We all know about the problem of “orphaned” 401(k) accounts. Is it a symptom of something bigger?
A new study finds many “loyal” financial services customers are really dissatisfied investors sitting on the sidelines because of inertia, offering true financial services providers and advisors an opportunity for new customer acquisition, according to a new study from investor research from Hearts & Wallets.
The study, tilted Unlocking Investor Inertia, revealed the large “latent potential” of households who exhibit dissatisfaction with current providers, yet have not acted to move. The latent potential is of an estimated market of 47 million households with $15 trillion – in addition to the actively shopping segment of Americans considering money movement, which comprises an additional 26 million consumer households with $13 trillion. More than one in five households are actively considering moving money now.
“The money movement market opportunity is much larger than at first glance and nuanced. These findings are directly relevant to business-to-consumer financial services providers and equally important to intermediary-sold product providers’ support of distribution partners because of the way the distribution landscape is changing,” Laura Varas, Hearts & Wallets founder and CEO, said in a statement.
Job changes are an ideal time to capitalize on inertia opportunities. Most consumers (53 percent) do not want to leave money in a former employer plan.
“The key to winning new clients now is developing a better understanding of consumer journeys in provider consideration, including related money movement triggers, as opposed to the use of broadly defined investor segments and assumptions,” Varas added.
The study advocates for an increasing client-centric, “through their eyes” approach to end investor inertia.
“For retail investors, there’s a craving for the tangible suggested by feedback on engagement incentives,” Todd Hiller, Hearts & Wallets Vice President, said. “Concerns with uncertainty still weigh on retail investor minds. Cash incentives to establish new accounts were received positively as they correspond to something tangible. In contrast, offering fee rebates in the event of negative performance returns was not well received,” Hiller said.
Hiller also cautioned financial service providers who have become overly dependent on the creative side of marketing at the expense of strategic fundamentals.
For mutual fund managers challenged with prioritizing their content agendas and seeking to better support their intermediary partners, they need to focus greater attention on retail investors. We don’t need more content, we need more relevant content and this can only be achieved by developing a broader understanding of the issues advice intermediaries confront,” Hiller added.
Focus group participants also reacted to proposed concepts on Financial Wellness, an Invested Emergency Fund, and Investments and Insurance Packaging. Overall Financial Wellness approaches were well received by consumers, a primary focus of some robo-advisor entrants. The promotion of investment and insurance products together appealed to a majority of respondents, particularly when considering the future of the workplace. The final concept tested was the proposed Department of Labor fiduciary rule, which generated a number of passionate questions.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
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