By 2011, baby boomers are expected to move roughly $2.1 trillion out of individual retirement accounts.
According to analysts, the companies that hold those accounts will see the vast majority of those funds roll into the hands of a competitor.
"This is the nut all distributors are trying to crack," Laura Varas, an analyst with Financial Research Corp., said during a presentation at a conference the Boston firm hosted in its hometown. Adding in the anticipated rollover of defined contribution and 401(k) plans, in addition to investment-only accounts, the total amount of assets in play is expected to be close to $5.1 trillion.
Merrill Lynch & Co. Inc. and MassMutual Financial Group are among firms that have come out with programs to target people over 55 years old, a segment that is said to control about 70% of the investable wealth in the United States. Those over 65 are the biggest group of investors, controlling 40% of the wealth, according to Financial Research data.
Participants in the market have found that retirees value predictability and simplicity. For example, though only 20% of retirees have purchased separately managed accounts, those who have bought them tend to rely on them heavily, investing, on average, 30% of their assets, Ms. Varas said.
"The No. 1 thing people like is income," she said. And income is what rollover product pioneers have focused on.
"Determining a month-to-month cash flow is challenging for clients," said Jennifer Bennett, vice president of retirement marketing for Merrill Lynch. "We want people to feel there is a 90%-95% chance they can achieve their goals."
To provide that, the Merrill Lynch Retirement Income Service program guides advisers on determining the strategies and product mixes to best suit their clients, and includes what Merrill calls its "personal paycheck" - essentially delivering investors a monthly ration of their assets, based on their regular expenses, from electric bills to credit card purchases.
In its own survey of retirees, Merrill Lynch found that among those who had a solid retirement plan, 67% felt well prepared, compared with only 23% of those without plans.
Acting like an allowance, or a pension, the personal paycheck service helps reinforce investors' confidence that their remaining assets are under control, while relieving advisers of the task of managing their clients' day-to-day banking. Paychecks can be adjusted for one-time expenses or changing circumstances. Clients also receive a report card that illustrates whether their spending is on par with their longer-term plans.
Though 38% of the respondents in the Merrill Lynch survey said that they planned to work, at least part time, in retirement, the idea behind the program is to build confidence. Apparently, investors across income brackets seek that sense of security.
In September, when it introduced the program, Merrill said it expected the product to be most popular with clients who had assets of $250,000 to $500,000. Ms. Bennett said the New York company was surprised by the demand among those with $2 million in the bank.
"Retirement is like an earthquake," she said. "It's preparing not just for what you know will happen," but also for what you don't know. Ms. Varas said that is why products that help people hedge health-care expenses will likely have a large audience.
MassMutual's model, unveiled in June, slowly moves clients over time into annuities that provide a predictable income stream.
"The question is, how do you balance flexibility with security?" said Peter Geismar, vice president and product manager of the Boston company's retirement income solutions group.
MassMutual's ladder-like approach helps strike this balance by complementing the typical pattern people face in which they need more liquid assets when they first retire but as time progresses, their expenses become more fixed.
Clients also determine, based on their overall goals and immediate circumstances, whether to derive the income from their funds, reinvest it by purchasing new funds, or use gains to buy annuities. Likewise, annuity income can be reinvested, used to purchase a different type of investment product, or taken as cash.
"You have to offer flexibility," Mr. Geismar said. The more flexible the program, the more confident clients will be that their specific needs are being addressed, and the more comfortable they will feel.
There is nearly no limit to the demand for rollover products, either, Ms. Varas said. But to avoid being steamrolled by the competition, companies must make products easy to understand for investors and advisers alike.
"They want a neat extension of their practice," Mr. Geismar said. That means having products that are simple to sell, easy to manage, and allow advisers time to spend with clients, not balance sheets. Besides transparent structures, competitive companies will need to provide advisers with tools, marketing materials, public education campaigns, and imagination.
"It's going to be a long development cycle," Ms. Varas said.
