Young and middle-aged investors are largely focused on building assets, saving for college and planning for insurance, so firms marketing themselves as experts in retirement are missing the mark.
In addition, mass market
financial planning shops such as NestWise LLC and LearnVest, with their focus on fees rather than asset-based pricing, are in a prime position to scoop up these investors.
While many planning and advisory firms have trained their gaze on retirees who have built their nest eggs and are preparing to draw down on their assets, there's still plenty of potential in younger markets.
Hearts & Wallets LLC, a retirement trends research firm, estimates that 77 million householders are younger than 64 and aren't within five years of retirement. These people, along with their $15.4 trillion in investible assets, could host some great opportunities. Within that group, some 29 million are between 40 to 53 and hold some $7.2 trillion in investible assets.
The deterrent to tapping that market, however, is the fact that these households are still building their wealth and have different needs from their retired counterparts. For instance, these individuals can't afford asset-based fees just yet, and their interests include not only saving for retirement but also managing basic
financial planning needs, according to Chris Brown, a principal at Hearts & Wallets.
Indeed, 55% of the firms polled were uncertain whether they should focus on retirement income or on the needs of a younger family. In fact, of all the polled firms, only 8% offered a dedicated focus on the needs of younger investors.
Mr. Brown noted that the messages many of the polled companies were sending to their prospective clients — particularly over the Internet — missed the target for investors who are still accumulating wealth.
“The websites of the large brokerages or banks don't necessarily position products and services for younger investors with concerns other than retirement,” Mr. Brown said. Sites like NestWise and LearnVest, however, “are doing a better job of addressing the broader scope of a younger family's needs.”
Largely, those needs are centered on college savings, building an emergency fund and insurance planning. Further, those clients would be better served by either charging a fee based on the services or a flat fee.
“Unfortunately, a lot of the large firms use asset-based pricing,” said Mr. Brown. “Many new entrants can charge either based on assets or a flat fee, linking the solutions to the need.”
LearnVest, for instance, charges a one-time set-up fee based on the tier of service the client seeks. Clients then pay a monthly fee and can access a planner via e-mail or phone. NestWise also charges an initial planning fee, followed by a monthly fee, in exchange for access to an adviser who can guide clients through plain-vanilla financial topics, including life insurance decisions and 401(k) investments.
Making affordable
financial planning accessible to emerging investors doesn't necessarily mean that firms ought to banish these prospects to their call centers.
“We think young people want both online interaction, as well as in person [meetings],” Mr. Brown said. “They want access to web-based tools, but they also want to sit down with a professional and have that integration of advice and technology.”
For its research, Hearts & Wallets polled 22 financial services firms, a mix of 401(k) providers, asset managers, insurers and broker-dealers.
