At the December meeting of DSG’s Retirement Management Executive Forum (RMEF), a study group of senior executives from a broad cross section of the financial services industry, it was clear that the challenge of determining the most useful metrics for the retirement management market is shared by many firms. Each of the RMEF members is grappling with the issue in a unique way that relates to their organization, their culture, and their mix of product and distribution capabilities. The process of finding metrics that work is clearly an ongoing one. For each firm it will entail defining the boundaries of the retirement market for their firm.

In past issues of DSG Dimensions we have discussed the critical importance of defining your firm’s position on the retirement map (www.dsg-network.com/dimensions/market_map.html). Once defined, it should be possible to determine a set of metrics to gauge progress. Yet, management faces a conundrum: the further up the hierarchy a firm’s strategic position, the more complex this becomes, but at the same time, metrics must be simple, relevant, and understandable to be useful and effective.

Metrics and the Retirement Market Map
At the Product Strategy level of the hierarchy, straightforward sales and retention metrics are commonly used. Variants include sales, net sales or flows, total assets under management. Both product manufacturers and distributors employ these metrics. This type of metric cuts across all sectors of the financial services industry, and traditionally industry benchmarks have been developed along product and channel specific lines. They are most useful to firms that also organize with P&L responsibility along product lines or distribution channels.

Manufacturers most often make use of product strategies. Generally, financial success with a product strategy depends on attaining mass and scale quickly and widely establishing the product and brand. In this scenario, sales are the critical metric, followed quickly by product profitability.

But, sales and product profitability alone are often of limited utility in measuring progress in the retirement management market. To be useful, firms must be able to drill down further. Virtually all financial products have applications at a variety of points throughout an individual’s lifecycle. Even immediate annuities, often pigeon-holed as a "retirement product," are used to provide nonretirement income streams.

Breaking out sales that directly result from the resources applied to the retirement management market quickly gets murky and difficult to track. Without that ability, it is difficult to judge when to step up a related public relations initiative, spend more on a senior advertising campaign, hire additional retirement specialists, develop more educational literature and seminars, etc. Initially, at least, it may be appropriate to use "activities" rather than "results" measures since these will relate to retirement management efforts even if results are not available.

At the Retirement Income Strategy level, the complexity of metrics ratchets up a notch. This strategic position requires cutting across products such as mutual funds, annuities, and laddered bond portfolios. It also entails a level of income planning and budget analysis. Distributors are best able to develop sales metrics that encompass multiple products lines, but again there are limitations. There is no set definition of when an individual is approaching the Retirement Inflexion Point™. Consequently, it is often difficult for advisors and distributors to specify who among their clients are actually in this market segment in order to track resources and progress.

Addressing the retirement management market with this strategy may also require more resources. It may require layering an income planning process on top of deeper product knowledge and additional sales processes. Whether it is rollovers, income plans, retirement seminars, or other sales and client service activities, some measure of frequency and results are useful to start to understand what is working, what is not, why, and at what cost?

At this strategic level, retention becomes a more important metric, but presents its own set of problems. At a high level, retention ratios are a simple calculation — [(total assets-redemptions) / total assets]. However, that simple calculation may have very limited utility. One needs to clearly define the numerator, the denominator, and the period of time to have a useful ratio. Are redemptions part of a normal ebb and flow in a clients account? Are they simply a portfolio shift? Are total assets adjusted for market performance? Are all products included and how are they totaled, (e.g. securities, annuities, life insurance, etc.?) How much time should pass before an account is defined as "retained?" Should the clock start when an account is opened or after a significant life event? Retention is tricky to calculate, let along compare to an ‘industry benchmark’.

With a Retirement Income Strategy, another metric also starts to assume increasing importance — customer satisfaction. Success for this strategy depends on the ability to aggregate a client’s financial information and assets. Customers and prospects are not predisposed to concentrate their information or assets with an advisor or firm without a high level of trust and ultimately loyalty. A measure of that trust and loyalty is customer satisfaction.

The Retirement Financial Strategy level takes the complexity up another notch, expands the scope of services, and changes the range of metrics. This strategy moves past investment products and asset management services into an integrated approach to managing wealth and risk across all types of assets and liabilities over extended time periods. The strategy may encompass insurance, legal, tax, real estate, business succession, as well as estate planning and management services. It moves beyond assembling readily packaged component parts and to a highly individualized approach to each client. Services extend past asset management, and include risk mitigation. Risks and concerns range from health care for the retiree and spouse to concerns for one’s future generation(s). Typically these services require an intimate understanding of the client’s situation, goals, and aspirations. The client is often wealthy and may not define retirement in the same way as the affluent and mass market segments of the market.

Revenue and pricing decisions are likely tied to total assets under administration, risks and liabilities managed, and individual customer profitability. There is a shared understanding between advisor and client that the level of service necessitates high account minimums. However, defining minimums can be more of an art than a science.

Minimums cut two ways. Set too low, they can lead to an erosion of service quality for the most valuable relationships. Set too high they can fence profitable clients off from the strategy. Minimums can also operate in counter-intuitive ways. Small clients in a high service category may feel underserved. By moving the same client to a different service category, where they are a relatively larger relationship, their satisfaction may increase.

Typically the clients that firms address with this strategy are their most profitable. They are also a business of the same kind. In this situation, client satisfaction is the critical metric.

The Total Retirement Strategy moves up another level and beyond financial services. It includes not only helping people make financial decisions, but also helping them implement lifestyle changes throughout their retirement years. Family often plays a dominant role in these strategies today. There are firms and networks that are active in this area, Kendal Corporation and other full retirement living arrangements are exemplars of developing models. "Family Offices" are other exemplars for the ultra high net worth. In DSG’s recent survey of financial advisor attitudes and perceptions, 20% of advisors already partnered with or provided advice about these services. Another 37% indicated a willingness to do so. The metrics for these strategies will be different yet again.

Metrics in Evolution
At each strategic level, the metrics differ, and in our experiences they are still evolving from what is possible today toward what is desirable tomorrow. Where companies compete with multiple strategies to serve multiple segments, metrics and measures that help set and adjust the parameters for their segments are key. For these firms, given the cost differentials between the strategies, and the risk of alienating customers with an inappropriate service level, it is important to get the right match of strategy, segmentation, and services level. DSG

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