A Withering Retirement?

These groups were vocal in pointing out the inherent conflicts of interest in the financial advisors they are using or evaluating. They are on the lookout for self-dealing. Surprisingly, they were not concerned about the recent brokerage and mutual fund scandals and investigations. Rather, they expected such behavior all along; the discovery of shady dealings is not news and is hardly unexpected.

Overall, our retirees are woefully ignorant of the basics in finding, evaluating, and working with an investment advisor. Few understood the differences between a broker, an insurance agent, a financial planner, an investment advisor, and an independent advisor. They didn't speak at all about credentials of advisors they used or evaluated. But they did hold two strong points of view. They want an independent, fee-based, comprehensive portfolio recommendation, but they do not want to aggregate all their assets with one advisor, though our research found that wealthier respondents did not share this desire at all (see "The Wealthy Are Different" sidebar).

A common complaint was that their advisors are too aggressive in trying to get at and manage all their assets. Our respondents are wary of the advisor who aggressively and persistently pushes for all the client's assets. They say they will not put all their assets at risk with one advisor or one investment portfolio.

Friends and Family

We were surprised to find that independent investment advisors were not prominent in our group's sights. Wirehouse brokers dominated the professionals that our groups used. However, this is a very uneasy relationship. Clearly, independent advisors need to do a much better job of differentiating themselves because right now, the prestige of a well-known big brand name is important in giving a firm credibility. The feeling was expressed that a "big, national firm" wouldn't be as rife with conflicts. This feeling was especially prominent among men. Women, in contrast, focused much more on their relationship with an individual advisor.

We were also surprised to find how little outside support exists for these investors. We expected them to be snugly embedded in a network of assistance. Instead we found them primarily on their own, often alone. Typically, one person in a couple handled all the investments. There was no mention of help, assistance, or tools supplied by the former employer or the former 401(k) provider firm. So is it any wonder that contrary to expectations, neither Fidelity nor Vanguard is sweeping up many rollovers out of defined contribution plans they had provided to our respondents? Nor are other mutual fund companies.

We also expected investors' attorneys and accountants to play a role in choosing an advisor. But that wasn't the case in our groups. These professionals were not mentioned once. Furthermore, no professional criteria were used in selecting advisors, nor did our groups seem to have an idea there could be any. Using these groups as an indicator, the advisor industry is in for a long haul educating retirees.

The investors' main source of referrals and investment advice is friends and family. So the decision-making in selecting an investment advisor to shepherd your life savings for the rest of your days comes down to getting homespun advice similar to that given, say, to find a good dry cleaner or a dentist.

Neither did we find much evidence of preplanning for retirement. It should be noted that this finding is in direct contrast to some of the survey research where people reported planning years ahead of retirement. Our pre-retiree groups appeared to think about it as little as possible.

Do Seminars Work?

For our respondents, seminars work–and don't. These investors like to go to seminars and reported learning a great deal at them, even if we couldn't find hard evidence of that. They liked most of the advisors sponsoring the seminars. But when asked what they had done since the seminar, the answer was, "nothing." Uniformly, our investors went to seminars but ended up taking no action. So if you hold a seminar, try to get attendees to take some action before they leave.

We found retirement to be a period of major challenges for our groups. They are facing their issues largely alone, scared, and with little support. In fact, we should, as an industry, admit that many of the so-called "retirement" products and services are merely repackaged standard retail offerings.

These people cannot find the kinds of retirement income advice or services they want. So there is a great opportunity, not just for product development, but for whole new brands and franchises. However, the educational, knowledge, and communication gaps are very large. In fact, these retirees may not have enough time to be educated in what they need to know.

Elmer Rich III is president of Rich & Company, a consulting firm in Chicago that works with advisors and national firms to build marketing campaigns for the retirement and IRA rollover markets. Rich has a master's degree from the University of Chicago in social psychology, and can be reached at [email protected].