Sandwich generation seeking investment options, expert says

(November 3, 2004) Joseph Coughlin says he sees the future and that independent insurance brokers have several strategies available for prospering as it unfolds. An aging population has led to “disruptive demographics” and the “disruptive consumer,” explained Coughlin, who is an expert on aging and the founding director of the Massachusetts Institute of Technology AgeLab.

These developments will change the way independent brokers do business, he said Tuesday at the Independent Financial Brokers of Canada (IFB) fall summit in Toronto.

Marshalling large quantities of statistical and anecdotal data, Coughlin constructed a picture of the disruptive consumer: their outlook, responsibilities, purchasing power and priorities. “The new consumer is she,” he said. “She is older. She is healthier. She is better informed about what she’s shopping for and a caring consumer — not just for her kids, not just for her husband, but for older parents.”

The new consumer faces an ever-increasing array of decisions. That creates situations in which the broker can expand their book of business by winning trust through several strategies, each one focussing on this client’s needs.

For instance, the independent broker can become an “aggregator of information.” Disruptive consumers are “information hungry,” Coughlin says, and are looking for help in sorting through choices in dealing with their increased responsibilities, such as health and eldercare.

“They are looking for a source that can cut through all of the choices and come to a correct aggregated solution,” he added. They can do this by becoming familiar with lifestyle needs and solutions. For example, Radio Shack in the U.S. has created a health-oriented product brand and provides health information and discounts on fitness facilities.

Cross-marketing is another strategy. This means providing products that otherwise might not be on the broker’s product roster, such as funeral insurance. That presents what Coughlin terms “a platform” to sell other products. “Think of this not as a product in itself … but as a platform for growth.”

Perhaps most important and the strategy most easily understood by brokers is the consumer’s need for established products such as annuities. If Coughlin has it right, annuities will occupy larger proportions of many client portfolios, a view shared by brokers in the audience as well as financial services decision-makers.

“The popularity of annuities is directly linked to the needs of baby boomers. If you think of an annuity, they want this nice steady cash flow without any thinking of future risk,” echoed Steve Marshall, president of OpenSky Capital, which does not manufacture annuities but does manufacture a range of structured and alternative investments.

Marshall figures that the same reasons Coughlin cites for consumers turning increasingly to annuities will drive growth in OpenSky’s product lineup over the next 20 years. “They are looking to reduce the amount of risk that they are having in their portfolio because they want stability with that portfolio.”

The struggle right now is to get a decent return with the least amount of risk and volatility while still having sufficient yield to pay for baby-boomer requirements, he noted.

“If you look at the whole investment industry for the last 20 years, everything that we’ve done is directly linked to these changes.”

Art Melo is a Toronto-based financial writer

(11/03/04)