By Linda Koco
ORLANDO – Can advisors make a living by serving the retirement income needs of the middle market? Can insurers serve this market profitably and sustainably?
The answer is yes, according to speakers on a middle market panel at the annual Retirement Industry Conference. But the outcome will depend on the segment of the market being targeted and on the strategies being employed, they caution.
This is a difficult business, said Chuck Yanikoski, president of Still River Retirement Planning Software, Inc. He said his best guess is that about half of middle market people within 10 years of retirement (in either direction) are at “significant risk” of outliving their assets unless they make changes.
“Even those not at high risk remain at some risk, with few exceptions,” he added.
Still, Yanikoski thinks that producers can find success in this market, for instance by employing automation to help them serve the part of this market that does have assets to protect and manage.
If an advisor sells a lot of $50,000 single premium immediate annuities to middle market customers this way, that advisor will be doing well, he told InsuranceNewsNet. Meanwhile, the clients will be getting products with guarantees they need to strengthen their retirement security.
The middle market does include people of relatively modest means, and they might not be ideal candidates for retirement income planning due to limited resources. Yanikoski guessed that roughly half of the market is or will be at significant risk of outliving their assets, unless they make some changes.
However, not all of the market is without resources. Co-panelist Matthew Drinkwater pointed out that the middle market comprises American households having from $100,000 to $999,999 in financial assets (excluding the primary residence). That is a definition used by the LIMRA research firm.
Drinkwater is associate managing director-retirement research for LIMRA, one of the conference co-sponsors. The other co-sponsors are LOMA and Society of Actuaries.
If including the value of non-financial assets — such as the family home -- as well as the financial assets, the average net worth of middle market retirees is $810,000 and the mean is $562,000, Drinkwater added, citing a LIMRA analysis of 2007 statistics from the Federal Reserve Bureau.
As for market size, LIMRA estimates the number of middle market retiree households to be 8.3 million. This represents 30 percent of all partially or fully retired households, Drinkwater said.
Another telling statistic from the LIMRA analysis of 2007 Federal Reserve data: Half the assets in middle market households are held by retirees ages 60 to 74. That is the age range when many people buy deferred annuities, consolidate assets, claim Social Security and make many other retirement decisions, Drinkwater pointed out.
Older middle market retirees have more modest means — $341,000 for those aged 76 to 90+, according to the LIMRA analysis.
Advisors have been thinking about which products best meet the needs of individuals in the middle market asset range. In a 2012 survey, LIMRA asked some advisors to name the most appropriate segment for guaranteed income products. The majority said it is people who have $100,000 to $999,000 in investable assets — the same asset range as LIMRA is using to define the middle market.
Specifically, 37 percent of the surveyed advisors put the average investable assets for guaranteed income product applicability in the $100,000 to $499,999 range, and 27 percent put the assets in the $500,000 to $999,999 range, Drinkwater said.
By comparison, only 9 percent of advisors thought people with under $100,000 would benefit from such products.
Drinkwater said he believes that current middle market retirees are “doing fairly well.” Nearly all have Social Security, three in four have defined benefit pensions, and the majority has little or no debt, he said. And at $810,000, their median net worth is a “fairly sizeable” reserve to supplement income and use for emergency spending.
Future retirees will not be as fortunate, he predicted, but for now he, like Yanikoski, sees opportunities ahead in this market.
Steps to win
Insurance companies can take some steps to help get a “win” in the middle market, Yanikoski said. For instance, they can address certain industry factors that tend to increase risk for middle market clients. Examples include discarding old assumptions, stopping focus on industry’s problems rather than clients’ problems, and ending initiatives that encourage middle market clients to make aggressive investments and purchase high fee products.
Yanikoski also had some proactive suggestions for carriers. Provide the middle market with education on not only financial matters specific to the retirement years, but also on lifestyle options and their financial impact, he said. In addition, provide encouragement and emotional support to this market, offer financial advice that goes beyond product, and design low-cost, financially conservative products for this market.
He named several strategies, too, including one involving producers. Called stratification, the producer approach entails the carrier incorporating three different types of advisors into its middle market initiatives. The advisors would include those who make only few middle market sales a year, those who are more active but not intensely so, and those who see retirement income planning for the middle market as a real opportunity and go after it.
“What I would do is go with all three producer categories at the same time,” Yanikoski said. “Pull them with you.”
There are risks to doing this, he allowed. For instance, the carrier will need to be a lot smarter than the others, and will have to spend even more money. It will also have to be patient while producers and clients catch up with the initiatives. And there is the possibility that “you might still fail,” he added.
However, he sees advantages to such an approach as well. For example, it gives carriers the ability to provide excellence when needed and to adapt initiatives to the levels of producer ability, he maintained. It also provides producers with a path for migration and advancement, and enables the carrier to “sprint to the front” of the competition.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.