Under a huge red banner reading"Ask about a no-fee IRA," 10-foot-high photos of happy, smiling "regular" folks, exclaim in speech bubbles: "I have a plan that meets my retirement needs," and "I know what I want my retirement to be. I have a plan to get there." These giants festooning Bank of America branches are a sign that the big banks have gotten and are acting on an important message. One that smaller banks have yet to follow.

Members of the burgeoning mass-affluent retirement market not only want to talk to banks about investing, but they also typically come to it through their 401(k)s and view all aspects of their financial planning through a "when will I retire" lens. Banks need to engage these prospects in a dialogue about retirement to get their advisory business. But far too often banks are too busy chasing the high-net-worth clients everyone else is courting.

Indeed, for the first time, Kenneth Lewis, Bank of America's chairman, noted in the bank's 2007 annual report how important retirement services are to the bank's future. "One of our best opportunities to expand [client] relationships is retirement," Lewis wrote. "The demographics are compelling: The first of the 78 million baby boomers turn 62 in 2008, and the over-69 population will increase by 55% by 2030. This is where the money is: $15.1 trillion in total assets and an annual profit pool of about $35 billion. We are building our team to take advantage of this opportunity."

There is plenty of competition for these clients too, so banks have to move fast. The top 10 retirement services providers to the mass affluent control 40% of the market, according to an expansive study by BAI Research in Chicago and Mercatus Partners, a consulting firm in Boston. Fidelity is the clear leader with a 12.9% market share. Only two banks, Wachovia and Bank of America, are among the top 10, holding on to slots eight and 10 with a 2.1% and 1.9% market share, respectively.

Home Advantage

Banks can make up for lost time, though. "We are behind," admits Keith Piken, managing director for the personal retirement solutions department at Bank of America. "our competitors have been in this business a long time. But Fidelity still only has a 14% market share in IRAs, so the market is still fragmented; no one has won yet. Baby boomers are going to be retiring over the next 20 years and then there's the echo boom, so retirement planning at large financial services companies is here to stay."

The good news for banks is that they already have a home advantage. Many mass-affluent customers consider their bank their primary financial institution. "That existing relationship is the most powerful element," says Teresa Epperson, a partner at Mercatus. "If consumers don't already have a brokerage account, their major financial institution relationship is with their bank."

The BAI/Mercatus study found that 42% of mass-affluent consumers are receptive to referrals to banks. The study defines mass affluent as those with $50,000 to $2 million in assets outside of 401(k)s and real estate. And 51% of the survey's 2,997 respondents (age 35 to 70) say they would go to a bank for retirement planning.

Mercatus segmented respondents into six separate "psychographic" categories, three of which are worth targeting and three of which are not (see "Segmenting the Mass Affluent" on page 20). There isn't much point in trying to attract independent enthusiasts, who would rather do it themselves, or uninvolved fatalists, who aren't that interested in investing. On the other hand, highly engaged worriers, overwhelmed strugglers and traditional advice seekers all fall into a general category of "Validators," whom the study identifies as people interested in investing who seek advice before doing anything about it. According to the study, 45% of validators would accept a referral and 58% would let their bank handle their retirement accounts.

"The key thing an advisor needs to know is what segment the client is from psychographically," says Bob Hedges, managing partner at Mercatus. "Do they want hand holding or not? The mistake banks make is to assume one size fits all with the mass affluent."

But while many mass-affluent consumers are willing to talk to their banks about retirement, relatively few have turned to bank reps for retirement advice, only 18% of men and 22% of women who responded to the survey. Many more, 40% of men and 37% of women, have turned to traditional sources of retirement investment advice, wirehouse brokers and mutual fund companies. Clearly, while the interest is there, banks are not doing enough to engage the mass affluent in a dialogue about retirement.

"We found there are segments of the marketplace that are oriented toward doing business with banks, they're comfortable there and they want to do business with someone sympathetic," Hedges says. "They don't view wirehouses as being there for them. They're just waiting for banks to say, 'Do business with us!'"

Banks have been slow to do so out of a long-standing fear that existing customers would deplete their savings and deposit accounts in order to fund their investments. This hasn't happened. In fact, mass-affluent customers who have a retirement-planning relationship with their banks bring in far more of their assets than those that don't. Thirty-one percent of mass-affluent consumers who have talked to their banks about retirement roll over their 401(k)s to the bank, 36% consolidate their assets with the bank and 35% have consolidated their income sources in retirement.

In total, 69% said they had done so because they already had a relationship with their bank. By comparison, of the mass-affluent consumers who haven't talked with a bank about retirement, only 18% of respondents had rolled over their old 401(k)s, 15% had consolidated their assets and 16% had consolidated their income with their bank.

The market is broader than many banks might imagine. It isn't just bank reps' traditional clients, those age 55 and older, who say retirement is a significant financial priority. In fact, 62% of mass-affluent consumers between the age of 35 and 44 and 68% of those between 45 and 54 list retirement as their No. 1 priority above more immediate concerns such as paying bills (34%) and paying off a mortgage (31%).

Mass-affluent consumers are also actively planning for-not just worrying about-retirement earlier. Those who are less than 45 years old start their retirement plans on average just under age 30, compared with 45- to 54-year-olds who started their retirement plans at 35. Those over 55 started their retirement savings plans at around age 39 on average, a decade later than younger members of their financial demographic.

Of course, bank reps target older mass-affluent clients because they already have a considerable pot of money that advisors can get paid to manage. Someone just starting to accumulate retirement savings is of less interest. But Hedges cautions program managers to focus not on how their advisors can make money serving the mass affluent, but rather on how the bank can make money helping them save for retirement. It's a win-win for both banks and advisors if it's handled properly, Hedges says. The bank can make money on qualified savings accounts, such as IRAs, in the accumulation phase; meanwhile these accounts work like a seed bed, creating a host of future advisory clients. As these accumulators reach a certain asset level, health and longevity risks and retirement-income planning make their needs complex enough to justify working face-to-face with an advisor.

The banks involved in the Mercatus study—BofA, Sun Trust, Wachovia, Washington Mutual and Wells Fargo—are now tackling the issue of how to cost-effectively serve clients in the accumulation phase in order to turn them into future advisory clients.

The challenge: "The strategic conundrum is taking the high-net-worth solution and applying it to the mass affluent," says Hedges. "Advisory services aren't scalable and the mass affluent only really need simple solutions. Banks will win by using technology, such as call centers and the Internet, while keeping their financial advisors focused on high-net-worth clients where the economics work." Most mass-affluent consumers are already comfortable monitoring their accounts online, Hedges adds, because that's where they check the performance of their 401(k)s.

Retirement.com

If banks can automate as much as possible both the accumulation and distribution phases of retirement for the mass affluent, so much the better. Fidelity, the market leader in retirement assets, built the right type of automated product delivery system when it launched Retirement Income Advantage accounts in 2004. These accounts take in all of a client's retirement savings, including his or her monthly Social Security check, and invest it in a mixture of Fidelity investment vehicles geared to the client's risk tolerance. The client receives a monthly "paycheck" from Fidelity, and the account features bank-like services such as automated bill-pay and even a checkbook and debit card.

Of the five big banks that took part in Mercatus's study of the mass affluent, BofA seems closest to building the type of platform Fidelity has been beating out the competition with: BofA has a retirement-paycheck service currently in product development, which simplifies matters considerably for retirees. And just like Fidelity has done, all five banks involved in the Mercatus study have been tweaking their websites to a greater or lesser degree to focus on retirement more than investments.

For example, since January, BofA's homepage has featured a retirement button and it has a new IRA website devoted to answering any questions mass-affluent consumers may have about saving for retirement. IRAs are a "considered" purchase, Piken says, which means clients do research at a couple of websites just to be sure they are doing the right thing. "They don't want to make a mistake," he says. "So we built an online IRA shopping experience (bankofamerica.com/IRA), which uses kitchen English to talk about this purchase."

Innovatively, BofA also has a team of 30 people handling text chats, 10 of whom are retirement experts poised to answer users' questions about anything from saving for retirement to managing retirement income. Text chatters can handle a maximum of three conversations simultaneously, and they initiate conversations with clients who pause on a section of the bank's website for a couple of minutes. A text box pops up on the customer's screen asking whether the client has any questions about the topic.

The client can easily close the box, so it's not annoying, but many will engage in an online chat that the specialist at BofA can use to direct the client to the appropriate source of advice or product. "We've gotten good feedback that it's a nice service to have," Piken says. In fact, the response has been so positive, the bank is considering increasing the number of expert text chatters.

Since the retirement-focused website was launched in January, "we've probably seen a 25% increase in assets year-over-year, and we're close to doubling the number of accounts opened online," Piken says. "We've also significantly increased the number of accounts opened through our banking centers." Piken declined to specify how many, but said the number is "substantial, enough to raise the whole brokerage unit" in terms of revenue and assets under management.

Some 30% of BofA IRA clients exclusively do their business with the bank online, and the bank expects that number to rise as the website's functionality improves. "The Internet is critical," Piken says. "It's a very economical way to serve customers."

Bill Griesser, director of product distribution and strategy in the retail retirement group at Wachovia, agrees. "The Internet is very important. The cost of delivery for providing financial planning to mass-affluent clients is a challenge." Griesser says Wachovia's website is used by the mass affluent as well as those with more than $1 million in assets.

Wachovia doesn't just wait for clients to come to its website for retirement information, either. It recently created an e-magazine that contains educational content in video format, including links to online tools and a number for the bank's retirement call center to ask direct questions. Launched in early 2007, the bank has published three to date and plans to produce two or three more this year. "It's been very successful so far-we're behind only Royal Caribbean, the cruise company, in terms of the popularity of our web shows," Griesser says of the e-magazine, which won best in show for interactive marketing at the 2007 Financial Communication Society Portfolio Awards. Wachovia's e-magazine came second to Royal Caribbean in terms of time spent reading it, according to IQ Interactive, a web design firm that produces interactive content for both companies. "For us, that's very exciting because financial topics are considered so dry in comparison."

A retirement-focused website can also help generate conversations with potential clients basically by scaring them into taking steps to manage their savings. Mercatus's Hedges is particularly impressed by ING's recent "What's Your Number" advertising campaign online, in print ads and on TV, which encourages prospective retirement savers to visit a microsite (INGyournumber.com) to figure out how much money they'll need to provide the income they want when they retire. It's fun. A rather cozy-voiced fifty-something African American, William, leads users through several simple questions about age, salary and expected income needs in retirement. The program generates the asset level that the user would need to achieve the retirement income they want. For most, that number is scary big. The next screen asks whether the user would like to speak to an advisor.

While retirement calculators have been around for years, ING is the first firm to mass market it to the general public. But Wells Fargo has followed with is hot on ING's heels with its "RSI," or retirement savings index. Instead of calculating how much money a person will need to retire on, an interactive website (www.wellsfargo.retiresecureindex.com), led by an engagingly chirpy Asian woman, uses the same information to calculate how many years a user's current retirement savings would last in retirement. Again, it's scary stuff. My first try, assuming 5% annual asset growth, yielded a big fat 3.7 years at my current income level in retirement before I have to start panhandling. "It's a catalyst to put a plan in place by creating a concern," explains Lincoln Yersin, national sales director for affluent markets at Wells Fargo. "Clients can then talk to an advisor, a licensed banker or with a retirement specialist over the phone."

Anonymous Callers

True to the old-school advisor-client model bank brokerage is built on, all five banks say mass-affluent clients are quite welcome to speak to either a platform rep or a full-service advisor about their retirement savings, but at lower asset levels, these clients are encouraged to use call centers and the Internet to monitor their accounts on an ongoing basis.

Sun Trust directs prospective clients who have used its website for initial research on retirement to its call center for an anonymous conversation. Ken Yarbrough, senior vice president and director of retirement strategy, says this conversation is an important first step in getting prospects primed to talk to an advisor later. He says callers tend to start out embarrassed about two things: They haven't saved enough and they're confused about products. "We take the terminology for granted but our customers don't follow this closely and they don't necessarily know what 'portfolio,' 'allocation' or 'rollover' actually means," he says. To save advisors having to start investor education from square one, call centers are a cost-effective way of bringing newbie retirement savers up to speed while establishing that all-important rapport that comes from helping someone without asking anything of them in return.

"People need their questions answered and trust built up before they'll buy anything," Yarbrough says. "Callers don't have to identify themselves on first contact, which means they can lay out their problems and goals without feeling embarrassed or pressured. It's only when we move forward with the sales process that they have to identify themselves. But anonymity helps them get comfortable enough to ask for help in the first place." Sun Trust's call center reps all hold Series 7 and 63 licenses and many are pursuing the certified retirement planning counselor (CRPC) designation or other retirement-related training. Yarbrough wouldn't say how many staff members the bank has at its call center, but he did say that wait time is less than 30 seconds, despite a high volume of calls.

Wachovia also uses a call center to educate clients and prospects intrigued by something they've read on the website. "When we researched the market while building the website, we realized we had to have a dedicated retirement resource center too, so we can assist clients online and then explore the additional services they need over the phone before triaging them to the most appropriate channel," Griesser says. "Our website is largely educational, a call to action to encourage clients to call the retirement resource center, so it's all integrated."

The ultimate goal, of course, is to get lower-net-worth clients comfortable using the Internet and call centers to track their accounts by starting them off in these channels. As Hedges points out, many mass-affluent clients have already learned to monitor their investments online from having 401(k)s. "They don't actively trade, but they do like to look, so a provider has to facilitate that engagement, he says. "You don't want them calling a financial consultant."

Orphaned Funds

Of course, by keeping financial advisors out of the equation as much as possible—and what advisor really relishes taking on a small account?—banks will have to take over prospecting for this mass-affluent business. BofA, Sun Trust, Wachovia, Washington Mutual and Wells Fargo are doing just that this year, with most messaging focused on IRAs, which is what prospects most want to talk about. And when it comes to IRAs, there is some low-hanging fruit to be plucked in the form of orphaned 401(k)s that mass-affluent consumers have left behind at old jobs. "It's highly likely that at least one-third of Sun Trust's clients have old 401(k)s somewhere in the $40,000 to $50,000 range," Yarbrough says. "Sun Trust has three million clients, so do the math."

Mercatus says that assets in orphaned 401(k)s total a whopping $1.5 trillion dollars. More than one-third of mass-affluent consumers have at least one orphaned 401(k) and the average balance exceeds $100,000. This business is there for the taking; often, all banks have to do is ask for it. Significantly, around half of mass-affluent consumers who rolled over their 401(k)s did so because a financial advisor suggested they do so, the survey says.

If banks don't ask about orphaned 401(k)s, someone else will. The competition is steep, particularly from Fidelity, which is targeting younger retirement savers with its compelling SimpleStart IRA. This product carries no annual fee and invests in no-load mutual funds based on a set-it-and-forget-it target-date strategy. Fidelity's usual minimum for opening an IRA is $2,500, but a SimpleStart IRA can be funded with as little as $200 if customers sign up for automatic deposits of at least $200 per month. The process is easy, and an account can be started and monitored online, as well as face-to-face with a representative at a Fidelity investment center.

Washington Mutual is fighting back with its own no-fee IRA, although it's only available to existing clients who may have relationships with other parts of the bank, perhaps through a mortgage. Called the "Retirement Made Easy" plan, clients have to set up minimum automated monthly deposits of just $100. Washington Mutual will match the first $100 "to help them get started toward retirement to show how much we want to help," says Karen Lare, president of WaMu's brokerage unit.

Retirement Made Easy is just coming out of its pilot phase and the bank plans to roll it out nationwide over the next few months. Washington Mutual is in the midst of creating an advertising campaign to back up the plan "focusing on orphaned 401(k)s marooned on a desert island and other imagery that goes along with that," Lare says. "Our focus is on capturing rollover opportunities."

Roth PhD

BofA has taken a jokey approach to marketing its IRAs in an attempt to demystify them and simultaneously quell potential mass-affluent clients' fears about saving for retirement. One ad asks: "To understand a Roth IRA you need a Roth PhD. False? Or False?" Another asks what the "I" in "IRA" stands for: "individual," "indecipherable" or "I give up." In each case, the bank is acknowledging that finding the answer may seem overwhelming, but BofA is ready to help people figure it out.

Piken describes the first four months of this year as the "first drive" of BofA's retirement marketing campaign. Retirement messaging will be prominently placed at 5,700 banking centers nationwide. Branches in core markets, including Boston, Charlotte, Chicago, Dallas, Los Angeles, Miami, New York and San Francisco will get the works, though: The branches that are large enough to accommodate additional foot traffic in big cities are being wrapped in huge "über-posters" pushing IRAs. "We have a 1.3% share of the market now, but the goal over the next few years is to be in the top five, which would mean hundreds of billions in additional assets," Piken says. "So we're starting simply by letting customers know we're in this business. We're using all of our physical assets to let them know we're in the game."

Wachovia is working on several concurrent ad campaigns focused on retirement planning. Last year, it launched its "lifetime retirement planning with wachovia" campaign. The message—"Get there. Your way"—is displayed on prominent posters and in brochures at its branches and in ads on its website. The bank is also specifically targeting women, who griesser says make especially good prospects. "women express a need to work with a trusted financial partner," he says. "banks still rank up there more than other institutions in this regard due to fdic-insured products and government regulation, but it goes a lot deeper than that. The relationship-based approach resonates more strongly with women than men." print ads targeting women are currently running in O, Martha Stewart Living and More magazines.

Wachovia is also trying to stimulate some sort of retirement-saving behavior among younger clients with its "Way to Save" program, which is sold through the platform and focused on financial hygiene. "IRAs are great products to pitch, but if a customer is laboring under debt, an IRA isn't the best thing," Griesser says. "So other sales can come from that retirement conversation [i.e., a loan]. We'll help the client get out of debt first, then help save."

For its part, Wells Fargo is working hard on its retirement savings index program. Retirement executives have just come off the road after a four-city radio promotion in Austin, Texas, Sacramento, Calif., Portland, Ore., and Seattle. "We arranged interviews with radio personalities about RSI," Yersin says of the effort, which accompanied the usual billboards, print ads and TV commercials. "It was definitely a mix of PR and marketing," he says. "The interviews in particular drove a lot of traffic to our RSI site."

Sun Trust is just now rolling out a campaign it has been piloting to support its call center strategy. The marketing program is called "GamePlan" with the tagline, "The Power of Conversation." The campaign promotes a free 20-minute planning consultation over the phone. "We're now launching a larger consumer effort online, on TV and radio and in newspapers to get people to go to gameplan.suntrust.com," Yarbrough says.

All five banks are working hard to get the word out about their retirement capabilities. Smaller banks will have to follow suit if they are to gain a foothold in this potentially lucrative market. That's because "mass-affluent consumers are still in the dark when it comes to retirement planning at banks," Hedges says. But if banks do reach out, mass-affluent consumers will "thank God someone asked them about it and got them to do something about it," Hedges says. In this game, "he who has that conversation first wins."BIC

Confident and savvy investors, knowledgeable about investing for retirement and actively involved in finances, not at all concerned about the future and having sufficient assets, seek advice and are willing to pay for it, believe financial services institutions have their best interest at heart and are very comfortable talking about financial matters with a financial professional.

Highly stressed and concerned about retirement, not confident in the future, worried about outliving their assets, not very knowledgeable about investing, don't get involved or spend much time on investing, seek advice and are willing to pay for it, consider themselves to be more of a spender.

Not confident about retirement and having sufficient assets, but also not very concerned, not knowledgeable about investing and don't spend much time at it, seek advice/relationship from an advisor but don't believe that institutions have their best interest at heart.

Not confident about retirement and having sufficient assets, but also not very concerned, not knowledgeable about investing and don't spend much time at it, they prefer to make their own decisions and don't seek advice, aren't comfortable discussing financial matters with an advisor and don't tend to interact with any financial professional.

Highly concerned about their retirement investments, moderately confident about the future and moderately knowledgeable about investing, actively involved in investing, enjoy spending time at it, prefer to make their own decisions and neither seek advice nor are willing to pay for it.

Highly confident and savvy investors, very knowledgeable about investing for retirement, enjoy investments, like to make their own decisions, rely on websites and tools rather than financial professionals for information, and are more likely to have an online trading account.