Approaching the Underserved Middle-Market: Insights from Planners – Part II

This is the second half of a summary of focus groups with financial planners at the Financial Planning Association 2012 Retreat in Scottsdale, Arizona on May 6-7, 2012. The first half of this report appeared in the December, 2012 issue of Retirement Insight and Trends.

By Anna Rappaport FSA, Jaleen Edwards, and Betty Meredith, CFA®, CFP®, CRC®

Introduction: Many surveys of America’s middle-market have found that this market is vastly underserved when it comes to financial planning, services and products. Such individuals have little savings and little or no access to, or use of, financial services and products that help foster financial security. As a result, many of these households are ill-prepared for retirement as well as for the many financial demands they face before retirement. How to turn this situation around is becoming a top financial industry priority.

In early spring of 2012, the Society of Actuaries, the Financial Planning Association (FPA) and the International Foundation for Retirement Education (InFRE) decided to co-host some focus groups to study the problem. The group participants were FPA members who have experience with serving the mid-market. The goal of the sessions was to learn how advisors are reaching out to this market and to uncover the roadblocks that they think are deterring greater mid-market use of financial services. The planners were also asked to suggest strategies that could help increase mid-market access to financial advice and products.

The planners’ responses provide telling insight into the problems and opportunities that lie ahead for financial professionals, actuaries, educators and others who want to see this market expand. Some of the key points follow.

V. Risk management and the mid-market?

Insurance is a time-honored tool for risk management. Here, clients transfer the risk insured against to an insurance company in exchange for payment of a premium. Most mid-market people need insurance, the planners said. In fact, insurance is the traditional entry point for planners who enter the mid-market market.

Example: For clients who want to retire, the biggest hurdle may be lack of availability of health insurance, which protects against the expense of suffering serious health problems. Since availability of health insurance is critical to deciding when to retire, the planners recommended discussing the health insurance early in the retirement planning process.

“Middle market clients need insurance.”

Other challenges include possible disability and need for long-term care, and the cost of insurance to help pay for this care.

Insurance. Insurance issues like these are so important that one planner said the longest review meetings often entail changing the insurance limits and deductibles—an activity undertaken to uncover dollars that can be used to achieve client goals. For some mid-market clients, debt management is also big risk management issue. This is key to client security longer term, according to one planner.

Long term care. Regarding managing the risk of a long term care event, the planners agreed that this is a big risk. However, they said they would not automatically recommend long term care insurance, because the cost now and in the future can be prohibitive in the mid-market. They said their approach here is to discuss the issue and see where it goes.

Longevity. Where longevity risk is concerned, the planners pointed out that software is available that can help with projecting retirement income. However, they added that much of the software primarily addresses how to accumulate assets for retirement, not how to take distribution of those assets during retirement. In addition, they said the software tends to lack effective modeling of risk in the areas listed above—areas that are critically important for the mid-market. The advisor needs to be selective.

Defined contribution planning. What to do with money in defined contribution plans, such as 401(k) plans, is extremely important for many people in the mid-market, the planners said. That’s because, while most mid-market people that planners see do not have defined benefit pensions, the clients do have defined contribution plans. To help such clients, the planners said they often use a one-page organized statement of the client’s retirement situation.

“401(k) distributions at time of retirement
are more money than people have ever had,
and they need help deciding how to manage that money.”

Older client challenges. Risk management also entails deciding how to serve older clients in the mid-market. These clients may be uneducated but may have lump sums that they do not know how to protect or manage. They may want help but may not feel comfortable working with planners who are younger than they are. That can create problems because the younger planners are often the more cost-effective solution for serving this market, the planners said. Firms need to work on this.


  • Keep in mind that wealth management versus wealth accumulation are two separate businesses, the planners said. Eighty percent of people who call for a free initial consultation are wealth accumulators. When accumulator clients come into the office, the planners said they focus on making sure that the client’s risk management plan is in place.
  • Use educational tools like the Society of Actuaries Decision Briefs, the planners suggested. The Briefs are topical articles about various decisions that people need to make as they approach and enter retirement. Planners can give the Decision Briefs to clients as a risk management resource and/or as a value-added tool that reinforces pints made during the planning meetings.

VI. What do planners need from technology to make serving the mid-market more profitable?

Technology tools do not automatically translate into more profits, the planners said. But the tools allow planners to drive down to the asset levels that they can service.

Clients differ greatly in what is comfortable for them, the planners noted. For instance, social media heavily influences the technology that Generations X and Y consider to be comfortable. Planners said they can often provide their NextGen clients with a lockbox program or uniform application programming interface (API) that allows clients to add their own data and also provides the advisor with access.

On the other hand, many older clients simply avoid technology, the planners said. This is due to security or other reasons. One method planners are using to address this concern is to use meeting time to work in system together with the client and to teach clients how they can do that on their own.

However, most people will not go into a system to handle transactions, said one planner.

Integrated automated platforms are extremely important, the planners said. One suggestion for improving the user experience in this area is to try registering a data-collection process with a website like and then passing the baton to the client to populate, they said.

“Technology allows the client to input information, and both client and planner can look at it.”

Here are some technology-related features that the planners predicted will be important in the future:

•    Automated tools to provide much of the information needed

•    Aggregator systems that automatically update account balances

•    Systems that require clients to do their own data input to keep costs down

•    Technologies that allow client and advisor access to data maintained in a secure environment such as,,, and Juncture

•    Structure information so that it is easy to use and understand by both parties, and is usable directly in meetings

•    Systems that enable documents to be readily available on a system for the planner and/or client to review

•    Electronic communications that can supplement meetings

•    Technologies that enable online meetings

•    Software technology that is able to speak with other programs and transfer data readily from one package to the next

Organized systems feature many of these characteristics today and they will grow in importance, the planners predicted. Some newer firms—such as Veritat—have already redefined their processes to make them much more efficient.

Placement of webcams in all offices has introduced new efficiencies. The planners said they have noticed that meetings don’t take as long. Many couples’ meetings that used to get cancelled are no longer cancelled.

Also, the ability to make changes to 401(k) asset allocations or deferral levels right in the office, while meeting with the client, has been an important help in executing plans, the planners said.

VII. What will help make working with the mid-market more profitable?

1. One issue that needs to be addressed is the regulations coming out of Washington, the planners said. The ERISA regulatory environment is the biggest impediment to getting employer sponsorship so that planners can help employees with their retirement plans. However, employers are ultimately afraid of liability if they offer planner services as a benefit to employees.

2. The new fee disclosure rules might shut advisors out of the 401(k) market, where participants are largely mid-market customers, the planners pointed out. The fee cost will show up on the employees’ statements, but not on statements directly from mutual fund companies. The problem is, employees may stop using the 401(k) plan if they think they won’t pay any commissions by buying a mutual fund outside the plan. To avoid misunderstandings, there will need to be a huge education effort, the planners said.

3. Some planners are walking away from the employer market because of the new regulations, and there is no groundswell of planners who are trying to get in, they pointed out

4. In a couple of years, research will be needed on how well the new regulations have helped participants and whether the regulations have added to, or cut back on, advice and help offered to employees. Perhaps the Financial Planning Association can provide this research, the planners said.

5. Planning firms need better ways to identify which level of planner should meet with clients, the planners suggested. One suggestion is a system that matches client needs to planning skills and sets appropriate costs for providing advice. It might recommend using a planning team, for instance, so that expertise can be shifted from the lowest cost denominator only when needed.

“New entrants into the market are doing some processes at a fraction of the traditional cost.”

6. Addressing the planner’s role in the 403(b) market also needs attention, the planners said. But with all the additional regulations now coming out, this could not be a near term. Put it on the longer-term agenda.

Putting it together

Clearly, the financial planners in the focus groups hold varying views on the financial profile of mid-market individuals and how best to serve them. Some see this market as referring to people who have accumulated $100,000 or less in investable assets, while others use a higher the maximum—of $500,000 or even $1 million.

Most planners in the focus groups indicated they think it best to find efficient systems and technologies that enable them to serve this market economically, but some also recommend developing comprehensive plans, at least at first. Some take a cash flow management approach to mid-market services, while others take a modular approach. Some use fees while others work on insurance commissions or a combination of fees and commissions. Some don’t use home equity as a financial funding vehicle except as a last resort while others will entertain using reverse mortgages in certain types of situations. Some position insurance as part of the risk management program, and some view insurance as the door-opener to mid-market client relationships.

What seems universal is the fact that financial planners see the mid-market as a distinct financial demographic. Because mid-market clients often have modest or moderate asset profiles, planners are developing distinct business models that will enable them to serve these clients efficiently. They want their services to be affordable for the clients and profitable for the planning firm. Challenges remain, such as federal regulations and fee disclosure rules. But the planners indicate they are continuing to look for ways to serve this market effectively.


The first half of this report appeared in the December, 2012 issue of Retirement Insight and Trends.

Sources: These summary notes were prepared by Anna Rappaport, principal of Anna Rappaport Consulting, on behalf of the Society of Actuaries; Jaleen Edwards, on behalf of the Financial Planning Association; and Betty Meredith, director of education and research for the International Foundation for Retirement Education (InFRE), on behalf of InFRE. All were observers of the focus groups. The focus group facilitator was FPA Board Member Julie Littlechild.



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