Accumulators May Be Better Target than Pre-Retirees

Instead of the traditional bread-and-butter “pre-retiree” market, a study found that accumulators are looking for financial advice but are held back from seeking help with financial tasks because they are unsure about whom they can trust, said Chris Brown, principal at Hearts & Wallets.

“Hearts & Wallets has identified three screaming unmet needs as key to motivating the many investors who would be interested in new services but are afraid to act,” Brown said. These investors want to be told what advisers do; how they are paid; and how to evaluate advisers. “The firm that clearly articulates the advice value proposition has a tremendous opportunity to claim this attractive market segment.”

Accumulators face bigger financial advice gaps than older people, according to “Trended Engagement Model: Reasons for Seeking Help and Taking Action.” Advice gaps are the difference between the number of people who find a financial task difficult and the number of people actually seeking help.

“Knowing how to find the right resources” and “handling market volatility emotionally” are the biggest advice gaps for all life stages. Four in 10 accumulators find retirement planning difficult, but are not getting any help. A similar proportion is not seeking help in getting started saving and investing.

“This study reaffirms the importance of including accumulators in any client acquisition plan,” said Laura Varas, principal of Hearts & Wallets. “For too long the industry has focused on pre-retirees as the golden goose. Neglecting accumulators by leaving them unsatisfied in financial advice will result in this segment creating relationships with other options, perhaps even category newcomers or technology solutions, to the long-term detriment of industry stalwarts.”

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Overall, investors found financial tasks less difficult in 2012 than in 2011. Retirement planning continues to lead as the most difficult task. The second-most difficult task is getting started saving and investing. Wealthier investors had an easier time with financial activities than their less affluent counterparts.

Among affluent and high-net-worth accumulators there was also a general easing of difficulty. Still, one-third of these investors ranked choosing appropriate investments, retirement planning and knowing how to find the right resources as very difficult.

As with the general population, fewer affluent and high-net-worth accumulators sought help with financial tasks than in 2011 or 2010. The biggest challenge for accumulators was marked by the biggest drop in seeking help.

Only 23% of and high-net-worth accumulators sought help in choosing appropriate investments in 2012 versus 30% in 2010. After seeking advice the most common action was increasing savings.

The trend away from seeking help with financial tasks continued in 2012, Brown noted. “This reflects investors’ decreased engagement, which is related to the low trust Americans have in financial services providers,” he said. “Only one in five Americans places full trust in their primary and secondary providers, down from one in four in 2011. Our focus groups continue to suggest that until investors’ three unmet needs are satisfied, trust and engagement will remain low.”

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Affluent and high-net-worth pre-retirees have the most difficulty with choosing appropriate investments and a variety of tasks Hearts & Wallets calls “income choices.” It is important to recognize how small the pre-retiree market really is.

According to the research firm’s Portrait of U.S. Household Wealth, true pre-retirees are those who consider themselves within five years of retirement rather than falling within a certain age group. By this definition, only 4.8 million households, controlling $3.1 trillion in investable assets, are pre-retirees. Only 55% of true pre-retirees are 55 to 64 years of age. The rest are either younger or older.

An important finding for advisers is that affluent and high-net-worth pre-retirees are likely to change their investment mix. There was a big jump, from 2010 to 2012, in the number who purchased health, long-term care or life insurance. There was also a big jump in those who plan to purchase an annuity and consolidate accounts with fewer providers.

The annual survey of more than 5,400 U.S. households tracks specific segments and product trends. Hearts & Wallets defines accumulators as mid- and late-career investors, age 28 to 64, who do not consider themselves pre-retirees. They represent a market segment of about half of all U.S. household investable assets.

Hearts & Wallets, in Hingham, Massachusetts, researches retirement market trends for the financial services industry.  For complete data on this study, contact Hearts & Wallets.