Striking the right balance between living well in retirement and not outliving one’s assets is complicated.
Wealthy consumers can afford financial advisors to help with the intricacies, but middle market baby boomers will likely find themselves walking the retirement planning line unassisted. A wrong step can make the difference between comfortable retirement and significant belt tightening.
How well are financial institutions currently prepared to serve the mid-market boomers?
Consider: Providing objective advice is perceived as difficult and ultimately unprofitable, and many of the new retirement products have not excited most potential buyers. Conversely, variable deferred annuities with guaranteed minimum withdrawal benefits have proven wildly successful from a sales perspective, but some designs show questionable value as retirement-planning strategies.
Clearly, progress is required on several fronts for any provider to become a leader in this market. Some examples follow:
Customer confidence. Institutions need to win or restore consumer confidence. The pure product-focused sales approach has dominated for so long that those seriously starting to plan for their retirement encounter the same product pitches over and over, regardless of individual circumstances.
Transparency is increasingly important, yet a long-standing industry criticism is that customers may know the price of an investment product without fully understanding the true costs or embedded penalties. They most certainly do not appreciate how most products add value to their overall retirement strategy.
In the race between banks, insurance companies, asset managers, or financial advisors, customers will place their confidence in providers that bring objective analysis and the best advice to bear on all of their retirement decisions: retirement cash flow, asset allocation, taxes, insurance and estate planning.
Customer dialogue. The reality today is that institutions are not prepared to engage mid-market boomers in a true dialogue about how to generate and protect retirement income. Until recently, only product sales representatives and product information generalists have been available to customers through toll-free lines.
Customer service representatives for financial services providers (e.g., agents, brokers, financial consultants) are on the front line and control the providers’ relationships with customers. When the interaction between consumer and representative is limited to superficial assessment of only some of the customer’s needs and narrow product solutions, prospects for developing a long-term personal relationship are slim.
Some providers are working to develop cost-effective ways to enhance customer relationships by training and supporting their representatives so they can elevate the dialogue. Transitioning from salespeople (who typically sell only a few products) to advisors (who focus on a good-faith assessment of each customer’s needs) is critical in positioning an institution as a trusted advisor to mid-market customers.
Advice- and product-neutral platforms. Most institutions view providing analytical tools online to customers as the only cost-effective way to offer some level of analysis and guidance to those who do not receive traditional, one-on-one financial planning services. Others argue that such tools are, by nature, simplistic and provide only superficial and possibly unreliable recommendations.
Part of the holistic solution is to develop far more powerful and effective tools that can handle multiple scenario analyses and create linkages between consumer, advisors and product representatives. The critical requirement is that analytical platforms, whether used by the customer or the advisor, provide a realistic and objective picture of the plan risks, accurately portray the trade-offs faced by the customer and demonstrate when the chosen strategies and products provide value.
New products. Across sectors, success in the mid-market will require a new generation of non-accumulation, guaranteed-income products. For the most part, standard accumulation products disguised and positioned as retirement income products will not suffice. Demands of retirees themselves will drive this, especially as they grapple with reduced external income sources, inflation and higher health care costs.
Income, and increasingly all investment products, will also need to meet higher standards of transparency in terms of price, costs, performance and risk transfer that affect the ultimate value to the customer.
Institutions must use their new and improved advice and product platforms to provide the following:
o Individual financial needs analysis that links with product characteristics.
o Product education and comparisons of value.
o Clear explanations of initial and future costs, performance risks and withdrawal penalties.
o Products that are predictable, reliable and low cost.
Aging mid-market boomers represent a promising and eager market for providers. But to be successful, providers must win this business and earn long-term loyalty.
Smart companies will adopt a new paradigm and move away from the traditional paradigms of one-size-fits-all and accumulation-oriented approaches. Providers that keep the total retirement picture in focus will own the account and influence the transactional business. More importantly, customers will gravitate toward this model and they will stay.