US: Most Wealthy Near-Retirees Underserved by Financial Institutions

According to Bain & Company, 70% of affluent boomers (who control approximately one half of rollover assets) have rolled out of, or are planning to roll out of, their current 401(k) and other qualified retirement plans.

A new Bain survey suggests that the majority of boomer rollover decisions, resulting in $250B annual inflows into IRAs, are made unprompted. Of the 80% of affluent near-retirees who use a financial advisor, only 30% are prompted by their advisors with retirement planning advice for critical retirement plan rollovers.

These self-directed asset consolidation decisions are fueling the growth of retirement wealth even further, as 50% of those that have rolled out of current plans also purchased other financial products; an estimated $19-38B opportunity in incremental assets over the next five years.

« The baby boomer generation is at the vanguard of changing the entire retirement landscape, » said Tom Dente, Bain financial services partner and survey author. « This generation continues to change the rules of the game. »

Bain’s Affluent Boomer Pre-Retirement Survey was conducted in November through December, 2004. The survey sampled the attitudes and financial needs of 415 mass affluent respondents – those in the 55-70 age range with average income of $100K or more. Of the 415 respondents, 299 were pre-retirees and 116 were retired. On average, respondents had $450K in retirement assets and $300K in non-retirement assets. Survey findings were consistent for both pre-retirees and retirees.

« There is a snowballing supply of wealth-in-motion being created by retiring affluent baby boomers, » added Dente. « However, there is also a seemingly large degree of retirement planning uncertainty, as more than two-thirds of baby boomers underestimate their retirement income needs. This despite claims by affluent boomers that they are fully-engaged in their retirement planning. The retirement landscape continues to be very fluid as demonstrated by some of the findings revealed in this survey. »

A Portrait of an Evolving Market

Bain’s survey reveals insights into the affluent boomer near-to-retirement market, and highlights several conflicting behaviors as this market continues to evolve, including:

— 66% of affluent boomers underestimate their retirement income needs – though 91% claimed to have been engaged in their own retirement planning

— 84% use an advisor, but 70% of those who do would prefer owning a product that guarantees retirement income, over a service that offers investment advice; even at lower rates of return

— Only 30% of respondents were prompted by their advisor or their employer to rollover assets (only 12% were prompted by their advisor). Yet, for those that were prompted, half who completed a rollover also bought additional investment products

— Investment returns are the most important factor in choosing an advisor, according to almost 90% of survey respondents, yet respondents who rolled their 401(k) to their primary advisor are also willing to « pay » for these returns as they rated cost as the least important factor in their rollover decision

Other survey findings

— Wide Decision-Making Window – only half of those surveyed made a rollover decision within three months of leaving their job. The more affluent are more likely to decide to rollover after leaving their job

— Willingness to Move Assets – more than 50% of all rollover candidates surveyed rolled out of their existing defined contribution provider to their primary advisor or existing broker

— Retirement Cross-Sell – one out of two affluent boomers want the convenience of one-stop, full-service financial advisor « shopping » for all of their financial asset management needs, including non-investable assets, such as property, life insurance and health insurance. Over 40% indicated they purchased additional products at rollover

— Focus on the Basics: Assets and Income Planning – asset accumulation, asset protection and income planning all rank more than 50% higher than tax planning and estate planning, in terms of importance

— Willing to Pay – wealthier respondents favor paying for advice as an ongoing percentage of assets and respondents rated cost as the lowest factor in choosing an advisor at rollover

What Winning Financial Institutions Need To Do

Bain’s research suggests that the rollover event is increasingly becoming the best opportunity to full-service wealth management for mass affluent boomers. Furthermore, rollover and retirement are the gateway events that allow institutions to capture a greater share of the wave of rollover and investment assets.

The global consulting firm recommends the following advice for financial institutions to capture the wealth-in-motion being created by affluent boomers:

1. Target the most attractive clients for financial advisors to pursue based on pre-retirement target segments and their needs

2. Create or enhance pre-retirement products for financial advisors that clearly serve the needs of the retiring baby boomer generation. The most important attributes will include: i) guaranteed income, ii) asset protection, iii) consolidation services and iv) specific advice through the advisor. Bain research suggests that IRA rollovers are an untapped opportunity, as affluent boomers both bring additional assets to the advisor during the rollover process, as well as consolidate other retirement assets. A majority of rollovers are currently made without notification from financial services providers

3. Train financial advisors and create support resources to attract and capture retirement assets from the target clients. It is important to communicate a clear value proposition for the financial advisor to pursue the opportunity, i.e., the product offerings should not be over-engineered and, at the same time, the incentive to promote the offering should be clear. According to Bain, first sell to the advisor, so the advisor will then sell to the customer

« Complexity in the way products and services are offered to retirement audiences continues to have a stranglehold on financial institutions that cater to affluent boomers, » offered Andrew Schwedel, a Bain financial services partner in San Francisco. « To be successful, financial institutions must cut through the complexity and get to the heart of wealthy retiree needs. »

About Bain & Company, Inc.

Bain & Company is one of the world’s leading global business consulting firms, serving clients across six continents on issues of strategy, operations, technology, organization and mergers and acquisitions. It was founded in 1973 on the principle that consultants must measure their success in terms of their clients’ financial results. Bain’s clients have out performed the stock market 3 to1. With offices in all major cities, Bain has worked with over 2,500 major multinational and other corporations from every economic sector, in every region of the world.

For more information visit www.Bain.com.

Contact: Cheryl Krauss, e-mail: cheryl.krauss@bain.com or ph.: 646-562-7863