The Next Wave
Evan Simonoff Editor-in-Chief

In late April I had the opportunity to attend a panel discussion of four female consumers talking about their experience as investors. The discussion was part of a two-day conference sponsored by Tiburon Strategic Advisors in San Francisco.

The comments of the panelists were illuminating and provided a glimpse of how the financial services business appears from the outside looking in. It was a bleak picture.

All four were quite successful, over 40 years old and, for most financial advisors, ideal potential clients because they are happy to delegate and pay for advice. One, a business consultant, worked with an advisor affiliated with a financial services giant headquartered in her former home in Minneapolis. She told attendees she owned 24 mutual funds, though her significant other later related that it was closer to 38.

In 2003, her 38-fund portfolio, which apparently was not well-diversified, wound up in the red. Surprisingly, she still had some faint praise for her advisor. She thought the fees she was charged, $300 a year, were absurdly low. Her primary complaint centered on undisclosed sales charges and hidden fees.

Another panelist, Julia Allecta of Paul, Hastings, Janofsky & Walker, had similar complaints. Allecta, one of the top mutual fund attorneys in the nation, had accounts at Schwab and Merrill Lynch. While she said she trusted her broker at Merrill, she added, "I don‚t trust Merrill." She explained that she had to go through her account statement every month with a fine-toothed comb to uncover all the hidden fees they kept slipping into it.

A third panelist, a designer who said she made a "lot of money," had thrown in the towel completely and was just keeping her money in a bank, even though "it‚s probably earning only 2%." Attendees were left scratching their heads and wondering if this is how successful, intelligent people view the financial services business, imagine how the less intelligent and sophisticated feel.

However confused consumers are today, their problems are about to get compounded. In the next eight years, the amount of money in the hands of people over 60 is likely to rise from the current level of $2.5 trillion to about $10 trillion, according to Bob Reynolds, president and chief operating officer of Fidelity Investments, which also sponsored a conference for advisors in late April.

A tremendous amount of the nation‚s wealth is starting to move from the accumulation phase to the withdrawal phase. The subject is of particular interest to Reynolds, who played a central role in building Fidelity‚s 401(k) business.

Managing retirement withdrawals has long been an arena where financial advisors‚ skills have served them well. But it‚s going to get a lot more competitive. Expect a major initiative from Fidelity in this space soon. At present, there are only a few financial services companies that truly get it, including TIAA-CREF, GE Financial and Fidelity.

Thanks to the painstaking research of one of my favorite financial advisors, Bill Bengen of El Cajon, Calif., much of the financial services business now knows that 4% is the right withdrawal rate in most circumstances, but that doesn‚t mean everyone adheres to that. As Reynolds wonders, "Will people shop at the place that tells you that you can withdraw the most?" Unfortunately, I‚m sure some will.