a portfolio based on their risk tolerance level, and allows the advisors to show clients and prospects in real time how changes will affect their outcome.
“Given the fact that it recalculates in a second or two, it reinvents the client meeting,” Aaron Klein, CEO of RiskAlyze, told ThinkAdvisor on Wednesday. “It turns the client meeting into a much more interactive event.”
RiskAlyze started building the platform in response to advisors who wanted an easier way to see if a client’s risk tolerance was compatible with their goals.
“One of our core strengths is boiling down an idea to its very basic essence,” Klein noted. “We said, ‘If the advisor wants to understand if a client’s retirement goal is compatible with their risk tolerance, how do we do that in a really simple way?’ It turns out you really only need a few variables to understand that.”
A lot of data has already been provided by the client in their risk questionnaire, Klein said. “You need to understand a lot of data that we already get out of the risk questionnaire: how much risk they want, when they were born, when they want to retire. At that point, all the advisor has to plug in is how much [their clients] want to save every month until retirement and how much they want to be able to withdraw every month. With those variables, we can build a 95% roadmap to retirement. That’s enough that it satisfies the basic need to understand the compatibility of goals with risk tolerance that advisors are looking for.”
Klein said that as RiskAlyze started working on a solution to meet that need, they encountered two “interesting hurdles.” First, he said, is that in comparing a clients’ risk tolerance with possible outcomes, “typically you’re using complicated Monte Carlo analysis to answer that question. That’s typically a really long process. It’s not horribly long—60 to 90 seconds, typically—but when you’re trying to find a solution with a client, you’re not going to sit there and recalculate it with the client in real-time in a meeting.”
