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Ditch the palm trees: Don't Say "Retirement", Say "Freedom"

Changing terminology can attract more middle-aged investors

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  • Written by  Chris Brown and Laura Vara
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  • Comments:   DISQUS_COMMENTS
Ditch the palm trees: Don't Say "Retirement", Say "Freedom"
If you think today’s middle-aged consumers intend to get off at this exit, just like their parents did, you’ve missed a key shift, says Hearts & Wallets.
Affluent middle-aged investors, ages 40 to 60, are in their prime years as accumulators of financial assets. They are an essential market segment for retirement and investment products and services. Yet, industry marketers and product designers haven’t devoted proper resources to understanding what makes these investors tick.

Many middle-aged investors are changing their thinking about retirement, and the industry hasn’t caught up. Think about the look and feel of typical marketing materials in this space. Would you be surprised to hear that what they really want to accumulate is “bug off” money?

So finds a new study by our company, the retirement and savings research firm Hearts & Wallets.*  The nearby quote from the “Boston Downshifter,” a term to be explained further on, especially underscores the change in attitude.

This development fits into a bigger whole: A shortfall in communications. The study finds a continuing muddled value proposition around advice service models and pricing, especially around investors’ three screaming, often unanswered, questions:

• What do you do?
• How do you get paid?
• How do I evaluate you?
Where today’s advisors fall short
The advice service models being used across the industry today were largely developed for another generation of investors. Today’s investors desire more choice in fees and services—more of an à la carte approach. Instead, they are offered a commission or asset-based model in which investment selection and personal finance advice are provided as part of a single offering, regardless of whether all of these services are wanted.

Even worse than paying for undesired services is not being able to access desired services. Most models only offer personalized service with a threshold of a certain level of investment. Yet, some investors with less money would be willing to pay annual or hourly fees for personalized service.

The industry has an opportunity here to design flexible service models that better meet the needs of middle-aged investors, while generating new sources of revenue. Hearts & Wallets research identifies multiple dimensions that should be included in the design of new service models.

One of these is understanding and empathy. In other words, how well do customers feel that the firm and advisor understand them? 

    A Boston Downshifter on the importance of “freedom” money:
“If somebody ticks me off at work, and says to me one day, ‘Oh, you got to do this’ or ‘Blah, blah, blah,’ I’ll be like, ‘Okay, here’s my resignation,’ and actually walk away, since there’s no problem for me.”

Therefore, picking up on the changed attitudes towards retirement is critical. The ability of the banking industry to understand and respond to the new mindset and needs of these investors will determine success in winning the competition for the growing assets of this important investor segment.
Risking loss of a prime investor segment
Older investors control a large share of U.S. household investable assets, but they are actually not the biggest investor segment.

Our firm identifies “Pre/Post Retirees” this way: the already retired; those who say they may retire within five years; fully employed seniors; and investors age 65 and above who do not plan to retire. Our data indicates these people control over $10 trillion in bank, retirement, brokerage, and insurance assets.

Early, Mid-, and Late-Career investors control about $13 trillion.

Thus, affluent middle-aged investors deserve a closer look. They will continue to amass assets, while older investors begin to draw down their wealth and die out.

Financial services firms that acknowledge the different tastes of middle-aged investors and adapt their service models to offer more choice in fees and services will be well positioned to emerge as the primary service providers for these individuals when they are in their prime years of wealth accumulation. Research by many experts has pointed out that this group of investors isn’t currently saving enough for their golden years. By taking an approach that resonates with this demographic, financial firms will not only be connecting with this essential investor segment, they also will be motivating these individuals to save more. To be positioned successfully, bankers must understand the attitudes and behaviors of these investors.

There has been a dramatic shift in the way retirement is perceived over the past several years, according to Hearts & Wallets’ ongoing studies of investors of all ages. For many, retirement is no longer viewed in traditional “gold watch” terms, as an event occurring on a specific date.

Instead, nowadays retirement has come to be seen as a time of life when the individual can no longer work, or to use the consumer’s words, is “unemployable.” 

The financial services industry needs to execute in their communications, products, and services on the reality that most investors do not plan to “retire.”
Alternative: Learning the meaning of “freedom money”
    A Chicago Upshifter on today’s meaning of “retirement”:
“I don’t think retirement is the buzz word it once was. It just doesn’t have the cachet when you say it, but speaks almost unequivocally the same to all of us. ‘OK, yeah right, retirement. OK, yeah, I’ll win the lottery.’ It just doesn’t have the meaning behind it that it used to have.
   "I don’t think retirement for most Americans anymore is going to be 65 and not doing another thing. You may not do the same 60 hour a week job that you’re doing now, but most people are going to be doing something.”
The most recent Hearts & Wallets nationwide study, Acquiring Mid-Career Accumulators: Positioning Advice and Disclosing Fees with Upshifting and Downshifting Investors, included middle-aged investors with a minimum of $100,000 in assets (most with $250,000 to $1 million in assets) who were actively thinking about advice service model pricing. The study sought to:

• Understand the “pain points,” or questions that motivate these investors to seek advice or solutions.

• Determine how the investors want to access and evaluate advice.

• Test concepts that offer service model choices in terms of advice and pricing, including bundled, unbundled, fiduciary, lump sum, hourly rates and more--a key strategic issue in advance of 2012 fee disclosure requirements.

• Obtain insights into attitudes on retirement and retirement messaging by evaluating actual advertisements for retirement advice currently in the marketplace.

• Unlock trial and acquisition of those investors in play by behavioral segment

In the study, the conflict between investor perception of retirement and the traditional theme of retirement is clear. And, this conflict makes middle-aged investors feel few industry competitors understand or empathize with their attitudes.

Not many financial services providers have been able to change the dialogue from the singular focus of traditional retirement to a multi-dimensional view of retirement that Hearts & Wallets has labeled as “freedom.”

In essence, when these investors say they want freedom money, they want “bug off” money.
They desire a reserve fund that will allow them to walk off the job if they are treated unreasonably or are sick of their job. Having freedom of choice gives them peace of mind.

The key to connecting with these investors is developing relationship messaging that relates to this new reality, not to the reality of their parents’ generation.

Traditional retirement marketing depicting a life of leisure on the golf course, or even an active retirement, causes many younger investors to discount the message and the messenger.
Getting ahead of 2012 fee disclosures
The investments industry needs to address these issues prior to the 401(k) fee disclosures required in 2012. This change will give investors the framework to ask questions about price and value in their own retail relationships. These are questions already very much on their mind.

Investors want to understand what they are getting, what they are paying for, and how to evaluate the provider. By clarifying the advice service model and pricing value propositions now, financial services firms can anticipate questions that investors will have when fees are printed on 401(k) statements of employer-sponsored retirement accounts.

A proactive strategy will help improve investor trust, which is currently very low.
    A Los Angeles Upshifter says:
“As consumers of financial products, we’re changing, but investment firms are really not changing yet. So, these are concepts that may involve a change--lowering percentages, getting what you paid for, choosing your own level of service--and I think that’s a plus. All the concepts are a little bit innovative, but my experience differs from these concepts, and [my experience] hasn’t changed. They’re still charging a ton of fees.”

Understanding “upshifters” and “downshifters”
To gain a better sense of which value propositions might appeal to affluent middle-aged investors, Hearts & Wallets tested advice-pricing concepts in focus groups of leading-edge behavioral groups of asset accumulators:

• Upshifters (more advice): Those investors who recently consolidated accounts with one provider or who switched providers, or who are seriously evaluating doing so, to obtain more advice.

• Downshifters (more independence): Those investors who recently increased business or are seriously considering doing so with a provider who provides more empowerment and cost-effectiveness.

• Engaged and Staying Put (status quo): Those actively using their current services and who are reasonably satisfied with them.

A major finding from our concept testing:  If a financial services company’s offering is positioned as a service--as opposed to a product--it is important to deliver all that the customers expect of a service provider. A key dimension, as mentioned earlier, is understanding and empathy. Another is timely responsiveness: An investment advisor who not only calls when the market is tanking, but also has recommendations for the investor, will perceived as providing strong service.

Advisors can teach the customer to evaluate how well the services are being delivered, to their mutual benefit. Marketing can position the advisor’s service points such that its strengths are underscored.

A good marketing strategy is to offer choices in pricing along a scale, depending on the customer’s chosen service level.  This can be reinforced through training of the advisor’s front-line staff.

Banking institutions that take steps to better understand and communicate with their middle-aged investors will be positioned for success with this essential market segment, now and in the future.   About the authors
Chris Brown and Laura Varas are co-founders and Principals of Hearts & Wallets, LLC, the research firm whose multiyear retirement and savings investor research series is outlined at H&W is an independent, third-party research firm that focuses on investor needs and competitive best practices in saving and investing for retirement. Brown is also founder and principal of Sway Research LLC, and Varas is also president of Mast Hill Consulting Inc.

* About the study
This article relates insights from a study based on nine focus groups conducted in Boston, Chicago, and Los Angeles in June 2011 with middle-aged investors, as well as the firm’s ongoing body of quantitative and qualitative research.
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