Prior to retirement, working investors have a very different approach to their investments and financial life. Understanding what those unique needs and requirements are is essential to properly providing financial services to working investors. Spectrem Group analyzes the unique needs of those investors and reveals how they differ from retired investors and reveals how to elevate service levels for this attractive client segment to increase referrals and AUM.
Before a working investor’s concerns and priorities can be understood, it is critical to analyze the differences between portfolios of working and retired investors. As working investors age, they are able to increase their percentage of investable assets while decreasing their liabilities. During working years it is typical to have a higher percentage in defined contribution plans in preparation for retirement. Fifty-six percent of working investors assets are investable assets with 13 percent in defined contribution plans. Retirees have 69 percent in investable assets but only seven percent in defined contribution plans. Ninety percent of working investors have some type of employer sponsored defined contribution plan.
When evaluating the underlying investments within a portfolio, there are clear differences between working and retired investors, specifically when it comes to other alternative investments. Working investors are more than three times as likely to own hedge funds, private placements, futures, structured products, options, and CDOs, and more than twice as likely to own Venture Capital investments, private equity, and commodities. Retired investors are likely to pull out of these investments as they enter into retirement and move to more income creating investments to assist with income replacement.
With that higher level of alternative investments, it is not a surprise that working investors are more likely to like to be actively involved in the day-to-day management of their investments and enjoy investing. Less than half of retired investors enjoy being actively involved in the management of their investments on a day-to-day basis and only 42 percent enjoy investing. Fifty-four percent of working investors enjoy investing. The percentage of those working investors who enjoy investing and want to be actively involved in investing has increased in the past few years.
Working investors have had increases in levels of concerns regarding a number of topics over the past few years as well. Working investors are more concerned about getting the adequate amount of help and advice needed to reach their financial goals and having enough money to leave to posterity. Their own health and the health of their spouse remain the highest personal concerns of working investors.
Financial professionals that have working clients or prospects need to understand that they likely will want to have a higher level of involvement in the day-to-day management of their portfolio. It is also likely that a larger percentage of their net worth will be held in a qualified retirement plan until retirement. Financial professionals with this client segment need to have a robust understanding of alternative investments and be able to offer and make recommendations that would fall within that asset class, while providing peace of mind regarding the accomplishing of financial goals and leaving of a financial legacy.