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.”
The second problem is that comprehensive financial planning software, “which is really valuable and has a lot of great tools,” is too unwieldy to use during a meeting.
“There are a lot of questions to answer. There are a lot of variables,” Klein said. “Ultimately, what we’ve built here allows advisors to with just a few inputs interactively build a map to retirement right in front of their client. It happens in a split-second. We literally invented a new way to deterministically calculate the 95% probability of success 30, 40, 50 years into the future in a second or two instead of taking that 60 to 90 seconds in the Monte Carlo analysis.”
Retirement Maps can be useful for advisors when meeting with prospects as well as existing clients as a precursor to building a more comprehensive plan, Klein said.
“We built an API that comprehensive financial planning tools can use to pull a retirement map in to start a new comprehensive plan. We’re opening that to any of the comprehensive financial planning tool providers,” he added. “It’s a great precursor to [building a comprehensive plan] because a lot of clients feel like they don’t want to go through that whole process or maybe they don’t want to pay for the advisor’s time, so they don’t see the value of the comprehensive plan. We think building a retirement map first will often lead to an advisor getting the opportunity to do a comprehensive plan.”
RiskAlyze offered the product to a select group of customers for beta testing prior to the launch on Wednesday. He described one advisor’s response to using Retirement Maps with a “demanding client.”
“The guy’s always worried, and [the advisor] has taken great care to ensure that the client doesn’t need to be worried, that he’s got enough money to make it to retirement and beyond. Ultimately, he said it was the best client review that he’s ever had. The client would say, for example, ‘What if inflation is worse than we think it is?’ And he cranked up inflation a little bit. Then he said, ‘What about interest rates being a problem?’ So he turned on the interest rate stress test for the portfolio and showed him how that applied to the retirement map.”