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High Net Worth Kept Retirement Money in Motion, FRC Finds

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Unlike many other investors, high-net-worth individuals remained extremely active during the financial crisis, moving their retirement assets around rather than waiting out the turmoil in the markets.

Many, of course, were looking for better returns, says Lawrence Petrone, director of research at Boston-based Financial Research Corporation (FRC), but this was not the main reason why high-net-worth individuals were so active. According to a study FRC and its parent company, Mercatus, undertook in May, these wealthy people moved their assets around because they were keen to consolidate the different accounts they had–401(k)s, IRAs, and others–with one firm that they felt most confident with, Petrone says. “Even if people had been dealing with a particular firm on a small basis, they seemed to favor consolidating their accounts with that provider because of the comfort and confidence they got,” Petrone says. “It’s about trust for these folks.”

The FRC/Mercatus study, “Retirement Money in Motion: Capitalizing on IRA, Rollover and Taxable Money Movement,” surveyed 2,129 investors aged between 35 and 70, with an average of $614,000 in investable assets. Participants in the study also had to have completed at least one of the following transactions within the past year: rolled over assets from an employer-sponsored retirement plan to an IRA account; transferred assets from an IRA account with one firm to an IRA at another firm; or transferred taxable assets designated for retirement from one firm to another.

Although the survey showed that high-net-worth individuals afforded a great deal of trust to their chosen financial institution, these large banks, asset management firms and others will still need to compete for business, and make sure that they can provide the kind of cutting edge advice and personal relationships that these people are looking for with respect to their retirement financing, Petrone says.

“Even if financial institutions are holding only 20% of a client’s assets, it is worth the effort going after those clients and working on those relationships if a client has chosen a particular institution,” Petrone says. “Our data shows that rather than going after new clients they have no relationship with, it’s perhaps better for firms to go after existing clients, because people would rather move their assets to one provider that they already have rather than seek a new one.”

In addition to wanting to consolidate their accounts with a single provider, the survey’s respondents also recognized the need for professional investment advice. Surprisingly, affluent investors are not as knowledgeable about the markets as many would expect them to be, Petrone says, and particularly in these times, are actively looking for sound advice.

The winners in the fight for Retirement Money-in-Motion survey were those players with very clear and compelling value propositions in the market, both in terms of advice and guidance. “It is definitely going to get more competitive for firms particularly as clients are coming out of a tough time and have gotten more conservative,” Petrone says. “Advisors, both at large firms and smaller players, are going to have to provide more support than just hand-holding and will need to tailor their advice to the particular client in order to retain money and potentially pull in new clients.”

Petrone notes that “Some of the smaller investment advisors may be able to respond more flexibly with people than larger firms.” Petrone says.

Finally, the survey found that many affluent investors have earmarked a significant portion of their taxable assets for retirement, and this opens up lots of new business potential in long-term asset allocation, tax management, and other areas.