As people across the globe live longer and increasingly improve their healthspan, longevity has burgeoned as a dominant investment theme across the public and private sectors, with implications for companies, governments and individuals. One of the areas where the many potential impacts of longevity come together is in retirement planning—with opportunities and challenges for retirees and the industries that serve them.
Notably, as longevity grows, so does the hoped-for life expectancy of people's retirement savings. Globally, the number of people 65 years old or older will increase from 7% of the population in 2000 to 10% in 2025 and 16% in 2050, by which time one in six adults, or around 1.6 billion people, will be elderly. In the U.S. alone, a historic wave of retirements is expected within the next five years as 30 million of the youngest, largest and final cohort of the Baby Boomer generation reach retirement age.
This could help fuel a $400 billion incremental revenue opportunity for wealth and asset managers by 2028, according to a new report from Morgan Stanley Research and consultancy Oliver Wyman.
“The variety of separately created, siloed products may prove overwhelming to retirees trying to come up with an integrated plan for specific needs” says Betsy Graseck, Global Head of Banks and Diversified Finance at Morgan Stanley. "Retirees are looking for a seamless, personalized approach. Firms that can offer integrated solutions, whether by forming partnerships, breaking down internal silos or creating new business models, could benefit the most.”
Offering the Right Fit
The asset management industry is increasingly innovating its offerings beyond the wealth accumulation phase to address the evolving needs of retirement planning. “While many products support clients' saving and accumulation goals, the selection is narrower regarding options for the stages of retirement where clients need to safeguard and draw down their assets,” says Mike Cyprys, US Asset Managers, Brokers and Exchanges Analyst.
However, more firms are shifting research and development efforts toward this opportunity, and those that lead the way stand to benefit the most as demand grows for a more standardized range of products and providers.
For the wealthy and ultrawealthy clients of the wealth management industry, their need for advice is higher than ever as living longer brings its own set of opportunities and challenges, from maintaining their lifestyles to navigating the complexities of wealth transfer. On the affluent side given the need for a step-change in private savings towards retirement and advice through a longer retirement is arguably higher still.
Wealth managers should consider broadening their offerings to include private market investments, which can offer unique diversification opportunities beyond traditional asset classes and insurance products, as well as tax-deferred growth mechanisms to manage risk and facilitate wealth accumulation. “Evolving to meet the needs of women and younger generations will also be key to capturing market share by capitalizing on the transfer of wealth to these groups,” says Bruce Hamilton, European Asset Managers Diversified Financials Analyst at Morgan Stanley.
Indeed, asset managers are already adapting. For example, some are acquiring or partnering with insurance companies to offer guaranteed income streams and wealth-transfer solutions.
AI Steps Up
Along with building partnerships and improving integration, leveraging technology will be key to improving the quality and delivery of service while optimizing cost structures. Technology can help advisors offer personalized advice on a larger scale by gathering data from different sources, such as retirement plans, bank accounts, investment accounts and real estate, giving advisors a complete picture of a client's finances. Predictive analytics could help advisors assess clients' progress toward their goals and offer customized advice.
Meanwhile, artificial intelligence (AI) has evolved from a promising technology to an essential tool for wealth and asset managers as the race to unlock its full potential heats up. Institutions are increasingly turning to AI to enhance and drive efficiencies. Executives surveyed by Oliver Wyman reported a 20% to 30% improvement in efficiency thanks to the use of AI.
"As firms come to better understand what AI is good for and what it is not, practical applications have proliferated," says Hamilton.
AI can help deliver better client outcomes and experiences. For instance, it can explain product options and suggest portfolio strategies. Visualization tools can show clients the potential impact of their investment choices, while highlighting specific products that can protect against losses.
"AI's greatest value comes from driving user adoption, rather than having the most sophisticated model or technical capabilities," says Hamilton.
For deeper insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full report, “Retiring in the Age of Aging,” (Oct. 8, 2024).
