The rollover of high balance retirement plan balances into IRAs represents one of the greatest business opportunities for advisors and plan providers over the next few years.
George Walper, president of Chicago-based Spectrem Group, which has just released a survey on the topic, believes that clients with high balances in their retirement plans (many of whom also have significant funds in other retirement accounts) are like “low-hanging fruit”: They are very easy to identify, both for advisors and plan providers, yet Walper believes that neither has really made a concerted effort to tap into this pool of opportunity.
“The opportunity is so significant and can impact profitability in a huge way,” Walper says.
It is all the more telling because, according to the Spectrem survey, “High Balance Rollover 2010,” only 25% of plan participants who performed a rollover of $200,000 or more since mid-2008 rolled all or some of the funds into an account held by their existing plan provider. Instead, 53% rolled over at least part of their balance to firms where they held other investments and 39% transferred funds to firms where they had an existing IRA. An already established relationship, especially with existing IRAs or other household assets, is the most predictive factor of what provider an individual will select to manage his or her high balance IRA.
“Some [plan providers] with better brand names have been more successful at retaining clients, but for this size of account, 25% is still a pretty low number,” Walper says.
While there’s no question that plan providers have caught on to the opportunity and are making strides to retain clients that can roll over into an IRA, they would really do well by going all out to hold onto these people, he says.
As for advisors, they also stand to gain significantly by looking at this market segment, since the survey showed that less than two-thirds (59%) of high-balance participants used an advisor in the rollover process, with the remainder either requesting a hard-copy rollover application directly from their providers (22%) or handling the process online (19%).