Data & Research June 15, 2007

Affluent Boomers Comfortable Making Own Financial Decisions

Only one-third of affluent Baby Boomers rely on outside advice when making financial decisions.
Reported by
According to a research study from Focalyst, these wealthiest Boomers – a group Focalyst calls Boomer Elites – feel they are on top of their finances and they have prepared well for retirement. Ninety-five percent (95%) have some sort of savings or investments compared to 75% of the total Boomer population.
“Retirement planning is big business for financial services companies but not all Boomers are looking for the same thing,’ said Heather Stern, Director of Marketing at Focalyst, in a news release about the study. “When it comes to the Elites who are less likely to rely on a financial planner, the complexity of retirement planning isn’t as daunting as it is for others. What they value most is no-frills information from a trusted institution that can help guide – not determine – their decisions. Boomer Elites pride themselves on having control over their finances so appealing to their need for information but ultimately helping them feel in charge of their financial destiny is key.”
While they characterize themselves as savers rather than spenders, Boomer Elites have plans to invest in big ticket items such as technology products, furniture, and appliances at a rate of almost twice the spending of the average Boomer, the survey found. Results also indicated Boomer Elites are avid consumers of media, more so than Boomers in general, which indicates they can be reached via media advertising.
On a daily basis, 91% of respondents said they watch TV; 87% read a newspaper or magazine; 76% listen to the radio; and 75% use the Internet. Four-in-10 respondents said they read the ads in the magazines they subscribe to.
More about Focalyst, a market research and consulting firm focused exclusively on Baby Boomers (those born between 1946 and 1964) and older consumers, can be found at www.focalyst.com.
In Practice June 15, 2007

Clients Unclear About Advisers’ Fees

Don’t assume your clients are comfortable with fees just because they don’t say anything.
Reported by
Less than half (43%) of advisers’ clients said they understand their advisers’ fee structure “completely” or “fairly well;” another 22% say they “just understand.” Meanwhile, 63% of clients are either “extremely satisfied,” “very satisfied,” or satisfied” that they are receiving a fair value for the fees paid.
But, there isn’t always enough contact with the adviser for those confused to speak up. Although almost all (95%) advisers surveyed for a State Street Global Advisors and Knowledge@Wharton paper said that they discuss their fees with clients, only 61% of clients said their advisers initiate such conversations with them. Fees are a critical area where trust between advisers and clients can be easily diminished and an adviser’s credibility might be hurt because of the way they discuss compensation with clients, according to the report.
Oftentimes the bundling of fees makes it difficult for clients to understand what they are paying. This, in turn, makes it hard to properly compare fees between advisers, which might make them skeptical of those they do business with. Advisers may be more vulnerable with regard to a lack of transparency in fees than they realize: “No matter how much you think you realize the level of distrust over fees, we underestimate it,” says Mitch Anthony, a consultant to the financial advisory industry, in the report. “It’s easy for the industry to say we’re changing the way we do business because we want to build trust with our clients, and then come out with a bunch of touchy-feely ads, but all it does is increase the level of cynicism to the consumer.”
“Many advisers find fees a difficult subject to discuss,” the report asserts. However, what matters most is not necessarily what you charge, or whether those fees are high or low, but rather that the clients understand what the fees are. “The most important thing is transparency—so people know what is going on unequivocally—and I’m not sure that that’s happening,” says Leonard Lodish, a professor of marketing at Wharton, in the report.

Best Practices

The report suggests that there are four steps advisers should follow when talking about fees offering “a recipe” for the fees discussion, identifying “active ingredients necessary for successful conversations about fees that foster client trust.”
The steps suggested in the report are:
  1. Don’t procrastinate
  2. Describe fees with clarity
  3. Provide context-benchmark fees
  4. Put it in writing – give clients something to refer back to.
Financial intermediaries can access the report, “Bridging the Trust Divide: The Financial Advisor-Client Relationship,’ by registering as a financial professional and downloading it at www.ssgafunds.com.

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