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Boomer Opportunities Are Underscored

WASHINGTON - As 78 million baby boomers reach age 65 between 2011 and 2029, the mutual fund industry will be afforded enormous opportunities, as well as added fiduciary responsibilities.

That was the message of mutual fund executives and population and social security experts at the annual meeting of the Investment Company Institute here. A large portion of the meeting two weeks ago concentrated on retirement issues.

One-third of baby boomers have been saving adequately for a comfortable retirement, said Dr. Ken Dychtwald, president and chief executive officer of Age Wave, LLC, a consulting firm based in Emeryville, Calif., specializing in the 50-plus market.

This group has tremendous purchasing power and is understandably attractive to the mutual fund industry, said Dychtwald.

"Fifty to 70-year-olds already control more wealth than any other segment of the population," he said. This group, now numbering 76 million, owns more than 77 percent of the financial assets in America and has a net worth of $9 trillion, he said. This will grow exponentially as the 50+ population reaches 115 million by 2020 and 140 million by 2040, he said.

When these boomers reach retirement, it will obviously be an appealing time for mutual fund companies to help them manage their wealth, said William White, practice leader of investment products consulting at the Spectrum Group in Oak Brook, Ill. Currently, however, mutual fund companies are losing management of 401(k) money to competitors 89 percent of the time money is rolled over due to retirement or a job change, White said.

There is a lot of money at stake in these rollovers, White said. There were 10.5 million distributions last year worth $288 billion, he said. Thirty-five percent of these were due to retirement and 65 percent were due to job changes or partial withdrawals, he said. Mutual fund companies could improve investor retention rates by treating institutional customers more like their retail customers, White said.

"Give your institutional client the same experience as you would your retail client," White said. "Encourage them to align their plan investments with retail offerings."

Although most plan sponsors do not allow 401(k) providers to cross sell or communicate directly with investors, 401(k) providers can invite investors to communicate with them via their websites, White said.

While some are well-prepared for retirement, other baby-boomers are not, Dychtwald said. He urged mutual fund companies to target baby boomers who are not doing a good job of saving now, before they reach old age and have no time left to improve their situations.

"One-third [of baby boomers] are borderline; they will have to work five to seven years longer to make ends meet. And one-third, who have less than $1,000 saved, don't have a clue," Dychtwald said. "Thirty-eight percent of the population is simply afraid of broaching financial concerns for retirement. And there's considerable 401(k) leakage, with many people borrowing against these savings plans. America is on the brink of a retirement crisis."

With life expectancy increasing, the threat of old-age poverty grows, he said.

"Unless you help them save and invest, they will bring all the rest down," he said.

Already, "many elderly depend too heavily on social security. For one-third, it makes up three-quarters of their income," said Robert Reischauer, a senior fellow of economic studies at the Brookings Institution in Washington, D.C.

Dychtwald urged mutual fund executives to target aging baby boomers now, before all of them reach 65. As baby boomers have moved through stages of their lives - beginning with their parents' sudden need for three to five bedroom homes, to schooling, to their first jobs, to middle age - institutions and industries have been remarkably ill prepared to meet their needs, he said.

"It has always troubled me that so many companies focus on the 30- and 40-year-olds," Dychtwald said. "I can understand the value of trying to capture a customer as they begin making investment choices early on in their lives, but don't turn your back on this market. Grey gold is a market space that has been under-attended, and it's exploding."

Privatization of social security is unlikely to help solve the retirement crisis because politicians are at opposite ends of the spectrum on how to do it, political observers said.

One of the major reasons politicians will not be able to agree on a plan is concern that individuals will lose their retirement savings because of downturns in the stock market, said Reischauer of the Brookings Institution. The tasks of accounting for distribution and determining fees would also be extremely complex in a privatized social security system. Already, "there are 4.5 million discrepancies a year between employers and the Social Security Administration," Reischauer said.

Educating the general public about investing would also be a daunting task, given that only 12 percent know the difference between a load and a no-load fund, and only 16 percent know the difference between a stock and a bond, said Reischauer.

There is also the question of whether the government should invest these assets in a general fund or allow individuals to choose funds on their own, he said. And if the government took control of the investments, there is the fear its investment decisions could fall prey to political pressures, he said.