Carving up a Piece of the Retirement Pie
BY KENNETH CLINE
Banks will need to overcome weaknesses in brand image and marketing in order to capture more assets from retiring baby boomers.
Executives from three banks involved in the retirement planning/asset management business say the industry faces an unprecedented opportunity with the transfer of wealth generated by the retirement of the baby boomer generation. The challenge for banks will be competing with nonbanks, such as brokerage, insurance and mutual fund companies, who are already well established in the wealth management field. Banks, they say, will have to leverage their distribution systems and strengthen their brand image in this area.
As bank strategists look ahead to the end of this decade and beyond, the greatest single opportunity facing them will likely be the capture of assets from retiring baby boomers, or the generation born between 1946 and 1964. Already, by 2006, the retirement market overall represented a $16.4 trillion opportunity, according to the Washington, D.C.-based Investment Company Institute.
Are banks up to the challenge? Can they compete effectively with the non-banks, such as brokerage, life insurance and mutual fund companies, which are already well established in the retirement planning/asset management field?
BAI Research provides more answers to that question with a study to be released in the next issue of BAI's Banking Strategies. In this issue, executives of three banks that are actively pursuing the retirement market share their point of view: Bill Griesser, senior vice president and director of product & distribution strategy for Charlotte-based Wachovia Corp. (http://www.wachovia.com/); Karen Lare, president, WM Financial Advisors, for Washington Mutual Inc. (http://www.wamu.com/personal/default.asp), Seattle; and Ken Yarbrough, senior vice president and director of retirement strategies, Atlanta-based SunTrust Banks Inc. (https://www.suntrust.com/portal/server.pt)
All three executives said that their institutions and nation's largest banks overall are keenly focused on the transfer of wealth generated by retiring boomers. And they believe that banks bring some important strengths to the contest, such as customer trust and an extensive distribution system. The major problem is marketing: bank brands are not as tightly linked in the public mind with retirement planning and asset management as are the brands of non-banks. And bank retirement efforts must compete with other priorities in terms of mustering resources to throw into the competitive marketing struggle-what Yarbrough terms "internal shelf space issues."
In the next few years, banks will need to devise strategies to overcome these challenges. The effectiveness of their response will help determine their share of the retirement asset pie for decades to come.
Q: Do you find that the banking industry now is more focused on capturing assets for retirement? Do you see a new focus on this?
Yarbrough: I do, and I think timing is the key. The investment divisions of banks have now reached a maturity stage, where they are no longer a novelty or an add-on. People are saying, "Okay, we're a full service financial firm and this is part of our portfolio-a core competency." And it had better be, because the demographic opportunity is upon us.
Griesser: The larger banks are making a deliberate attempt to define themselves as institutions that can service the boomer generation from a retirement perspective. However, the way each one positions itself in that market is very different because they either have different value propositions or different distribution channels available to them.
But while the positioning may be different, you do see a deliberate focus by those larger institutions around the opportunity.
Lare: Banks see themselves as uniquely positioned to help customers with their retirement needs. The emphasis has been there for some time but I do think more banks are focusing on the opportunity to make sure they've got the right products and services to offer.
Q: And what's driving this focus?
Griesser: There is both an offensive and defensive rationale to the focus. From an offensive perspective, there's tremendous amount of opportunity from what I call "money in motion"-the transfer of wealth that's occurring as the baby boom generation enters retirement.
With that comes a number of financial needs, including managing money and debt and consolidating assets (IRA rollovers). So, from an offensive point of view, banks are seeing a tremendous opportunity to increase their deposit base or brokerage assets under management. And certainly for Wachovia, retirement is a very important focus as it is part of our diversified business model.
The defensive side of it comes from the realization by banks that a lot of assets could conceivably be consolidated away from them by brokerage firms or asset managers that offer wide ranges of financial services. It's no secret that the wire houses are offering checking services, budgeting services and traditional deposit products-as are some of the major money management and asset management firms.
If any of those institutions can really convince boomers that they can offer the full suite of services, the one-stop shop, or at least become the customers' primary financial services institution, then that's a competitive threat to banks.
Lare: The baby boomers are the ones that are getting the press-the money that's rolling out of 401(k) and pension accounts as people retire. These customers are going to need some help in setting up income-generating accounts so they can live in the style to which they've become accustomed.
But there's also a whole generation of people who are just starting to invest. And let's hope they start early because they don't have pension plans. There are very few companies that offer a secure pension-type environment for workers starting out. So the other reason I think firms are starting to focus on investment services is to start helping customers at an early age and start building loyalty.
Q: How can banks compete with the mutual fund and brokerage companies?
Yarbrough: Banks have always been at a marketing disadvantage because, unlike those other companies, we have to sell everything-deposits, loans, business banking, mortgages, etc. So, retirement is just another of those shelf space issues that we have to fight for.
On the other hand, we do have a distribution advantage over the Vanguards (http://www.vanguard.com/VGApp/hnw/CorporatePortal) Hartfords (http://www.thehartford.com) and Fidelities (http://www.fidelity.com) of the world. We just have to leverage that advantage. And by the way, we also do business with all those companies-we offer their products-so it is an interesting world.
Q: Is it basically a marketing challenge for banks?
Yarbrough: Yes. Everybody has the same products and even if you put on a new bell and whistle, you're going to be copied almost immediately.
So the challenge is: how do we take those products and simplify our message to the customer who trusts us as an institution? Can we talk on their level, in their language, about what we can do to help them reach their retirement goals?
Another challenge is to push retirement decisions earlier in the lifespan, so that you're not getting customers when it's too late for them to do anything about a successful retirement plan.
Lare: I do think banks can compete, especially since we look at customers from a holistic view. We're able to look at the customers' overall needs, not just from an investment standpoint.
I think we're able to offer customers a one-stop-shop that somebody like Fidelity Investments just doesn't offer. If we can get to know you and help fund your small business and help you on your mortgage and have a great credit card offer and can really be your one-stop-shop, for a lot of customers that's really a preferred way to go.
Griesser: The competitive advantage of the non-banks stem from the fact that retirement planning, investment management and retirement income planning represent a natural continuation of the investment planning services that they already provide.
The non-banks also enjoy brand awareness when it comes to investments. When people have a pot of money to invest, they think of a brokerage firm for that service. By contrast, when they think of daily money management, such as checking accounts, personal loans and mortgages, they think of banks.
From a bank perspective, the advantages are familiarity, trust and a growing realization that banks have expanded the number of their services over the years and their distribution capabilities-branch, online, call center, etc. I do think banks have the ability to leverage their distribution capabilities. For example, the branch where we helped you with your checking account and mortgage is now able to help you with your retirement investing.
But a lot of that leveraging has to be done in a manner that suggests to customers that banks are a credible provider of the investment solution that is necessary for managing boomers' money.
Obviously, if you are targeting affluent customers, you can't just simply have a couple of products on your shelf that are of the one-size-fits-all category. On the other hand, if your customer base is largely mass market, you can't deliver very detailed investment planning and so forth in a cost-effective manner. So, it's really getting that product set matched up with your existing distribution capabilities.
Q: Is Wachovia prioritizing this area; do you have an approach to the market that may differentiate youfrom your competitors?
Griesser: Wachovia is very committed to this market. A few years ago, Ken Thompson, our chairman and CEO, launched an initiative to look at the retirement opportunity and its impact on Wachovia across both our banking and our brokerage businesses. As a result of that initiative, a new group was formed within the Capital Management Group, which is one of Wachovia's primary lines of business.
The Capital Management Group used to encompass just our brokerage and asset management groups. Now it also includes the Retirement and Investment Products Group, whose mission is largely to be a cross-enterprise organization that manages retirement products such as 401(k) plans, IRAs, annuities, etc. The group works across our different distribution channels, both in the bank and in brokerage, to ensure that we are targeting the retirement opportunities with the right type of messaging.
Lare: At WaMu, we're working on a number of fronts. We want to make sure we have all the products and services to offer customers. We have WaMu IRA and SEP plans. We're working with our small business banking team to bring out a uniquely WaMu-looking 401(k) program. We want to make sure we're well positioned in all of these categories.
We're also designing products to meet the needs of those investors just getting started because we believe that's an under-served market. And we really owe that to our customers. If you consider the power of investment compounding and start investing in your 20s, it's phenomenal how that can work in your favor and make you a millionaire by the time you retire.
So we want to make sure we address the needs of all of our customers at their different life stages.
Q: What is SunTrust's general strategy for capturing this market?
Yarbrough: It's a combination of having the right product set, leveraging all of our delivery channels across multiple lines of business, and staying true to our strengths in creating and maintaining relationships. The challenge will be to communicate the message in the language of the buyer. We have to communicate on their terms, not ours. We have to be approachable and terrific at relationships and that is where SunTrust is going to win.
Q: From a marketing standpoint, how is SunTrust approaching these people? Are you using television, print, radio?
Yarbrough: At this point, no. We're doing very little advertising. It's back to that question of shelf space. I have a marketing budget that's less than Fidelity's. But yet, I have to take my marketing budget and divide it by five lines of business and dozens of products and services. Fidelity can promote one thing.
Q: Somehow, you've got to leverage the connections you already have in the customer base, right?
Yarbrough: We do, on both the personal and the business sides of our customer base.
Although a challenge, it's quite fun. I'm a marketer who came back to the banking business in 2006 after thirteen years because of the huge opportunity that this boomer wave represents. It's fun to be in a fight that's important.
We've got maybe two or three years to figure it out and then the wave is upon us. In 2006, the first boomers turned 60. There are 8,000 a day turning 60 and 12,000 a day turning 50 in the United States, so you'd better be ready.
This is a time-sensitive issue. This opportunity has an expiration date.
Mr. Cline is senior editor with BAI's Banking Strategies.