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Boomers Drive IRA Rollover Surge, Advisors Lead Pack as Recipients: Cerulli

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Individual retirement account assets are expected to approach $12 trillion by the end of the decade, according to new research from global analytics firm Cerulli Associates.

“We expect IRA asset growth to remain steady through the end of the decade,” said Shaan Duggal, a research analyst at Cerulli, in a statment.

Cerulli’s report, Evolution of the Retirement Investor 2015: Insights into Investor Segmentation and the Retirement Income Landscape, expects rollovers to be a major source of that growth.

“Even with heightened FINRA rollover scrutiny, individuals, especially Baby Boomers, will continue to roll over their defined contribution (DC) assets,” Duggal said in a statement.

In fact, the report finds that participants over age 50 represented almost 80% of the assets that rolled over in 2014.

“As the Baby Boomer generation ages, much of this rollover activity will be due to account consolidation as these individuals plan for their retirement income needs,” Duggal said in a statement. Adding, “A greater number of Millennials are contributing to Roth 401(k)s, which will become a sizable rollover opportunity in time.”

The report finds that advisors received the majority of rollover assets ($220 billion), followed closely by self-directed IRAs at $162 billion. Plan-to-plan rollovers were a distant third at $27 billion.

(Related: When an IRA Rollover Is a Bad Idea)

When it comes to capturing rollover assets, the report aims to find out what plan participants think are the most important factors from IRA providers.

Interestingly, Cerulli found that incentive programs were viewed as the least important factor in capturing rollover assets. Fidelity, who was at the top of the IRA leaderboard with 14.6% of total marketshare in 2014, announced an incentive IRA matching program in early 2015.

“Throughout the last few years, there have been many rollover incentive programs in the marketplace, mostly in the form of cash incentives,” according to the report. “Not only has Cerulli discerned that these programs are costly, but data directly from IRA providers deems them the least important factor in garnering rollover assets.”

What was deemed important by IRA providers were service, brand and relationships with clients’ financial advisors. More than 71% of the surveyed IRA providers called each of these factors “very important.” Conversely, only 14% called incentive programs “very important.”

“Relationships … are considered the most influential factors,” the report states. “IRA providers might be better off allocating their marketing dollars toward these influences rather than costly incentive programs.”

Duggal suggests creating a positive relationship early and building on it as the individual progresses towards retirement.

“Personalized communication during opportune life moments will help ensure customer loyalty when an individual eventually decides to roll over their account,” he said in a statement.

The report does warn asset managers and brokerage firms to be wary of the evolving regulatory landscape when considering rolling over clients’ assets.

“The latest proposed fiduciary rule, still out for comment as of the writing of this report, may start to quell long-term outflows, especially since the Department of Labor (DOL) viewpoint is that the DC plan is often the best place to leave assets,” the report states. “However, until in-plan options become more widespread, retiring participants will still opt to roll over their accounts to an IRA.”

Scott Hanson, senior partner at Hanson McClain Advisors, told ThinkAdvisor in a July interview that regulators aren’t “viewing rollovers favorably right now.”

According to Hanson, both the Financial Industry Regulatory Authority and the Securities and Exchange Commission say advisors need a good reason to roll over because clients will usually have to pay higher fees in an IRA than in a 401(k).

Data included in the Evolution of the Retirement Investor 2015 report comes from four surveys of asset managers and retirement plan participants, including more than 1,000 401(k) plan participants.

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