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:
- 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.