Candle in the Banking Wind?

Flickers of growth focus in a landscape of darkness for Bank of America, with news release that they are hiring 180 Merrill Edge Financial Solutions Advisors (FSAs) throughout New Jersey in 2010, presaging doubling of FSA’s by next year to more than 1000 nationwide. Like many banks, focus is on mass affluent, and BofA claims to serve more than 8 million of these. Big investments in data mining to dig the gold in that big mountain range. New product and service investments too, with Platinum Privileges, which rewards customers with $50k+ in deposits with xxx, new mobile app, and even specialty stores for aristocratic Main Street presence integrating investment, small biz and mortgage specialist.

The Retirement Income Conundrum

A day doesn’t seem to pass without a new, alarming headline about retirement in America.  I was reminded of this today when our head of research sent me this link about the decline in the “Retirement Optimism” index (perhaps an oxymoron these days)  https://www.wellsfargo.com/press/2011/20110602_Retirement.  And consistent with other research, retirees maintain a consistently higher level of optimism than non-retirees.

Despite this morose pre-retiree outlook about retirement, the study reports that about 3 in 4 have no formal plan for retirement.  Why are households unable to address such an important personal challenge and prepare for the days of retirement?  Well, there are many reasons for this, including:

1) The definition of retirement.  What’s retirement?  Has the norm ever been 15-20 years of golf, world travel, and endless vacations on a private yacht in the Aegean?  Maybe “retirement” is a more transitional period of life, when earned income declines, new expenses emerge (e.g. health), and guaranteed sources of income from accumulated financial assets are required to match consumption  liabilities.  So maybe “planning for retirement” is not exactly the caracature we all imagine.

2) Savings.  As we near completion of the transition from a defined benefit to a defined contribution work place, have households accepted responsibility for postponing consumption and saving for a time when they’ll need new sources of income?  This will require a cultural change in how households budget.

3) Investing.  How many consumers know how to build a retirement portfolio?  How many understand the benefits of an annuity and how to select the most appropriate product?  How many understand how to use capital market products to create a stream of guaranteed income?  The accumulation model alone based on risk and return just doesn’t solve the retirement problem yet the airwaves are filled with messaging that encourages this.

4) Advice.  Despite the dramatic increase in advisor clients requiring retirement income portfolios, there is still no acknowledged consensus on the best approach.  Moreover, compensation models based on AUM often conflict with what’s best for the client.  Systematic Withdrawal Plans, Annuities, Time Segmented Allocation Models, laddering with strips….or plain old risk and return…where’s the consensus and why isn’t there one?

5) Insurance.  To some degree, most consumers need income “insurance” in retirement.  Typically, insurance products are sold, not purchased.  Given this paradigm, the financial advisor is key – he/she needs to recommend the right product for the right purpose.    This brings us back to the point 4 – advice.  The financial intermediary is going to be key in helping households efficiently use their savings to create income for retirement.  Manufacturers of retirement income products are going have to educate financial advisors on the benefits of their product from an outcome point of view and when the advisor should incorporate them into their client portfolios and financial plans.

Why is it so hard to sell retirement income products to financial advisors?

Every week, I’m engaged in conversations with insurance and investment product companies asking me this question: why is it so hard to sell retirement income products/solutions to financial advisors?  Last week I posted this very question on RIIA’s (Retirement Income Industry Association) Linkedin Discussion group which is now 1,250 members strong just to gather insights from a cross-section of financial professionals http://www.linkedin.com/groupItem?view=&gid=35362&type=member&item=52226123&qid=4d16db78-9b12-41e7-b6bb-162d7355cc2d&goback=%2Egmp_35362.  The answer is, of course, it depends on how you’re selling it and to which audience.

Despite the growing share of transition and retired households in most advisor practices, adding retirement income planning and products to their accumulation-centric routines and tool box is a big challenge.   Why?  Well first, the retirement income business model is different from the accumulation business model.  The best solution for the transitioning or retired client  may not be perceived as the most profitable solution for the advisor.  Second, many advisors are uncomfortable suggesting a new approach to their clients.  Why?  For many rational and emotional reasons, including: fear their clients will ask if this means their approach in the past was wrong; because the advisors haven’t yet mastered the retirement income story for client consumption; because many retirement income products are new, complex, and require more wholesaler support e.g. annuities; because advisors like products with long, proven track records; and because manyexisting advisor tools and processes don’t accomodate the integration of many new retirement income products.

So what’s a retirement income provider to do to break through to the advisors and power more growth?  Is there an opportunity to add some pull to the push of retiement income products?

To be successful with advisors, segmenting the large advisor and agent universe and developing the right messaging platform – value proposition, proof points, sales tracks –  is crucial.  Complementing these strategic marketing elements with best-in-class training and support is essential.  Remember, advisors will ultimately do what’s in the interest of their practice – matching your product with their tangible goals e.g. client retention, gathering new client assets (household view), acquiring new clients, making things easy, will make you a winner.  And if the retirement income providers could collectively help the consumer understand the questions they should be asking their advisors about transitioning from accumulation to retirement income….