Beyond the boomers: targeting the next growth segment
The retail industry has traditionally been squarely focused on clients who are aged 45 and over. That has made perfect sense thus far, but there are a couple of reasons we think that will change in the not-too-distant future, presenting a challenge to industry funds who have – for the most part – had the <45 segment to themselves. The Baby Boomers can’t continue to support the growth of the retail wealth industry; they are starting to draw down their wealth, rather than add to it, as they reach retirement. Thus they will make up a smaller part of the industry over time.
The appeal of targeting those under the age of 45 has been limited to date – primarily because these individuals’ account balances are mostly too small to be economic, but also because it’s been difficult to get younger people to engage with superannuation.
But things are changing. Average balances are rising, and not just at retirement.
Today’s infographic shows people in the 35 to 44 age bracket have average balances of around $90,000 today. So there will already be a material segment of people in this cohort (with balances well above the average) who are already commercially attractive. And, just as importantly, that same group of people will see their balances double in the next 10 years, at which time they will have more than $700 billion in superannuation assets in aggregate.
For this reason alone, retail funds and financial advisers will begin to broaden their target market to incorporate the 35+ age group.
Three questions remain:
- When? How soon will the for-profit industry pivot towards younger members? Who will achieve early success, and will they build a sustainable competitive advantage through being first to market?
- How? Low balances aren’t the only reason the industry hasn’t focused on these individuals; it has also been difficult to get them to engage with their superannuation, given retirement is so far off.
- How will industry funds respond? Younger members have traditionally been the domain of industry funds. As they start to gain momentum with pension members, how will they respond to an attack on those ~15 years from retirement?
Our next Trialogue will look in more detail at some new methods for engaging with members – particularly younger ones – and what we can learn from the (very early) success of Spaceship.
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