Financial Research Corporation (FRC) has released a study on the development and delivery of retirement income products and services, which addresses the need for retirement income planning, the competitive forces at work in the financial services industry, organizational challenges associated with delivering retirement income services, specific product and service solutions, and marketing strategies.
The study, Retirement Income Products & Services: The Definitive Guide to Development & Delivery, is based on a survey of 18 financial services firms, including brokerages, banks, insurance companies, defined contribution recordkeepers, and mutual fund groups, as well as numerous interviews with financial services executives.
According to the release of data, the first baby boomers will reach age 60 on January 1, 2006, and by 2020 all 77 million will be over age 55. According the Federal Reserve, Americans presently have $18 trillion invested in mutual funds, stock and bonds, and deposit accounts. FRC estimates that $2 trillion of this will transition from accumulation to retirement income mode over the next ten years, creating a major opportunity for firms to capture assets, and presenting a significant risk for firms that stand to lose retirement savings dollars held on DC recordkeeping or retail investment platforms.
“The number one priority of nearly every major financial services firm today is to develop a sound strategy for delivering retirement income products and services,” according to Chris Brown, FRC’s Director of Retirement Market Research.
In fact, FRC’s proprietary survey reveals that 88% of respondents consider developing or enhancing retirement income products and services to be “very important” or “of vital importance” to their firm’s strategic planning over the next one to three years. To address this daunting challenge, FRC found that firms are breaking retirement income down into components, such as organizational alignment, product development, service model, marketing, etc., and building a coordinated strategy across these units. Within the study, FRC examines the level of engagement of different business units in developing retirement income products and services.
FRC found that to-date product development areas have been the most engaged, with 55% of respondents indicating that these units were very engaged; however, this differs across channels. For example, at insurers the sales units were the most engaged, because insurers already possess a bevy of income and capital preservation products, such as immediate annuities, and are therefore more focused on distributing what’s already in their arsenals, rather than developing new products and services.
Other initiatives designed to address the growing need for retirement income include additions and reallocations of staff. For instance, 100% of the recordkeepers surveyed by FRC indicated that their firms have either added or reallocated staff in order to address the need for retirement income services. Firms are also increasing training for client service and sales staff in areas like estate planning, health care, and the utilization of products, such as annuities, in a retirement income plan.