The well documented shift in the retirement demographic is underway — and creating both challenges and opportunities for manufacturers and distributors alike. Retirement distribution and income planning is very different from retirement accumulation and investing for growth. It requires different strategies and solutions. Just as different manufactures develop their own strategies based on the product strengths, distributors and their financial advisors will need to develop different approaches based on their particular channel strengths.

In 2006, the Diversified Services Group (DSG) undertook two surveys of two distinct channels. Working with the Financial Planning Association (FPA) and OppenheimerFunds, DSG surveyed the "Financial Planner Channel." Subsequently, working with the Bank Insurance & Securities Association (BISA) and Symetra Financial, DSG surveyed the "Bank Channel." The objective of both surveys was to benchmark the attitudes and perceptions of retail advisors in each channel.

Key Findings

The survey looked at a number of subjects, including perceptions of the retirement income market, marketing strategies, retirement income products and services, as well as sales support systems and training programs.

At one level both channels appear remarkably similar. They report overwhelmingly that their approach to retirement income clients is advice, rather than product, driven. Both channels are also nearly identical in their perception of who is driving demand for retirement income solutions. However, the profile that emerges from the surveys veys is far more complex, with substantial differences. The Bank Channel targets a substantially broader market than the Financial Planner Channel. Approximately twice as many bank representatives reported targeting investors with $50,000 to $250,000 of investable assets than did their counterparts in the financial planning channel. In contrast, only two thirds as many bank representatives targeted investors with over $1 million of investable assets. To provide a context, a recent study by Milliman Consultants and Actuaries defines three segments of baby boomers; Middle/ Mass Market, Lower Affluent, and Upper Affluent. The Middle/Mass Market contains 32 million households, the other two combined total eight million households. Serving all three segments presents a unique set of marketing and business challenges — requiring scalable solutions and processes as well as highly effective segmentation tactics. It is not atypical for a single bank representative to serve over 1,000 clients.

The financial planners surveyed were significantly more likely to have a CFP designation (94%) as compared to bank representatives (8%). The financial planner sample was more experienced with retired or nearly retired clients, 94% vs. 74% of bank representatives had over five years experience. The typical financial planner in the survey was in a small practice, 66% in firms with fewer than five people. They were significantly more self-reliant, expecting to rely on themselves for new and upgraded planning tools. They also anticipate aggregating significantly more of a typical client's assets in the process of developing a client's retirement income plan. The profile that surfaces is not one of scale, but of a deeper relationship with fewer, wealthier clients — likely with more complex needs.

These differences impact the two channels in a number of ways including:

• What influenced them to focus on the retirement market,
• What they believe is the best way to acquire new retirement income clients,
• What they think is most important to clients at the "Retirement Inflexion Point™,"
• What they are most comfortable recommending, and
• What tools they need.

What influenced advisors to focus on the retirement market

In the bank channel, the key factor was the availability of new products and solutions. On the surface, this seems to contradict their belief that they are advice, rather than product driven. Given the scalability requirements of the bank channel, another interpretation may be that without scalable product solutions, it was less economic to address their broad markets, therefore less interesting.

In contrast, the key determinant for financial planners is requests from new or prospective clients. This appears to reflect their high-touch approach. Product, education and training, and sales support, all of which are requisites of scale, come in second.

What they believe is the best way to acquire new retirement income clients

For both financial planners and bank representatives, referrals and existing clients are the key sources for new clients. While 67% of financial planners vs. 50% of bank representatives cite the importance of referrals (49% and 36% respectively cite existing clients), the absolute volume of referrals (and clients) is likely substantially higher in the bank channel.

The referral process differs dramatically between the two channels. In the bank channel, the great preponderance of referrals are from other people within same the institution, while in the planner context the reverse is typically the case. Interestingly, representatives in the bank channel are twice as likely to cite worksite prospecting as a means to attract new retirement income clients — likely a result of intra-institution referral processes.

What they think is most important to clients at the "Retirement Inflexion Point™"

There is an almost 'philosophical difference' between the two channels. Financial planners put the planning process first — by a wide margin, while bank representatives put generating income first — but by a narrow margin. Nearly 90% of financial planners cite planning processes such as needs/gap analysis and retirement income distribution planning as very or extremely important. Investments designed to provide income comes in a distant last at 43%. In contrast, over 75% of bank representatives cite product and planning processes as very or extremely important. What the respective channels believe is most important to their clients may mirror what they believe is their own, distinct, value propositions.

What they most comfortably recommend

Bank representatives are clearly quite comfortable recommending variable annuities with living benefits. Financial planners on the other hand, are most comfortable recommending systematic withdrawals. Bank representatives as a group are newer to the retirement income market than financial planners. This may account for some of the differences in product preferences each channel exhibits. Five years (or more) ago, when 94% of the planners surveyed started to address this market, living benefits were largely still on the drawing boards.

While there are pronounced preferences between types of packaged products, income and dividend paying investments are a close second, followed at a distance by laddered bond or CD investments.

What tools they need

Across the board, bank representatives cite higher levels of need than financial planners for all of the choices offered in the survey. Highest on the list for both were illustration and retirement planning systems. The largest differentials were in the areas of marketing materials, lead generation, and training. Better products was last on the list for both channels, suggesting that while new products were a catalyst for bank representatives to enter the market, they are now a given.

One can infer a number of possible reasons for the 'across the board' higher levels of need in the bank channel. Clearly the higher volume of clients and prospects is one explanation. Another may be the rapid growth of the importance bank reps expect the retirement market to play in their businesses. Taken together it can create a demand for additional resources to increase productivity and achieve scale to meet the needs of a burgeoning market — and to catch up to their customers.

Financial planners tend to be more satisfied with the tools they currently have. They report having more advanced planning programs for managing

Conclusion

While on the surface, there are shared attributes and behaviors among these (and other) distribution channels as they attack the retirement market, just below the surface there are strong differences. In benchmarking institutions within each channel, it is equally clear that each institution has a unique history, culture, and set of capabilities that it brings to the challenge. Manufacturers, distributors, and advisors need to understand the differences as well as similarities to develop their own perspective on the role(s) they want to play and the channel(s) they want to work in. DSG

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