Wealth Managers Missing Vast US Opportunities

Stephen Harris 4 March 2005

Wealth Managers Missing Vast US Opportunities

According to a new Bain & Co report, US wealth managers are missing a huge opportunity to service a market that controls 50 per cent of reti...

According to a new Bain & Co report, US wealth managers are missing a huge opportunity to service a market that controls 50 per cent of retirement assets. Seventy per cent of affluent boomers have rolled out of, or are planning to roll out of, their current 401(k) and other qualified retirement plans but the majority of boomer rollover decisions, resulting in $250 billion annual inflows into IRAs, are made unprompted.

Of the 80 per cent of affluent near-retirees who use a financial advisor, only 30 per cent are prompted by their advisors with retirement planning advice for critical retirement plan rollovers.

These self-directed asset consolidation decisions are fueling the growth of retirement wealth even further, as 50 per cent of those that have rolled out of current plans also purchased other financial products; an estimated $19-38 billion opportunity in incremental assets over the next five years.

The survey was conducted in November and December 2004 and sampled the attitudes and financial needs of 415 mass affluent respondents - those in the 55-70 age range with average income of $100,000 or more. Of the 415 respondents, 299 were pre-retirees and 116 were retired. On average, respondents had $450,000 in retirement assets and $300,000 in non-retirement assets. Survey findings were consistent for both pre-retirees and retirees.

An Evolving Market
· 66 per cent of affluent boomers underestimate their retirement income needs - though 91 per cent claimed to have been engaged in their own retirement planning.
· 84 per cent use an advisor, but 70 per cent of those who do would prefer an income guarantee product over a service that offers investment advice; even at lower rates of return.
· Only 30 per cent of respondents were prompted by their advisor or their employer to rollover assets (only 12 per cent were prompted by their advisor). Yet, for those that were prompted, half who completed a rollover also bought additional investment products.
· Investment returns are the most important factor in choosing an advisor, according to almost 90 per cent of survey respondents, yet respondents who rolled their 401(k) to their primary advisor are also willing to "pay" for these returns as they rated cost as the least important factor in their rollover decision.

Wealth Management Opportunities
· Wide Decision-Making Window - only half of those surveyed made a rollover decision within three months of leaving their job. The more affluent are more likely to decide to rollover after leaving their job.
· Willingness to Move Assets - more than 50 per cent of all rollover candidates surveyed rolled out of their existing defined contribution provider to their primary advisor or existing broker.
· Retirement Cross-Sell – half of affluent boomers want the convenience of one-stop, full-service financial advisor "shopping" for all of their financial asset management needs, including non-investable assets, such as property, life insurance and health insurance. Over 40 per cent indicated they purchased additional products at rollover.
· Focus on the Basics: Assets and Income Planning - asset accumulation, asset protection and income planning all rank more than 50 per cent higher than tax planning and estate planning, in terms of importance.
· Willing to Pay - wealthier respondents favour paying for advice as an ongoing percentage of assets and respondents rated cost as the lowest factor in choosing an advisor at rollover.

Advisors Strategy
The research suggests that the rollover event is increasingly becoming the best opportunity to full-service wealth management for mass affluent boomers. Furthermore, rollover and retirement are the gateway events that allow institutions to capture a greater share of the wave of rollover and investment assets.

So to capture the wealth generated by the boomers:
1 Target the most attractive clients for financial advisors to pursue based on pre-retirement target segments and their needs.
2 Create or enhance pre-retirement products for financial advisors that clearly serve the needs of the retiring baby boomer generation. The most important attributes will be; guaranteed income, asset protection, consolidation services and, specific advice through the advisor. The research suggests that IRA rollovers are an untapped opportunity, as affluent boomers bring additional assets to the advisor during the rollover process, as well as consolidate other retirement assets. A majority of rollovers are currently made without notification from financial services providers.
3 Train financial advisors and create support resources to attract and capture retirement assets from the target clients. It is important to communicate a clear value proposition for the financial advisor to pursue the opportunity, i.e. the product offerings should not be over-engineered and, at the same time, the incentive to promote the offering should be clear. First sell to the advisor, so the advisor will then sell to the customer.

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