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Nearly half of IRA rollover assets “at-risk” under DOL rule

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The $7.3 trillion IRA market is the largest and fastest-growing segment of the U.S. retirement market, but the Department of Labor’s new conflict of interest rule will impose greater scrutiny and complexity on the rollover market and potentially disrupt future flows.

So concludes global analytics firm Cerulli Associates in a new survey, “U.S. Evolution of the Retirement Investor 2016: Regulation and investor addressability.” The report asses the future of the IRA rollover market following implementation of the DOL’s fiduciary rule.

Related: NAFA plots course in DOL rule fight

“There is general consensus in the retirement industry that more assets will remain in employer-sponsored DC plans because of the rule,” says Jessica Sclafani, associate director at Cerulli. “While Cerulli generally agrees with this statement, there are additional considerations, such as the influence of existing advisor relationships, which is the greatest driver of IRA rollover assets, in addition to DC-plan-specific considerations, such as current DC plan design and lack of in-plan retirement income solutions, that may continue to support the migration of DC plan assets to the retail IRA market.”

Using Cerulli’s proprietary IRA rollover model, this research seeks to quantify the degree to which assets traditionally pegged as headed toward the IRA market may now be “at risk” and more likely to remain in employer-sponsored DC plans.

Cerulli’s IRA-focused research also examines how IRA providers that are also retirement plan providers will negotiate this new landscape in which it will be more challenging to direct DC plan participants to move assets from a low-cost account with institutional pricing to a higher-cost retail account.

“Marketing messages related to promoting an IRA rollover will need to be thoroughly assessed and potentially softened,” says Sclafani. “Ultimately, however, Cerulli expects that DC plan providers with significant IRA businesses will continue to gather IRA rollover assets. The manner in which they achieve this, however, will look somewhat different.”

Related: Consumer groups reject DOL lawsuits

Among the report’s key findings:

  • From 2007 to 2015, the number of 401(k) accounts increased to 56.1 million from 49.5 million, but the ratio of terminated/retired accounts to active accounts decreased over that same time period.

  • Advice from a financial professional (29 percent) and consolidation into an existing IRA (29 percent) are the two most-common reasons why participants choose to roll over their retirement savings from an employer-sponsored savings plan to an IRA.

  • Financial advisors who rely on IRA business as a significant component of their book of business will not likely abandon IRA revenue opportunities post-implementation of the DOL rule. Rather, Cerulli anticipates a bifurcation in the services offered to IRA clients based on their account balances.

  • As recommendations respecting 401(k)-to-IRA rollovers will now be subject to the fiduciary rule, larger DC plan providers that historically used aggressive marketing campaigns to gather rollover assets will need to reassess these strategies. For example, Cerulli notes, offering an individual a cash incentive to roll over to an IRA may be deemed inappropriate and not worth the potential risk under this new regime.

  • The elimination of such incentives would impact the 8 percent of participants who indicate they rely on their 401(k) provider for advice and the 1 percent who are influenced by advertisements or communications from their IRA provider.


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