Uncertain financial markets aren't just giving Wall Street agita. Baby Boomers, particularly those a year or two away from retirement, are beginning to fear a shortfall in retirement assets. As the markets decline and Boomers wade through mountains of investment information, their stress levels are rising-and so is the pressure on financial advisors to perform.
Adversity could open the door to opportunity. Many analysts feels that now is the best time for banks to regain lost ground on the wealth management front. In recent years, brokerages have dominated commercial banks in spite of the entrenched relationships that banks have with customers.
The challenge for most banks is that they have geared themselves to help clients accumulate money, says Alois Pirker, senior analyst at Aite Group. With home prices spiraling down and inflation on the rise, now is not the time for banks to hang their marketing efforts on helping Baby Boomers to "achieve their dreams," "reach their number," or "alleviate their fears." These techniques that will not work on the large population of Boomers that are a year or two away from retirement, or those that have just entered it. Pirker says that only 10 percent of retirees turn to banks once they consolidate their money and begin the decumulation phase.
"Traditionally, investments that consumers have made up to that point get turned over into some pension or annuity-type of product that delivers cash flow-and that cash flow is what consumers are after when they retire," Pirker says. "That means fee-based products that deliver better returns for the firm [are those that] consumers move away from."
Celent senior research analyst Robert Ellis has his doubts that banks can make the sales and service switch because it means a top-down change. "Everything that we've done is being focused on the accumulation phase, from financial planning to investment selection. In reality, we're going to have to switch from accumulation to decumulation on a distribution base, and that is a mindset change."
Lisa Weber, president of MetLife's Individual Business, knows something about taking business away from banks.It starts with being proactive. In the past year, she has talked to her advisors about being the first to make the call to clients-and to hit the streets if necessary. "People are worried," she says. "They want to put money under a mattress these days, but they don't need to do that."
MetLife and other nonbank financial firms have capitalized on current market conditions by doing things banks generally shy away from: talking through scenarios and options. "[Boomers] need to feel like they're having a conversation with somebody who understands their needs," Weber says.
"[It's about] getting people to understand. The way you solve issues of running out of money before you run out of breath is to have the right guarantees in place," she adds. "This is the time for our advisors to deepen relationships that they already have; to call somebody up who's worried about their 401(k) balance and to be able to talk through those worries and possible solutions and alternatives."
But Debra Radway, director of Harris Bank's wealth advisor division, sees things differently. Banks have close relationships with clients. When the market falls, clients are looking for advice. Who better to trust than a bank? "When the market is going strong, people tend to think they are better at investing than they truly are because all boats are rising as the water rises," Radway says. "When you get into a challenging market [environment], individuals feel they need help."
It's not just about retirement assets. Healthcare concerns have risen, says Harris's svp of Trust and Estate Services, Debbie Korompilas. The Chicago-based bank, which has over $44 billion in assets, has honed in on those concerns through a division called Harris enCircle.
Aite recently surveyed over 500 mass-affluent to high-net-worth individuals. What they found was "[these] investors approaching retirement aren't waking up in the morning worrying if they will 'achieve their dreams' or if they'll reach 'their number.' Their biggest concern-primarily because there's so little history and experience regarding the topic-is the potential financial impact of unforeseen healthcare expenses." In essence, they are scared, and they need to be handled delicately.
"We try and establish that relationship with them early on and give them that comfort in knowing that there is somebody there for them to step into their shoes and handle their financial responsibilities," says Korompilas. "As part of Harris enCircle, we have developed a healthcare management component where they can go for guidance for a short-term situation or perhaps something a little longer." As Americans live longer, they are seeing more healthcare issues. But they still want to remain in their homes.
Other banks that don't have as much of a wealth management focus as Harris does are likely to find themselves on the outside looking in as Boomers start to flood into retirement, says Celent's Ellis. During the decumulation phase, which is going to take on greater emphasis as Boomers start to hit 65 years old, high-net-worth individuals tend to drop from four to one-and-a-half advisors, Ellis says.
While banks may be in a position to seize market share, Ellis doubts that will actually happen. The banking industry has hit hard times and many banks are looking for quick fee income. Helping a customer figure out how best to stretch their money is not a bank's expertise, he says. "The bank is the organization that people trust more than any other financial provider and yet they still cannot crack a way to create a value proposition for people going through decumulation. There is an opportunity for banks to seize, but am I optimistic they will capitalize on it? No, I am not." (c) 2008 U.S. Banker and SourceMedia, Inc. All Rights Reserved. http://www.americanbanker.com/usb.html/ http://www.sourcemedia.com/