September 8, 2011

Top Firms for 401(k) Rollovers by IRA Investors

An established relationship is No. 1 factor in choosing IRA provider

Fidelity is the most likely firm to be chosen by investors looking for somewhere to roll their 401(k) assets to.

A report released Thursday by Spectrem surveyed nearly 1,000 investors who had recently made a rollover or had the opportunity to rollover assets, and found nearly one-third chose Fidelity as their IRA provider. Vanguard was a distant second at 11%.

Firms Chosen as IRA ProvidersIn many cases, there was a significant gap between the number of investors who considered a firm, and the number who actually selected that firm as their IRA provider. While one-quarter of investors considered Charles Schwab, just 7% ultimately chose to roll their assets over. Similarly, Vanguard, which was selected as the IRA provider by 11% of investors, was initially considered by 24% of investors. Fifteen percent of investors considered JPMorgan Chase, but just 4% finally decided to roll their assets to that firm.

Why did investors finally decide to go with a different firm?

Spectrem found the primary reason for investors who changed their minds about where to roll over, was their financial advisor.

“Almost 70% of investors turn to their financial advisor for advice concerning their rollover,” according to the report. “Not surprisingly, in many cases, the advisory firm (i.e. Morgan Stanley, Edward Jones) offers an IRA account solution of their own.”

Also important to investors are customer service and low management fees. Fully 70% of investors said they want “customer service from a person.” According to Spectrem, “To the extent that an individual is relying upon their advisor to choose a provider, it is not surprising that they already feel they have a person and not a system.” Almost the same percentage of investors rated low investment management fees as an important factor.

As for why Fidelity is so popular, Spectrem concludes that the firm's brand familiarity may be the largest reason.

“Once an investor is familiar with a brand name, they will go to the website and find many of the selection criteria which drive decisions,” according to the report, namely, ease of opening an account, 24/7 access, help with setting up an account and availability of multiple fund types.

Another factor in how investors choose their IRA provider is whether the client already has a relationship established. The study found nearly half of 401(k) participants who rolled assets into an IRA in the past two years chose an institution they already had an account with.

“Participants making IRA decisions are proving quite loyal to the financial companies with whom they have a working relationship,” George Walper Jr., president of Spectrem Group, said in a statement. “Financial services providers that want a share of this important market should make a point of cross-selling to participants and establishing strong relationships early in their life cycles.”

Investors who chose an IRA provider named other factors that contributed to their decision:

  • Wide range of investment choices (29%)
  • Excellent customer service (28%)
  • Recommended by financial advisor (27%)
  • Record of strong investment performance (27%)
  • Low fees (26%)
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