Distributors and financial advisors in the retirement income market will need to develop different approaches based on their own channel characteristics and client profiles.
This point became quite apparent in 2 surveys on retail advisor attitudes and perceptions conducted by Diversified Services Group in 2006. One survey, on the financial planning channel, was done in concert with the Financial Planning Association and OppenheimerFunds. The other, a bank channel survey, was done with the Bank Insurance & Securities Association and Symetra Financial.
Both surveys underscore the differences between channels–and in many cases, between firms within a channel.
This is noteworthy because both channels appear to be remarkably similar at one level. For instance, they overwhelmingly say their approach to retirement income clients is advice-driven, not product-driven. Both also have nearly identical perspectives on who is driving demand for retirement income solutions.
However, substantial differences emerged in the surveys that paint a far more complex picture.
The bank channel targets a broader market than the financial planner channel. It is not atypical for a single bank representative to serve over 1,000 clients. Approximately twice as many bank representatives report targeting investors with $50,000 to $250,000 of investable assets than did their counterparts in the financial planning channel. In contrast, only two-thirds as many bank representatives targeted investors with over $1 million of investable assets.
The financial planners surveyed were significantly more likely to have a CFP designation (94%) as compared to bank representatives (8%). Also, the planners were more experienced with retired or nearly retired clients–for instance, 94% had over 4 years experience in the market versus 74% of bank representatives.
The typical financial planner was in a small practice; 66% were in firms with fewer than 5 people. They were significantly more self-reliant, expecting to rely on themselves for new and upgraded planning tools. They also expected to aggregate significantly more of typical client assets in the process of developing a retirement income plan.
The planner profile that emerged is not one of scale, but of a deeper relationship with fewer, wealthier clients, likely with more complex needs.
These differences impact the channels in a number of ways, as shown in the chart.
Let’s look at the details.
What influenced advisors to focus on the retirement income market? A key factor for two-thirds of the bank channel representatives was availability of new products and solutions.
On the surface, that seems to contradict their belief that they are advice-driven, not product-driven. Given the bank channel’s scalability requirements, however, another interpretation is that without income producing product solutions in hand, it is more difficult and less economically feasible for them to address their much broader markets.
In contrast, a key determinant for two-thirds of financial planners is requests from new or prospective clients. This reflects their high-touch, one-on-one approach. For them, product, education and training, and sales support–all of which are requisites of scale–came in second.
What do advisors believe is the best way to acquire new retirement income clients? For advisors in both channels, referrals and existing clients are the key sources for capturing retirement assets. While 67% of financial planners and 50% of bank representatives cite the importance of referrals (49% and 36%, respectively, cite existing clients), the absolute volume of referrals (and clients) is substantially higher in the bank channel.
The referral processes differ dramatically. In the bank channel, a preponderance of referrals often comes from employees within the same institution. In the planner context, referrals typically come from people outside the firm or practice. Thus, while both cite the importance of referrals, the source and characteristics of referrals differ, as do the implications for how to handle and manage referrals.
Interestingly, bank representatives are twice as likely to cite worksite prospecting as a means to attract new retirement income clients–likely a result of the same intra-institution referral processes.
What do advisors think is most important to clients at the “retirement inflexion point?” There is almost a ‘philosophical difference’ between the 2 channels. The planners put the planning process first–by a wide margin–while bank representatives put generating income first, but by a narrow margin.
Nearly 90% of planners cite planning processes such as needs/gap analysis and retirement income distribution planning as very or extremely important. Investments designed to provide income comes in a distant last, at 43%. In contrast, over 75% of bank representatives cite product and planning processes as very or extremely important. What the respective channels believe is most important to their clients may mirror what they believe are their own distinct value propositions.
What income producing solutions are they most comfortable recommending?
Bank representatives are clearly quite comfortable recommending variable annuities with living benefits, while financial planners are most comfortable recommending systematic withdrawals. Bank representatives as a group are newer to the retirement income market than financial planners. This may account for some differences in product preference. Five years (or more) ago, when 94% of planners surveyed started addressing this market, living benefits were largely still on the drawing boards.
What tools do they need? Highest on the list for both channels were illustration and retirement planning systems. The largest differentials were in the areas of marketing materials, lead generation and training. Better products was last on the list for both channels, suggesting that while new products were a catalyst for bank representatives to enter the market, they are now a given.
Across the board, bank representatives cited higher levels of need than planners for all choices offered. One can infer a number of possible reasons for this. Clearly, the higher volume of clients and prospects is one explanation. Another may be the rapid growth in importance that bank reps expect the retirement market will play in their businesses. Taken together, this can create demand for additional resources to increase productivity and achieve scale to meet the needs of a burgeoning market–and to catch up to their customers.
Financial planners tend to be more satisfied with the tools they currently have. They report having more advanced planning programs for managing retirement income than bank representatives. Unlike bank representatives, many planners see themselves as primarily responsible for upgrading their tools. Financial planners have more experience with their clients in the retirement market, and many perceive the retirement market as one that is already here and one that will grow one at a time.
While on the surface there are shared attributes and behaviors among these (and other) distribution channels as they attack the retirement market, just below the surface there are strong differences. In benchmarking institutions within each channel, it is clear that each institution has a unique history, culture, and set of capabilities that it brings to the challenge. Manufacturers, distributors and advisors need to understand the differences as well as the similarities to develop their own perspective on role(s) they want to play and channel(s) in which they want to work.