Financial services firms, insurers and healthcare payers admit they will need to add new capabilities to serve baby boomers, who will control some $40 trillion in retirement assets by 2020, a study shows.

Boomers face great doubts about how they will fund their retirement and how wealthy they will be during those years, according to the study by Diamond Management & Technology Consultants Inc., Chicago.

Boomers who fail to plan now will fall short of their expectations, Diamond says. But unless they consider new strategies now, companies planning to serve the boomer market run a similar risk of missed expectations, Diamond warns.

In its “Retirement Study 2008,” Diamond reports that 89% of insurers believe that “making products simple for their customers to understand” is a source of competitive advantage, but only 23% believe they have effectively developed that capability.

Among financial advisors, 77% see speed-to-market in bringing new products and services to the boomer market as a source of competitive advantage, but only 20% say they now have that capability.

Among bank respondents, 89% viewed pricing as somewhat or very important to compete, but only 51% said that today they have the capability to use pricing for competitive advantage.

Diamond argues that companies contending for boomer business will need business and technology systems flexible enough to serve different boomer market segments, new types of transactions, new federal and state regulations, and competition on many fronts.

Diamond surveyed 626 consumers aged 45 and older along with executives at 105 banks, investment firms and life insurance companies with revenues of more than $500 million.

It found that “affluent sophisticates”–a quarter of the boomer population–control 65% of boomer assets.

However, many financial service companies already target these consumers, Diamond notes, so companies will need to make strategic decisions about which segments to target.

Diamond also found that 59% of working baby boomers expect to rely heavily on Social Security, while 38% have saved less than $10,000 for retirement.

And 61% say they do not have the funds to support long term care should they require it. Only 13% have long term care insurance. In addition, 46% say they could not afford a medical emergency, yet only 21% have disability insurance.