Investors not Buying the Traditional Retirement View Plugged by Providers

This has strong implications for the financial services industry, says Rethinking Retirement, Investor Trust, and the Value Proposition: Harnessing Behavioral Segmentation to Reveal Major Differences in Current Investor Attitudes and Emotions from Hearts & Wallets. The report suggests a growing number of Americans now think of retirement not as when their portfolio reaches a certain level of assets, but when they are no longer able to find full-time employment.  

“Behavioral segmentation is the only way to fully grasp how investors are responding to the downturn and the current confusion about advice and pricing,” explains Laura Varas, one of the authors of the study, in a press release. “Ironically, the ‘best’ investors – those with the most successful behaviors, whom we call ‘Peak Accumulators,’ find the traditional retirement view to be quaint at best, and downright misleading at worst. So efforts to woo them in this way are doomed to failure. There are similarly grave misunderstandings in assuming that all 50-somethings are Pre-Retirees, rather than Late Careers.”   

The study finds that, among behavioral segments, attitudes to “retirement” range from desperately wanting financial independence and being ashamed that they haven’t been able to achieve it, to feeling justified in not saving since the “goal” doesn’t make sense to them.  

Hearts & Wallets found that trust and pricing are top-of-mind for investors today, and that feeling understood is one of the key things investors look for in deciding which providers to trust. “Among the nine trust-building practices we identified, ‘show me you understand me and share my values’ is one of the most important,” said Chris J. Brown, the report’s other author, in the press release. “A strong understanding of the advice value proposition and pricing are also key, which is why we devoted so much time in the groups to researching attitudes to these issues.”  

According to the research, many in the Late Career segment (those in their 50s and early 60s who do not yet consider themselves Pre-Retirees) have become less willing to abandon their current jobs, and are willingly postponing retirement in order to hold on to earned income until they are forced out of the workforce, which they accept will happen someday.  

Mid-career Accumulators (i.e., investors in their late 20s, 30s, and 40s) are wrestling with a range of competing savings goals and financial issues, such saving for as children’s education, building emergency funds, and paying down debt. “Yet, these important issues are too-often barely addressed, or ignored altogether, in client communications that deliver a message that retirement should be every American’s top priority, when it simply isn’t, for a wide swath of people,” noted Brown. “This contributes to feeling misunderstood, which erodes trust.”  

The report addresses other issues, including:

• Drivers of trust in financial services firms and advisers;
• Triggers of the shift in investor mindset as they move from Late Career to Pre-Retiree;
• Effects of, and solutions for, the industry’s value proposition and lack of pricing clarity;
• Benefits of adding a behavioral segmentation overlay to commonly used wealth and age segments; and
• Investors’ desire for more personalization rather than “cookie cutter” solutions.