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Cracking the Retirement Consumer Code

Cracking the Retirement Consumer Code. JOANNA ROTENBERG. May 10, 2007. Sustained anxiety for financial risks – health and longevity concerns spiking. 1. 4. Few consumers receive the advice they seek; advisors who deliver reap rewards. Primary Insights – Retirement Planning.

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Cracking the Retirement Consumer Code

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  1. Cracking the Retirement Consumer Code JOANNA ROTENBERG May 10, 2007

  2. Sustained anxiety for financial risks – health and longevity concerns spiking 1 4 Few consumers receive the advice they seek; advisors who deliver reap rewards Primary Insights – Retirement Planning Serious misconceptions remain on how to fund retirement 2 Only 1 in 6pre-retirees are truly “prepared” for retirement 3

  3. Primary Insights – Retirement Planning 2 Sustained anxiety for financial risks – health and longevity concerns spiking 1 Serious misconceptions remain on how to fund retirement 4 Few consumers receive the advice they seek; advisors who deliver reap rewards 3 Only 1 in 6pre-retirees are truly “prepared” for retirement

  4. 29 60 61 53 56 49 44 53 57 53 28 49 46 49 26 44 15 1 Sustained Anxiety for Financial Risks – Health and Longevity Concerns Spiking • 2004 • 2006 • 2007 • Inflation/tax increases • Health expenses • Market risk • Lack of guaranteed Income • Longevity • Interest rates • Social Security Benefits

  5. 1 Health is an Important Concern for all Affluence Groups • Health anxiety by investable assets • Percent • 50K-100K • 100K-250K • 250K-1M • 1M+

  6. Women significantly more anxious than men 1 • Risk • Men • Women • Inflation/tax • 69 10 59 15 • 62 47 • Market fluctuations • Health 53 8 • 61 • Lack of guaranteed income • 59 43 16 18 • 59 • Interest rates 41 45 10 • 55 • Longevity • Social security benefits • 54 14 40

  7. 4 Few consumers receive the advice they seek; advisors who deliver reap rewards Primary Insights – Retirement Planning 2 Sustained anxiety for financial risks – health and longevity concerns spiking 1 Serious misconceptions remain on how to fund retirement 3 Only 1 in 6pre-retirees are truly “prepared” for retirement

  8. 5 • Pre –retirees who are • “Extremely/very likely” • Retirees who “have done” 39 33 30 12 11 10 9 5 • Part-/full-time job • Reduce spending • Sell primary residence • Tap into home equity Serious Misconceptions Remain Regarding how to Fund Retirement 2 • Methods to fund retirement, 2007 • Percent

  9. 6 Retirement age decreased, as consumers retire earlier than they expect 2 • Expected vs. Actual retirement age • Retired “earlier than expected” • Percent • Expected • Over 40% of consumers “forced” into retirement • Over a third retiring before 55 • Actual • 67 • 64 • 63 • 59 • 57 • 2007 • 2006 • 2007

  10. 30 • Forced early retirement • Percent of retirees • Survey average • 41 • $50-100K • 49 • 43 • $100-250K • 38 • $250K-1M • 1M+ • 30 Two in Five Retirees are being Forced to Retirement Earlier than Expected, Augmenting Lack of Preparedness 2 • Most common reason • Primary reason • Percent of retirees forced to early retirement • Job loss/ downsizing • Caring for spouse/family • Health • 24 • 30 46 • 32 • 8 60 • 41 • 8 51 • 25 • 10 65

  11. 4 Few consumers receive the advice they seek; advisors who deliver reap rewards Primary Insights – Retirement Planning 2 Sustained anxiety for financial risks – health and longevity concerns spiking 1 Serious misconceptions remain regarding how to fund retirement 3 Only 1 in 6pre-retirees are truly “prepared” for retirement

  12. “Prepared” for retire-ment • Fully following plans Only One in Six Pre-retirees Is “Prepared” for Retirement 3 • Plans are “compre-hensive” (address ≥ 3 retirement issues*) • All • pre-retirees • Havefinancial plans for retirement • All pre- • retirees • 100 • 51 • 25 • 16 Only 25-30% of affluent “prepared”

  13. Concerned Little preparation for health care risks 3 • Level of concern with health-related financial risks • Percent (“very/extremely”) • Life event • Prepared • Affording increases in medical costs each year • Affording long-term care expenses • Affording catastrophic medical expenses • Costs of livinglonger than you expected • Costs of end of life care and death

  14. 2 • Recent research claims consumers have saved more than enough. . . • . . . However, reality shows 40%+ of retirees believe they have saved too little • Saved too much • Percent of retirees Of those born between 1931 and 1941 at least 80% have accumulated more than enough wealth for retirement – An Economic Approach to Setting Retirement Savings Goals, 2006 • Saved too little • 45-54 • 55-64 • 65-74 88% of retirees age 51 and older had adequate wealth – Are Americans Saving “Optimally’” for Retirement, 2006 3 Despite Recent Research Claims, Retirees Believe they have not Saved Enough Not just the mass! More than 1 in 4 affluent/HNW retirees believe they saved too little

  15. …Primarily due to health and day-to-day expenses 3 • RETIREES • 50 • 36 • 34 • 27 • 15 • Longevity • Health expenses • Higher lifestyle expenses • Higher day to day expenses • Financially supporting children

  16. 7 • 2007 36 20 20 11 3 Retirees are Considering More Dramatic Actions than before • RETIREES • Methods to fund retirement • Percent responding extremely/very likely to do • 2006 20 • Reduce spending 12 • Sell primary residence • Part-/full- time job 10 • Tap into home equity 7

  17. Primary Insights – Retirement Planning 2 Sustained anxiety for financial risks – health and longevity concerns spiking 1 Serious misconceptions remain regarding how to fund retirement 4 Few consumers receive the advice they seek; advisors who deliver reap rewards 3 Only 1 in 6pre-retirees are truly “prepared” for retirement

  18. 36 Receiving advice 7 1 5 8 3 Few Consumers Receive the Advice They Seek 4 Percent of consumers • >$250K IN INVESTABLE ASSETS Seeking advice • Guaranteeing sufficient income for retirement • 27 • Protecting against healthcare risks • 24 • Protecting against inflation • 20 • Choosing investment products • 17 • How to financially prepare for retirement • 15

  19. Plans are “compre-hensive” (address ≥ 3 retirement issues) • All • pre-retirees with advisors • Havefinancial plans for retirement • “Prepared” for retire-ment • Fully following plans 4 Advisors that Engage in Comprehensive Financial Planning are Rewarded Handsomely • PRE-RETIREES WITH ADVISORS • Consumers completing financial plan purchase ~2 products following plan • ~80% of consumers willing to pay a fee for financial planning

  20. Sustained anxiety for financial risks – health and longevity concerns spiking 1 Primary Insights – Retirement Planning Serious misconceptions remain on how to fund retirement 2 4 Few consumers receive the advice they seek; advisors who deliver reap rewards 3 Only 1 in 6pre-retirees are truly “prepared” for retirement

  21. Independents pioneer a new advice model and emerge as the early winners 5 Worksitemay emerge as a robust alternative advice channel 6 Self directedsegment represents a real opportunity Primary Insights 7

  22. Primary Insights Independents pioneer a new advice model and emerge as the early winners 5 6 Self directedsegment represents a real opportunity Worksite may emerge as a robust alternative advice channel 7

  23. 100 5 Independents have the Deepest Consumer Relationships • Number of products purchased from primary firms by channel • Percent • Average # of products = • 2.7 • 3+ products • 46 • 2.0 • 1.8 • 1.6 • 1.6 • 28 • 23 • 16 • 15 • 2 • 24 • 20 • 21 • 22 • 25 • 53 • 64 • 64 • 32 • 47 • 1 • Independent • Brokerage • Banks • Investment • Insurance

  24. 34 Independents Pioneer a New Advice Model andEmerge as Early Winners 5 • >250 K INVESTABLE ASSETS • Level of advisor assistance • Percent • Difference vs. independents • Independentadvisors • Brokerage • Investment • Insurance • Bank • Overall asset allocation • -11 • -18 • -28 • -26 • Individual stocks, bonds, and mutual funds • 4 • -18 • -23 • -11 • Retirement goals • -12 • -12 • -11 • -17 • Overall financial plan • -26 • -22 • -18 • -33 • Identify new opportunities • -8 • -21 • -23 • -20 • Create guaranteed income • -10 • -16 • 1 • -23

  25. 34 • Advisor performance “extremely well” • Percent • Importance for consumers (“Extremely”) • Difference versus independents • Factors • Independent • Brokerage • Insurance • Bank • Investment • Being timely(e.g., responsive) • -9 • -17 • -21 • -25 • 46 • 68 • 5 • 1 • 2 • -3 • Objectivity • 42 • 45 • -5 • -8 • -10 • -13 • Simplicity • 35 • 53 • Transparency of fees • -10 • -9 • -13 • -17 • 30 • 55 • Credentials(e.g., CFP) • 31` • 41` • -1 • – • -7 • -8 5 And also Perform the Best against Satisfaction Drivers

  26. ~40% of assetsheld elsewhere owned by consumers with advisory relationship withindependents • Advisor channel • Primary institution • Insurance agent • Independent • Broker • Banker • Other* • Total • Independent • Brokerage • Investment • Insurance • Bank • Total • 5 • 18 • 7 • 8 • 5 • 43 • 2 • 23 • 6 • 2 • 6 • 39 • – • – • – • 3 • – • 3 • – • – • 1 • 1 • 2 • 4 • – • 2 • 3 • 1 • 5 • 11 • 7 • 43 • 17 • 15 • 18 • 100 5 Independents are Well-Positioned to Reach Assets from Other Institutions… • CONSUMERS WITH ADVISORS • Percent of assets, by primary institution and advisor channel * Includes accountants, lawyers, 401(K)/403(b) plan provider, CFP, family member or the individual

  27. 5 …And are Poised to Gain Substantially Going Forward • Almost 50% of consumers with independent advisors increased assets with them in last 3 years… • … and one-third expect to consolidate assets with their independent advisor over the next 3-5 years • 49 • 33

  28. 15 15 5 Wide variance across channels, AND within each channel 5 • Percent of consumers believing their primary financial institution is “extremely able” to address their retirement needs • Independent • Broker • Investment • A • B • C • A • B • C • D • A • B • C • Insurance • Bank • A • B • C • D • E • F • A • B • C • D • E

  29. Primary Insights Independents pioneer a new advice model and emerge as the early winners 5 6 Self directedsegment represents a real opportunity Worksite may emerge as a robust alternative advice channel 7

  30. 28 Self Directed Segment Represents a Big Opportunity 6 • Percent of HNW/affluentpre-retirees who are “self directed” • 42 • Self directed, with advisor (only to execute trades) • 7 • Has Financial advisors • Self directed without advisor • 50 • 43 • Percent of HNW/affluentretirees who are “self directed” • 34

  31. Plans are “compre-hensive” (address ≥ 3 retirement issues*) • Havefinancial plans for retirement • “Prepared” for retire-ment • Fully following plans • 52 • 25 • 18 Only one in five self-directed are Prepared for Retirement 6 • ABOVE $250K ONLY • Self directed • pre-retirees • Self directedpre- • retirees • 100 * Example issues include asset allocation, insurance, tax-efficient strategies, philanthropy, estate planning, etc.

  32. 11 • Guaranteeing sufficient income • Financially prepare for retirement • Healthcare risks • Longevity • Investment selection • Inflation risk • Maximize tax effectiveness • Interest rate risk • Asset allocation They Seek advice beyond accumulation 6 • Broader needs • Self directed consumer needs • Percent • “Traditionalaccumulation” needs 25% agree with the following statement: “I would like to continue to manage my own assets, but would be interested in targeted advice on specific topics (e.g., tax-efficient asset draw-down, estate)

  33. Independents pioneer a new advice model and emerge as the early winners 5 6 Self directedsegment represents a real opportunity Primary Insights Worksite may emerge as a robust alternative advice channel 7

  34. 5 7 Considerable opportunity remains to leverage 401K channel for IRA rollovers • Top factors considered most important in selecting an IRA provider • Percent of consumers 1 • Already had a relationship 2 • Ethical reputation 3 • Lower costs / fees 4 • Knowledge and expertise of advisors 5 • Known for superior investment performance 6 • My 401(k)/403(b) assets were already held at the firm 7 • Responsiveness of advisors • Product offering beyond IRAs 8 • Quality of IRA product 9 • Quicker / easier sign up process 10

  35. 39 7 Window of Opportunity Closes Rapidly • Available customers for IRA rollover after trigger event • 100% = Consumers who eventually completed a rollover 100 90 Only 20% of customers who decided to roll over their IRA were still “available” after 6 months 80 70 60 50 40 30 20 10 0 0 1 2 3 4 5 6 • Months after trigger event

  36. 10 7 Worksite financial advice may be one “in” for cementing tighter relationships Percent • Of the consumers who have workplace financial advice available… • Availability of financial advice at the worksite • 37 • Not • available • Available • 13 • Use 401K provider as primary provider • Don’t Know / • No selection • Currently • use • financial • advice

  37. Summary • Sustained anxiety for financial risks – health and longevity concerns spiking 1 • Serious misconceptions remain on how to fund retirement 2 • Only 1 in 6 pre-retirees are truly “prepared” for retirement 3 • Few consumers receive the advice they seek; advisors who deliver reap rewards 4 • Independents pioneer a new advice model and emerge as the early winners 5 • Self directed segment represents a real opportunity 6 • Worksite may emerge as a robust alternative advice channel 7

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