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July 15, 2009 at 08:00 PM
In the current context of economic recession and corporate layoffs, experts believe that more and more investors will be looking to roll over their employer sponsored retirement plans–401(k)s and others–into an individual retirement account (IRA). The rollover market represents huge potential for those in the advisory business, says Christy White, founder and principal of Cambridge, Massachusetts-based research firm Cogent Research, yet it’s the large distributors, the Fidelitys, Schwabs, and Vanguards of this world, rather than independent advisors who tend to capture the upside of migratory dollars.
“You would expect that an advisor who has relationships with people and is talking regularly to them would be in a good position to capture rollover dollars, but surprisingly, investors seem to prefer going to a distributor like Fidelity for a rollover,” White says. Companies like Fidelity and Vanguard do have large 401(k) platforms and have gone after rollover dollars with aggressive marketing strategies, she says, but some banks and full-service firms have not been doing such a great job at retaining 401(k) dollars and rolling them into IRAs, and advisors haven’t been paying a lot of attention to the rollover market.
In a recent report entitled “Assets In Motion: The Rollover IRA & Retirement Income Market Opportunity,” (based on a survey of 4,000 individuals with more than $100,000 in investable assets), Cogent found that one in three, or 32%, have assets currently sitting in former employer retirement plans like 401(k), 403(b), and 457 plans. Among investors holding dollars in former employer plans, four in 10, or 39%, say they are likely to roll these assets into an IRA within the next 12 months.
“The current economy has made people think about where their dollars are and how those dollars are performing,” White says, “so it is a great time for advisors to think of these dollars. Advisors believe that there is not enough money in these plans, but there’s about $200,000 on average sitting in a former plan, so advisors should be thinking about this.”
Food for thought for advisors? Certainly, says Art Grant, founder and president of independent broker/dealer Cadaret Grant in Syracuse, New York. While there are many advisors for whom $200,000 would be small fry, there are others who would actually be willing to provide the necessary advice if that sum were rolled over into an IRA. However, because of existing regulation and the way in which regulators seem set to continue, most advisors have not been able to provide advice to 401(k) plans, Grant says, so they do not have the relationships to help clients roll over into IRAs.
“The Committee on Education and Labor approved in late June a bill called ’401(k) Fair Disclosure and Pension Security Act,’ which states that to be an advisor to a typical 401(k) plan, you have to be a registered investment advisor,” Grant says. “This means that the average investment advisor doesn’t want to provide advice to the typical 401(k) plan. Yes, advisors will be expensive and a broker will charge a commission for advice. But because regulation is so against the idea of a commission, what’s happening is that companies are being pushed to get the lowest cost alternative.”
