Financial Providers Gear Up for a Boom

The baby boomers are heading for retirement and thinking about new priorities.

High on the list is managing the money they might have accumulated through retirement plans or through the deaths of parents — and in many cases, figuring out how to make it cover all of the golden years.

Those needs will create a huge opportunity for the financial-services industry, observers said.

Financial planner Frank A. Conte said boomers have driven economic trends as they moved from one chapter of their lives to the next.

“It’s just like one big wave going through our economy,” said Conte of The Conte-Browne Group, an insurance and financial-planning provider affiliated with Prudential Financial Inc.

Now, brokers, money managers, insurance companies and banks will get their turn to serve the more than 70 million Americans born between 1946 and 1964.

Boomers are expected to move lots of money from 401(k) plans into individual retirement accounts between 2005 and 2012, generating $150 billion in profits for the financial-services industry, said Patrice Hoenninger, a vice president of wealth management with Wachovia Corp. in York. And the activity is likely to continue for years.

“It’s a huge deal, and I think everybody’s preparing for it,” Hoenninger said. Wachovia is training employees to help customers determine when to take retirement-plan distributions and how to understand the tax consequences. And financial-services providers are offering investments that conserve money rather than aim for rapid growth, Conte said.

Boomers are entering retirement with longer life expectancy than they might have predicted, soaring health-care costs and uncertainty surrounding many pension programs. They’re going to need lots of help, observers said.

“There’s more customization, and there’s more emphasis on working with an adviser (who) can structure something specific to you,” Hoenninger said.

In fact, financial planners may have the brightest futures, said Clare Hushbeck, an economist with AARP. The boomers are an extremely diverse group, with income at the high and low ends and plenty of people in between. Many are going to struggle to pay for retirement and will need a planner to help them make decisions, she said.

One huge area of opportunity will come as people decide what to do with money accumulated in 401(k) plans.

A retiree has three options, said Peter LaBella, a partner with FMA Advisory Inc. in Harrisburg. The first is to stay invested in the company retirement plan but not take any distributions until it’s required. That won’t be realistic form any people. The second is to set up a terminally funded annuity through the 401(k) plan – losing control of the principal but receiving a guaranteed monthly income stream. The third, and likeliest option, is to cash out of the plan and figure out what to do with the money. Investors can take a lump sum payment or roll their money over into an IRA.

“They have to invest it once they ship it out of XYZ company,” LaBella said.

So that money is likely to end up in stocks, bonds, mutual funds and annuities — products sold by many different players in the financial-services industry.

Boomers will have a lot of options — but not the savvy to match.

Financial planners can’t give every boomer an education in the investment world, but they can discuss options and offer a plan, Conte said.

“They’re going to have to trust us,” he said.

In choosing a financial provider, LaBella said boomers should carefully evaluate the fees and commissions they will be charged to make investments. “Cost is everything,” he said.

Boomers also should make sure they are dealing with somebody who is qualified to sell them all the investment products available, Conte said. Otherwise they might see only limited options.