Because of this, it is important that the language used in the ATR is appropriate for clients in all stages of life and is not overly focused on simply growth or alternatively income.
There is also unlikely to be one cut-off point where you can say your client has switched from accumulation to decumulation, since many funds in a decumulation phase will still be invested for another few decades, and so keeping the ATR assessment consistent means that the ATR questionnaire is kept completely separate from the stage of life of a client and the different solutions that may be suitable.
From our own analysis, we see a noticeable difference in the skew of results when looking at the calculated risk levels (and selected risk levels) of clients aged under/over 60, with younger clients being more risk tolerant.
Using the results of an ATR
Our clients will have come out of the ATR assessment with a number, representing the risk they are likely to be comfortable with on the risk scale, but without a full range of solutions sitting on this risk scale we cannot be certain what solution will be suitable for each client.
Most ATR providers also risk rate solutions to help advisers with the research into suitable solutions.
Of course, not every risk profile five solution is going to be suitable for every risk five calculated or selected client, and so creating well researched shortlists for each section of your clients (FCA Prod refers to these as target markets) can help to narrow the extensive range of funds or products down to a more manageable number.
When risk rating accumulation funds, providers will generally use the expected volatility of a fund to put it into an appropriate risk banding, taking the expected returns and maximum losses into account. They can also take other risks into account too in their risk banding – we look at market, credit and default risks.
However, risk rating of decumulation funds does not appear to have an industry standard yet. Our own solution risk-rates products in order to limit the maximum monthly loss that you may experience, so as to manage sequencing risk during decumulation phases, as well as considering liquidity risks alongside market, credit and default risks.
Other providers attempt to model the impact on income, and then there are products available that sit outside of the risk rating process and provide guaranteed income solutions in retirement for those that require more certainty around their retirement income.
