Pub. 5 2015-2016 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S March • April 2016 9 While aggregation isn’t a formal phase of retirement saving, it’s something that many savers look to do as they near or enter their retirement years. Thismoved accumulation to the back seat, and aggregation became king for non-depository investment providers. For a brief time, this was great for community banks. Interest rates were strong and banks were looking for more core deposits because lending was equally strong at the time—a trend that continued for more than a decade. Then the Great Recession hit, and everything changed. Inter- est rates precipitously dropped and it became more difficult for people to qualify for credit and loans. In addition, banks became cash-heavy and looked to discourage deposits, especially IRAs. And during all of this turmoil, most Millennials were growing up. Now consider what happened outside of your bank during these times. Investment providers doubled down on aggregation, seeking to pull the largest dollar amounts to their firms to offset diminished income because stock market performance. As a result, the average IRA saver essentially was abandoned by almost everyone. It’s no wonder that post- Baby Boomer gen- erations, in turn, showed little interest in IRAs. But times are changing. Another shift of phases Investment providers have shifted their focus yet again. This time, they’re keeping some focus on aggregation; however, they are spending a lot of time and money on executing strategies to profit from the next phase of retirement saving: the distribution and wealth transfer phase. This is when people enter retirement and look to derive an income from their savings and/or begin developing a plan for passing what’s left to their heirs. Accumulation isn’t in the back seat anymore—that’s reserved for aggregation. As a result, the Millennial retirement saver is given virtually no attention because every type of financial institution has some other competing priority. The danger of ignoring a millennial IRA saver Overlooking Millennial savers is a bad idea. Members of this generation—more than any other—have been raised to believe that they’re unique. They demand to be spoken to in their own language. They want to be taught, not sold to or preached to. They’re more ed- ucated than any prior generation, and they have more debt at a younger age than any prior generation. Millennials are social people who look to their trusted outlets for help inmaking decisions of all kinds, including financial deci- sions. If your bank can become a trusted “friend” to aMillennial, you’ll have a very loyal customer. Spurn a Millennial and all of his or her 700 Facebook friends will hear about it. Why IRAs can be important Millennials currently get very little education or advice as it relates to saving money. They’re not bad savers in general, but they lack the information to make informed decisions. And information is exactly what they crave. Roth IRAs can be a huge opportunity for this cohort, espe- cially given the flexibility that Roth IRAs provide. Millennials may have their employer’s human resource person telling them to forget IRAs and contribute as much as they can to their 401(k) plan. After all, contributing on a pretax basis to a 401(k) plan can lower an individual’s taxable income. The problem with the 401(k) plan is that it often offers lim- ited investments. In addition, it is difficult to access the money without a distribution “triggering event.” Roth IRAs have no such issues, and can be used to save for almost anything—not just retirement. Traditional IRAs also are good for Millennials that make less money, as they often can qualify for a saver’s credit on their tax return. With a little staff education at your bank, IRAs could play an integral role in how you speak to your current & prospective Millennial customers. 91% percentage of millennials that expect to stay with a job less than three years* What’s in it for you? If you’re wondering what IRAs mean to your bank, here are some points to consider. • An additional account or line of business is an additional “hook” into a customer and helps retain that customer. Tax-deferred accounts like IRAs are viewed as more difficult to move than other types of accounts. You can’t just close an IRA and walk away. (Not without tax impli- cations, that is). IRAs can bind aMillennial to your bank. • Not making IRAs a priority at your bank invites the cus- tomer to shop around. Credit unions are already taking advantage of this attitude as part of their strategy to lure your customers away. • Think of Millennials as an investment. They’ll be • a bit slower to hit their prime borrowing years than prior generations, but building the trust and relationship with them now will pay dividends down the line. • Keep in mind that Millennials also will be the beneficia- ries of the largest transfer of wealth in history. Estimates put the number at approximately $6 trillion over the next 20 years. With Millennials, the key is to build trust and lasting relationships. More often, happy Millennials will bring their friends to you—if you continue to earn their business every day. This results in more opportunities to educate these customers about IRAs.  Kevin Boyles is the Vice President of Business Development for the Retirement Products and Services division of Ascensus. For more information call 800-346-3860 or email: irareview@ascensus.com . You can also visit the website: ascensus.com