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.