Becoming The Main Source Of Retirement Advice Crucial For Advisors

The best way for a financial services firm to grow customer share of wallet is to be the main source of retirement advice to its clients.

This is one of the main findings from a decision tree analysis, which draws from Heart & Wallet’s quantitative database containing over 60,000 U.S. households dating to 2010. The decision tree analysis looked at over 10,000 customer relationships, which are from Heart & Wallet’s annual surveys, using key variables that prior research and line-operating experience suggest influence share of wallet (SOW).

“The decision tree analysis identifies the main driver of SOW as a firm being the main source of retirement advice (MSRA), noted Laura Varas, Hearts & Wallets CEO and founder. “Predicted share of wallet for a firm that is the main source of retirement advice is 72%, vs 28% for firms that are not.”

Being the main source of retirement advice is usually associated with more full-service advice models. Varas added. And it’s one that certain consumers are willing to pay for.

Another key finding of the survey is that premium for being the primary firm is going up, Varas said. The premium for being the primary firm (where the most money is kept), is up 14 percentage points, going from 65% in 2010 to 79% in 2020, aided by COVID-19-related savings.

Apart from MSRA, other factors emerge, which are predictive of SOW. These include consumer trust in a financial relationship, “understanding how the firm earns money,” and consumer attitudes toward leaving money in former employer-sponsored retirement plans (ESRPs).

“We also found that the asset breakpoint that best predicts share of wallet is $375,000,” Varas added. “Predicted share of wallet for consumers with investable assets of $375,000 or more can be increased by increasing trust.” Predicted SOW is also higher for consumers who are not comfortable with leaving money in former ESRPs.

Growing SOW

To help increase SOW, Hearts& Wallets suggests that firms and financial advisors consider taking the following steps:

• Become the main source of retirement advice if that fits their service models and capabilities.
• Develop service models for wealthy customers that reflect the reality of the multiple-firm environment. Service that is separate from custody is becoming a reality and will require new pricing, technology, business models and field roles.
• Consider a breakpoint of $375,000 for segmentations and service models.
• Work on increasing trust to protect and grow SOW with current customers.
• Develop solutions for advice on assets in ESRPs. In addition, advisors should recognize that one in five households could not agree more strongly that they do not want to leave money in a former ESRP. So, there’s an opportunity for rollovers. Workplace advice is subject to more restrictions than retail advice; yet, workplace assets are often a significant portion of a household’s wealth, perhaps too much so, in large part because what limited “advice” there is has tended to emphasize saving more into the plan.
• Where appropriate, a firm may want to consider lobbying on the rollover issue from a perspective of consumer choice. “There is clearly a role for leaving money in plan, as well as having options to choose other investment options or purchase more service,” Varas said.

Other Factors Influencing SOW

Varas pointed out other factors influencing SOW. “Our research, both quantitative and qualitative, tells us that consumers want help with difficult questions related to retirement advice,” she said. ”Workplace plans often can’t meet all of these needs and that can be because of regulatory strictures.”

Advisors can stand out by helping consumers address burning needs such as questions on tax optimization, housing arrangements in retirement and a customer’s work viability as they age. Currently, not many advice offerings help consumers sort through these challenging questions.

Advisors should also think about the $375,000 asset breakpoint.

“It’s not one we’ve seen in any of the service models of firms we have worked with,” Varas added. “Trust and understanding of how the firm earns money go hand in hand. Advisors should work to increase trust and be crystal clear about how they are compensated and how their firms earn money.”

In addition, Varas pointed out, “realize that your customers are probably using other firms, especially wealthy customers. That behavior isn’t going to stop. To be the primary provider, offer better advice, products and solutions.”

In closing, Varas advised firms and advisors to offer customers a choice of advice models, recognizing that their needs change over their lifetime. “More robust advice is a way to earn the right to manage more of a customer’s wallet,” she said. “Better advice does lots of things, and has higher prices, as it should.”

The advanced analytics report, Drivers of Share of Wallet: The Primacy Premium and the Connection to Retirement Advice, uses sophisticated decision tree analysis to identify key factors that can help financial services firms grow their share of wallet. The research draws upon the Hearts & Wallets Investor Quantitative Database with over 100 million data points on consumer buying patterns from 60,000 U.S, households.

The latest survey wave was fielded in August 2020 and includes 5,920 participants.

Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]