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Retiring boomers fuel surge in planning, investments

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The huge wave of baby boomers who will be retiring over the next 20 years will significantly expand the pool of investable assets, as well as investment and planning opportunities for advisors catering to boomers.

So said Tiburon Strategic Advisors Managing Principal Charles “Chip” Roame during a keynote address on Tuesday at the Tiburon CEO Summit XXIV. Held this year in at Ritz Carlton Hotel-Battery Park in New York City, the annual gathering brought together senior executives in financial services to explore issues and trends in banking, brokerage, investments, insurance, advice and the wealth management businesses.

“The boomers who retire over the next 20 years are going to roll over their 401(k)s, downsize their houses and sell their small businesses,” said Roame. “The result will be a mass movement of money from retirement plan assets, personal assets and other illiquid assets to investable assets.

“As financial service professional, almost all of you are dealing investable assets,” he added. “So your business will be a very good one to be in over the next 20 years.”

The shift, observed Roame, is already underway — and not just among boomers.

The Tiburon research shows that consumer households now have $32.2 trillion in investable assets, up 100 percent since the 2002 high of $15.9 billion and up 10 percent since the 2007 peak of $29.4 billion. Consumer households have $14.1 trillion in retirement plan assets, up 75 percent since 2002 (at $8.2 trillion) and up 5 percent since the $13.4 trillion recorded in 2007.

In tandem with the increase in investable assets has been a rise in consumer confidence, which now stands at 73.7 in the Consumer Conference Board Confidence index. That, the Tiburon research shows, is the highest score posted in the last five years, but still below the 2000 peak of 129.

The rise in consumer confidence, Roame added, has been matched by a parallel rise in confidence among advisors. The Financial Planning Magazine Retirement Advisor Confidence Index peaked in February of 2013 at 57.5, up from 56.1 in January, 51.4 in December and 49.8 in December.

Other trends identified by Roame also point to a positive outlook for financial advisors in the coming years. Among them:

  • A decline in spending among three-quarters (74 percent) of affluent consumers;
  • A stabilization in home mortgage debt among 31 percent of consumer households; and
  • A rise in consumer net worth, which at year-end 2012 stood at $66.1 trillion — a figure exactly matching the pre-downturn total in 2007.

However, Roame observed that most investable financial assets remain concentrated among the high net worth. Individuals with between $500,000 and $5 million in investable assets now control 50 percent of all consumer financial assets. And those with more than $5 million in investable assets have more than a quarter (27 percent) of financial assets.

More than nine in 10 consumers (91 percent) have less than $500,000 in investable assets and control just 23 percent of financial assets.

And the wealth of most individuals among the 91 percent, Roame said, remain tied to home values. “The individuals who have investable assets and retirement plan assets are happy; and people who own houses and small businesses are unhappy,” Roame said. “So we have the same [$66.1 trillion] total, but the assets have shifted.

“Eight percent of households control 77 percent of financial assets,” he added. “The high concentration of wealth is bad if you sell a per capita product, but it’s very good if you’re in the investable asset business, as your target market has shrunken to 8 percent of households.”

Consumers who are putting money into the equities markets are showing greater satisfaction, Roame said. For example, J.D. Power & Associates pegs investor satisfaction with full-service brokerage firms at 775 on the company’s proprietary Investor Satisfaction Index, up from 772 in 2011 and 731 in 2010.

Turning to distribution, Roame said that wirehouses continue to dominate assets under management because their financial advisors are “substantially more productive.” Wirehouses now control on average $92.6 million in AUM per financial advisor. This compares to $20.5 million in AUM per advisor among independent reps.

“The growth in the number of independent advisors is faster than the rate of growth of reps’ AUM,” Roame said. “The trend is definitely towards independence, but the movement is greater in terms of bodies than in money. Wirehouse advisors have by far the largest book sizes.”

Roame added that wirehouse and regional broker-dealers use individual securities more than do other channels. Individual securities account for 32 percent and 27 respectively, among these channels.

By contrast registered investment advisors rely on mutual funds and ETFs more than any other distribution channel. At 49 percent, the utilization rate exceeds that of regional broker-dealers (38 percent), independent broker-dealers (36 percent), wirehouses (31 percent), insurance broker-dealers (27 percent) and bank broker-dealers (21 percent).

“Wirehouse reps that charge fees are migrating more to packaged products, whereas the non-fee account wirehouse business is more likely to be in individual securities today, including ETFs,” Roame said.”

“Among registered investment advisors, mutual funds and ETFs still dominate, but RIAs’ use of stocks and bonds is growing,” he added.  


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