Emerging Wealth Segment Represents Opportunity for Retirement Plan Advisers

Many plan providers are squandering their chance to serve as long-term consultants to a potentially lucrative client cohort by not upscaling their offerings to meet its demands, Cerulli says.

According to Cerulli Associates, the term “HENRY” is used to describe “High Earners, Not Rich Yet.” It says members of the HENRY cohort represent an emerging wealth opportunity with evolving advice needs, offering retirement plan providers the chance to capture both current assets and future flows.

Cerulli notes that investors in this group frequently share a variety of common financial challenges, such as paying off student loans and facing the intricacies of starting a new household—including merging finances, buying a residence, insurance planning and potentially raising children. “Unfortunately, the wealth management industry’s focus on current investable assets as a widespread prerequisite virtually ensures that these investors will have limited access to personalized comprehensive advice during this period when assistance is most needed,” Cerulli says.

The first decision that emerging investors face is what type of firm they will use as their primary financial services provider. Investors in the “purest” HENRY segment, with incomes in excess of $125,000 but investable assets of less than $250,000, indicate the highest reliance on both bank deposit (16%) and retirement plan providers (11%) compared with any other cohort, according to Cerulli research.

The firm points out that retirement plan providers have the benefit of incumbent relationships when addressing the HENRY segment. “As employer-sponsored retirement plans serve as widespread introductions to investing for young investors, plan providers have the opportunity to set the standard for expectations for these participants moving forward. However, many of these platforms are squandering their chances to serve as long-term advice providers to the emerging wealth segment by not elevating their advice offerings to meet the demands of these participants,” Cerulli contends.

It notes that, in many cases, enrollment meetings are still part of a retirement plan provider’s service package, but their frequency and importance have declined as employees are now automatically defaulted into enrollment and welcomed by an email or hard-copy delivery. These introductory packages direct participants to their plan’s website or phone center for additional information; however, these options do not align with the preferences of investors within the emerging wealth segment.

According to Cerulli, when investors in the HENRY cohort were asked to identify the type of adviser they would prefer to work with, advisers employed by national firms, independent practices and local firms all ranked well ahead of any combination of online and phone-based advice offerings. Across all wealth tiers, investors chose individual advisers affiliated with a national brand as their preferred advice source.

Cerulli warns that when addressing this issue, retirement plan providers must be sure they do not use the data at their disposal to overtly provide enhanced services to their most promising participants. This practice could put them in violation of Department of Labor (DOL) discrimination standards or employers’ service expectations. Instead, retirement plan providers are well-served by implementing a financial guidance and planning program that helps participants across age and wealth tiers address their most pressing concerns.

In most cases, these programs can be offered primarily online through a combination of an information library, calculators and seminars supported by representatives available through phone or online chat options. Beyond these general advice levels, providers have the option of offering more personalized advice on an opt-in basis. Cerulli says the most common implementation of this model to date has been the use of managed account platforms within retirement plans. “By offering these services on an opt-in basis for an incremental fee, providers limit concerns about inequitable service offerings that would exist through targeted marketing efforts. Instead, these enhanced advice offerings can be offered across the entire participant base, but are most likely to be adopted by those at higher income tiers and [those with] increasingly complicated financial situations,” Cerulli says.

Once investors are enrolled in these programs, they have the opportunity to further engage with individual advisers to address their financial concerns beyond the confines of plan investments. “This type of arrangement has the advantage of being a tangible benefit for all stakeholders: high-earning participants have access to their desired advice model, plan sponsors increase their employees’ benefit set, and retirement plan providers can gain incremental revenue while potentially enhancing long-term client engagement centered on holistic advice,” Cerulli says.

According to Cerulli research, before engaging with an adviser, investors in the HENRY segment are highly concerned about being able to trust their adviser, but, the firm says, by leveraging their incumbent provider status, retirement plan providers can largely minimize this concern.

For providers hoping to engage HENRY investors early in their investing lifecycle, Cerulli says, creating a service model that is both scalable and valued by consumers is a crucial challenge. Given these consumers’ stated preference for human advice vs. purely online models, the firm suggests providers will, at the very least, need to offer hybrid platforms that include a self-service basis for simple inquiries but that will also allow for ongoing engagement with qualified advisers when the investor deems this preferable.

The most important part of building market share within this segment is maintaining relationships as these investors accumulate assets, Cerulli says. “[Therefore], providers must ensure that the younger segment of their client base both recognizes and appreciates their advice offerings as their needs escalate. These clients do not need in-person portfolio reviews on a quarterly basis, but appreciate access to customized advice, not simply education, when facing important economic decisions, many of which will not involve their investment portfolios. Providers targeting this market will need to take the long view and realize that the benefits of reaping what they sow accumulate over years rather than quarters,” Cerulli concludes.

These findings and more are from the August 2018 issue of “The Cerulli Edge – U.S. Asset and Wealth Management Edition.” Information for purchasing the report may be found here.