The findings indicate the mass affluent are clearly engaged in retirement planning. A majority (59 percent) cite saving for retirement as their top financial priority, followed by paying bills (cited by 34 percent as a top priority). Nearly all (89 percent) report having done some form of retirement planning. "As baby boomers start retiring in the coming years, trillions of dollars of retirement assets that have been accumulating in 401(k)s, IRA, government pensions, and company benefit plans will come into play," said Debbie Bianucci, BAI's president and CEO. "Banks' once strong position in the retirement market has eroded dramatically in the last decade. Investment firms, on the other hand, are increasingly leveraging their strength in retirement products to target the core deposit and lending services traditionally offered by banks, with the goal of establishing themselves as primary financial service providers."
Major survey findings include:
- Investment and brokerage firms hold 43 percent of the mass affluent consumers' investable assets, while consumers' primary banks hold 23 percent.
- The retirement market remains highly fragmented. The top 10 firms control only 30 percent market share of retirement assets; over half of the 401(k) rollover market remains fragmented across a wide array of competitors.
- Despite banks' relatively low share of retirement assets, about half (49 percent) of mass affluent consumers view banks as suitable providers of retirement services. In addition, they view banks with brokerage capabilities as significantly more suitable retirement providers than banks not offering brokerage services.
- A significant portion of mass affluent consumers' retirement assets remain "orphaned" - still held in plans of previous employers. Over a third of mass affluent households have at least one orphaned 401(k) account with an average balance of approximately $100,000.
- Sixty-one percent of mass affluent consumers report having a specific retirement plan, such as having an investment/asset allocation strategy or annual income and expense goals during retirement. For those without a plan, interest increases as retirement approaches.
- Consumers are increasingly starting earlier to plan for retirement: those under 45 started at age 30, for example, while those between ages 45 to 54 started at age 35.
- Not only are consumers interested in retirement planning, they are willing to pay for it. For example, 47 percent of those ages 45-49 said they would pay for retirement investment advice. Thirty-eight percent of those with under $250,000 in investable assets and 55 percent of those with between $1 - 2.5 million also said they would pay for such advice.
- Although most consumers report they are planning for retirement, they are worried about whether their investments will help them reach their retirement goals. Only 36 percent of respondents said the statements,
"I feel confident that my retirement savings and investments are sufficiently diversified" or, "I am confident I am investing wisely for my retirement" describes them completely or very well.
Opportunities for Banks
While retail banks lag behind brokerage and investment firms in the retirement marketplace, the findings indicate there is cause for optimism. "Retail banks must be more aggressive in capturing rollovers of orphaned 401(k) accounts. These accounts are largely overlooked by banks, even though the total U.S. market is well over $1 trillion. Banks need to develop a consumer-oriented message that outlines the benefits of rolling orphaned funds into an IRA, such as gaining more control over your money, managing assets more easily and enjoying more investment options ," added Hedges.
Retirement Asset Consolidation
Upon retirement, the priorities of mass affluent consumers generally shift from asset accumulation to securing a steady income stream. Accordingly, they tend to consolidate retirement assets for more efficient management. According to the survey, 50 percent of those ages 55 - 62 had consolidated their assets into fewer institutions, and 60 percent of 63-70 year olds had done so. Banks captured 30 percent of mass affluent consumers consolidating assets for income distribution, compared to 57 percent for brokerage and investment firms.
"Helping customers consolidate retirement assets to address income distribution needs is another major opportunity for banks," said Paul McAdam, senior managing director, BAI Research. "Banks must respond to this threat with product and delivery innovations to address their customers' retirement needs. In particular, they should focus on online retirement information and tools, access to dedicated retirement specialists, product bundling and simplification of cash management and payments."
