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The success or failure of financial services firms will depend increasingly on their ability to attract and retain their share of individual retirement account rollovers from investors in their 50s, according to a new study by Financial Research Corp., Boston.

FRC predicts that between 2003 and 2010, a total of $2.4 trillion will be rolled over from employee benefit plans to IRAs. Annual rollovers could grow to more than $400 billion by 2010, from about $188 billion in 2002, FRC says.

Mutual fund manufacturers will see pressure to capture their share of the rollover market, because 46%, or $1.1 trillion, of defined contribution plan assets were invested in mutual funds at the end of 2002, FRC says.

FRC says the major source of U.S. rollover assets has been investors in their 50s. The firm estimates that U.S. residents in that age group generate about 38% of U.S. rollover flows as a result of job changes and early retirements.

FRC studied the demographic group in August and September by surveying more than 570 “Power Boomers.” As FRC defines the term, Power Boomers are U.S. residents between the ages of 50 and 60 who hold at least $100,000 in investable assets and have some or all of their assets in 401(k) plans, 403(b) plans, 457 plans, profit-sharing plans or cash-balance plans.

Of this group, 36% had their existing IRAs with a full-service brokerage, 27% with a mutual fund company, 11% with an insurance company and 11% with a bank or credit union, says Christopher Brown, author of the FRC report. The remaining 15% had their accounts with an online brokerage or other custodian.

Brown concludes in the report that IRAs offer mutual fund manufacturers a greater wallet share of investor assets than do other types of retail accounts.

Power Boomers reported they had an average of 44% of their IRA assets in stock or bond funds, as opposed to just 33% of their nonretirement account assets. In addition, 75% of the Power Boomers held shares of at least one stock mutual fund or bond mutual fund in their IRAs, compared with 57% who held stock fund shares or bond fund shares in nonretirement accounts. FRC attributes this difference largely to the tax-deferred, long-term nature of IRAs.

Full-service account custodians will increase their market share of rollover dollars from 51% currently to 54% by 2010, mostly due to the migration of larger rollover account holders, FRC says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 5, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.