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From Resource, April 2006
Copyright by LOMA
Forever
Young:
Strategies
for Serving the Boomers
The generation whose mantra was never to trust anyone over 30 now has members
twice that age (bummer). Here’s how financial services companies intend to
help them have what’s sure to be an unconventional retirement.
By
Jennifer C. Rankin
You know something’s up when “Mercedes Benz,”
Janis Joplin’s musical indictment of materialism and selfishness, is
being used to sell that particular car. As Bob Dylan once said, “The times,
they are a-changing.” Having recently appeared in a cameo spot for
Victoria
’s Secret underwear, he should know. As do the Rolling Stones, who are singing
for Ameriquest.
The
first Baby Boomers—who were weaned on hula hoops, coonskin caps and Barbie and
grew to embrace counter-cultural ideas like civil rights, women’s liberation,
and environmental preservation—turn 60 this year. Along the way, many
exchanged their ideals for corporate cash and the good life it buys. Today, as
they face the end game, most are trying to secure both success and significance.
Madison
Avenue, working for everyone from Harley Davidson to Fidelity Investments, is
mining that paradox. The print and broadcast media are flooding the Boomers with
the images and music of their youth, hoping to persuade them to buy everything
from eco-vacations to long-term care insurance. As you’ll see, it’s a tricky
proposition.
Tick
Tock
Just
who are the Boomers? Born between 1946 and 1964, they are 77 million strong (see
Talking
About My Generation,
below). The so-called leading-edge Boomers were born between 1946 and
1955, while those born between 1956 and 1964 are referred to as late Boomers.
Marketing experts say the two groups differ in some very fundamental ways.
Leading-edge Boomers, for instance, were eligible for the draft, but the draft
lottery had ended by the time the late Boomers came of age. Leading-edge Boomers
remember the family’s first black-and-white TV, while late Boomers grew up
with a houseful of appliances. Leading-edge Boomers fought for a woman’s right
to work, while late Boomers coped with working mothers.
It
is important to remember that neither group is homogenous. The leading-edge
Boomers, for example, include men who had crew cuts and flew choppers during the
Vietnam War and their pony-tailed, make-love-not-war younger brothers. That
President Bush, Arlo Guthrie and Oprah Winfrey are leading-edge Boomers
exemplifies the diversity of the group.
Be
that as it may, the generation generally characterized as countercultural now
has a decidedly conservative bent. It is responsible for such trends as the rise
of fundamentalist Christianity, helicopter parenting—that is, micromanaging
children—and corporate power.
Nevertheless,
all Boomers have
been profoundly shaped
by a common group
of influences. Despite some
significant differences, their coming of age corresponded
to that of the television networks, the space program, mass marketing, minority
rights, birth control, the rise of communism and more.
While
they had more than their fair share of media and marketing attention when they
were young, more than half are now 50 or older. Traditionally, that’s when
marketers lose interest in consumers, assuming they are attached to their
favorite brands and pinching pennies for their impending retirement years. Many
believe, however, the Boomers will be different and are pitching products and
services to them with the enthusiasm they usually reserve for their prime target
markets—that is, consumers 18 to 49 years of age and their young counterparts,
the 18 to 34-year-old set.
Financial
services companies in particular have targeted the Boomers and are ramping up
their advertising campaigns and tweaking their products in response to several
drivers. First, another Boomer turns 50 every eight seconds. That translates to
10 to 12 thousand per day and four million per year. Today, 38 percent of the
U.S.
population is 50 and older; by 2020, that group will comprise 47 percent of the
population. Second, people who are 50 and older currently earn more than half of
the discretionary income in the
United States
. Finally, the oldest Boomers turned 60 in January of this year.
In
addition to studying demographics, financial services companies are trying to
figure out what makes the Boomers tick.
They
may want to start with Roger Daltrey, a working class boy from London who sang
vocals for The Who, a wildly popular English band that offered more than a few
hints in its 1978 album Who
Are You? At the time, Daltrey was the
voice of youthful rebellion. Today, he is a wealthy family man and a Commander
of the Order of the
British Empire
for services to music, the entertainment industry and charity. Along the way,
his music, from the inaugural My
Generation album in 1965 to his swan
song in the 1982 album It’s
Hard, chronicled the evolution—some
would say the hubris—of an entire generation.
The
cultural revolution of the 1960s—with its emphasis on rebellion, romanticism,
novelty, experimentation, and distrust of the “system”—had a huge
influence on today’s Boomers. That’s why savvy marketers don’t expect then
to emulate their parents’ retirement activities and strategies.
This
is a source of great amusement to the generation that produced the
Boomers—their parents—who have watched their children embrace every stage of
life as if they were the first Americans to experience adolescent angst, fall in
love, get a job, give birth, raise children, have a mid-life crisis, and reflect
on the meaning of life. Let’s face it—Shakespeare wrote about all this stuff
centuries ago.
The
Boomers do, however, share some interesting traits. Marketing experts say they
are:
Individualists. Boomers will
be the least homogenous group of retirees
America
has seen to date. At age 60, a Boomer
might be a new father or an empty-nester Mom with a job; happily married
or single again; an early retiree or a victim of downsizing. It’s also
important to remember that nearly one-third of the generation is not financially
well-off.
Nostalgic.
Lots of companies have been surprised by Boomer enthusiasm for their products.
Fifty-something consumers, for instance, buy 25 percent of the Vespa scooters
sold in the
U.S.
—and Vespa had no interest in targeting that demographic. Like spider plants
in macramé holders, Vespas were de
rigeur in the 60s and 70s. Will the
Karmann Ghia resurface next?
Challenging.
Or spoiled, depending upon whom you ask. Boomers are used to companies catering
to them; since they hit the scene, companies have indulged their every whim with
products from bell-bottoms to Viagra.
Looking
for adventure. There’s a good chance that easy rider clad from head
to toe in black leather and revving a Harley engine is your neighbor Tom, who
has three girls in parochial school and just celebrated his 52nd birthday.
That’s because nearly a third of Harley-Davidson riders are now 50 or older.
It’s also why travel that involves exotic destinations and/or novel
experiences is at an all-time high.
Young
at heart. Inside, many Boomers feel like they’re still 25. This
does not mean they want to actually be that young again. They do want to look
good, though, which has fueled demand for healthcare information, anti-aging
products and services, and fitness/diet programs.
Altruistic
and spiritual. Members of the “me” generation are taking a hard
look at themselves and many aren’t entirely thrilled with what they see. In
survey after survey, they say they want to shift their mindset from success to
significance and they are searching for meaning (again). That’s why
voluntourism, yoga, and megachurches are huge trends.
But
still working on “me”. Boomers continue to pursue self-discovery,
self-improvement, and reinvention. As a result, education is hot and Boomers are
signing up for classes in everything from financial planning to gardening.
Financial
services companies are responding to Boomer demographics and traits in
increasingly creative ways. They are crafting memorable advertising campaigns;
asking Boomers what they are doing to get ready for retirement—and what they
want when they get there—in surveys; developing new products and services;
re-organizing home office operations; making strategic acquisitions; and more.
New
Mantra
Let’s
take a look at some companies working hard to capture Boomer business.
A
stellar example is Philadelphia, Pa.-based Lincoln Financial Group (LFG), which
is the marketing name for Lincoln National Corporation and its affiliates.
Through its wealth accumulation, retirement income and wealth protection
businesses, the company offers annuities, life insurance, 401(k) and 403(b)
plans, savings plans, mutual funds, managed accounts, institutional investment,
and comprehensive financial planning and advisory services. The company has
consolidated assets of about US$119 billion and some US$ 5.4 billion in annual
consolidated revenues.
As
a company, LFG is dedicated to raising awareness about retirement issues. The
company recently began hosting a series of nationwide Retirement Income Summits
to help give financial advisors tangible tools to better meet the needs of their
Baby Boomer clients.
The
company also has formed the Lincoln RetirementSM
Institute, an organization within LFG that was created to conduct research,
organize the intellectual capital of the company, and work with external
thinkers on retirement subjects that are relevant to the Boomer generation. The
Institute has launched an innovative Web site that houses interactive tools,
real-life scenarios, fresh content and pertinent information to help Baby
Boomers prepare for what it calls the “retirement revolution.” The Institute
also sponsors the new Lincoln
Long LifeSM Survey,
which Matthew Greenwald & Associates conducts on its behalf. The first
survey, which took place in 2004, gathered information on the attitudes and
financial activities of “successful seventies”; the 2005 survey targeted
“successful sixties”.
Another
example is Hartford Financial Services Group, one of the nation’s largest
financial services and insurance companies, with worldwide revenues of more than
US$ 27 billion. The
Hartford
is a leading provider of investment products; life insurance and group
benefits; automobile and homeowner’s products; and business property/casualty
insurance. Its international offices are located in
Canada
,
Japan
,
Brazil
and the
United Kingdom
.
The
company believes that group retirement plans will continue to be a growth driver
and market of future opportunity—and it has been quite busy preparing to
leverage that opportunity.
Earlier
this year, the company combined its 401(k), 457 and 403(b) businesses into a
single team, creating the new Retirement Plans Group that it has infused with
fresh capital, new services and great people. The
Hartford
believes this heightened focus on retirement plans will enable it to reach more
financial professionals, employers, and retirement plan participants. It also
will enable the company to leverage its high-touch consultative service model.
The
Hartford
has used this model to build a solid reputation for service in the industry, as
evidenced by three straight DALBAR awards for retirement plans service.
The
formation of the Retirement Plans Group is another step in The Hartford’s
ongoing commitment to grow its products, services and organizational resources
to support the investment needs of the Baby Boomers in the coming decades. That
commitment spans the individual and group retirement markets and focuses on
developing new capabilities to help people invest for retirement and meet
retirement income challenges.
To
that end, The Hartford just launched The Hartford Target Retirement Funds, a
series of new retirement funds that are based on a specific target retirement
date. The company also has introduced Lifetime Income BuilderSM, a new, optional variable annuity benefit known in
the industry as a guaranteed lifetime withdrawal feature. And The Hartford
unveiled Prepare to Live, a new marketing campaign that targets the Boomers,
during the NCAA Division I men’s basketball tournament last month.
Yet
another example is Fidelity Investments. It has just co-founded Boomers!
Redefining Life After 50, a new 13-part television series that explores the
issues, challenges and opportunities facing Boomers as they contemplate their
60s, 70s and beyond. Topics include work, family, health, finances, learning,
travel and volunteerism. A companion Web site offers supplemental information
for each program.
Fidelity
is working hard to convince the Boomers that it’s the place to park their
money. In 2004, it rolled out Fidelity Retirement Advantage, a series of
planning and money management tools, accounts and investment services aimed at
helping retirees make their savings last through their golden years and more
efficiently spend their savings from various retirement vehicles. Its retooled
Web site is a marvel and a must-see for any financial services provider looking
to serve the Boomers. Clicking on Retirement Planning takes you to the
Retirement Advantage section of the site, which is organized into three broad
categories: plan, invest, and manage. Loaded with online tools and advice, the
site is very consumer friendly and organizes lots of information around simple
questions such as Looking for retirement accounts? Have a 401(k) from an old
job? Retiring soon or already there?
Wachovia
Corporation is in the game as well. Wachovia is one of the largest providers of
financial services to retail, brokerage and corporate customers, with banking
operations from
Connecticut
to
Florida
and west to
Texas
. It has assets of about US$ 521 billion. Its four core businesses—the General
Bank, Capital Management, Wealth Management, and the Corporate and Investment
Bank—serve more than 13 million household and business relationships primarily
through 3,131 offices in 15 states and Washington, D.C. Its full-service retail
brokerage firm, Wachovia Securities LLC, also serves clients through 719 offices
in 49 states,
Washington
,
D.C.
, and six Latin American countries.
In
February, Wachovia launched a new group of professionals to support its
Wachovia
Financial
Center
employees in helping to meet the retirement needs of customers. Wachovia offers
consumers a complimentary retirement consultation through its financial centers
and they also can speak to trained and licensed retirement specialists by
calling Wachovia’s
Retirement
Resource
Center
. In addition, Wachovia Securities offers more comprehensive planning services
through its sophisticated EnvisionSM
investment planning process. All of these initiatives fall under a program
Wachovia calls Wachovia Retirement Solutions, through which it offers products,
services and guidance to help meet customers’ retirement needs.
Retirement
Revolution
These
are just a handful of the companies gearing up for what many believe will be a
quarter century the likes of which the country has never seen. The Boomers who
listened to Crosby, Stills, Nash and Young at
Woodstock
are a different kind of “golden” now and there’s much you can do to help
them manage their assets and old age.
For
starters, you need to find out what the Boomers want.
The
good news is that most of your peers are doing just that, so there’s lots of
data available. Allstate Financial, for example, has been conducting its Retirement
Reality Check Survey
for five years. Lincoln Financial just released the results of its second annual
Lincoln
Long LifeSM
Survey.
Merrill Lynch recently surveyed Boomers about retirement (see Who
Are You?). Wachovia just released the
results of its second annual Retirement
Fitness Survey. And Ameriprise Financial
has weighed in with The
New Retirement Mindscape, a survey of the
Boomers’ attitudes toward retirement.
And
it’s not just financial services companies gathering data. Ernst & Young
just launched the Retirement Income Knowledge Bank™, a continuously updated
database designed to provide retirement income product information to insurance
companies, banks, broker-dealers, and money managers. The database allows
companies to research and compare the costs and features of post-retirement
financial products—among them, guaranteed income, asset protection,
combination products such as variable annuities with LTC riders, longevity
protection, long-term care, underwritten annuities, and personal defined benefit
plans—and track industry innovations.
Then,
the next strategy you should consider is taking a fresh look at your product
strategies and organizational structure.
Probably
the most important trend underway today is the paradigm shift from wealth
accumulation to income generation.
Boomer
assets include not only what they’ve amassed during their working years, but
also inheritances from their parents in what is expected to be the greatest
transfer of wealth in the history of America. Experts say that by the year 2052,
some US$41 trillion will change hands as the Boomers come into their parents’
money. The go-go ‘90s created unprecedented personal wealth in
America
, currently estimated to be more than US$ 33 trillion.
On
the flip side, many Boomers are heavily in debt and have leveraged their real
estate assets to the hilt by refinancing their mortgages continuously and living
the good life by using equity lines of credit.
They face the possibility of deteriorating Social Security benefits. If
they are lucky enough to have a defined benefit plan at work, their company may
eliminate, freeze or convert that plan to one with a less generous payout.
As
a result, retirement income has become a pressing issue—so pressing, in fact,
that senior executives in the financial services sector have created a trade
association to focus on the financial and public policy issues related to the
income needs of retirees. Based in
Washington
,
D.C.
, the Retirement Income Industry Association (RIIA) will serve as a think tank
for analyzing retirement income issues and as an incubator to facilitate the
development of innovative products and services for the Boomers.
Its
founding members run the gamut from Alliance Bernstein to Wealth2k and include
prominent insurers: Aviva, Genworth, ING, MassMutual, Nationwide Financial, The
Phoenix and Symetra Financial.
This
group believes strongly that the financial services strategies and products
necessary to properly place retirement assets into a distribution mode are
inherently different than those used to accumulate assets. As Rick Nersesian,
senior vice president of UBS puts it, “Industry leaders must innovate to
arrive at the solutions needed to meet our nation’s income challenge. Then,
they must motivate. It’s essential that as many Americans as possible
understand what’s really at stake here, which is nothing less than their
future long-term financial security.”
RIIA
will focus on the economic and public policy challenges created by the impending
retirement of the Boomers. It also will help financial services companies convey
to the public both the magnitude of the retirement income challenge and the
solutions to meeting it. “As this immense generation shifts its focus from
wealth accumulation to retirement income,” says David Macchia, president and
CEO of Wealth2k, “the financial industry will change its orientation as well.
We believe that the current array of products, processes and communication
strategies must be significantly improved in order to provide secure retirement
income.”
The
issues have profound implications for individuals, financial institutions and
policy makers and for all corporations offering any type of pension plan or
401(k) plan to employees—a fundamental source of retirement income for
millions of Americans. Already 21 percent of plan sponsors have adopted
automatic enrollment to ensure employees participate in their 401(k) plan and
another 16 percent expect to start using automatic enrollment in the next year.
By a margin of greater than five to one, corporations want 401(k) providers to
offer information and support for IRA rollovers according to a recent research
study conducted by Greenwich Associates.
“Companies
in all segments of the financial services industry are focusing on the evolving
needs of Americans retiring or approaching retirement,” says Jack Sharry,
senior vice president, Retirement Security, at The Phoenix Companies, “but
they are coming at this from different perspectives, with varying strategies and
disparate products.”
In
addition, the current environment offers little in the way of incentives for
employer involvement, and even less in terms of alternatives for
employer-sponsored plans. “With so much retirement income security dependent
on employer-sponsored programs,” says Charles Ruffel, CEO and founder of Plan
Sponsor magazine, “this must change.”
There
not only is little incentive for employers to sponsor pension plans, there are
two looming disincentives. At press time, the Financial Accounting Standards
Board (FASB) was expected to propose new accounting rules in March. Among the
most significant changes is a move toward mark-to-market accounting for
retirement plans, with a requirement that a comprehensive income statement more
rapidly report the effects of changes in the fair value of plan assets and
liabilities from year to year.
According
to a Towers Perrin analysis, this will substantially lower reported
profitability. In fact, the consultant found that the Fortune 100 companies that
sponsor defined benefit plans would have been required to recognize an
additional liability of US$ 331 billion on their balance sheets at year-end
2004, instead of the US$ 62 billion that was on the balance sheet at the time.
After
the Enron debacle, financial transparency has become vital to investors. This is
a really tough issue for corporations, because their stockholders have become
their most important customers. So, to bolster their bottom lines, they may pull
back even further on employee benefits. If this trend goes too far, corporations
may lose investors, who no longer will be able to afford to buy stock because
they are adding massive retirement savings to their already taxed family
budgets.
Another
disincentive is a Congressional move to rein in special executive pensions.
Congress is really concerned about
the rich retirement payouts many companies make to executives and is moving to
block companies from funding lavish packages. It has tucked into legislation
that would shore up the PBGC—the federal agency that provides a safety net for
private-sector pensions—a provision that would stop financially troubled
companies from setting aside special pension benefits for top executives if
their pension plans for rank-and-file employees isn’t adequately funded.
According to the Wall
Street Journal, “disclosures about
bankruptcy-proof supplemental executive retirement benefits at some airlines,
including a $45 million fund set up a few years ago for 35 top officials by
Delta Air Lines, have galvanized bipartisan support for reining in such perks at
other beleaguered companies. ‘We’ve heard too many stories of top executives
of bankrupt companies sticking workers with unfunded pensions while running off
with millions of dollars of so-called nonqualified pension benefits,’ says
Senate Finance Committee Chairman Charles Grassley, an Iowa Republican.”
If
this legislation passes, it’s sure to affect Boomer employees and retirees.
Executives are certain to balk at giving up the perks of power and an entrenched
infrastructure that includes everyone from law firms to compensation consultants
exists to help them compare their packages to those of their peers. Packages
tied to rank-and-file provisions would upend business as usual. This could lead
to a renewed commitment to rank-and-file Boomer benefits while they work and
when they retire or less transparent packages for executives and an end to
retiree benefits for staff. Both scenarios would be challenging for the Boomers
and their financial services providers.
All
of this leads to extraordinary product development opportunities, to which
growing sales of annuities, 401(k)s and long-term care insurance attest. The
number of income protection riders and other product bells-and-whistles has
rapidly risen, although the verdict’s out on whether they reassure the Boomers
or simply cause them to give up in frustration in the face of their complexity.
You might consider marketing second-to-die life insurance for the parents of the
Boomers so their children won’t lose their inheritances to taxes. You could
look for ways to tie financial products to the Boomers’ growing need to make a
difference. Why not, for example, consider matching a percentage of face amount
or annual premiums and donating it to a Boomer’s favorite cause in his or her
name? The possibilities aren’t just challenging, they’re downright exciting.
Not
Just Anybody
A
third strategy you should consider is a thorough review of your distribution and
consumer education strategies.
Consumers
are desperate for money management help and advice. They find the complexity of
financial planning so daunting, in fact, most would switch their accounts to a
financial services company that makes managing their money easier, according to
ING, which just released the results of the ING
Financial Planning and Investing Study.
The
survey, which ING asked Roper GfK to conduct, shows that consumers wish
financial services companies were easier to deal with. The majority—73
percent—said they would switch to a financial services company with a
reputation for making the financial planning process easier. Almost half of said
retirement planning is harder than raising a child.
And their lives are so hectic they are unable to find the time to
properly vet a financial advisor.
What
do they want? ING asked the survey respondents to tell them what makes a
financial services experience easy. What they value most in a financial advisor
is knowledge; the ability to provide information in straightforward language
they understand; responsiveness to their needs; outstanding service;
recommendations for products that clearly address their needs; clarity about all
product costs, penalties and restrictions; and an understanding of their needs
and financial goals.
ING
intends to give consumers just that. It has launched a new brand promise—Your
Future. Made Easier—as the next phase of its
U.S.
strategy and in direct response to consumer needs. The result? ING, a global
financial institution of Dutch origin that only began establishing itself as a
brand in the
U.S.
in 2001, is now close on the heels of companies that built their brands here
over decades.
Lincoln
Financial Group (LFG) believes there’s a lot you can do prepare your
salespeople. In a recent Insurance
Journal interview,
Wes Thompson, president and CEO for Lincoln Financial Distributors, the
wholesaling distribution arm of LFG, offered several ideas. He believes you
should ensure they understand the tax laws involved in wealth transfer;
establish relationships with third-party advisors like attorneys, trust officers
and CPAs; talk with current Boomer clients about their parents’ needs; and
consider non-financial assets, such as real estate, as they work to meet Boomer
needs.
Preparing
salespeople for the new retirement paradigm has resulted in a proliferation of
professional education programs and designations. How meaningful are they? Will
they incur legal responsibilities? Should your agents pursue them?
Financial
professionals use more than 100 titles to imply expertise in everything from
mutual funds to retirement planning to estates, according to Wall
Street Journal reporter Jeff Opdyke. No
central regulator keeps tabs on the designations and some can be earned by
spending a few hours at a training seminar.
The
hottest designation trend at the moment is anything with the word “senior”
in it. Insurers, bankers and brokers realize the Boomers and other seniors have
unique financial needs and are working hard to ensure their salespeople offer
the right mix of products and advice.
Consumers
are understandably cautious. Last year, regulators in
Massachusetts
cracked down on firms touting “certified senior adviser” specializing in
retirement planning. According to Opdyke, the state found that CSA holders
earned the designation after taking a three-day home-study course and one
multiple-choice exam.
Consumers
also have a thirst for financial education and insurers are doing an outstanding
job giving it to them (see “Money Matters,” Resource,
July 2005). So are their competitors and the hottest target market is the
Boomers.
Merrill
Lynch thinks they need a new planning model—one that considers all of the
elements of their retirement dream, their total financial picture, and the fact
that most intend to cycle between work and leisure. So it has just unveiled the
Retirement Illustrator—an online calculator that shows how a new phase that
balances work and leisure changes all financial planning elements—on its Total
Merrill Web site. The tool represents a departure from a time when an advisor
could insert a client’s simple financial profile into a calculator to
determine assets at a particular point in the future when they could be drawn
down upon. According to Merrill, that model fails to capture the complexity of
the boomers’ retirement years.
Another
component of the Web site is called Explore and it helps Boomers look at
retirement dreams from a lifestyle perspective, asking questions like, “What
drives you in terms of work goals? Do you seek additional education?” There is
also a Learn component that helps Boomers map out the advice and planning they
need, from investments and financing to personal banking and estate planning.
Wachovia
Corp. is another example. It has just launched a new group of professionals to
support its
Wachovia
Financial
Center
employees in helping meet the retirement needs of customers.
The
15 retirement consultants, located in markets throughout Wachovia’s banking
geographic footprint, will provide education, marketing and sales support for
Wachovia’s retirement planning tools and products, including IRAs, annuities
and investments.
The
retirement consultants are part of Wachovia’s ongoing focus on the retirement
planning market. Over the past two years, Wachovia has introduced many new
programs and initiatives aimed at helping consumers get in better shape for
retirement.
A
fourth strategy for capturing Boomer business is targeting them in your
marketing campaigns. In fact, some of the most fun and creative TV spots airing
today target the Boomers (see Good
Vibrations, below).
In
September, Ameriprise Financial launched What’s Next, an advertising campaign
heavy on organ riffs and Boomer images.
Mutual
fund giant Fidelity Investments recently unveiled its Smart Move marketing
campaign. The first TV spot—This is Paul—debuted during the NFL’s season
opener last September. It chronicles Beatle Paul McCarthy’s life and is set to
the tune “Band on the Run.” Its latest campaign entry is a TV spot featuring
the Iron Butterfly’s classic “In-A-Gadda-Da-Vida”, psychedelic flowering
artwork, and the Fidelity Export and Multinational Fund.
Lincoln
Financial’s new Hello Future campaign addresses the Boomers’ quest for
significance in their golden years.
And
last month, Hartford Financial launched Prepare to Live, a marketing campaign
that includes TV spots and print ads in major publications that include Time,
Newsweek and The
New Yorker. The
Hartford
’s new TV spot, Time for Retirement, shows a couple seemingly packing for
vacation, but who, upon closer inspection, have sold their home and are destined
for their dream retirement villa in the mountains. A voice over and title card
illuminates the fact that more people spend time planning for vacation than
planning for retirement. Set against the rhythm of the B-52s
generation-transcending anthem “Love Shack,” The Hartford’s
retirement-destined couple cruise in a convertible and arrive at their new home
to a welcoming party that is gathered under a banner reading, “Welcome to the
first day of the rest of your life.”
You
also should forge partnerships with thought leaders from outside your company.
A
good example is Prudential Financial’s Secure Retirement Advisory Group, which
works with Prudential Retirement, one of its businesses. The group is comprised
of Prudential executives, retirement industry experts, and academic leaders. The
outside members are top-drawer and hail from the Brookings Institute, the
Wharton
School
, Morningstar, Asset International (parent of Plan
Sponsor magazine), the Employee Benefits
Research Institute (EBRI), and
Temple
University
. The group meets biannually to discuss research, trends and ideas and just
released a white paper with recommendations on reinventing defined contribution
plans.
Another
example is the alliance the MetLife Foundation has forged with the Harvard
School of Public Health to promote civic engagement. The pair has just launched
a major print and TV public-service advertising campaign to encourage boomers to
volunteer time to help their communities. The ads feature leading-edge boomers
who are “reinventing their lives and giving back to the community.”
Insurers
are also lining up for the Baby Boomers Show, where they will exhibit alongside
real estate agencies, retailers, recreation companies and employers. Held this
month in
New York
, its the first trade show designed specifically for consumers born from 1946 to
1964.
Pressing
Issues
You
also must stay abreast of several pressing issues that could have a
positive—or negative—affect on your business.
One
is the continued viability of Social Security.
Another
is pension cutbacks by corporate
America
. The number of defined benefit plans has dropped precipitously in the past 20
years. There are approximately 31,000 defined benefit plans today versus 114,000
at the peak in 1985, according to the PBGC. And Greenwich Associates estimates
that 19 percent of corporate DB plans are closed to new employees.
Yet
another is the soaring cost of health care and extraordinary cost of nice
assisted living communities and nursing homes—in fact, the Employee Benefit
Research Institute (EBRI) estimates that retirees will face out-of-pocket costs
beyond Medicare ranging from US$ 125,000 to US$ 300,000, even before including
any long-term nursing home care. Finally, most Americans haven’t saved nearly
enough to fund their retirement years.
These
issues are weighing heavily on the Boomers and it’s difficult to say how
they’ll react. If the twin safety nets of Social Security and defined benefit
pension plans develop gaping holes, will the Boomers ramp up their 401(k)
savings and diversify their portfolios or will they stop saving because they can
no longer afford to save? Will they sell their homes and use the equity to buy
annuities and long-term care or will they take out reverse mortgages?
What
does this mean for financial services companies? Well, they either will have
their hands full helping the Boomers figure out what to do with their assets or
all the financial advisors and programs they’ve put in place will be underused
because the Boomers are broke.
It
also means you must get involved in vetting the issues and shaping policy. One
company doing just that is Nationwide Financial.
Mark
Thresher, president and COO of the company, just served as a delegate to the
third National Summit on Retirement Savings last month. The summit, which is
mandated by the Savings are Vital to Everyone’s Retirement (SAVER) Act of
1997, was convened by President Bush and co-hosted by Congressional leaders.
Delegates are thought leaders on Capitol Hill and in academia, think tanks, and
the financial services industry—and being tapped is quite an honor.
The
meeting gave Thresher an opportunity to speak out in policy discussions on
issues he finds important to retirement security, including longevity risk,
pension reform and tax policy. As president of one of the nation’s leading
providers of 401(k) plans, he offered insights into how employers and
legislators can help the Boomers generate retirement income. “While we need to
continue to encourage retirement savings,” he said, “we also need to insure
that Americans are able to make that savings last for the duration of their
retirement.”
If
all that’s not enough, it is more vital than ever for you to track legislative
activities and weigh in, because President Bush and Congress have a lot of ideas
about retirement that will have a significant impact on your business.
Let’s
start with President Bush’s Advisory Panel on Federal Tax Reform, which
released its recommendations late last year. Among these is replacing every sort
of tax-advantaged savings vehicle on the market today—including education
accounts, health savings accounts, IRAs, 401(k) and flexible spending
accounts—with three simpler plans, each of which would grow tax free:
*Save
at Work Accounts, replacing 401(k) and other employer-sponsored retirement plans
*Save
for Retirement Accounts, replacing IRAs, deferred compensation such as stock
options and other retirement plans
*Save
for Family Accounts, replacing a myriad of college-saving, health-care and
flexible-spending accounts
The
Treasury is still weighing the panel’s recommendations and U.S. Treasury
Secretary John Snow is keeping mum.
Then
there’s pension legislation that’s on the table right now and that tackles
financial advice.
The
issue of financial advice has always been tricky and fraught with legal
complexity concerning fiduciary responsibility. It must be addressed, however,
because the Boomers need and want advice about turning their assets into an
income stream—and financial services providers want to sell more product and
capture more consumer assets.
Insurers,
like all financial services providers, must train their salespeople on what
constitutes advice and what crosses the line
and ensure they have the proper credentials for the products they
sell—especially products tied to equities. Some, like Lincoln Financial,
strongly encourage their retired clients to consult certified financial
planners. All of the leading insurers have excellent financial planning tools
and information on their Web sites. Many, like Manulife and Principal Financial,
are leading retirement plan providers.
Employers
have very specific fiduciary responsibility under the Employment Retirement
Income Security Act (ERISA). For starters, employees can sue for losses if the
plan sponsor (employer) provides poor choices of investments or actual
investment advice that backfires. Under current law, the employer can bring in a
financial advisor to offer advice, but the company is still liable if employees
feel that they have suffered losses because of bad advice.
One
piece of legislation on the move aims to shore up the country’s Pension
Benefit Guaranty Corporation (PBGC), which is woefully underfunded. For the most
part, both Republicans and Democrats support this goal. Tucked into this
legislation is a provision that would get employers off the fiduciary hook. As
long as the person the employer hires to provide 401(k) advice is a “qualified
investment advisor” or has agreed in writing to act as a “fiduciary” as
defined by ERISA, the employer can’t be sued for bad advice. The employer
could, however, still be liable for selecting an inappropriate investment
lineup.
According
to Kristen French, an industry expert with Registered Rep, the financial
services industry has been pressing for a change in the rules that would ease
the burden on employers and let reps offer advice to enrollees in company
retirement accounts.
In
addition, the final version of The Pension Protection Act (HR 2830) passed out
of committee in the House of Representatives this past September, while the
Senate’s Pension Security and Transparency Act of 2005 (S 1783) was supposed
to go to the floor one month later, but was held up over defense appropriations
wrangling.
According
to French, both the House and Senate bills would free employers of legal
liability for individual investment advice provided to 401(k) participants as
long as the advisor selected agrees in writing to be a fiduciary. Both bills
would also require the advisor to make periodic disclosures of any fees or
conflicts of interest to plan participants in plain English.
“Where
the bills differ,” writes French, “is on who can provide advice about
individual 401(k) investments. The House bill would allow 401(k) plan providers
like Fidelity and Merrill Lynch to offer investment advice. The Senate bill
would maintain the status quo, allowing only independent advisors, such as
Morningstar or Ibbotson or an unaffiliated financial advisor, to offer advice to
individual employees.”
Despite
these difficulties, many experts believe pension legislation that makes it
easier for financial participants in company retirement programs—be it HR
2830, S 1798 or a compromise bill—could benefit
insurers. Why? Because an advisory relationship often enables salespeople to
sell more financial products and also has a great chance of leading to IRA
rollovers, referrals and acquisition of Boomer assets. There’s just one
problem: ERISA forbids fiduciaries from soliciting further advisory business
from plan participants. In the real world, of course, face time with customers
does lead to new business, even if it’s not directly solicited.
Most
experts believe, then, the Boomers will transform the way you do business. Just
the sheer volume of customers shifting into a new life stage will be a lot to
manage. Are you up for the ride? That’s the 750-billion-dollar question.
Here’s hoping you answer it correctly.
SIDEBARS:
While their lyrics claimed they weren’t
trying to cause a big sensation, the Boomers certainly did. Today, they:
*
Number 77 million and live in 45.8 million households.
*Comprise
27.5 percent of the
U.S.
population.
* Have
an estimated annual spending power of US$ 2.1 trillion.
* Enjoy,
on average, an annual pretax household income of US$ 57.7 thousand.
* Spend,
on average, US$ 45.7 thousand per household.
* Have
a poverty rate of 7.3 percent.
No
statistics are available on the number of Boomers who still wear Patchouli and
carefully ripped
Levis
.
Source: MetLife Mature Market Institute
****
If
you want to do business with the Baby Boomer market, you may want to pay
attention to Fidelity Investments, which is running This Is Paul, a TV spot
featuring ex-Beatle Paul McCartney and the lyrics of “Band on the Run”.
That’s just one of the strategies savvy insurers, banks and brokers are
employing to capture Boomer business. In addition to launching snappy marketing
campaigns, they are:
*Conducting
surveys to find out what the Boomers want
*Taking
a fresh look at their product strategies and organizational structure
*Reviewing
their distribution and consumer education strategies
*Forging
partnerships with thought leaders from outside their companies
*Staying
abreast of pressing retirement issues
*Tracking
and weighing in on legislative activities
If
you want to keep up, you’d better get busy.
Source:
LOMA
*****
Good
Vibrations
Did
you think soulful organ riffs sprinkled with thoughtful tambourine taps were a
thing of the past? Think again. Financial services companies are using Boomer
music and images in media campaigns for everything from life insurance to credit
cards. Among the grooviest are:
* Ameriprise
Financial. Formerly American Express Financial Advisors, the company
completed its spinoff from American Express this past August. In September, it
launched What’s Next, its first advertising campaign and one that goes after
the Boomers in a big way. Organ riffs and tambourines supply the backdrop to a
montage of images, including Afros and the Twist, that are embedded in the
Boomer psyche.
* Fidelity
Investments. The mutual fund giant has launched a major push to appeal to
Baby Boomers, kicking off with the This Is Paul ad campaign last September. The
TV spot chronicles Paul McCartney’s life from his days as a quarryman to
Beatlemania to fatherhood and, finally, knighthood. The song “Band
on the Run” provides
the musical backdrop.
*
Lincoln
Financial. The insurer’s Hello Future campaign includes a memorable TV
spot in which a sixtysomething skier helps handicapped children tackle the
slopes. “So how was your first day?” his wife asks when he gets home. “You
know, I think my dad was wrong,” the man says. “Maybe I do have a future as
a ski bum after all.”
These
are just a few of the financial services providers hoping to help the Boomers
realize their retirement dreams.
Source:
Newswires
****
Who
Are You?
It’s
hard to believe that Roger Daltrey, the voice of youthful rebellion for the
wildly popular English band The Who, is now a wealthy family man and Commander
of the Order of the
British Empire
. Everyone from Allstate Financial to Fidelity Investments is trying to figure
out what makes him and other Baby Boomers tick as the enter their retirement
years.
Merrill
Lynch weighed in recently with The
New Retirement Survey,
which it asked Harris Interactive® and Age Wave to conduct. The results reveal
how the Boomers envision their retirement and, unfortunately, how standard
retirement planning models fail to capture the complexity of their actual plans
and aspirations. Highlights include:
*A
new retirement turning point. While 76 percent of boomers intend to keep
working and earning in retirement, on average they expect to “retire” from
their current job/career at around 64 and then launch into an entirely new job
or career. Since Social Security established the normal retirement age as 65,
life expectancy for a 65-year-old has increased by over seven years and
continues to lengthen. As a result of living longer, this generation plans to be
“younger” longer and work longer. Most boomers (65 percent) will stop
working for pay and retire in the traditional sense at some point. However, that
phase is more likely to begin in the late 60s than at age 60 or 65.
*Repeated
cycling. Boomers reject a life of either full-time leisure or full-time
work. When probed about their ideal work arrangement in retirement, the most
common choice among boomers is repeatedly cycling between periods of work and
leisure (42 percent), followed by part-time work (16 percent), start their own
business (13 percent) and full-time work (six percent). Only 17 percent hope to
never work for pay again.
*It’s
not about the money. While 37 percent of the boomer generation indicate that
continued earnings is a very important part of the reason they intend to keep
working, 67 percent assert that continued mental stimulation and challenge is
what will motivate them to stay in the game.
*The
“we” generation. The “me” generation has grown up—now with deep
concerns for the well-being of their children, their parents and their
communities. Boomers are now 10 times more likely to “put others first” (43
percent) than “put themselves first” (four percent).
*The
unpredictable cost of illness and healthcare is by far Boomers’ biggest fear.
They are three times more worried about a major illness (48 percent), their
ability to pay for healthcare (53 percent) or winding up in a nursing home (48
percent) than about dying (17 percent).
*You
go, girl. Boomer women are better educated, more independent, are
simultaneously juggling more work and family responsibilities and are more
financially engaged than any generation in history. Married boomer women are
more than six times more likely to share responsibility for savings and
investments compared to their mothers’ generation (33 percent now versus five
percent then).
*Boomer
women want to retire to Mars, Boomer men want to retire to Venus. Boomer men
are looking forward to working less, relaxing more, and spending more time with
their spouse. Boomer women view the dual liberations of empty nesting and
retirement as providing new opportunities for career development, community
involvement and continued personal growth.
*One
size doesn’t fit all. When it comes to retirement dreams and preparedness,
there are five distinct and different boomer segments: empowered trailblazers,
wealth-builders, leisure lifers, anxious idealists, and stretched-and-stressed.
The survey reveals how each group is doing, their plans and ambitions for later
life, their level of financial preparedness and how they intend to fund their
future dreams.
Financial
services companies are accommodating these traits in their product development
and distribution strategies.
Source:
Merrill Lynch
***
Meaningful
Relationship
In
the old days, folks just grew up, got married and had kids without a lot of
fuss. All that changed with the Boomers, who coined the phrase “meaningful
relationship”. You’d better understand what that means if you want to do
business with them as they plan for retirement.
One
of the things they want most is investment advice, especially for their defined
contribution—that is, 401(k)—plans. Only a fraction of the 400 Fortune 1000
companies surveyed recently by Hewitt Associates provide such advice:
*Outside
(third party) investment advisory services (37 percent)
*One-on-one investment
counseling (19 percent)
*Seminars or workshops (19
percent)
*Online guidance
(investment recommendations at asset level only) (16 percent)
*Online advice
(recommendations made at the fund level) (15 percent)
That’s
about to change, as Congress considers lifting the legal restrictions on the
fiduciary obligations governing employers and clarifying those governing
brokers. Boomers also are worried about creating an income stream from their
portfolios, which will, if they are lucky, include a 401(k), a traditional
employer pension, IRAs and Social Security. If this weren’t tricky enough,
President Bush’s Advisory Panel on Federal Tax Reform has proposed new tax
incentives and disincentives and the president continues to promote his own
ideas for various federal-level savings accounts—all of which will affect
insurance and other financial products.
Insurers, bankers and brokers want to help the Boomers get it together. To do
just that, they are positioning themselves to offer guidance and substantive
advice.
Source:
Hewitt Associates
***
Are
Your Systems Ready for Restless Retirees?
As 8,000 Baby Boomers a day reach retirement age, don’t expect them
to sit back on their porches and wait for the monthly annuity checks to
arrive.
Most Baby Boomers will be focused on accumulating wealth and moving only what
they need into asset distribution. Some will opt for a one-time payout or loan
– perhaps $60,000 for that pleasure boat – while others will take their
money and shop around for the most flexible plan.
“The
demanding, investment-savvy Baby Boomers are forcing life and annuity companies
to rethink the way their products and systems serve retirees,” said Mike
Risley, president of CSC’s Life and Annuity Division. “If insurers expect to
compete in the future, they need a system that combines product development,
asset management and distribution, producer incentives and customer service –
all on one platform.”
Companies
will need to churn out dynamic products with more flexible options to give their
producers more incentives for calling on their retired clients – and selling
supplemental products such as long-term care, a nursing home waiver of premium
or life insurance for their grandchildren.
With
the majority of
U.S.
annuities running on its software, CSC in 2006 introduced Wealth Management
AcceleratorTM –
designed to manage both asset accumulation and distribution. It lets users
define the rules for product design and producer incentives.
“Wealth
Management Accelerator gives producers a total view of their clients’ assets
over the Web, regardless of whether or not the contract is in payout,” Risley
said. “And it gives consumers more options for choosing when and how they
monitor and adjust their retirement funds.”
****
How
LOMA Can Help
If
you’re interested in tapping the potential of the Boomer market, LOMA can
help.
Your
first stop should be the annual Retirement Industry Conference, which we host
with LIMRA International and the Society of Actuaries. Designed for
professionals who work in annuities, retirement plans and the growing field of
retirement income, the conference brings together a variety of perspectives and
offers many opportunities for networking. Featuring a mix of keynote and general
sessions, as well as three dozen breakout sessions, the Retirement Industry
Conference will challenge you and help you find solutions in this growing,
exciting business.You also should take a close look at our:
*Fellow, Financial
Services Institute (FFSI) Program
*Associate, Annuity
Products and Administration (AAPA) Program
*Associate, Customer
Service (ACS) Program with a focused annuity track
*Intro to Annuities Online
*Information
Center
Briefs on retirement topics
ranging from financialgerontology to inherited IRAs Resource,
which regularly publishes research on the retirement topic
*Various operations
committees comprised of LOMA member company professionals
For
more information, visit www.loma.org, e-mail askloma@loma.org,
or telephone 1-800-ASK-LOMA (1-800-275-5662).
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