Retired persons and those contemplating retirement are basically at sea when it comes to choosing retirement income products — or the providers of those products. And that confusion presents a massive opportunity for advisers and financial services firms.
A new study, released today by Cogent Research LLC, found that retirees and pre-retirees mostly rely on a combination of certificates of deposit and laddered bonds to ensure a steady stream of income during retirement. Variable annuities were the third-most-popular retirement income vehicle, but investors are clearly unsure what these products actually are.
Indeed, fewer than one in six investors said that they are very familiar with retirement income products. For instance, investors don't seem to understand that variable annuities can provide steady income. When asked if they rely on variable annuities for retirement, about a third responded affirmatively, but only 15% said they actually own any type of retirement income product.
“Education seems to be in order,” wrote the authors of the study, Carrie Merrick, project director, and Cogent principal and co-founder Christy White.
The survey also revealed that no single type of advisory firm, or specific brand name, has an edge in the market. When retirees were asked which firm is the best at helping investors manage and invest income during retirement, no vendor stood out.
Fidelity Investments topped the list, cited by 9% of the respondents. About 7% of the polled retirees named
The Vanguard Group Inc.
By comparison, fully 27% of the retirees said they don't know which firm is the best for retirement income products.
Brokerage firms and mutual fund companies were cited more often than insurance companies as the most appropriate kind of firm for providing retirement income products, however.
“There's a real lack of knowledge,” Ms. White said in an interview. “Advisers have a great opportunity to step in” and educate.
“No one's rallying around any one brand,” she added. “I found that astonishing, and a real reflection of the fact that investors don't know — they really don't know.”
Ms. Merrick and Ms. White suggested in their report that financial services firms can better appeal to retirees and pre-retirees by marketing retirement income products as a “guaranteed paycheck.” This is the “dominant terminology and idea that has been accepted by retirees and pre-retirees, and resonates with them most,” they wrote.
Emphasizing financial stability is also a good idea, they suggested. “This will help them believe you will deliver on your promise of a guaranteed paycheck in the future.”
The Cogent survey was conducted over the Internet in December and captured the views of 961 affluent investors 55 and older who have at least $100,000 in investible assets.
