Technology & Finance
Sunday, November 25, 2007
Banks Could Capture Retirement Funds – But How?
Banks, which have been real laggards in capturing US retirement funds during the accumulation phase have a real chance to acquire a chunk of the money once people retire and are less interested in investment performance than surety of regularly scheduled payments. And banks do know payments.
That’s the conclusion of new research by the BAI and Mercatus LLC, a strategic consulting firm, which was released during its Retail Delivery Conference in Las Vegas in November.
The catch? Customers don’t want to talk to banks about investments. Or as Bob Hedges, managing partner at Mercatus put it—“The focus on transactional rather than advisory relationships has undermined banks’ efforts to build the marketing communications, solution platforms and customer relationship infrastructure needed to succeed in the retirement arena.”
The other problem? Banks haven’t asked for the business, and they probably don’t know how to get it right.
But the opportunity is huge.
Retirement assets amount to a $16 trillion market, 4x core deposits, but the bank share is about 7 percent, life insurance companies about the same amount and investment firms, led by mutual funds have most of the rest.
Banks need to become more aggressive, and some of them are. Bank of America is launching a $35 million ad campaign aimed at IRAs – that’s more than triple the banking industry’s current $11 million spend on retirement advertising.
Good news for banks is that the market is fragmented – Fidelity at 12.9 percent is the leader among firms most depended on for retirement planning. But only two banks are in the Top Ten – Wachovia at 2.1 percent and BoA at 1.9 percent. No bank made it into the Top Ten for IRA rollovers.
The challenge for banks is that their branch-oriented retail focus doesn’t work in retirement planning – customers want good online tools backed up by call centers that give easy to understand views of performance and offer online planning. High quality branch service wasn’t important at all in retirement planning..
Cornerstone Advisors, a consultancy which publishes the excellent GonzoBanker, made a similar point in stronger terms at BAI a couple of years ago. No one, not one single person, in their focus groups wanted to talk investment planning with someone at a bank branch, they said. Interestingly enough, they weren’t invited back to present at BAI, although this year Microsoft had them in to address an in-house training seminar for its financial services folks at RDC.
The study suggested banks are wasting their time on the relatively wealthy mass affluent who are directing their own investments or working with advisors. Instead, they should focus on the next tier, people who are worried about their retirement and want some advice. Look for them by asking if they are concerned, and then offer empathy.
Interesting advice when everyone below the private bankers seems to want only the top level of the mass affluent. Good to see a study that is willing to promote customer segmentation even if it means aiming at a smaller pot of money. Still, those assets can add up. The challenge is to provide sufficient service at a reasonable price.
Weird fact – a lot of people leave their 401(k) plans at their employers even after they quit working there, and the mean value was $115,000. That should be easy pickings for anyone smart enough to ask customers for the business.