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Win Over Those Rollovers

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Of the more than 200,000 practicing financial advisors it counts in the United States, less than 10% concentrate on the retirement plan marketplace, according to a recent Cerulli study, The Cerulli Edge Retirement Edition. However, the report also found that all advisors attribute at least some of their revenue to retirement-related services, and Cerulli projects that this percentage of revenue will increase, as the opportunity to aid in retirement planning becomes greater over the next few years due to the quantity of investors requiring retirement planning (can you spell baby boomer?), as well as the passage of the Pension Protection Act (PPA) of 2006. “Servicing retirees will be a significant paradigm shift for most advisors who have focused nearly exclusively on accumulation,” the report reads.

In particular, rollover opportunities presented to advisors by the currently underserved defined contribution (DC) plan participant is due to increase. Cerulli data suggests that the total individual retirement account (IRA) market is growing rapidly at a five-year compound annual growth rate (CAGR) of 10%, with rollovers from 401(k) plans identified as the single largest source for this growth. A growing trend never before seen in the DC markets is taking place, according to the research, whereby six-figure account balances are moving out of DC plans and into IRAs, creating a growing sweet spot in the advisory marketplace. “It’s a tough market for advisors, however,” the report states. “They need the foresight and the right approaches to gathering these opportunities.”


When Cerulli analysts surveyed advisors about the impact of rollovers on their practices, more than one-third agreed with the statement: “The future of my business depends strongly on attracting rollovers.” However, there are factors that stand in their way, and the report points to the PPA as one roadblock. The PPA is often thought of as the saving grace of DC plan providers and participants with its provision of safe harbors for auto escalation, auto enrollment, and qualified default investment alternatives (QDIAs) that offer better opportunities for participants to meet their retirement goals. The report points out, however, that the PPA barely touches on anything related to IRAs–the largest and fastest growing retirement vehicle segment. Though this market is mentioned indirectly via the PPA’s provisions on providing advice to retirement plan participants, it can generally be viewed as a “raw deal” for advisors. Cerulli points out two distinct challenges facing advisors in light of the PPA: the difficulty in creating relationships with participants due to the requirement of “levelized commissions” to any advisor offering advice to participants, and convincing prospective clients of their value-add in light of the proliferation of embedded-advice products and managed account programs within DC plans.

The report finds that a majority of the advisor population does not have qualified plans as part of their practice. Of those that do, more than 80% receive only 25% or less of their rollover business from qualified plans that they sold.

Staff Editor Kara P. Stapleton can be reached via e-mail at [email protected].


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