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Capturing the Next Wave of Retirement Assets

The Stable Valueindustry has significant opportunities for growth in the burgeoning Individual Retirement Account (IRA) market. To capture it, however, the industry will have to do a better job of marketing to retirees and educating them about the advantages of Stable Value investing.

The first wave of the nation's 76 million Baby Boomers reached age 55 last year. As they begin to leave the work force, their focus will shift from accumulating retirement assets to managing the distribution of those assets, according to consultants Merl Baker and Ronald Bush of Brightwork Partners LLC, Old Greenwich, Connecticut. They say retirees will be looking for greater diversification in their retirement portfolios and for products, such as Stable Value funds, that can protect their principal and generate income.

Stable Value managers can't sit on their heels waiting for money to roll in. As Bush and Baker explain, the vast majority of Stable Value Funds today are found only in defined contribution plans. Forty-five percent of retirees roll their 401(k) balances into an IRA. It was only in 1998 that the first Stable Value mutual fund was introduced for the IRA market, and there are still only about half a dozen such funds. What's more, retirees aren't especially loyal to the financial institutions that managed their qualified retirement plans; of those rolling their money into an IRA, only 28% stay with the same firm. Mutual fund companies do the best job of retaining qualified plan assets. They hold onto about 38% of the assets held by retiring savings plan participants, followed by securities brokerage firms at 31%, banks at 27%, insurance companies at 21%, and other financial services firms at 26%.

To capture its fair share of 401(k) money rolling into IRAs, Baker and Bush say, the Stable Value industry will have to broaden an institutionally focused marketing structure to embrace retail marketing as well. This will require the industry to develop relationships with the investment advisors and financial planners who assist retirees in managing distributions from their qualified retirement plans. The industry also will have to embrace direct marketing as a means of segmenting and targeting receptive retail customers, find ways to sustain its communications initiatives with investment advisors and retail investors, and build up the service infrastructure needed to meet the needs of the retail marketplace.

Matthew Greenwald of Matthew Greenwald & Associates, Washington, DC, says the Stable Value industry also needs to focus more attention on educating consumers about Stable Value Funds and their appeal. In a survey of more than 800 active and retired participants in retirement savings plans conducted on behalf of the SVIA, Greenwald found that only 7% of the respondents considered themselves "very knowledgeable" about Stable Value or interest income funds, versus 11% for bond funds and 21% for money market funds. Another 33% rated themselves "somewhat knowledgeable" about Stable Value Funds, versus 49% for bond funds and 55% for money market funds.

Ironically, Greenwald found that active workers who participated in the survey were more interested in Stable Value than retirees, suggesting that the more exposure investors have to Stable Value, the more inclined they are to invest in it. In fact, he reports at the SVIA forum, when the typical attributes of a Stable Value Fund were described to survey participants, approximately three-quarters of the respondents described the funds as "somewhat appealing" or "very appealing." Also encouraging was the finding that 58% of respondents said they favor a low-risk portfolio that pays out a steady stream of income over a moderate-risk portfolio offering potential for moderate returns or a high-risk portfolio offering potential for high returns.

Overall, Greenwald concludes, the superiority of Stable Value funds to competing investments remains largely unrecognized by participants in retirement savings plans. The most effective place to address that awareness problem, he says, is the workplace. He suggests the Stable Value industry embark on a multi-faceted communications plan to better educate workers and retirees alike about the benefits of Stable Value investing.

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