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baby boomer financial services

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.

Source: baby boomer financial services

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 Retirement^SM 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 Life^SM 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 Builder^SM, 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 Envision^SM 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 Life^SM 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:

Talking About My Generation

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

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This Is Paul

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
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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

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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

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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

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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 Accelerator^TM – 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.”

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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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