Saturday, June 16, 2007

Advertisers to Protect Your Golden Years

It's well known that the banking, investment and insurance industries see the baby boomer generation as a huge opportunity as they begin to retire, or to prepare for their retirement years. The firms that create ways to take market share in this demographic will be big winners most observers think, and those that fall behind will not. In the long term this could be an opportunity for consumers of retirement products as price competition leads to better products. That of course assumes that consumers can, in general, ever really understand these products. What we see today is that the marketing rush is on. The advertising on television, newspapers, magazines and in your mail box can't be missed, and it will continue to grow. Stepping back and thinking about most of this advertising, it's sort of odd.

The television commercials, primarily from large insurance companies, show retirees in idyllic settings. A man finally has his farmhouse, with barn and some beautiful horses alongside it. A couple walks down what looks like a Laguna Niguel type southern California beach, hand in hand heading to their house. A woman with her professional size camera is seen strolling through the exotic bazaars of someplace like Nepal or Bhutan. A man is on a pristine lake is in a boat with his grandson, hauling in a fish. A couple watches from their New England like beach house porch as their grandchildren race up the long grey cedar set of stairs and planks from the beach. Looks like retirement is a wonderful thing. The problem is that people who have the resources to end up with this kind of result actually rarely need the variable annuities, insurance products and investment advice that the commercials are selling. The commercials are attractive but pitch what is unattainable for most. The testing, interviewing and focus groups that go into planning this approach must show that they create some degree of urgency(spouse says why haven't be done anything about this), guilt(but what will I have done for my grandchildren), and keeping up with the Jones panic(we can't be left behind). It could also be that the psychology of showing the most attractive outcome is to also bring to mind the opposite. It's unlikely that a commercial showing a couple eating catfood in a one bedroom apartment with the announcer saying in the background "you could have gone with the Hartford" would be a big winner.

The WSJ major page one article on Friday was entitled "As Boomers Retire, Insurers Aim to Cash In". It was an adequate summary of the free for all underway to take advantage of this market and sell profitable products from the insurers point of view. The issue of how the consumer will understand all of this was not addressed because it seems the reporter had not a clue either. In the final paragraphs he details a couple with an existing pension that takes their excess saving and puts them into annuity. Listen to this. They put up $79,000 and are guaranteed $2500 a year for life that will be adjusted annually for inflation. What's more when they die, their heirs will receive the annuity payment for an additional 10 years. Sounds nifty right, and not a flinch from the reporter. Today's $2500 represents a 3.16% return on the $79000, worse than a bank savings account, worse than the current yield on a non taxable muni money market. With the management skills of a large insurance company the couple has essentially given the company, day one, $79,000 plus a yearly margin. As folks who have dealt with the business press know, many of the writers have little or no financial background. They are looking for the big picture issue with the human interest hooks. Their work is often superficial, and editors pass on it as they must have on the example above.

Attempting to pull together all of this, retirement products are a big business opportunity, the advertising will be overwhelming and exacerbate existing anxieties, it will be a big challenge for consumers to understand their best options, and much of what they read in their efforts to understand will not be helpful. This will evolve, maybe in a better way over time.


Anonymous Anonymous said...

I wonder if 10 years from now we will find ourselves sucked into the next "subprime type" debacle. Consumers will have bought promises that they don't understand, and expect benefits that aren't there. Get those fees up front say the financial planners and move on the next sale.

12:27 PM  

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