BOSTON - Participants at one session of last week's National Investment Company Service Association's east coast regional meeting set their sights on how the managed funds industry is going to market itself to the 80 million Generation Y members.
A major hurdle facing the funds industry is how to make this group of individuals between the ages of 15 to 27 aware of the importance of retirement saving.
As boomers retire and begin to draw down their funds, the consensus view at the panel discussion, "Anticipating the Gen Y Retirement Market," was that the industry must turn its attention to Gen Y, in part so that intake from Gen Y will compensate for distributions to boomers.
"This is a demographic that is as large as the boomers, but that will require its own marketing techniques," said Robin Green, a senior consultant at Deloitte. In her presentation, Green described Gen Y as a group that is achievement-oriented and technologically savvy. This group uses their phones more for texting than for talking, she said.
The difficulties of marketing mutual funds via text messages was pointed out by another panel participant, Ian W. Sheridan, corporate vice president and chief marketing officer at MassMutual Financial Group's retirement unit.
"I hope this text messaging just goes away," Sheridan said as he assessed the difficulty of marketing through this medium.
Gen Y'ers were further described by Green as brand-loyal, focused on countries all over the globe, and conservative.
This unique mix of attributes poses challenges for industry marketing efforts that go beyond spelling "you" as "u" in a text message.
Green suggested that providers reach out to this group by offering socially responsible investment options. One approach is for managed funds companies is to communicate how the company contributes to society as a whole. This can be done by giving gifts of time or products. In addition, companies can create charitable opportunities for members.
Despite their technical savvy, marketers should not lose sight of Gen Y's basic conservatism, Green said, and be aware that they share previous generations' concerns about the security of their money.
But they are different from preceding generations in that they expect some of the mundane parts of preparing for retirement to be fun. So marketers will want to present them with games and prizes to keep their attention on the task at hand.
As a result, Green recommended that mutual fund companies consider developing a rewards points system. Gen Y consumers can then spend the points on special access to advanced tools, education and other perks.
Providers were also encouraged to give feedback to Gen Y'ers, which tell them if they are moving in the right direction. And if they succeed in winning points or other prizes, they should be encouraged to tell friends about their successes.
Sheridan focused on way the industry can make Gen Y start saving for retirement early. He characterized the group as one that carries a high level of debt and that has less financial expertise and discipline than some succeeding generations. Despite this, he noted that they have high expectations about what their retirement savings plan can offer them.
Adding more details to Green's description of the group, Sheridan said that 30% of the group is paying off student loans. Only 32% have a 401(k) or IRA plan at their jobs, and only 8% have a pension.
Sheridan suggested that funds employ tools such as automatic enrollment, automatic deferral increases and express enrollment programs.
He noted that Gen Y expects to accomplish their objectives on-line in just one click so it is important that a company's website and media outreach creates an environment of comfort for making decisions quickly.
"This is a generation that has less time to engage than any that came before it," he said.
Ideally, the Gen Y client should also get some immediate feedback from the site about the action just taken.
Too Easy to Cash Out?
A third speaker, Kevin Clark, senior sales director, at DST Systems Inc. addressed the problem of how to keep Gen Y'ers invested in mutual funds even when they are in the early stages of their career.
He noted that success in this area starts with the plan's sponsor. He suggested that sponsors and companies have to have a commitment to help employees stay invested and continue to build their retirement nest egg.
One tool to accomplish this is the adoption of a rollover program, preferably with features such as automatic rollover with no minimum balance, integrated access to rollover options and seamless execution.
Underlying the whole structure for Gen Y, Clark said, is a distribution request process that helps participants stay invested.
In fact, Clark criticized the current structure of many plans, saying that the mutual funds industry makes it too easy to cash out.
Another feature that keeps plan participants engaged is the ability to tap into their funds for loans. This is a consideration that applies to other generational participants as well as Gen Y.
Sheridan said that MassMutal research suggests that loans matter, and even as the industry should emphasize that borrowing from their retirement funds should be a last report, it is a feature than keeps people invested.
Underlying the need to prepare to market its services to the text messaging generation is the fund industry's realization that as boomers gradually passes their wealth on to their Gen Y children, it will amount to the largest transfer of wealth from one generation to another in history.
And that is a market mutual fund executives can't overlook even if they have to text message it.
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