Bank Investment Consultant
Baby boomers’ investment focus has changed in the past few years.
There was a time when clients wanted the best investments to build assets, said Randy Spears, the head of financial planning and the regional director of the third-party marketer Investment Professionals Inc. in San Antonio.
Today, he said, “they want to talk about how to get income from their investments.” About 60% of his firm’s revenue now comes from this area.
“We’re at an interesting juncture,” said Jake Girouard, an adviser with Uvest Financial Services Inc. at State Bank of Lizton in Brownsburg, Ind.
In seven months with Uvest, Mr. Girouard has expanded his book of business 47.1% to $25 million, and most of it is from retirement income planning.
“It’s a big issue for the baby boomers,” he said. “Social Security will be there, but company pensions are all but gone, so they’re looking for income from their retirement accounts.”
Retirement income planning is a big part of what many reps are doing these days. A DSG/Symetra survey of 958 bank reps found that 75% have been working with retirees and individuals near retirement for more than five years and earn most of their compensation from retirement income planning.
But banks don’t appear to be keeping up with the accumulation-to-distribution shift, the survey said. To compete, banks have to invest in more sophisticated planning software and training to help reps determine what products clients need to keep income flowing in retirement.
Banks and their advisers have a tremendous opportunity to capitalize on this business because of the mass-affluent individuals they target. Independents are all chasing more deep-pocketed clients.
Most banks target mass-affluent individuals with assets of $50,000 to $1 million, though the majority of clients fall into the $250,000-to-$500,000 range. Meanwhile, independent planners and wire houses primarily target millionaires.
According to a report by Milliman Consultants and Actuaries, there are 2 million households in the “upper-affluent,” or millionaire segment; about 32 million mass-affluent households; and 6 million “lower-affluent” households.
Bank reps need packaged products and income-planning tools that the mass affluent want.
Banks lag in creating these products, which include fixed-income vehicles and annuities, said Jim Pirak, Symetra’s vice president of financial communications.
“The reality is that the income focus has only come about in the past few years,” he said. “Banks are behind, but they can quickly make up ground.”
And they will need to. Bank reps don’t have time to develop financial plans for each client. They talk a good game — 86% of bank-based advisers say they provide advice instead of pushing products. But at the same time, more than 75% rank investments or products that provide retirement income as the most important part of a conversation with a new client. Independents ranked it last, at 43%, behind needs analysis and rebalancing portfolios.
“The definition of financial planning is a little different in the bank channel” from the independent and wire-house distributors, said Heywood Sloane, a principal at DSG and the managing director of the Bank Insurance and Securities Association in Wayne, Pa. “Both the planning community and bank-based consultants see themselves as advice givers, but when you drill down to the kind of analysis they do, that’s when answers come out differently.”
This may be a function of the types of clients independents serve. A client with $1 million or more is likely to have existing portfolios of assets, whereas a mass-affluent client’s assets often consist of a house and a 401(k) plan. The mass affluent are looking for draw down retirement strategies.
“If you target clients with complicated affairs, you have to go through a complicated plan,” Mr. Sloane said. “But bank clients are just looking for an income flow in retirement, which is easier to accomplish. The solution they want is one that simply gets them where they want to go.”
What products and strategies are bank reps recommending to provide retirement income? Largely, variable annuities with living benefit riders, dividend-paying investments, and systematic withdrawal plans. “Annuities get a bad rap, but they’re emerging from the dark side and 'guaranteed for life’ really means something to people,” Mr. Spears said.
Mr. Sloane said the service has changed. “Ten or 15 years ago, reps would look for income from laddered CDs. But baby boomers are more attuned to stocks, bonds, and investments than their parents, because they have to depend on their own investments for income,” he said.
Symetra’s Mr. Pirak said that having the right tools and training to assist these clients is essential.
This is important if bank reps are to gather more share. Almost two-thirds of bank reps say they have aggregated more than half of their clients’ assets, compared with 80% of independent firms providing retirement income planning services who make the same claim. Just 20% of bank reps say they capture 75% or more of their clients’ assets. But this could change when bank reps reposition themselves, Mr. Sloane said.
The strength of the retirement income conversation is that it maneuvers clients toward talking about their whole financial picture. “In order to plan accordingly, you need to know what assets your client holds elsewhere,” Mr. Girouard said. “If advisers do their jobs, this is an opportunity to bring these assets in.”
The Milliman report recommends that banks train advisers to talk about pensions, anticipated Social Security payments, employment options, and personal saving. Most banks are doing this, though 19% of reps said they had no retirement income training and only 20% of reps said they were “very satisfied” with their training.
The biggest winners will be advisers who talk with their clients early, while they’re still saving for retirement, Mr. Sloane said.
