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Advisors Not Educating Clients On Roth Conversion

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It’s well-reported now that January’s much-anticipated rule changes for Roth IRAs didn’t resonate with boomers. A recent survey found that advisors are doing little to educate their clients on the rules and potential benefits, though.

Advisors Trusted Advisor, a practice management consultancy firm, surveyed 242 investment advisors in April and May. The survey found 4 percent of clients have taken it upon themselves to ask about Roth conversions. Just over 14 percent of advisors have introduced the subject.

The study found that 6.3 percent of higher-earning clients (those with over $100,000 in modified adjusted gross income) expressed interest in learning about Roth conversions, compared with 3.5 percent of lower-earning clients. Yet, despite this disparity, 24.2 percent of advisors are discussing conversions with lower-earning clients, compared with 14.3 percent of higher-earning clients.

The survey identified several possible explanations for this disparity. Advisors don’t believe the benefits of converting IRAs are compelling enough to justify the analysis; and, even if they do see value in a conversion, they don’t want to tell their high-income clients they have to pay conversion taxes now or their clients say they don’t want to.

Advisors working with lower-earning clients, however, see the conversion as mutually beneficial; furthermore, lower-earning clients tend to be younger and more interested in long-term retirement options.

When asked about the benefits of a Roth conversion, advisors were largely in agreement. Nearly three-quarters said tax diversification, legacy advantages and no required minimum distributions for clients 70 1/2 or older. The vast majority of advisors (94.8 percent) agree that paying conversion taxes is the biggest drawback to a Roth conversion. Distrust in the government is also playing a part in the lack of enthusiasm for conversions. Over 60 percent of advisors said they didn’t trust Congress to maintain Roths’ tax-free status.


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