Why It's Important: The investment objectives of the mass affluent investor are undergoing a fundamental shift from growth and return, to risk management and distribution for income purposes. Baby boomers who have spent a lifetime accumulating wealth via retirement planning are now focused on the distribution and stability of their assets throughout the length of their retirement. Retiring investors will be removing assets from retirement planning investments and rededicating them to other objectives, including monthly income plans, philanthropic efforts, inheritances and estate planning. As they do, retirees will take their funds to whomever offers the management program most attuned to their needs.
Where the Industry Is Now: The baby boomer phenomenon is not new. However, for the financial advice and asset management industry, focus on product development for baby boomers' retirement recently has begun to gain steam. The major stumbling block in providing a complete service package for retirees is integration -- firms need to consolidate data and functionality across a multitude of business units. Also, institutions will need to shift their products' focuses from accumulation and growth to distribution.
Focus in 2006: Attracting the business of baby boomers is going to require a blend of services and technology. Financial advisers need access to all of a client's assets and must be able to communicate and connect with their needs and desires. Retirees will be looking for comprehensive financial advice across all types of investments in a single account, provided by unified managed accounts (UMA). Industry analyst TowerGroup estimates growth in the assets in managed accounts to exceed $1.1 trillion by 2007 from nearly $400 billion in 2003, and now is the time for firms to push for their piece of the pie. Being in position to capture rollover assets will secure many clients who have 20 years to 30 years of future investment objectives.
Industry Leaders: Major retail firms will have the resources to develop their managed account efforts in-house. Fidelity Investments was perhaps the first to market, offering the Fidelity Retirement Income Advantage planning and investment service. The Vanguard Group also has made strides in strengthening its offering in financial planning and retirement counseling. It should come as no surprise that these major 401(k) plan administrators are focusing on retail retirement accounts as they attempt to retain those rollover assets.
Regional and boutique financial advisers will seek to outsource the administration of UMAs with overlay managers, which consolidate clients' assets into single, multidiscipline accounts. Overlay managers act as middlemen between the clients' financial advisers and the money managers of their various investments -- providing the client with single account management. Placemark Investments and SunGard are among the companies providing overlay management capabilities.
Technology Providers: There are numerous technology players catering to the needs of financial firms. One application suite geared specifically to the baby boomers is Impact Technologies Group's Retirement Roadmap sales system, which assists financial advisers in calculating retirement income and dispersal as well as supplemental investment strategy. National Life plans to deploy Retirement Roadmap to its sales force in 2006.
The Price Tag: TowerGroup estimates spending on overlay management services and technologies to grow at a compound annual growth rate of 49.8 percent. Industry spending in 2003 was $7 million, a number that by 2011 is expected to increase to a staggering $178 million.