With so much of the financial services industry focused on serving the same target audience - Baby Boomers age 55 to 64 who are transitioning into retirement - there are tremendous opportunities to build market share and grow assets by specializing in (or at the very least paying greater attention to the needs of) other key segments.

Below are highlights from our recently published Investor Quantitative Panel - an annual survey of more than 4,500 U.S. households. We believe these insights prove why Prediction #2 should be important to your firm, and this is just a small sample of our analysis of these important segments.

From Understanding Women Investors: Breadwinners, Homemakers, Single or Partnered, Mothers and More (Insight Module 12)

• Hearts & Wallets estimate that women have total investing control or some influence over $16 T of U.S. household assets.
• Women are the sole head of 32% of U.S. households, up from 28% in 2006, and shared head in almost 50% of U.S. households.
• Women find several key tasks more difficult than men, notably retirement planning.

From Generation Y - Finances, Attitudes and Opportunities (Insight Module 14)

• “Generation Y,” also known as “Millennials,” is currently defined as people born in 1982 or later. They currently number 129 M.
• Almost half (45%) have sought help for at least one financial task.
• More than half earn $48K or less per year, but almost 1 in 10 earns $108K or more.

From the Investor Quantitative Panel: 2011

• Peak Accumulators, investors aged 21 to 64, not within 5 years of retirement, with at least $100K of investable assets, and who practice six key financial behaviors (i.e., regularly contributing to a retirement plan, spending less than they make, etc.) have an average $672K of investable assets, excluding real estate.
• Despite holding more than $400K outside of employer-sponsored plans, just 19% of Peak Accumulators consider a full-service brokerage firm as their primary provider, while about half use a self-service provider.
• More than anything else, Peak Accumulators are looking for fees that are clear and understandable and unbiased advice that puts their interests first. How many firms can say they excel in these areas? What is your firm doing to serve Peak Accumulators and Coasting Investor, their less organized counterparts, differently?

We look forward to discussing the unique attitudes, unmet needs, preferences and service concepts for reaching these - or custom segments - with you. - Laura and Chris

Urgency to articulate what you do and how much it costs is cresting and will force changes.

Everyone wants to know what to expect out of a service or product, and how much it costs, before they buy it. And once they’ve bought it, they evaluate how well it performed to their expectations. But our industry makes these normal activities devilishly hard for customers. Regular readers are familiar with the Screaming Unmet Needs of “tell me what you do,” “tell me how you get paid,” and “tell me how to evaluate you.” In 2011, we took this to the next level with Explore focus groups that researched the attitudes and experiences of investors who are actively making choices about where they want to be on this spectrum: Upshifters (seeking more help and willing to pay for it), Downshifters (seeking lower fees or more control) and Engaged & Staying Put (happy with their current providers.)

Many of you asked, what’s the size of these trends? What are the pricing models that may rule the future? Our newest reports, released to clients on January 8, quantify these questions and more. Early feedback from clients is that these reports are well worth the investment because they present a compelling case for why and how to get clearer about your firm’s advice-pricing value proposition.

Here are some highlights from the reports that prove why Prediction #1 should be important to your firm. Click here for more information on the reports.

From Upshifting & Downshifting: Successful Positioning in the Changing Advice Landscape (Insight Module 10)

• About 60M households and $16 T are ripe for some sort of money movement, such as trial of a new firm, consolidation with a favorite, or rollover. About 40M households, holding $6 T, are stable. The remaining 20M have made a recent move that can teach us a lot about what motivated them.
• Most (68%) of recent and upcoming consolidation and trial is driven by choices among advice-pricing value propositions. How this breaks out for trial and consolidation, as well as by wealth group, has important strategy implications.
• Upshifting is bigger, but Downshifting represents almost $3 T, while an even bigger group of investors seeks both-the quintessential “better deal” of more service and lower costs.

From Best Practices in Defining and Pricing Advice (Insight Module 11)

• The status quo approach of bundling investment and personal finance advice for an asset-based fee is liked by only about 1/4^th of investors-in line with traditional load funds. That both of the most common pricing mechanisms are disliked by 3/4^ths of Americans suggests there is opportunity for disruptive change in pricing.
• Having a choice in how to receive personal finance advice appeals to 38% of Americans, and has even more appeal for certain desirable groups.
• The fiduciary concept appeals to a broader swath of Americans than the other concepts tested, but not to everyone, with potential implications for public policy.
• Reactions to the advice-pricing concepts tested and their attributes depend on whether you’re targeting an age group, a wealth group, or an attitudinal group, such as Upshifters or Downshifter.

From the soon-to-be-released Explore report on Generations X & Y

• Savings habits and wealth generation are driven by attitudes and behaviors-it’s not about age and lifestage. Investors who practice Hearts & Wallets six Peak Accumulator behaviors (see our prior blogs on this subject for details) are confident, self-reliant, and resourceful, and as our annual Quantitative Panel shows, they are wealthier than their generational peers as a result. These investors are attractive targets at any age.
• By applying segmentation based on specific financial behaviors, such as keeping debt to a minimum, across a client or prospect base, financial services marketers can achieve far more successful campaigns and even uncover attractive, yet underserved and seldom marketed to, investor segments.

“Small opportunities are often the beginning of great enterprises.” - Demosthenes, c. 380 BC

Opportunities, both small and big, are plentiful in today’s investment and retirement market: a new customer need, a new way of doing things, a crisis or a threatening trend. Competitors who recognize and adapt will gain share and influence. But there’s a dark side to opportunities-those competitors who don’t see opportunity, or fail to adapt, eventually wither.

To stimulate business planning, Hearts & Wallets presents the first seven Insight Modules of the 2012 Investor Quantitative Panel. Opportunities abound, along with examples of firms who are capitalizing and thriving, or losing relevance. The top five topics we propose you think about are:

• In 2011, “advice gaps” increased for most tasks, including retirement planning. (The “advice gap” is the difference between when people think a financial task is difficult and actually seek help for it.) Meanwhile, the industry is screaming itself silly offering retirement advice. How do your firm’s advice and retirement offers and messaging need to change to actually reach people?
• What an investor really wants in terms of help (investment decision-making process) is often misaligned with channel choice. Contradictions abound: 25% of “Delegators” use a self service firm as their primary provider, while 31% of investors who use a full service firm as their primary provider describe themselves as “Self-directed”. How can your firm clarify what your “advice-pricing value proposition(s)” are, and how they compare to alternatives?
• Nearly half (46%) of Emerging investors (age 21 to 27) say they don’t own investment products, and risk aversion is rising. It’s hard to imagine how these Americans will achieve financial security unless someone can show them how they can participate in our economic system. What is the younger investor opportunity for your firm?
• Americans have fewer relationships with financial services firms in 2011 than they had in 2010. One in 5 Americans fired a provider. What can you learn from the firms who are winning and losing?
• Three of the top 5 most important attributes Americans seek in financial providers are related to reasonable, clear, unbiased pricing. Only a few firms are giving it to them, and they’re winning share. What’s holding your firm back from satisfying this reasonable desire?

Laura

New attitudes of mid-career Accumulators to retirement and investing advice are not well understood by industry marketers and product designers. This is because industry strategists have been so focused on older investors, but also because the game is changing. Very few Accumulators are planning to “retire,” even as they recognize that a day when they can no longer work may come. Technology that empowers investors is finally being demanded in the “advisor” space. And awareness of advice-pricing value propositions will be accelerated by upcoming regulations on pricing disclosure.

Industry people want to sell “retirement”, but investors aren’t planning to retire. “Retirement” has typically been the starting point for engaging investors, but it may not be in the future. One key objective of this Explore series is to continue to advance our understanding of what financial goals will replace “retirement” as a key motivator for Accumulators.

An equally important trend is that the value propositions around advice service models and pricing are muddled. In past Explore series, Accumulators told us of their Screaming Unmet Needs for the industry: “tell me what you do,” “tell me how you get paid,” and “tell me how to evaluate you.” Who can blame investors for being confused? Brokers still compensated on commissions are positioning themselves as “advisors.” “Self-directed discount” brokerages are enriching their platforms with advisory products. Service models are changing without being clearly described, and few offer clear choices of how to pay for what.

Industry people want to classify investors in comfortable segmentations like “self-directed” or “advisory.” But people who like to be hands-on about their investing may want to hire a professional occasionally, and investors who don’t have the slightest interest in managing their own investments may still like checking their accounts on line, if only to see if their advisor is doing a good job. The already muddled service model-pricing value proposition is getting even more confusing; a new approach to understanding the investor is needed.

One solution to start sorting out the advice service model-pricing confusion is to study leading edge investors who are actively thinking about these dynamics. “Upshifters” are those investors who can tell us about their recent experiences actively seeking more support. “Downshifters” are those investors who, disillusioned with current offerings, are searching for solutions that are either more empowering or cost-effective than what they’ve experienced. And “Engaged & Staying Put” investors are actively using today’s services, and are reasonably satisfied. Together, these groups—and especially their reactions to the status quo and alternative advice-pricing value propositions—illuminate some fresh tactics for playing the new game.

Based on a series of focus groups with these investors, our latest Explore report Acquiring Mid-Career Accumulators: Positioning Advice and Disclosing Fees with Upshifting & Downshifting Investors qualitatively lays out the new rules of the game and provides guidance on actions that financial services executives can take now to improve positioning. If you’re interested in learning more about this research, and the new rules of the game, please review the brochure and feel free contact us to discuss how to best apply this research to your business. Laura

When you think about the vendors in your life-your lawn service, your doctors, your lawyers, others - do you understand what they do for you, what expertise they bring, how they get paid and how to assess whether they’ve done a good job? Of course you do. Otherwise you wouldn’t hire them.

Why should financial advice be any different? In 2010 focus groups, Hearts & Wallets first identified Three Screaming Unmet Needs that investors feel our industry urgently needs to do a better job on:

1. Tell me what you do

2. Tell me how to evaluate you

3. Tell me how you make money

Going forward, in addition to being a leading thinker about emerging retirement trends, it is our mission to decipher the keys to addressing these unmet needs, which are holding Americans back from accessing the advice they need, and dampening revenue growth in our industry.

According to the Chicago Booth/Kellogg School Financial Trust Index, trust in our industry is at an all-time low. If you are a strategy or technology people designing next generations of advice platform, a senior executive or strategy group evaluating changes to service model, such as fiduciary status, a finance professionals working on pricing, a marketing communications professional who wants to reflect the consumer’s language, or a sales, distribution or relationship professional thinking about the next source of competitive advantage or changes to service model, you’re probably thinking about trust and clarity, too. Hearts & Wallets has been concerned about this for some time, and has been researching drivers of healthy, trusting financial relationships for several years.

Lack of understanding of economics is one of the biggest drivers of low trust, but trust is also built on deeper mutual understanding of values, which includes what our mission is-whether in life or business. The transition from commissions to fee-based relationship pricing exacerbated the confusion and seems to be coming to a head. How can we have a “relationship” if we don’t understand each other? The lack of clarity about what we do and how to evaluate services-the fundamentals that make your relationships with your lawn service, or lawyers, or whomever, possible-is, quite logically, holding people back from getting the advice they need, discouraging trial, and dampening revenue growth. Hearts & Wallets believes this is unstable situation that is begging to be fixed. Those who do so first can unleash pent-up demand for clear financial advice and support.

Through Advice/Pricing concept tests, and analysis of the go-to sources of advice, our newest report-Addressing the Elephant in Financial Services: Insights into How Older Investors Really Want to Receive, and Pay for, Investment and Personal Finance Advice-provides insights into attitudes to advice and pricing, as well as ample ideas about new offerings and pricing structures that can help address this confusion. This Hearts & Wallets Explore qualitative research report draws its findings from nationwide focus groups conducted with older investors in April 2011, some of the areas we feel are important include:

• Separating and clarifying “personal finance” advice, including retirement income questions, from “investment selection”
• Implementing as many of the keys to becoming the trusted go-to resource as possible
• Enhancing trust and creating additional revenue with new services and improvements to pricing clarity and structure, such as attaching clear fees to distinct services like income planning
• Developing a strategy for fiduciary standards
• Encouraging and supporting “General Contracting” as a means to reassure investors in their decision-making process

What’s behind the confusion? In a nutshell-it’s treating financial advice as a prelude to a sale. Financial services firms and advisors often promise a client much more than just guidance on buy and sell decisions, such as retirement and financial planning, asset allocation strategy and monitoring, guidance on insurance, estate planning, taxes, or college savings. However, providers seldom charge separate fees for these services, preferring instead to offer them as free, either in exchange for holding products, or as a prelude to a sale. Ask yourself, how much value would you place on something that is offered for free? How much confidence could you have that the company or person offering the service is doing a good job, when they are not being paid for it? Would you wonder what hidden incentives are making it possible?

We look forward to discussing these topics with you soon,

Chris & Laura

(And where you can find more information in Hearts & Wallets’ latest release-After the Gold Rush: What’s Next for Retirement Income)

1. The retirement income market is on track to reach 25% to 30% of all household assets by 2020. (Chapter 1)

2. The competition has never been so steep - financial services firms are dedicating massive amounts of resources to older investors - about 75% on average vs. 50% in 2007. (Chapter 1)

3. Retirement income is more about more about relationship deepening (and winning the consolidation battle) than about acquiring new accounts. (Chapter 2)

4. Despite significant efforts, including many additions to, and changes in, organizations specifically made to address retirement income, few firms actually have all of the pieces in place to both develop and deliver effective solutions. (Chapter 2)

5. The industry has recognized that planning alone is not a panacea for retirement income, and that secure investments with which to implement a plan are both necessary and desirable - a balance is being struck between Planning Solutions and Income Feature Products. (Chapter 3)

6. Although some plans were derailed by the market crash, investment manufacturers are aggressively making changes to investment portfolios and lineups, as well as looking for opportunities to gain market share with income features. (Chapter 4)

7. Firms are no longer waiting for the rollover - a tremendous amount of focus is now being placed on serving employer-sponsored plan providers and in-plan participants. (Chapter 5)

8. More than ever before firms are utilizing technology to address the needs of, and market retirement income services to, Pre- and Post-Retirees. (Chapter 6)

9. You can count on one hand the number of firms that have established a strong position as top providers to, and have truly earned the trust of, affluent Pre- and Post-Retirees. (Chapter 6)

10. There are such wild fluctuations in the results of retirement income calculators that it’s no wonder that some investors are confused to the point of not saving at all. (Chapter 7)

All of these findings, and many, many, more are covered in great detail in Hearts & Wallets’ latest in-depth research report-After the Gold Rush: What’s Next for Retirement Income: Assessing Market Growth, Solutions, and Strategy in 2011 and Beyond. Click here for a brochure featuring a full table of contents and methodology, as well as order form. Contact us for more information.

Chris J. Brown and Laura H. Varas-March 17, 2011

We thank those of you who have written to inquire about Hearts & Wallets 2010 Quantitative Panel, our recently released survey of over 4,000 American investors from diverse segments of the population, which was recently in InvestmentNews and cited in Department of Labor testimony on retirement income earlier this fall. Below are just a few of the findings from this detailed analysis of investors ranging from age 21 into the 80s.

• The new lifestage segment “Late Careers” now eclipses “Pre-Retirees.” In fact, 4 out of 5 working Americans age 55-64—the ages traditionally thought of as “Pre-Retirees”—consider themselves “Late Careers.” The old Pre-Retiree messaging won’t work with Late Careers, who have different concerns and interests and goals, and represent a whopping 12.8 million households.

• Building trust is more important than ever, so we developed empirical data to show clients how best to do so. Sadly, 54% of Americans agree with the statement” I am afraid of getting ripped off by financial professionals.” Only 24% of respondents rate their providers a 10 on a scale of 1 to 10 in trust. Most big firms score in the 20-30% range, but the best score of any major firm was 81% of customers rating their trust a 10, and several others are in the 40-50% range. To help improve this situation, we expanded on our Explore Q2 focus group research on best trust-building practices, and used the Quant Panel to model the drivers of higher trust. We identified the key actions firms can take to improve trust—but you’ll need to be specific about your target because the recipes are different depending on whether you’re working with Accumulators or Pre/Post-Retirees!

• Younger investors continue to be a huge opportunity—43.7 million Emerging/Early Career and 17.9 million Mid-Career households. Yet in our recent Accumulator competitive landscape survey of major firms with over $16 trillion in assets under care, only 50% of respondents said they were working on Accumulator strategies in any way – and this from a group of participants in Accumulator research that, if anything, should be biased towards a focus on Accumulators. Asset growth rates are projected to be higher for Accumulators than older investors. Behavioral segments are a great way to identify attractive customers and/or build targeted solutions. How well does your firm understand the interests and preferences of the segments in this critical growth engine?

Please send your questions and comments on this, or other Hearts & Wallets research efforts! We will be happy to discuss a package of the Insight Modules that are the most relevant to your business needs.

As we enter our third year as Hearts & Wallets and our seventh year collaborating on key trends in retirement saving and investor needs, Chris and I thank you for letting our research contribute to building business at your firms through offering design, messaging, and distribution strategies. Laura Varas