Gold at the End of the Rainbow: Using Automation to Profitably Serve the De-Accumulating Investor

by William Trout, May 8, 2015
Industry Trends
North America

Abstract

Historically, firms and advisors have framed the mantra of “alignment with client interests” in terms of growth of assets under management. This view is now outdated, as increased longevity means the winding down of retirement assets may take place over 30 or 40 years. Extended retirement periods provide ample time to serve the needs of older investors and to connect with succeeding generations, whose own plans for retirement must include de-accumulation as well. Meeting the expectations of these demanding and digitally savvy clients, however, requires an approach more in tune with the times.

In the report Gold at the End of the Rainbow: Using Automation to Profitably Serve the De-Accumulating Investor, Celent examines the degree and form to which automated forms of delivery might be used to profitably serve the de-accumulation needs of retirement investors.

De-accumulation, which encompasses downside protection and wealth transfer as well as the drawdown of assets, is a topic advisors have tended to avoid in light of its inherent sensitivity and the challenge of monetizing advice around it. Today, however, considerations are evolving under the weight of demographic trends as well as economic and regulatory imperatives. Clients, too, are increasingly preoccupied with the challenges of funding a multidecade retirement period (with its attendant healthcare costs), especially given systemic risks to longstanding retirement programs such as Social Security, corporate pensions, and even 401(k) plans.  

Today, advisors and the brokerage, advisory, and insurance firms that employ them are starting to explore the automated delivery of advice as a way to rationalize their high-cost sales structures. Automated delivery appeals to these firms in that it allows them to touch the client directly and across the entire lifecycle, from prospecting to long-term relationship management.

Although automated delivery is disruptive to the standard advisory model, its impact should not be measured in terms of the disintermediation of the real life advisor. Decisions around de-accumulation are sufficiently complex (How best to transfer money to my children?) and emotionally freighted (Will I have enough to live on for the rest of my life?) as to demand face-to-face counsel, at least for the foreseeable future.

As such, automated delivery tools geared toward serving the post-work investor (and the investor planning for retirement) will be deployed at the service of the advisor, and not in his stead.

Celent believes that this blending of virtual and physical distribution models increasingly will take place with the tacit support (if not the encouragement) of advisors eager to reach an expanding pool of mass affluent and Millennial clients.

“Denial and resistance to automation already are ceding ground to understanding and acceptance. In fact, the scope of the de-accumulation opportunity suggests that it will not be long before the advisor becomes a flag carrier for the blended model,” says William Trout, a senior analyst with Celent’s Securities & Investments practice and author of the report.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

Introduction

3

The Changing Retirement Landscape

4

 

Generation at a Crossroads

4

 

The Post-Retirement Lifecycle

5

Industry Actors and Ecosystem

7

The Case for Automation

9

 

Resistance to Change

10

A Way Forward

15

 

The Regulatory Wild Card

16

Leveraging Celent’s Expertise

17

 

Support for Financial Institutions

17

 

Support for Vendors

17

Related Celent Research

18

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