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Money on the Move-The IRA Rollover Race


How do you boost your endurance for the grand IRA rollover marathon anticipated in the years ahead?

Gaining a deeper understanding of rollover investors may be just the strength training you need to go the distance. And the rewards can be significant. IRA rollovers are expected to reach over $7 trillion by 2011, fueled primarily by defined contribution accounts.

To help firms better understand the mindset of rollover investors, PFPC, in conjunction with Claritas, recently surveyed nearly 1,300 individuals who had made an IRA rollover within the last three years. The joint study sought answers to key rollover factors, including why money is moved, where it is moved, when planning for the future is started and how financial advisers are used. Our research uncovered some surprising statistics and investor attitudes.

New beginnings or cleaning up. Whether from the Baby Boomer generation or under age 40, nearly half of our survey respondents rolled their 401(k) funds to an IRA because of a job change. Over 20% made a rollover due to retirement, while a healthy 14% wanted to consolidate accounts-a key driver for older investors and those with higher net worth.

Older and bigger. While the average rollover amount was $37,000, 60% of respondents aged 60-plus moved balances greater than $50,000. Gender is also a factor. Men, overall, moved higher amounts than women. Forty-seven percent of men had balances of $50,000+ versus 30% of women.

Where does it all go? Our respondents most often opted to make rollovers to investment companies (41%); however, brokerage firms (29%) and banks (21%) combined accounted for half of the choices, underscoring a variety of ways to develop solutions to help rollover prospects manage future income needs.

She who plans. Baby Boomers in our study recognized the importance of planning ahead. An impressive 45% of Boomer women began retirement planning before age 35. One-third of Boomer households overall began planning before age 35, while another third began planning between ages 35-44.

The adviser is in. Currently, financial advisers appear to have the greatest opportunity among rollover investors in the 60+ age group and among households with incomes of $75,000 or greater.

According to survey participants, reaching a typical "retirement age" is no longer viewed as an end to a productive life, or even an end to working. For most, "freedom" is an underlying current, with time to explore new things and spend more time with family or other fulfilling activities. Most indicated their retirement was more than 10 years away and believed when it did come, they would likely start new careers or become active in the community.

In this study, Baby Boomers moving closer to retirement tended to consolidate accounts and seek more financial advice. To retain and attract new clients, advisers would be wise to focus more of their practice on distribution versus asset accumulation if they are not already doing so. Overall, where money moved during rollovers, it was clearly influenced by investors having existing relationships with specific firms or by recommendations from their advisers. Women were more inclined to work with adviser-assisted channels than men and indicated that working with someone they trust was a key factor in choosing an adviser or investment firm.

In addition, women make greater use of short-term investments than men, with more money saved in flexible deposit-type accounts, such as CDs and savings accounts. They held balances of over $100,000 in these types of accounts. Our research indicates that if an adviser builds trust with female investors, the client-advisor relationship tends to have a longer life span than that of male investors.

Marital status may also have key implications on future planning. Over the past decade, there has been a great deal of attention on the soaring costs of healthcare in retirement. This leads to the question, will both spouses retire at the same time? If one partner works, health insurance coverage may be available to cushion the impact of medical expenses. Yet, more than one-quarter of our married survey respondents have not thought about the timing of their retirement in relation to their spouse.

Based on this study's findings, the marathon route seems to be wide open for IRA rollover asset retention and attraction, but the insights from this diverse group of respondents highlight the need for more personalized solutions. It's unlikely that the answer will rest in products alone; it's more likely that tailored products and services will be needed to help advisers address the issues their clients face. Advisers making the transition from a product-focused to a more consultative, holistic approach-seeing that their clients are preparing for the rest of their lives-are well-positioned to be in the vanguard of the IRA marathon. And asset managers can improve their racing legs by developing tools that will help advisers facilitate this transition.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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