As asset managers gear up for Baby Boomers' retirement years, Richard "Mac" Hisey, chief investment officer at AARP Financial, took some time out last with to speak with MME Senior Editor Brent Shearer about how investment firms are trying to reach out to Boomers.

Prior to joining AARP Financial, Hisey was executive vice president and chief investment officer of Cole Management Inc. a venture capital firm focused on early-stage investments in Russia. Before that, he was with MFS Investment Management, serving as treasurer and chief financial officer of the MFS Group of Mutual Funds.

Earlier, Hisey was a SVP with The Bank of New York, with responsibility for global investment fund accounting and administration. He also spent 15 years at Lexington Global Asset Managers.

Founded in 2005, AARP Financial, a wholly owned subsidiary of AARP, aims to help people age 50 and over prepare for a more secure financial future by offering products and services designed to meet their retirement needs.

MME: What's are likely to be the most effective technique for marketing mutual funds to Baby Boomers?

Hisey: This ties into how the industry is changing and is part of how we designed our entire approach.

We think that the big thing is going to be keeping it simple. That is a big deal. We've done a lot of surveys in this area. Also, it will be important to use plain language. We have found across our businesses at AARP that Boomers, in contrast to the generation before them, have a much greater curiosity and desire to take ownership for their decisions, and they like to educate themselves. So, they are not going to just take things at face value. They want to be able to get their hands on and learn about something themselves before they make any decisions.

So, I think another key technique will be facilitating the desire of Boomers to educate themselves. To turn that into a real-life example, a lot of what we do at AARP Financial is to put this kind of content on our website and enhance our offerings.

For example, how do you facilitate your retirement income, how do you manage it, how do you figure out what it is and what it ought to be? We've been rolling out a bunch of things about helping people educate themselves about retirement income-what it is, and how you get there.

Those three things will be the most important: Keeping it simple, using plain language and helping people get up to speed and educate themselves.

Another example from one of our sister businesses in the healthcare arena is a good comparison. The generation before us Boomers, whatever your doctor told you to do, you did. But now, it's like I want a second opinion. I want to go on WebMD.com and research. I'm going to talk to another specialist.

It really is an attitudinal change when you get to the Boomer level. The other thing we have done in the financial area is a number of Boomer surveys. One of the things we're found-and this is why we've tailored our marketing along these lines-is Boomers have a perception that financial advisers are more interested in their fees than their clients' futures.

That kind of conflict, whose interest is the financial adviser looking out for, is that people do want counseling and investment advice, but they don't tend to trust the traditional advice that they're had.

I think that's going to be a big challenge for how mutual funds are marketed.

MME: Many marking experts say there is too much clutter in mutual fund ads. What is the trick for cutting through the noise?

Hisey: There is a lot of work in the area of behavioral finance around this. If you give people too many options, they become paralyzed and don't make a choice.

If you give them three or four things to think about, they tend to get confused. It's the same thing for company presentations. If you just keep it simple, use limited options, make it understandable and, obviously, offer high-value products-that's the way to succeed.

As to the clutter issue, McKinsey did a study on this finding that people have a view of retirement from watching TV commercials that they'll be on a beach, waving to their spouse out on the yacht. That is not a realistic situation for most Americans.

The McKinsey study found that especially with Boomers, there is this disconnect between how they envision retirement and how prepared they are to really achieve that vision.

MME: Should education go hand in hand with marketing?

Hisey: Sadly, the answer is there's a pretty big disconnect between the two. Part of what we're trying to do at AARP Financial is build awareness through educational materials that help people assess their own situation.

Statistics show the national saving rate went negative in 2006. Americans have been living beyond their means and are failing to put enough money away for retirement. It's the asset management industry's duty to educate the American public-without it being "doom and gloom."

The message is that the earlier you prepare, the better off you'll be.

MME: What kind of new products are likely to be marketed to Boomers in 2008?

Hisey: There is a lot of concern about the economy out there. The security markets once again became volatile in the second quarter of 2007. People are much more nervous about how they are invested or where they are invested.

Behavioral finance tells us that this is where people tend to make the biggest mistakes. They end up buying high and selling low. Human nature is almost entirely contrary to what you ought to be doing in this type of the market.

As we look at 2008, we see no end to volatility and talk of a strong possibility of a recession. If we have a weakened consumer due to oil $100 a barrel and declining home prices, it means a bleak picture of the immediate future.

We have an answer to that. Instead of focusing on a specific time frame, what we continually stress to our customers is, first, taking a long-term view. Secondly, since asset allocation is the most important determinant of your total returns over the long term, we suggest they really step back and take a look at their asset allocation, particularly in light of the fact that due to human nature, behavioral finance will tell you that reacting emotionally is almost always the wrong way to approach this.

Naturally, the best thing to do is not to chase the next hot product out there. Consider a reset of your asset allocation, make sure that's right. If you just stay disciplined, you'll make the right decision.

If you think about it, one of the issues that is now affecting us all now is the subprime market. If you go back to see what people were talking about when they were gaining exposure to the subprime market, it was all very bullish and it turned almost overnight. Even all the so-called experts didn't see this thing coming.

This why we say, rather than trying to get to the next hot product, stick with the fundamentals. Look at your asset allocation. It has been proven by all empirical evidence that it is the most important single decision you can make. Choose the right asset allocation for you based on your needs for cash in the near future and your risk tolerance. We have investment counselors who will spend as much time with somebody calling up, and we offer a limited number of funds.

At AARP, we practice what we preach. We try to react and respond to the most important question, which is what is the most appropriate asset allocation for you?

MME: What will asset managers be focused on this year?

Hisey: Building trust with the consumer and reconnecting with Baby Boomers. We have to recognize that Boomers have a different set of objectives and desires in terms of how they want to work. Again, keep its simple, understand the concerns of customers and help them deal.

MME: Will 2008 be a year of transition or radical change in the marketing of funds to Boomers?

Hisey: A little of both. We recognize that there will be a heavier emphasis on providing value-added information in our marketing communications rather than the traditional sales type presentation.

This year, there's going to be more and more of an emphasis on retirement income. Our industry has, throughout its history, been focused on building the retirement nest egg, and the industry has done a great service to Americans in building this awareness.

As Boomers retire, there is a big difference, a big attitudinal shift. When you are no longer working full-time, your options become more limited as you start to draw down the assets. The industry has a hard time with this because increasing assets is a source of revenue.

The reality is that as Boomers begin to retire, they are going to be drawing down these assets, and they will want guidance on how to do it responsibly and efficiently.

In 20008 and beyond, addressing that need and that change in attitude and approach will be the most important thing that money managers can do.

(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.