From the August 2008 issue of Investment Advisor • Subscribe!

August 1, 2008

Consolidation Crunch

Retiring boomers' shedding of products and services presents challenges for advisors

There's a coming consolidation among consumers'--particularly boomers'--use of products and services that will force advisors to hone their skills if they expect to retain these folks as clients or draw new ones in, according to a new joint study by SRI Business Consulting and Turner Consulting.

The study, The Coming Consolidation: Making the Short List, was commissioned by the Retirement Income Industry Association (RIIA) and is the second in a series of studies examining the impending changes in the retirement space and how they will affect financial institutions and advisors. Larry Cohen, VP and director of consumer financial decisions at SRI, who co-authored the study with Elvin Turner, managing director of Turner Consulting, says three "macrolevel" trends are driving product and service provider consolidation among consumers. First, during the 1990s, investors were offered a wide array of products and services from various types of financial services firms, so naturally consumers widened the number of products they used and their relationships to purchase those products and services. As the markets performed well during the 1990s, Cohen says, "people started doing more borrowing, and there was this gradual increase in the number of products and services that a typical household had." But that trend reached its peak in 2001 and 2002, and tapered off as the market started to head south. "When things started going the other way, people took a break in terms of the number of products and services" they were using. The market volatility of the last eight years--along with the Enron, Worldcom, and mutual fund scandals--have "eroded our confidence in various types of institutions and relationships," Cohen says. Consumers are now asking who they can trust.

The second macrotrend that's driving consolidation is the fact that boomers are entering the life-stage in which they want to simplify their lives. Right now, 79 million boomer households are "overwhelmingly in the 'Oldest Child Age 18 and Older' or the 'PreRetired' life stages where they use the highest number of financial products and relationships," according to the study. However, in the next life-stage, "Retired," they'll use fewer products and services, the study notes.

As the boomers shed institutions, this will put pressure on advisors to be seen as a trusted source that can accommodate all of a boomer's needs. "The degree to which an individual advisor can combine all of these different areas of a household's needs, speak to them intelligently, and guide them through the decisions they'll have to make, the more likely they will retain that relationship."

Cohen says that the biggest issue he sees when it comes to retirement income is that most boomers have started saving late for retirement--and having children later in life--and are still focused on accumulation. The popular notion is that because the oldest boomers are 62 1/2 now, they'll all be concerned about retirement income in three years, Cohen says. But "it will be some time before they shift to the disbursement side," he argues, since "boomers are not a homogeneous group." The reality, according to Cohen, is that many boomers "will continue to try to accumulate assets or delay drawing down assets. That's where an advisor can be an essential help."

The final trend that points to consolidation is a shift from "Conspicuous Consumption" to "Conspicuous Conservation," the study notes. Gone are the days when consumers wanted bigger homes and bigger cars; today, folks are shifting toward "simplification and improving quality, not quantity," Cohen says. Plus, the environmental movement has kicked in, and folks are bent on recycling and doing more with less, he says.


Washington bureau chief Melanie Waddell can be reached at mwaddell@investmentadvisor.com.

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