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Less Affluent Called Untapped Market

No-load funds should market IRA rollover accounts to small and medium-sized 401(k) participants because that represents their best opportunity to capture a significant share of the fast-growing rollover market. By 2010, a half trillion dollars is expected to be flowing out of 401(k) plans into IRA rollovers annually, according to Cerulli Associates.

Firms like Fidelity Investments of Boston, American Century of Kansas City, Mo., Vanguard of Malvern, Pa. and T. Rowe Price Associates of Baltimore, Md. are employing various methods to promote their IRA rollover products in order to attract those assets, according to Lisa Baird, an analyst with Cerulli of Boston.

Since load firms generally market their products through intermediaries and most investors with more than $100,000 in 401(k) assets will consult a financial intermediary in order to roll their money into an IRA or other type of investment, no-load firms should target less affluent investors, she said.

The no-load firms that offer comprehensive online advice will be able to capture the most assets of smaller investors at a minimum cost, according to the study.

In the past 18 months, American Century of Kansas City, Mo., has placed a greater emphasis on marketing its IRA rollover products and capturing a greater percentage of 401(k) assets that are rolled over from American Century plans, said Kristie Vetter, manager of education and guidance at American Century. The firm targets participants in its 401(k) plans with direct mail and print advertisements in trade journals, she said. It also holds seminars in order to educate participants on the various options they have when they decide to retire or change jobs, said Vetter.

In mid-December, the firm will launch a service on its retirement website,, called Rollover Gateway. The website is offered through a joint partnership between the two firms, J.P. Morgan/American Century's Retirement Plan Services. J.P. Morgan of New York has a minority interest in American Century. The new service will allow investors to fill out a rollover IRA application online, Vetter said. The goal of the website is to preserve rollover assets within J.P. Morgan and American Century by offering customers a convenient means of rolling over their assets, she said.

The firm has also trained its phone representatives to listen for signals from participants that they might be contemplating retirement or switching jobs. For instance, the phone representatives will relay change of address requests to retirement plan services representative. The retirement service representatives will then call the participants to find out if they are moving as a result of career changes, she said. And if a plan sponsor that offers an American Century 401(k) plan announces a downsizing or a layoff, the firm will contact employees to inform them of their options, Vetter said.

The strategy appears to have been successful. Through the end of October, the company's net new assets in rollover IRA's have risen 29 percent and the number of rollovers that Retirement Plan Services has captured is up 32 percent year to date over last year, said Beth Randolph, a spokesperson for the company.

Still, 40 percent of the flow of assets into rollover IRA's will go through financial intermediaries, while 40 percent will be captured by no-load funds, according to a recent study by Cerulli. Banks and insurance companies will probably capture the remaining 20 percent, it said.

If fund companies want to capture a greater percentage of 401(k) rollovers, they need to start marketing their services to participants early in their careers because participants usually seek advice and some sort of retirement plan long before they decide to retire, according to the study.

There were 296,000 people who rolled over 401(k) assets of $100,000 or more in 1999, according to Cerulli. Only 80,000 of these sought a rollover program provider. The other 216,000 investors who moved their 401(k) assets into a rollover IRA, invested their assets in an IRA offered through a financial service provider other than the one that handled their 401(k) plan, usually one with which the participant had a previous relationship, the study said.