When it comes to deciding where to invest former defined-contribution plan assets, participants look to a provider’s trustworthiness above all other criteria.
Trustworthiness trumps both fees and investment performance in rollover IRA selection, according to a new Cogent Reports study released Monday by Market Strategies International. Thirty-five percent of plan participants who said they were likely to open a rollover IRA in the next 12 months cited brand trust as the primary reason they would choose a particular provider.
A quarter of participants said they would stick with their current plan provider.
Brand reputation, financial stability, low fees, easy rollover process, service and support, and investment performance were secondary influencers in rollover IRA provider selection.
“For years we have seen fees and investment performance serve as a leading factor in the rollover decision for investors,” Linda York, senior vice president at Market Strategies, said in a statement. “We are finding that trust is increasingly a larger factor in the decision-making process—which is likely fostered by some of the missteps that have not put the investor first for a number of asset managers over the past few years.”
The study found that brand trust becomes more important as participants age, which highlights the need for providers to foster relationships over time, according to Sonia Sharigian, senior product manager and report author at Market Strategies.
“When rollover triggers like a job change or a desire to consolidate assets arise, firms that have successfully built long-term brand loyalty will be well positioned for future asset retention, while providers that have not cultivated a sense of trust and loyalty among their current or former plan participants will be at a sizable disadvantage to keep those assets in-house,” Sharigian said in a statement.
According to the study, Fidelity continued to be the most popular rollover IRA provider, and American Funds the most lucrative option among prospective retirees and recent job changers.
Ten rollover providers in the study were highly associated with the brand attribute, “is trustworthy”:
1. Fidelity Investments
4. Wells Fargo
5. American Funds
6. TIAA (formerly TIAA-CREF)
7. Empower Retirement
8. Charles Schwab
10. J.P. Morgan Chase
At the overall level, Fidelity, American Funds, Vanguard, Wells Fargo and Charles Schwab were the top five rollover IRA destinations, consistent with the 2015 study. In addition, a number of providers had made inroads in important subgroups, the study found: Vanguard among participants likely to retire and J.P. Morgan Chase among those who had recently changed employers.
Some employees forgo a rollover IRA opportunity, of course, but inertia is an incomplete explanation for this, the report said. Thirty-five percent of participants reported investment performance was a key reason for leaving assets in former plans, while 27% said their main reason was the range of investment options.
Older participants also said they did not feel a need to take any particular action at the present time.
The report noted that 57% of employer-sponsored retirement plans sit idle for more than five years, which means accessing these assets remains a sizable feat for providers. In addition, the length of time assets stay dormant increases with age and wealth.
Researchers in late July surveyed 4,635 plan participants 18 years or older who contributed at least 1% to a current plan and/or had $5,000 or more in at least one former plan.
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