“Money in motion” is a common term in financial services. There are trillions up for grabs and everyone is fighting to get his or her share.
Many people think that the retiring baby boomers are the main story behind money movement.
But the real drivers of movement stem from a dissatisfaction with a provider or adviser. The root of this dissatisfaction usually isn't poor returns or service but a lack of understanding about services and fees.
Consumers are open to different incentive models and want to be able to choose the model that is best for them. Most investors are willing to pay for advice, and think that several models are “reasonable.”
Most Americans can see that financial advice might be worth paying for, if it is worthwhile. Younger and midcareer investors tend to appreciate having a choice, while older investors tend to be more comfortable with bundled pricing.
So how do these components play into the money motion?
Our research suggests that much of the money in motion is due to people who are either “upshifting” or “downshifting.”
The upshifters desire more or better support or advice. They typically have consolidated or switched (or are seriously evaluating doing so) to a full-service adviser, broker or financial planner.
Including both those who already have made changes and those who might, upshifters represent the greatest concentration of wealth, at 13 million households and $6.2 trillion.
SEEKING EMPOWERMENT
Downshifters want to get more involved with their investing or lower their costs. These 10 million households, with $3 trillion in assets, want a provider that will deliver empowerment and cost-effectiveness.
There is also a sizable group looking for the best of both worlds — improved service, added control and lower costs — along with others, who tend to be less affluent, that are trying to figure out what is available before they can make choices.
So what does this mean for advisers?
Promoting your retirement income expertise as a means to capture assets is unlikely to produce nearly as much new business as simply clarifying your value proposition and your fees to clients and prospects. Investors have three unmet needs to which they want answers.
UNMET NEEDS
What services do you provide?
Is it all about investment selection? Do you offer softer but very valuable services such as informing them about market changes, encouraging them to take beneficial actions like saving or making smart tax decisions? Do administrative staff members provide support with paperwork?
How should they evaluate you? Is it just about performance? If so, should they look at account value or a benchmark? What about meetings, your behind-the-scenes research or constructing a plan?
Why do you charge the fees you charge? What are the fees?
What are all the ways you earn money? What is your “cost of goods sold,” so to speak?
Does this system align your incentives with theirs?
It is critical that you be able to offer up well-prepared answers before these questions are asked. If you can offer investors more choices in how they access services and pricing — more of an a la carte approach — that is even better.
Our research shows that the key to winning retirement assets isn't specific to retirement expertise, but that isn't entirely true, either.
Demonstrating expertise in retirement planning is going to help you win more business; it is just that you have to have the other pieces in place first. And if you don't articulate your value proposition and fees clearly, a lot of those dollars in motion may be flowing from your clients to your competition.
Chris J. Brown and Laura Varas are co-founders and principals of research firm Hearts & Wallets LLC.
