In Practice November 15, 2006

Households Will Look to Consolidate Adviser Relationships: Study

A new report claims that many US households will decide to consolidate their assets with a single adviser in order to better address the challenges they face in retirement income planning and asset decumulation.
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That presents a multi-trillion retirement asset opportunity for financial institutions in the near future, according to a recent TowerGroup report, “Winning the Battle for Retirement Assets: Wealth Management or Product Pitch Polemics?” by Matt Schott, research director in the Brokerage & Wealth Management practice at TowerGroup. The report says that retirement assets in various plan types under the control of individual investors in the United States total $9 trillion, with business liquidation over the next decade potentially resulting in another $10 trillion in assets. However, for financial institutions to capture these assets, they must provide efficient and effective retirement income planning services for the growing percentage of the population in or near retirement.

Segment “Ed”

The market is divided into three distinct segments, each of which possesses unique requirements and opportunities that need to be addressed in helping your firm capture assets. As they age, and accumulate wealth, households are likely to move through these individual segments – from mass market to affluent to the high-net-worth financial segment during their working years — and then back down to mass market as the retirement years progress and their nest eggs get depleted.

Among the three major market segments identified in the research:

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  • The mass market (90 million households; those with up to $200,000 in investable assets) will focus on protecting assets in retirement. Their strategies will include home equity release and income generation, and, according to TowerGroup, they will look for customer contact through the Web, call center and bank branch and will use products that generate income with manageable risk to principal, including reverse mortgages, income-oriented mutual funds and annuities.
  • The affluent market (15 million households; those with $200,000 through $2.5 million in investable assets) will focus on maximizing sustainable income in retirement, and will use strategies including insurance products to protect against risk. They will look for customer contact through the Web, and an adviser and will use products including preconfigured managed money, mutual funds with systematic withdrawal plans and annuities and long-term care products.
  • The high-net-worth segment (1.4 million households; those with more than $2.5 million in investable assets) will look for programs in retirement to blend and balance lifestyle and legacy such as drawdown programs for cash flow and legacy, self-insurance and estate programs. Those in this segment will expect customer contact through advisers and their teams and also will utilize the Web. This group will rely on advisers to manage their money and will also use structured products and trusts.

To address the challenges facing the financial institutions, they “must enhance processes and technology infrastructure,” TowerGroup asserts. “Case management and budgeting as well as financial planning are areas in which financial services institutions can capitalize on retiree’s need for a financial management framework to replace the structure and discipline embedded in a working paycheck and employee benefit programs.”

TowerGroup asserts that “the winning formula” will be offered by firms that are unencumbered by proprietary product sets, and can offer independent and objective advice, such as by smaller registered investment advisors (RIAs), as well as some banks and brokerage firms.

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