Close Close

Retirement Planning > Retirement Investing

Segmenting The Retirement Income Market: What Advisors Should Know

Your article was successfully shared with the contacts you provided.

Over the past several years, consumer segmentation has started to become somewhat more sophisticated for the retirement income market.

Income, net worth and investable assets continue to be the primary criteria for targeting consumers and tailoring retirement income products and solutions. However, other information elements are beginning to enter the mix. This enables marketers to further prioritize target consumers and to make the relationship between advisor and client more effective.

To be sure, a consumer’s financial profile provides the financial advisor with tangible and observable characteristics. These factors are easier for advisors to apply than are other characteristics. Financial criteria do not, however, address the emotional dimensions inherent in consumers’ decisions surrounding use of their money.

How, then, do financial advisors identify and leverage those emotions?

In the past, the financial services companies were the ones that developed calculations to help determine whether a consumer should feel comfortable or uncomfortable with his or her retirement savings and its sufficiency to generate a lifetime stream of income.

However, a consumer’s self-defined attitude towards retirement savings is both more practical and more powerful than how others may choose to categorize them.

This point came through in a 2006 consumer survey, conducted by Diversified Services Group, of 628 pre-retirees and 600 post-retirees, ages 55-70, with investable assets of more than $250,000. The survey explored whether these consumers were comfortable or uncomfortable with their financial futures, plus many related factors. The goal was to spot underlying issues contributing to consumer attitudes and how such attitudes affect retirement objectives and worries, current ownership and anticipated use of retirement products and solutions, and relationships with financial advisors.

Overall, two-thirds said they were comfortable with their financial futures. However, for financial advisors, the one-third who said they were uncomfortable are much more interesting.

Consider: While comfort levels do increase with investable assets, significant numbers of consumers remain uncomfortable–even at the higher asset levels. In fact, 25% of people age 55-70 with investable assets of $750,000 to $1 million and 18% of those with over $1 million said they feel uncomfortable about their financial future (See Figure 1).

In addition, consumers who deem themselves uncomfortable are significantly more likely to be dissatisfied with products or solutions chosen to provide retirement income. (See Figure 2).

As a result of these and other DSG findings, it appears that knowing prospects’ comfort level with their financial future is an important element that financial advisors can use when delivering appropriate retirement income information and solutions.

Knowing someone’s level of comfort and effectively managing those emotions are 2 different things, however. Currently, financial advisors appear not to be doing a particularly good job of making clients feel more comfortable with their financial future. As shown in Figure 3, there is no difference in consumers’ level of comfort whether or not they have worked with a financial advisor to assist them with their retirement planning. This suggests that financial advisors are not providing the necessary level of client education and emotional support.

When scratching beneath the surface of these self-defined attitudes, an uncomfortable consumer has the following perceptions and characteristics:

o Poor savers. Irrespective of their level of retirement savings, uncomfortable consumers believe they have not done a good job throughout their lives and therefore do not believe they have sufficient funds to last through retirement. Because they feel unable to save and plan, they are more concerned about cuts in Social Security and Medicare.

o Dissatisfied with financial decisions. Uncomfortable consumers are dissatisfied with the financial products they have chosen, with the financial information they have received, with their financial advisor and with their overall financial game plan.

o Limited financial knowledge. Uncomfortable consumers also tend to be more confused about financial products and services and how to convert these products and investments into a retirement income stream.

o Generally pessimistic. Consumers’ lack of comfort is furthered by tending not to look on the bright side of difficulties. This lack of optimism also applies to health issues, in that uncomfortable consumers do not expect good health throughout retirement.

o Want guarantees. Finally, uncomfortable consumers do not desire flexibility to manage and change their investments. Rather, it is more important to them to have guaranteed monthly income payments for life.

These characteristics make the uncomfortable consumer a much better target for capturing retirement assets.

Discomfort and dissatisfaction are much more likely to result in action to switch to a new advisor. By understanding what drives these attitudes, advisors may be able to deliver a deeper level of service that results in greater client satisfaction and loyalty.

In conclusion, the study shows that that a sense of comfort or discomfort regarding one’s financial future can be a key determinant of how a person reacts to product offerings, financial advice, marketing messages, and in general, how they wish to be helped with a retirement income solution.

While attitudes are not the complete answer to segmenting the retirement income marketplace, combining attitudes with key demographic screens can be an especially powerful approach. Not only can this aid financial advisors in designing a more customized portfolio of retirement income and asset protection solutions, it can also assist in forging more successful client/advisor relationships through more appropriate and relevant communication strategies and planning processes.