As companies formulate and revise their strategies for the retirement income market, one key area of decision making is whether to position your company as a product provider or a provider of advice. Ultimately all companies want to make sure their products or solutions are embraced by their distribution channels and purchased by the end consumer, but positioning these products by themselves or as part of a more packaged advice strategy requires very different tactical thinking, corporate skill sets and resources to support the chosen approach.

The Elusive Definition of Advice
While a product strategy is a fairly straightforward concept, an advice strategy for the retirement income market means something different to many of the executives charged with this decision. To some, advice is narrowly defined and can be interpreted as educating the advisor and consumer of the product(s) readily available in the company's portfolio and how this product properly satisfies a certain financial need. But most executives, and we at DSG, believe that a true advice strategy must address most, if not all of the risks of retirement — longevity, asset allocation, inflation, healthcare expenses, and excessive withdrawals (Fidelity Viewpoint, 'Lifetime Income Planning', Farrell Dolan and Van Harlow, November 2003.) This interpretation clearly suggests a much broader view of the marketplace as well as the products and solutions that must be made available to the sales intermediaries and to their clients.

Where the Industry is Today
We have known for some time that consumers nearing retirement, particularly those with greater amounts and diversity of investable assets, are clearly looking for broad based advice first, then secondarily, a variety of solutions to fund income streams and to protect their assets over the course of their retirement years. What they are not necessarily looking for is an individual product solution that addresses a narrow financial need.

Industry executives interviewed in a recent DSG study are split on which strategy is most appropriate for them. Six of fourteen executives interviewed are currently pursuing an advice strategy, and the remaining eight executives indicate they have designed a product retirement income strategy for their company. Note, however that most of the executives now implementing a product strategy see this as merely a temporary measure as they evolve to an advice driven strategy within the next five years in an effort to meet the wishes of the retiring baby boomers.

As a result, the overwhelming majority of the executives interviewed is now, or will be, providing their sales intermediaries with some type of retirement income planning platform or software.

The intent of these planning tools is to go beyond product support with the primary objective to aggregate assets and direct the advisors on providing advice. An advice strategy in a world of complicated, easily copied products certainly makes sense, and it is what consumers want, but are all companies equipped to carry out an advice strategy?

Factors to Consider in Designing a Retirement Income Strategy
In tackling this decision process, there are a number of areas and company characteristics that should be taken into consideration when choosing an approach to the retirement income market:

Target Market. The higher the investable assets, the higher the margins will be, both for the companies and for the advisors, to support a more time consuming, comprehensive planning and advice approach. Conversely, companies that are pursuing the middle market household ($250,000 to $1 million) will have a difficult time providing comprehensive advice in an economically efficient manner. Segmentation across investable asset segments is clearly an answer, however, that can further complicate the training, planning system designs and product delivery issues that abound for income distribution. Surprisingly, the overwhelming majority of executives that were interviewed as part of the above mentioned DSG study are targeting the middle market segment while also pursuing an advice strategy. We shall follow their progress.

• Will advisors use a retirement income planning tool supplied by the product manufacturers?
• Will these tools enable advisors to maintain their objectivity, while also showcasing the manufacturer's solutions?
• Will these manufacturer supplied tools ultimately result in incremental product sales for the manufacturer and not for its competitors?

Willingness to Partner. A product strategist requires shelf space in advisors' portfolios or others' planning platforms, while an advice strategist most likely will require additional products and solutions from other manufacturers. Few companies are able to cover all of the territory of the retirement income market alone and therefore must seek partnerships either on the distribution side or on the product side.

One way to simplistically view the map of strategic choices is seen on the chart below.

In this illustration, companies pursuing a product strategy will find themselves in the lower left hand quadrant. Their product portfolio will be limited to some form of income producing solutions and their so called advice services will also be limited — focusing on product and perhaps retirement income education.

At the other end of the spectrum, in the upper right hand quadrant, we find the true advice strategists. These companies lead with a holistic advice planning model that addresses all of the risks associated with retirement and possess (or have access to) a broad portfolio of solutions including income producing and asset protection products and perhaps even lifestyle solutions, such as assisted living recommendations or elder law services.

The other companies will find themselves somewhere in the middle. The lower right hand quadrant reflects companies that are pursuing a broad advice strategy, but have limited product options available. They must find other product providers with solutions that fit into their planning platforms and complement their own product offerings.

Conversely companies, perhaps the multi-line insurance carriers with a larger suite of product options and segregated distribution channels, would be positioned in the upper left hand quadrant. These companies should seek partnerships with those who have robust planning platforms where their offerings can be highlighted for the specific retirement needs they were meant to address.

Conclusion
Companies seem to be struggling in selecting an appropriate strategic approach to the retirement income market. Significant challenges are inherent in either a product or an advice approach.

A product strategy can be a never ending line of bells and whistles — enough to create a tangible point of difference, but not enough to confuse the marketplace.

An advice strategy, on the other hand, requires the building of a planning tool methodology that reinforces the advisors' objectivity, but still results in incremental product sales for the company.

In addition, partnerships will most likely be required on both the product and advice sides to ensure that the consumer will be receiving all that is required to mitigate the unique set of risks that arise during the retirement years. DSG

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