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Advisers May Be Leaving the Affluent Retiree Market Behind

Future retirees represent nearly $30 trillion in financial assets. Which advisers will be ready to help them manage it?

Are you leaving your clients asset-rich and advice-poor at a time when their needs are most complex?

That’s the conclusion of a recent report published by Boston Consulting Group (BCG.)

According to its 21st annual Global Wealth Report, wealth managers are either underserving or not at all serving whole segments, including individuals with simple needs, the new ultras, and the “affluent retiree” market—a $90 trillion investable wealth pool today.

And the opportunity to serve the retiree market is immense, according to BCG. In fact, retirees are among the world’s fastest-growing demographics. By 2050, for instance, 1.5 billion people globally—approximately one in every six individuals—will be at least 65 years old. And that, according to BCG, is twice the size of today’s retiree population, and it represents an enormous wellspring of wealth.

In fact, individuals in this age band today own $29.3 trillion in financial assets accessible to wealth managers. And over the next five years, that figure will grow at a compound annual rate of close to 7%, which means that wealth managers globally will be able to target close to $41.1 trillion in financial wealth by 2025.

“A wealth pool of this size would seem to be hard to ignore,” wrote the authors of the report.

Yet it is being ignored according to BCG. “Decumulation often marks the denouement of the wealth manager relationship,” the BCG authors wrote. “Interactions with wealth managers often wind down as clients reach their middle and late retirement stages, leaving many retirees asset rich and advice poor at a time when their needs are most complex.”

According to BCG few individuals map their vision of retirement or think through the financial and non-financial concerns that attend its various stages. “As a result, the changes that accompany a person’s golden years can make it a time of great opportunity and stress,” wrote the authors of the BCG report.

And that’s particularly true for individuals in the affluent and lower-end high net worth individuals (HNWI) bands ($250,000 to $5 million in wealth). “Individuals in these segments who are at least 65 years old hold $10.3 trillion in financial assets accessible to wealth managers, (35% of the total retirement asset pool), and they generate $13.7 billion in annual wealth manager revenues. These individuals are especially impacted by the advisory gap in the decumulation phase.”

Their wealth, according to BCG, gives them options, but it also introduces lots of questions, from tax and estate planning to broader life planning. “Often, they have few reliable outlets to consult in trying to gather answers,” the authors of the BCG report wrote. “And those that are available often require them to chase down specialists in particular domains, such as accountancy and estate lawyers—a time-consuming and often frustrating exercise.”

What’s more, retirees who have accumulated large sums of money in their 401(k) may feel ill prepared to withdraw that money when the time comes. “Wealth managers have an opportunity to help affluent and lower-end HNWI retirees manage these dimensions,” wrote the authors of the BCG report.

According to BCG, several factors have prevented wealth managers from effectively serving the holistic retirement needs of these segments during their decumulation phase. One is cost. It can be costly to serve clients who are in the decumulation phase of their lives. Another is focus. Wealth managers tend to overemphasize the clients’ accumulation needs.

The complexity of the decumulation phase is also problematic for wealth managers. “Not only do retirees’ financial questions tend to be tangled—with asset drawdowns raising tax implications, for example—but their non-financial needs can be challenging as well, whether they involve finding a sense of community, pursuing a part-time job, or something else,” wrote the authors of the report. “Such needs vary by person and by stage of retirement.”

Five Actions to Better Serve High Net Worth Retirees

So, what does it take to attract and retain these clients and serve them in a competitively sustainable way?

BCG recommends that wealth managers take five interrelated actions.

Set the Stage for Success in the Accumulation Phase

Wealth managers have a compelling “whitespace” opportunity. Employer-sponsored retirement plans account for a growing share of future retirement wealth. But these plans tend to make retirement savings an impersonal, hands-off experience. Savvy wealth managers can change that by working closely with plan sponsors and identifying ways to engage directly with individuals in the middle stages of their working lives—for instance, by providing onsite financial education opportunities or by hosting community events. In this way, wealth managers can set themselves apart and establish trusted relationships that go beyond financial management.

Empower Clients by Digitally Enabling Advisers

Wealth managers need to have a comprehensive view of their clients’ wealth in order to optimize decumulation planning, cross-selling, and service efficiency. Instead of sending clients a template to complete—or ignore—wealth managers who sit with their clients and perform the account aggregation in person benefit from five times higher adoption rates. Aided by advanced modeling tools and a strong digital platform, wealth managers can generate comprehensive decumulation simulations that deliver a personalized touch in a fraction of the usual time. These models can incorporate a standard set of high-value elements, such as tax simulations and inheritance planning to deliver a happy financial path for each client.

Provide Continuous Access to Retirement Topic Experts

 Shared teams of experts can help advisers cost-effectively deliver advice on specialized subject matter. Advisers can consult these individuals on behalf of their clients and invite clients to access this “think tank” as needed. For example, a client interested in learning more about passing on wealth to their family could run their questions by an inheritance advisory leader. Wealth managers that make such knowledge readily accessible can help to differentiate their planning services from more generic alternatives.

Revise Scorecards for the Decumulation Phase 

Wealth managers traditionally operate on the assumption that spending more time in front of clients leads to more revenues and better scorecards. As a result, advisers are predisposed to invest more heavily in relationships during the accumulation stage than during decumulation.

Address a Broader Set of Retirement Needs 

Wealth managers are well positioned to become the main gateway for retirement, helping clients access services that extend well beyond financial solutions. Examples include partnering with senior-oriented social clubs, charities, or retirement communities to help clients gain a deeper sense of community. Wealth managers can also develop in-house expertise in key topic areas. For example, specialized counselors can support retirees who wish to stay active professionally by suggesting part-time jobs in their fields of interest. Retirees who want to leave a legacy could receive tailored advice on the most relevant charities to join or donate to. By helping retirees maintain a sense of purpose, community, and control, wealth managers can increase client adoption rates and monetize supplemental value at each stage of the retirement journey.