Moreover, when firms focus on age, they then to fixate on older investors, according to the Hearts & Wallets June report, “Competing in the Next Great Financial Services Battlefield: Strategies and Tactics for Winning the Hearts & Wallets of Mid-Career Accumulators.” The report’s authors note that older investors are often perceived to be more profitable using the metric of immediate revenue flow, rather than taking a longer-term view and building loyalty with younger savers.
In some cases, the industry may misclassify some older investors as pre-retirees even though they are focused on wealth accumulation and do not consider themselves in the pre-retirement stage. According to the Hearts & Wallets report, that results in a disconnect in the way the industry communicates with these investors and the products offered.
Nor is the segment being overlooked insignificant; the report estimates that these “Accumulators” constitute over 80 million households with $14 to $15 trillion in total investable assets, about half of all U.S. household investable assets. More specifically, the report describes them as mid- and late-career investor who range in age from about 28 to 64 and do not consider themselves “pre-retirees.” Rather, their focus is on accumulating wealth to secure their financial future – which may include retirement when they are eventually unable to work.
The study, based on a survey of executives in 16 financial services firms with an estimated $13 trillion in assets under management or administration as well as assessments of leading online financial services firms and innovators who are addressing Accumulator needs, found that only half of respondents had an organizational approach to address accumulation. “Even these don’t appear to have a company-wide strategy to link all business lines in a visionary way as they have done with retirement income products and services,” according to report co-author Chris Brown of Sway Research. The study found that few firms have a way of measuring progress with different age groups in a systemic way.
Another challenge – and point of confusion – for investors is the wide variation among providers in the recommended target savings goal for retirement. The report cites the example of a hypothetical middle-class saver, where the range went from just over $1 million at E*TRADE and Schwab to $3 million at Bank of America and Fidelity. The variation is the result of different, sometimes hidden assumptions about retirement income replacement rate and whether Social Security is considered. “The best practice is to lay out the key assumptions transparently and simply in the way that E*TRADE and Vanguard have, but unfortunately, not all calculators do that,” said report co-author Laura Varas of Mast Hill Consulting. “An online experience that results in an unrealistic goal stops action rather than inspires it. The range across competitors is confusing.”
Varas notes that “Financial services providers have approached accumulation as something they have always done, but an innovator can transform the products and services offerings and capture this important market segment.”
Other survey highlights:
- Firms are even more in love with retiree and pre-retiree life-stages, devoting about 51% of their budget, resource allocations and management focus to older investors, nearly double the 24% in 2007.
- Since employer-sponsored retirement plan businesses allocate nearly 2.5 times as many marketing dollars to accumulation-oriented solutions than retirement income, the report says there is an opportunity to make the most of this investment in terms of messaging and competitive relevance.
- Not one of the major financial services company executives thought their current accumulation options “worked just fine.”
- Distributors, such as retirement plan providers and brokerage firms, are more interested in accumulators than asset managers, suggesting that asset managers are missing an opportunity to help out their distributors, according to the survey authors.
- Many companies are already devoting half of their marketing and IT budget to accumulation customers, the same amount as to retirement income customers. They are not, however, organized strategically to get the most out of that investment.
- All firms who work directly with customers should be working towards collecting asset, sales, and market share data by age group. Having some degree of life‐stage or age‐based reporting is a best practice that is associated with stronger market position.
- Beyond securities, at most firms, investment products for Accumulators are IRA Rollover, Target‐date/risk funds, Roth conversion, or College savings plans, and very few products beyond these.
The study has recommendations on products, sales and communications strategies and competitive analysis about those making in-roads online and the overall innovators with the large and growing Accumulator market. More information is available at http://www.heartsandwallets.com/. Information about the Accumulator study is available at http://heartsandwallets.com/wp-content/uploads/2010/06/hw_comlandscpbroch_8_pgs.pdf