Teresa Epperson May 31, 2011

Retirement Is Key to Advising Affluent

Much has been written about the opportunity for banks to advise affluent customers on retirement planning. Indeed, Mercatus has seen the importance of retirement as a financial priority hold steady year after year in our consumer surveys. Banks as a category have made significant gains in 401(k) rollover and retirement-driven share of wallet capture and have performed well, specifically among those affluent consumers who work with investment advisors.

Since the spring of 2010, Mercatus has worked with Pershing LLC on a research initiative focused on understanding the retirement opportunity within two segments of the advised affluent: the consumer and small business owner. The study, entitled “The Secret Knock: Unlocking the Retirement Opportunity,” reveals that the imperative for financial providers to make retirement a central theme in the customer relationship is as critical for the advised affluent consumer as it is for affluent consumers in general. Overall, the key to success for financial professionals is capturing the customer’s primary Retirement Solutions Provider (RSP) relationship. We found, among those who worked with bank professionals, 78% of affluent consumers considered those banks to be their RSP.

That’s important because there’s a lot of retirement money in motion. Between 401(k) rollovers, Individual Retirement Account transfers and transfers of taxable money earmarked for retirement, over $300 billion is available for investment among affluent consumers who work with financial professionals. When financial professionals are considered by their clients to be their primary RSP, they can attract significantly more assets. RSPs see gains in the capture of retirement money in motion from 45% to 81% and share-of-wallet gains from 50% to 76%.

These gains vary among professionals. RSPs at broker-dealers capture 90% of retirement assets among their clients versus 68% for bank professionals. Establishing one’s firm as the RSP should be a priority for bank professionals.

Those financial professionals who work with small business owners can also capitalize on the significant crossover opportunities that exist among their clients. Bank professionals have been successfully addressing this opportunity, with 64% managing both their clients’ personal and business retirement plans. Further opportunity exists among those small business owners who work with multiple professionals, as 38% indicated they would consolidate with one professional. To address this, financial professionals and firms must demonstrate capabilities that squarely position themselves as retirement experts.

In the wake of the financial crisis, affluent consumers have new priorities. They are seeking greater assurance that their interests are being looked after, more down-side protection and confirmation of the financial stability of their financial services provider. For those providers, an increased focus on managing consumers’ expectations around risk, offering products that deliver safety and guarantees and developing greater client trust are critical.

To succeed in today’s competitive retirement marketplace, we recommend that banks pursue the following strategies:

  • Ensure that the high-impact tools, services and products that financial professionals need to succeed – and that consumers want – are in place, including account aggregation tools, downside scenarios planning capabilities and formal retirement planning tools that are both consumer and professional friendly;
  • Leverage the brand strength, positioning and financial soundness of the firm and/or platform to solidify client relationships and build trust as today’s consumers are sensitive to issues related to financial strength and stability;
  • Reinforce the availability of checking and deposit accounts to enable professionals to have a more holistic relationship with their clients, and support the RSP relationship. Those professionals who offered checking and deposit accounts were more likely to be designated as an RSP, according to our study;
  • Provide professionals with the training, materials and tools they need to demonstrate expertise in retirement to both consumers and small business owners;
  • Offer an attractive small business 401(k) product that is easy to establish and manage in order to support financial professionals’ cross-sell opportunities with their small business clients.

Retirement is clearly an opportunity that, with the right set of offerings and capabilities, can be unlocked to drive significant value for firms that get it right. The marketplace is ready for financial institutions committed to delivering retirement solutions, particularly to those affluent customers who work with financial advisors.

Ms. Epperson is co-founder and partner at Boston-based Mercatus LLC, a retail financial services strategy consulting firm focused on the key areas of innovation and change within the industry. She can be reached at teresa.epperson@mercatuspartnersllc.com.

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