One of the criticisms about life companies is that they are all the same. This is not a surprising p...
One of the criticisms about life companies is that they are all the same. This is not a surprising perception. Life companies try to be all things to all people, fuelling the belief that there is not much to choose between them.
Consumer focus is not always their strongest suit. Few life companies, if any, have been focused on particular segments of the population. The practice to date has been to develop a product or distribution focus that may lead to a concentration on a particular consumer segment, but only as a side effect. This looks set to change with a number of providers developing a clear focus on the over-50s with products, services and channels aligned to this. A growing number of IFA businesses are now over-50s specialists.
Strong brands in financial services are thin on the ground and lack of focus is a prime suspect. Conversely, all the new brands - Virgin, First Direct, egg - have excellent focus. For a life company, it encourages the organisation to face the same way, to recruit and develop skills to match the needs of particular sectors and to develop a coherent company culture.
So if a case is made for focus, why select the over-50s? Reasons might include:
l There are many of them. Over 19 million people in the UK are over 50.
l They are growing in number. In fact, it is the only growing section of the UK population.
l They are affluent. Over 80% of UK private wealth is estimated to be in this sector.
l They are living longer. Increased longevity impacts by definition on the group, with consequences for income management and care cost protection.
l Their needs are likely to be more complex. They are likely to be more considered purchasers of financial services and as such be more open to the services of an IFA. As people in this age range may be winding down their income earning activities, their dependency on quality financial advice grows proportionately.
l The burden of regulatory development currently lies with products aimed at the younger end of the market.
l Products aimed at the over 50s are simpler than those for the younger generation.
A single market?
If you accept the case for focus, and in particular the case for focus on the over-50s market, a number of issues arise. Is the over-50s market a single market? There are some common characteristics but also some rather obvious differences within the sector.
The 50 year old with a newly empty nest may be as active and hard working as a 30 year old. Financial priorities are likely to be pension provision, pre-retirement planning and maximising investment growth. It is also important to note that members of the 50 Club include Arnold Swarzenegger, Cher, Clare Short and Mick Jagger. The point is that not only are 50 year olds a diverse group, they are getting younger. In other words they each need to be treated as a segment of one - an individual.
The 60-70 year old age group is likely to be more traditional, having experienced the war years and rationing. In financial terms their priorities will be maximising retirement income, safety-oriented portfolios, long term care and estate planning.
The 70 plus group is distinctive in that their formative years were the 1930s and 1940s. In general they will have lower income levels, having missed out on the trend to greater pension provision. In some cases the State has, in their terms, let them down. Their priorities will be income management, coping strategies, long term care provision and equity release. However, not all those in the 70 plus group are the same. Paul Newman, Thora Hird and the Queen are all unlikely to be concerned about long term care costs.
So segmentation by age is insufficient. Socio-economic classification taken together with age remains the most relevant method of predicting likely financial needs. Just as no marketer would pair Paul Newman in his Cool Hand Luke years with the Queen aged 40, nor should we expect that their common age at 70 now creates an identity bond.
Targeting products
The 50-60 segment are a prime target for safety-oriented investments, guaranteed bonds and fixed term investments, where the emphasis is on maximising capital for retirement.
This age group is also an appropriate source of long term care business, in many cases the vicarious experience of their own parents' care costs providing the motivation to insure this potential liability rather than risk it as an unpredictable drain on the estate. The Government's response to the Long Term Care Royal Commission is expected soon and this will help clarify the dimension of an individual's risk exposure.
Annuities have for too long been seen as a commodity product - yet they represent the bedrock of most people's retirement income. Evidence of the current advisory vacuum in this area is the alarming statistic that only around 35% of those eligible for the open market option take it up. Competitive positions for annuities vary with great frequency. It is essential that specialist annuities move into a central position for the over-50s and in particular for those reaching retirement. As product development continues in annuities and more companies launch with-profits or equity-related products, it looks certain that interest in the sector will grow.
Handing wealth down the ages
The 60 and 70 plus group have, in many cases, an inadequate income but substantial equity built up over years of rising house prices. Deploying part of the equity that has built up in the house will boost income and may improve lifestyle.
A recent MORI survey found that the over-60s had quite a different attitude to inheritance than the younger generations. Of the over-60s questioned, 76% felt it was important to pass wealth down. The 70 plus group felt stronger about the issue, with 83% agreeing it was important compared with 71% of 60-70 year olds. By contrast, in the younger group of those aged 40-55, only 18% felt it important that their parents passed some of their wealth down to them.
It is important that anyone involved in financial advice is aware that attitudes are changing. The over-50s, 60s and 70s will increasingly emphasise maximising available income during their lifetime, rather than estate preservation at all costs. It will depend on individuals whether this change is reflected in a demand for more effective programmes of income management or by a growth in the conversion of capital to income, including property equity.
Making contact with clients
How to access the market? All things being equal, this market is more accessible to the IFA than younger parts of the population who may be more accessible to the high street institutions and use mortgages as a first contact point.
The older group is more likely to have built up a portfolio of pension or investment plans that require professional advice and justify the full independent advisory process. IFAs establishing themselves as retirement counselling experts typically develop links with businesses to help achieve economies of scale in seminar programmes, for example. Of course, professional connections like accountants and firms of solicitors provide IFAs with a regular source of contacts.
Whatever means an IFA chooses to reach out to the over-50s, focusing on the different segments in this enormous market will be a sound strategy for them and product providers alike into the future.
David Evans is managing director of GE Life
