Building a Marketing Plan Directed at
Emerging Wealth Baby Boomers

Strategy Institute conference, June 10, 1999 Toronto, Canada
Deborah Hornberger

First - The Answers

I want to thank the Strategy Institute for inviting me to join you here in Toronto. They have been great to work with and gave us speakers a lot of good tips. They stressed the importance of addressing the topics listed in the program, so I've decided to do that right up front. Here goes:

Where are the baby boomers now? They're out spending money, working hard, and having fun. What they're not doing very well is saving for retirement.

How do they view the various financial services providers? As a commodity that is over-priced for the value received.

How should you ensure that you keep those baby boomers you have now? Become price competitive, or find out what your customers really value and then deliver that better than anyone else.

How do you attract the baby boomers you don't have? To those who view your services as a commodity - advertise your competitive prices. For customers looking for the value - it's exceptional service and word of mouth.

What client servicing model works best for this market segment? A client-centered lifetime model that is multi-tiered and integrated.

Well, that's it in a nutshell. Now we can explore each topic more in depth.

Baby Boomers - case studies

Let's look at some examples of baby boomers today, in 1999.

Bob and Susan - older boomers

• Bob is a successful litigation lawyer for a prestigious law firm.
• Susan is the merchandising director at a large fashion store.
• They belong to the Granite Club.
• Bob frequently entertains clients at golf courses throughout Canada.
• Susan is a member of the symphony board.
• Both of their boys attended Upper Canada College and are now in Ivy League schools.
• All four drive status cars and vacation in Europe.
• Bob and Susan are clients of Nose-in-the-Air Private Asset Management - the most exclusive firm in town, and they love all the special services.

  
  Linda and Greg - older boomers

• Janet is a dental assistant and Greg sells advertising space for a newspaper.
• Their combined annual income is less than $100,000.
• Their two children have attended public schools and now are attending local colleges.
• All four have basic, practical cars, and they vacation at their cabin on a nearby lake.
• They work with a local independent investment advisor,
• Richard - a fellow Greg went to school with, and they have a brokerage account at Charles Schwab Canada.

  
  Brad -- a younger boomer

• Brad owns a carpet cleaning company.
• His primary financial services provider is the loan officer at a domestic bank.
• He uses E*Trade, though most of his discretionary income goes back into his business.

  
  Jennifer - a younger boomer

• Jennifer owns an advertising agency.
• She has tried to get a loan to hire more employees, but she hasn't had any luck. She secretly wonders if it's because she's a woman?

2012 - Back to the Future with Boomers

NOW, let's move ahead to the year 2012. But before you do, think about who would be your first choice today as a client? Let's see how they turned out.

Bob and Susan are retired.
When they were working they didn't really notice that the money had been going out as fast as it came in. Each year Bob sells assets from his pension account to pay his dues at golf club. Susan was dropped from the Symphony board when the fashion firm she worked for declared chapter 11 and Susan was unable to be a personal benefactor. They're still paying off the boys' college loans and haven't been to Europe in years. They continue to be Private Banking clients, but only because Nose-in-the-Air still services all the partners from Bob's old law firm. But they don't get much of that special servicing anymore since they wouldn't qualify as Private Clients on their own.

Linda and Greg are pleasantly surprised with their financial situation.
Both of their parents left them a sizable inheritance. And it turns out that Richard, their investment advisor, had done well by them - solid, steady growth over the years. They're looking at retiring in a few years with around $3 million in their portfolio. Richard has suggested they set up a trust, so they did this through an estate planning attorney.

Brad's firm is now well-known all over Canada.
His loan officer worked with him on expansions and the business just blossomed. When Brad finally reached the point of investing in the stock market instead of reinvesting in his own company, he went to one of the major brokerage firms. His loan officer hated to see the money leave his bank, but he was not going to risk referring Brad to some portfolio manager in the investment management division who might do something to jeopardize the loan relationship. After all, Brad was one of his best clients.

Jennifer hit the big time, too.
Jennifer ended up using free-lance contractors to expand her business. She created a niche for developing websites for real estate firms, and now has web designers throughout the world working for her. She was a conservative investor, with accounts spread out from money market funds at banks, to some real estate and some mutual funds purchased directly from the mutual fund companies. She really hadn't liked managing all these assets, but when she first approached several firms back in 1999, she was too small for all of them. In 2001, she finally found an independent asset management firm that was just right for someone like her.

What's happened here?

What mistakes did the financial services firms make in 1999?

• they were not integrated
• their services were not multi-tiered
• they focused on today's value to the firm, rather than
  long-term potential value
• they ignored women/small business owners
• they continued doing business as usual

0ur Nose-in-the-Air Private Asset Management was so busy doing business as usual, that they didn't even know there was a major shift in the wealth market. Oh, don't worry, they're still in business. It's just that most of their clients are in rest homes - and most of their employees are also old enough to be in rest homes.

What about Brad's bank? You know -- where the loan officer was afraid that someone else in the bank might screw up the relationship, so he let Brad go to a competitor? The loan officer took early retirement and is living on a beautiful island in the South Pacific. And his bank?

Well, if this were your bank - what would your answer be? Did you go on doing business as usual? Or did you figure out how to deliver integrated services?

In every customer survey and focus group I've been involved with, the number one thing that clients want, without exception, is one person to deal with - and the same person over time. Small business owners in particular get tired of re-educating a new loan officer every year about the special needs of their unique business.

With an integrated approach, high net worth clients have a primary relationship manager who (1) has back-up to handle day-to-day transactions and (2) brings in specialists from all over the company as appropriate for each client.

In more remote geographic areas, this team of specialists will be basically the same group of employees for every client - plus or minus certain product specialists. In your larger metropolitan areas, where there are multiple specialists in each area, the team serving each client will vary according to the client.

The team will be selected based upon their special knowledge - an estate planner with extensive experience in setting up charitable remainder trusts, for example, or one skilled in business succession planning. The team will also be selected based upon their personalities - with what type of person the client would probably be most comfortable.

We all know that turnover is a problem - and that key employees frequently take a good portion of their "book of business" with them. By developing this integrated servicing approach, even if the primary relationship manager leaves, most clients will be very hesitant to walk away from an entire servicing team of specialists that has been pulled together to meet their specific needs.

Let's go back to Jennifer. And where is your firm today when it comes to women business owners? Do they view your firm as women-friendly? How about just small-business friendly?

Several people have told me that the financial services industry in Canada sometimes watches the United States - to see what works and what doesn't - before deciding upon a major undertaking or change in strategy.
If that's what any of you are doing with the women's market and small business, STOP WATCHING!

Go after the small business owners, including the women - for their business needs as well as their personal needs. This is the fastest growing segment of new millionaires today.

And finally, good old Greg and Linda. Not only did they live well within their means and save for retirement, but they also inherited! Statistics are pretty staggering about how much this generation is going to inherit.

We can predict some lucky heirs, but just like it's becoming harder to identify today's millionaires, it's hard to tell who will be the big winners in this new inheritance game.

That's why it's important to develop what I call multi-tiered client servicing. Many companies, and here I'm addressing banks in particular, are good at helping the mass market and the top tier affluent clients. But there's a big gap in the middle. In the states now, many banks have created brokerage units and have positioned young, fairly inexperienced brokers in the branches. Sometimes, they're selling only money market funds and the bank's proprietary funds. And talk about turnover! This is not too inviting for the baby boomer who has over $100,000 to invest but doesn't meet the minimums for the trust and investment management division.

If this were you, would you open an account with this "broker of the day"?
This is an excellent example of why banks are losing market share. And look at the mutual fund companies! Investors in the '90s walked out of banks and right into mutual fund firms.

I just want to scream when I think back on conversations I've had years ago with certain of my clients about this. One major bank in California was using brokers to sell money market funds and the bank's proprietary funds; they had one or two top-performing proprietary funds. I begged them to become a mutual funds supermarket, where bank customers could select their top-performing proprietary funds, then round out their portfolio with well-known funds from other firms. I couldn't convince them that not only would they keep the clients investment assets in house, they would sell more of their own funds.

I started out in retailing and I still chuckle about one of the store managers who saw a man struggling to get out of the store with a canoe. The manager ran over and held the door open for the man, only to learn later that the man was stealing the canoe!

I can't help but visualize bankers running to hold open their front door for all these customers who are leaving and going to competitors because the banks haven't created a strategy to service clients well while they're acquiring their wealth. And we all know that once those clients leave, they'll never be back.

Most baby boomers today still have their checking accounts with banks. And research shows that if you ask someone to name their primary financial services provider, they name the firm where they have their checking account. So, banks - there's still time to move quickly and try to keep the clients you have. But don't wait because every day another non-bank financial institution is introducing its own checking account.

I've been using banks as an example of how the emerging wealth baby boomers are not being serviced well but, to be honest, I don't know of many companies that are doing a good job. I do know, though, that more and more companies are moving in that direction.

Customer Retention - The Next Big Challenge

Okay, it's 1999 and every financial services firm is focused on Y2K. I don't know about you, but I'm beginning to allow myself to daydream about life without Y2K. What will we do with this void in our lives?

Well gee, how about focusing on ensuring that you keep those baby boomers you have now? Remember: "Your next best customer is the one you already have."

We all know that it costs at least five times more to bring in a new customer than to give really good service to an existing customer, but I have yet to work with a firm that really puts the appropriate amount of focus on retention.

So where do we start? First of all, stop operating in product silos. Customers don't care about your organizational problems - they don't want to know about them, and they certainly don't want to experience them.

Winning firms organize to create value, not empires. And if you find yourself in endless political debates, just keep asking the group: "What is best for the customer?" It's hard to keep defending your turf when all the others are truly focusing on what's best for the customer.

How do you find out what's best for your clients? Ask them!
Staying close to your clients has never been more important.
These next twenty years will see enormous changes in how financial services are sold and delivered, and if you aren't close to your clients - and reacting to their input - you'll lose. It's that simple.

Now, I know most of you think that you're close to your customers. At least your marketing department is, right? Let me tell you what I know. I work with a lot of marketing departments, and they don't know their customers. At most, they've seen them through a focus group mirror. And what's worse, they're not talking to the people who do know them.

Many of you know how each year Disney executives spend one week in their theme park - selling hot dogs, taking ride tickets or sweeping sidewalks. Last year I heard the CEO of a Japanese health insurance firm explain the importance of sending new employees into nursing home facilities for four days to actually help older people with their daily routines like bathing and getting dressed. He described how differently these employees evaluated claims for assistance after actually experiencing the difficulties some people had with simple tasks like bathing and dressing.

When Carl Reichardt was chair of Wells Fargo, he met with the top ten clients of the bank every year. And so did every manager on down the line - from group manager, to division manager, to region manager, to district manager to branch manager.

And at Charles Schwab, the executives had lunch every month with a group of customers from one division - such as retirement products or fixed income. They asked - and listened to - what clients liked and didn't like; and what new services they wanted. It was also a good way to informally test new ideas about a product or service.

The point is that when you and your top managers are interacting with your customers frequently, it's hard not to keep them in focus.

I often present myself to my clients as the customer advocate - someone who will keep the customers in mind. It's scary how many times I'm involved in developing a new process with a team of employees whose only goal is to make it easy for themselves. And when I point out how complex something is for the customer, the response too frequently is: "better them than us."

Being customer focused means that creating the desired customer experience takes precedence over policy and procedure rooted in back room efficiency. Processes are designed to fit within the desired customer experience.

Being customer focused also means that segment managers own the customer relationship. No relationship belongs to any individual product group or channel. That way we avoid having a loan officer refuse to "share" his good customer with another area of the firm.

One of my clients recently moved to Charles Schwab and is heading a major consumer product group. She explained to me that she does product development but has almost no promotional budget. That rests with the customer segment areas, and she has to "sell" her products to them. Each segment manager decides what is best to promote to the customers in their segment.

I don't know if any of you are familiar with Neil Rackham and his book SPIN Selling. I think it's one of the best book's written on long-term relationship selling. Except when he advises the use of what I call "Yes, you idiot" questions. You know: "If I could save you $800,000, would you be interested in hearing about how I could do that?" Well, yes I would, you idiot!

But the rest of SPIN Selling is really on the mark about developing the relationship over the long term. Rackham has just come out with a new book: Rethinking the Sales Force: Redefining Selling to Create and Capture Customer Value.

Basically he says there are three kinds of sales today: transactional, consultative and enterprise. Transactional is when customers view the product as a commodity and are only interested in price and execution. Consultative is when customers look to the sales interaction for value added. And enterprise is basically a business to business partnership where both sides agree to the same objectives - like a manufacturing plant and materials supplier jointly designing a new airplane. Or a large accounting firm working with a trust company to do tax returns for the trust clients.

So if we're focusing on emerging wealth baby boomers and the services you provide, we're looking at transactional vs. consultative sales. And brokerage is a prime example. Discount brokerages expanded in the '90s because they offered low commissions and good execution; yet many customers still want to consult with a broker. So according to Rackham, you pick one or the other, or
you segment your sales force -- in which case we get back to a multi-tiered servicing system where you have one segment going for price and execution and a different one touting value-added consultations.

But according to Rackham, one sales team can't do both. You cannot have a sales force selling successfully both the transactional and consultative customers. They're too expensive to serve transactional customers, but they're not skilled enough and configured correctly to give truly valued advice.

For those who choose to develop both channels, Rackham recommends making your front-end salesperson a diagnostician. They don't represent a particular product silo; their great value is that they have a diagnostic capability to talk with customer to determine their needs and who can best help them. The result is that they create real value for customers. Wow, maybe we've finally figured out how to end the ongoing war between the brokerage and asset management divisions!

What you would be doing here is taking the first step in the long-term relationship of becoming a lifetime financial partner. You would be evaluating how the client can best be serviced right now -- realizing that down the line, another channel may be more appropriate, and having developed smooth transitions from one area to another.

How do you attract baby boomers you don't have?

The Millionaire Next Door by Thomas Stanely and Thomas Danko, points out that the wealthy today aren't like those of yesterday. "More than 80% of millionaires are not born into wealth; they are ordinary people who have accumulated their wealth in one generation." "About 2/3rds are self-employed. They live beneath their means - on about 7% of their wealth - or about $250,000 a year."

One way to attract new baby boomer clients is to set up retirement counseling meetings with your current clients and their baby boomer children. If you do this, be sure to PREPARE FIRST.

• Do your homework: know all about these adult children.
• Develop computer generated models with slick graphics.
• Have a relatively short questionnaire with key questions.
• Use only your best people.
• Do practice meetings.
• Offer a special product line for emerging wealth, younger clients with lower minimums, such as a "starter" (mini) trust.

To make sure that you put your best foot forward, here are several things to keep in mind:

1. These adult children might be investing someplace where they're getting better returns than your clients. Be prepared to show them a very solid investment approach and professional team. In fact, it would also be wise to find out if your clients share their statements or any of their personal financial information with their children.
   
   
2. This is a one-time deal. If you blow this meeting, your chances of recovering are next to nothing. SPEND SOME MONEY. This is a marketing campaign - to some of the best prospects you'll get in ages.
   
   
3. Be prepared to develop some newer and more flexible products, if you don't have them yet: lower minimums, starter trusts - mini-trusts that start at $50,000 and go into bank-offered mutual funds or can be self-directed with one of your brokers.

As always, word of mouth is most important. Your own clients will tell your story - if you have a good one to tell. We must be developing new products and changing the way we do business or we'll be facing competitors we haven't even encountered yet.

It's June 10, 1999 - What Now?

No one has the answers.
There's no magic formula. This is a time of massive change.

So what do you do? So where do you start?
Stick close to your clients. I keep going back to the customer - stick close to your clients. This is a time of massive change.

Cisco Systems has a customer advisory board - comprised of 80 of their most dissatisfied customers. How many of us would be daring enough to do that?

Form an employee task force - of the brightest and the craziest.

• Unquestionable commitment from management is a must.
• Employees must know that changes are going to happen and active participants will be rewarded.
• Participants on this task force need to know they will be
  rewarded for trying - even if that includes failure.
• Provide a safety net and give awards.
• Let people know they are allowed to be creative.
• Limit the dreaded "adult supervision."
• It's no longer "safe" to stay in the box; the career risk
  today is not taking risks.
• Make it fun!

The best thing that the financial services industry can do is to get baby boomers to realize how much money they're going to need during their retirement. Health costs are so scary that we won't even go there; plus the fact that we'll live so much longer - many will easily live 20 to 25 years after they no longer are earning an income.

Many baby boomers have realized that they need to start saving for retirement. Their homes and their company retirement plans are their largest assets. What now? Most of this generation isn't good at disciplining themselves to "do without" and put a portion of each paycheck into an investment account. Do you want to be the "bad guy" forecasting doom and gloom if they don't start? It's like the insurance salesmen who tell scary stories of people dying and leaving a homeless spouse and starving kids.

A better strategy is to become a partner - a financial partner for whatever your customers need. Be proactive. For younger boomers, start talking about saving for their children's education, as well as for retirement. For older boomers, initiate estate planning conversations as well as investing for retirement.

In closing, I want to re-emphasize the importance of staying close to your customers by constantly asking what else you can do for them. Becoming their financial partner today can cement profitable relationships for the long-term.