Older investors immediately like the idea of a fiduciary, but for both the proposed Fiduciary Rule and the Best Interest Contact (BIC), a way of complying with the rule, the devil is in the details -- and how it's communicated. The latest Explore Pre/Post Retirees 2016: Digital Habits Revealed: How Older Affluent Investors Blend Live and On-line Advice & Reactions to Best Interest Contract and Concepts for Aging qualitative report finds older investors expect disillusionment before the pending rule is even rolled out. Many thought advisors were already working in their best interests. Providers should be sure to address this concern.
For BIC in particular, language plays an important role in how the concept is received. Older investors dislike legalese that surrounds the pending Fiduciary Rule and BIC. Amid their disillusionment, confusion and dislike of “lawyer-speak,” investors were able to come up with 3 good things, 3 questions and 3 predictions in relation to fiduciary and BIC. Contact Hearts & Wallets to discuss obtaining the full report, which focuses on a market of 4.5 million older households with $8.5 trillion in investable assets.
Retail investors continued to prioritize their “bird in hand” in Hearts & Wallets' recent quantitative findings in 2016, even as they can now visualize the "birds in the bush." Nationally, 47% of investors indicated that their number one financial goal remained the build up of emergency funds, up from 2015. At the same time, only 29% felt that they were on track to accumulate the savings they will need to retire. Feeling off-track has been trending upward over the past four years. No doubt, there is a big opportunity to improve motivation and support techniques.
At the same time consumers are more aware of the birds in the bush than they have been. Household's anxiety regarding their financial situation lessened across all wealth segments and net comfort with volatility improved to one of the higher levels observed post crisis. Of note, financial market related concerns were among the lowest of investors’ overall concerns in 2016.
Digging below the aggregate numbers on concerns reveals a tale of two investors. Among the youngest of investors, anxieties continued to rise. 35% of Emerging investors (age 21-27) indicated a high or moderate level of anxiety regarding their current and future financial situation in 2016, a new high since 2010. In contrast, Pre- and Post-Retirees continued to feel better, recording anxiety levels among the lowest seen in several years. While younger investors may view their financial futures with more trepidation than older investors, it is worth noting that younger investors’ comfort levels with volatility have improved the most during the post crisis period.
As financial providers consider their strategies and spend into next year, there is both an evolving and improving opportunity for engagement efforts. Investors are more likely to consider their options and be more responsive to outreach now than they have been. However, their is a critical need to not place all investors in one bucket when it comes to how to best engage. While the birds in the bush are coming into focus for some, others are most concerned with their bird in the hand, and new solutions for emergency funds are likely to resonate.
It’s easy to fall into the “Go Big or Go Home” mantra. After all, it’s become a popular, cultural belief. So, why shouldn’t it apply to Financial Services? Select asset managers and distributors have been dramatically expanding their digital engagement efforts, re-branding and rolling out new TV spots. In other words, going BIG with marketing spend.
However, we recommend that before providers embark on that path, they should first go “small,” meaning figure out which targeted investors their products are engineered to help, by going “home,” meaning get to the heart of the matter by studying the needs of those end investors. Providers need to immerse their organizations in the needs and sentiment of their end customers and shareholders. Many asset managers have become too conditioned to their product thinking and understand retail investors only through their intermediary partners and are selecting a fast follower strategy by default and limiting their value add to partners. In our view, gone are the days of being a me-too provider.
Going home to current retail investor sentiment and needs illustrates why long-term, overly optimistic and retirement messaging alone may not have the desired impact. Even before Brexit, uncertainty was already present, as observed in our recent focus groups:
“People are very up and nervous about what’s to come...”
“There’s advisors who can do this for me...but, I just like putting it in a bank account and getting very little returns. I know it’s not risky...”
“I’d rather just wait for it, really another crisis is pretty much what I am waiting for to then get back in aggressively...”
There’s empirical data to support. In our annual survey of 5,000+ households, the number one financial goal of retail investors is to build up their emergency fund.
While discussion of new entrant or so-called "robo" advisors often centers on their potential threat, established distributors and asset managers can learn something from "robo" messaging, offerings and digital engagement to specific groups. In other words, they are going smaller and doing something different to create resonance. Through micro-segmentation, design persona analysis and journey mapping is where product innovation and message effectiveness will be found. By going small and going home, providers will find their way to BIG results.
A finding from the Mutual Fund Education Alliance states that 64% of asset managers are challenged with developing a strategy for marketing content. At the same time, industry researchers consistently point out that financial advisors would like asset managers to send less, but more relevant content that is not so product oriented.
In parallel, Hearts & Wallets’ recent money mover focus groups found that financial services provider advertising and key message recall was dismal, equally suggesting a lack of resonance with retail investors. Note that affluent investor respondents were selected due to having moved and/or intending to move money. In other words, engaged prospects actively evaluating their options.
Despite focus group participants’ universal acknowledgement of being online (a key focus of marketing efforts), respondents struggled to recall messaging from either financial providers or asset managers. Moreover, of the few memorable advertisements, both campaigns included the use of some older technology – television. While the digital age offers marketers so many benefits, the digital landscape is a cluttered and challenging space.
Taking all of the above together suggests a challenged state of another alpha for fund shops to be thinking about - their marketing alpha. Beyond investment thought leadership which is an obvious content table stake for asset managers, what else is relevant? As reminded at this year’s ICI GMM, product innovation needs to be approached through the lens of how it solves for end investor needs. We heartily agree. Marketing strategists take note.
There’s a lot of commentary of late regarding the inevitable wealth transfer to a younger generation of investors. Let’s face it, it’s fun to say the word "Millennials" and discuss how they are different. Despite similarities, generational differences are notable and the evolution of product and advice options underscore the need for both financial advice and investment product providers to prepare accordingly for the future marketplace.
However, there’s a more immediate opportunity to stay focused on. In our Money Movement insight module report, we identified that approximately 26 million households, controlling $13 trillion are considering moving money. Additionally, there’s another $15 trillion held by 47 million households who are not completely satisfied with their current financial services providers and simply have yet to make a decision.
Our historical analysis of money movement related asset growth found that it hasn’t all been about a race to the bottom when it comes to a willingness to pay for advice. Yet, well defined segments and their related triggers are apparent.
For advice and product providers seeking to enhance marketing and client acquisition ROI, as well as asset managers who support them, there is no shortage of opportunity. The key is to develop a deeper understanding of the prevailing sentiment, unmet needs, transaction journeys and engagement motivators for the here and now.
Looking at what’s most important to High Net Worth investors ($2MM+ of investable assets) regarding their financial service provider experience, we find some “relaxing” from prior year results. Service dimension importance scores witnessing notable declines included “wide variety of products,” “friends/family having a positive experience,” “internet account access” and being a “well-known leader.”
It’s easy to make a case for a feeling better sentiment here given that the HNW possess the largest improvement in financial security attitudes relative to other wealth segments. Nearly one in two HNW investors indicated “no anxiety regarding their financial situation now and as they look into the future,” up from 31% in 2010. In contrast, national levels tell a well known story with only a mere 13% agreement and no significant improvement since 2010.
On the surface, the HNW should now be an easier client to engage and service. However, that feeling better sentiment regarding their own situation has not yet resulted in reduced concerns about being ripped off by financial professionals. While net agreement with the fear of getting ripped off by financial professionals remains significant for investors overall (more than one in two nationally), net agreement with this attitude among the HNW is notable at 39% and has not shown any evidence of decline post crisis.
This broad attitude towards financial professionals has many implications for both established advice providers and asset managers to consider in how they approach this highly desired client. For actively managed investment product providers, it suggests a sizable segment among the HNW (and by extension the advisors that service them) who will require additional support to allay concerns that could be preventing higher fee investment product consideration.
As an industry, we are conditioned towards destination. While this is largely a core trait of investment services, it’s reinforced with a popular performance ranking system. It’s all too easy to stay in our product mindset with destination thinking. Look at it through a consumer lens for just a second – we all need a Dentist and desire a positive outcome, but how often do we avoid and/or delay the experience as much as possible?
Hearts & Wallets' latest retail investor sentiment findings continue to reflect financial professional distrust and investment decision uncertainty. Additionally, investors’ evolving behaviors such as account fragmentation, changing attitudes towards retirement, increased self-direction and an interest in digital entrants are top of mind issues for providers’ strategy adjustments. Moreover, add to this short list the ongoing active/passive debate with all its implications, employer sponsored retirement plan participation in a “gig” economy, new legislation and we can quickly lose track of our primary mission: to take retail investors from their starting points to realizing their goals, while making sure they enjoy the ride to stay with us on the journey.
Satisfying retail investor needs amidst these complex dynamics and applying a client needs framework begins by broadening our focus beyond investment performance to the larger client experience. In Hearts & Wallets’ “Wants and Pricing” insight module report, investors increased their importance levels assigned to components of their overall client experience. Not surprisingly, Millennials became more demanding. However, so did Post-Retirees. In contrast, High Net Worth investors ($2MM+) grew more relaxed.
Underscoring that it’s not just about the destination right now, our research also found that having “fees that are clear and understandable,” “explains things in understandable terms,” and “is unbiased, puts my interests first” edged out “has made me money.”