The at-retirement market comprises 15 million consumers aged between 50 and 70. We estimate funds generated from pensions in this space to be around £250bn. A huge sum. But there is more. We also estimate the 55 to 74-year-old segment has liquid investable assets of nearly £1,400bn. Whichever way you cut it this looks like a lucrative market, yet there are no obvious brands.
Consumers wanting an assessment of their vision or looking to buy some spectacles have compelling brands to turn to. They will know where to go. Those that want to book a flight are spoilt for choice, with clearly differentiated propositions. As they walk around the departure lounge they will recognise a huge number of brands in the duty-free shop and will probably pay with a credit card trusted by billions of people.
Whatever and wherever consumers want to buy there are almost always brands they will recognise and in many cases trust. These brands have a true identity based on consistent customer experiences that create valuable loyalty. In a sense – and usually on a local, or even individual, level – high quality advisers share these brand characteristics.
But what of these 15 million consumers that do not have an adviser? What if they want to buy advice as to how to structure their retirement planning and invest their share of this trillion pound market? Where is the brand? Where do they go?
Perhaps their pension provider would be the first port of call but few insurance companies or investment managers are offering this sort of advice today. What about their bank? Well, with retirement planning now so complex most have chosen not to focus in this space. They might approach The Pensions Advisory Service or other such agencies for guidance.
In many cases, consumers looking for advice might talk to a friend or colleague, particularly someone who has already been through the process, and this would result in a referral to an adviser. But anecdotal evidence suggests to us that many advisers are already busy dealing with existing clients. Serving new clients, particularly those with modest portfolios, is not a high priory. All in all, then, the at-retirement market is not a simple, efficient or even profitable one for many of the constituencies involved. So what is the answer?
Forgive the cliché but nature abhors a vacuum. It is likely existing and new players will create new customer experiences, which will be delivered with 100 per cent consistency. These could form the basis of compelling consumer brands that will attract those looking to buy advice on their finances and their lives for their later years. Will these pose a threat to the intermediaries that currently “own” this market? I do not think so; at least not in the short term.
In fact, given the consolidation currently taking place, there may be opportunities for some in the intermediary market to steal a march on potential competitors and position themselves at a national level as the obvious first call for certain consumers. Clearly this would require investment – perhaps institutional, perhaps private equity – but let’s not forget we are talking about a trillion-pound market opportunity.
If not intermediaries, then who? Existing well-known and trusted consumer brands may team up with asset managers or life companies to share costs and capabilities or decide to go it alone. The costs of creating and delivering the propositions will be significantly lower than the cost of building a compelling brand. The key challenge in the short term will be finding the advisers that will no doubt be needed alongside the technology that facilitates the processes, mitigates risk, enhances the consumer experience and improves efficiency.
We often hear of firms recruiting graduate trainees. I am not sure this is the best approach for the at-retirement segment. Few graduates would have the required empathy with clients given that – sorry to say – most could not know or even imagine what it would be like to be wealthy or facing retirement. And without empathy it is very difficult to create trust.
My sense is there are many intelligent 50-plus-year-olds that could succeed in the retirement advice market and build enjoyable and profitable second careers. Clearly, significant training and development would be required and the payback would be long term. However – for the third and last time – this is a trillion-pound market opportunity.
It is also likely that insurance company and asset manager defined contribution pension providers will start to proactively engage with members. The focus will be on the 40-plus segment and where the contribution level seems attractive. Initially, communications will be designed solely to inform and build a relationship.
They will be narrowcast, not broadcast, so members will get messages relevant to their life stage. Members-only websites will be created and social media encouraged. All designed to “earn the right to advise” when the timing is right. All designed to create the obvious place for the consumer to make contact when he or she needs it. And all based on low-cost, highly efficient processes and technology to ensure low-cost and consistent client experiences
In the longer term, these new models will only pose a threat to those advisers that have been unable, or simply too busy, to continuously demonstrate the value they are delivering for the annual fees they are charging.
There will be little margin for complacency in this space. Almost all players now recognise that managing money in retirement for, say, 25 years, generates significantly greater revenues than those generated during the accumulation stage. There is a great deal at stake.
Malcolm Kerr is senior adviser at EY