Retirement Cash Management Presents Advisor Opportunity

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Many businesses that focus on the asset accumulation phase of clients retirement plans tend to neglect the second part of the equation: cash flow during active retirement, said Bob St. Jacques and Frank Sabatini at a joint presentation at a recent Ernst & Young seminar in New York.

St. Jacques, a senior advisor for legal firm Lang Michener, Toronto, and Sabatini, an actuary in the Hartford, Conn., Ernst & Young office, said this apparent lack of attention to cash flow management creates a business opportunity that is especially apt in the current demographic environment.

People who will retire in 10 years, ages 55-64, and those already retired, ages 65-74, are the ones with the most wealth, according to the Federal Reserve Board Survey of Consumer Finance, 1998, and the 2000 U.S. Census.

“Nows the time because now theyre all worrying,” Sabatini said. “We need to get our producers and advisors focusing on this segment of the marketplace.”

Businesses that want to develop this opportunity will be successful if they adopt a customer-centric approach, they said.

“We propose that its not good to tell people they will live an average age,” St. Jacques said. “We propose to tell people if they are lucky enough, they will need assets to sustain their lifestyle while living longer and not worry about the risk by building the right tools to help them do that.”

He said this is the wisest approach, but one that is seldom taken by the industry.

“During asset accumulation we talked to people about giving up a piece of their wealth to help us grow it for them–thats not how it works in retirement,” St. Jacques said. “A consumer wants the whole picture but the industry has not responded.

“The industry tells people to leave their money where the industry can make some of it, too–thats not good enough.”

The needs that come up during active retirement should be addressed through advice and planning, according to St. Jacques.

Product creation should also be part of the equation. Products should be designed for the distribution marketplace, Sabatini said.

The focus should shift from accumulation to distribution; and, retiree cash flow, lifestyle and wealth transfer needs should be integrated into the design, he said.

In order to serve the customer well, one must know who his customer is.

The very rich are not good candidates for cash flow management because they have few concerns regarding cash flow, and their wealth transfer needs have likely already been met, St. Jacques said. The near-rich and middle-income populations are more appropriate target groups, he added.

The near-rich look for tailored solutions which traditional advisors can provide.

The middle-income population seeks packaged products that address major needs. The best way to reach this group is through mass marketing and technology, St. Jacques said.

Besides the near-rich and middle-income populations, the group market “is the most intriguing opportunity of all because we already talk to them,” St. Jacques said.

“If we can turn members (of employer-sponsored plans) into customers and give them holistic advice, we may have an opportunity to help them with assets they have elsewhere,” he said.


Reproduced from National Underwriter Life & Health/Financial Services Edition, January 6, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.