A recent paper by the Investment Company Institute, The Role of IRAs in U.S. Households’ Saving for Retirement, 2016, reaffirms the importance of the IRA rollover opportunity for financial advisors despite the uncertainty surrounding the Department of Labor’s Conflict of Interest Rule. The paper indicates that more than half of traditional IRA-owning households contained rollovers from employer-sponsored retirement plans, and among these households, 82% indicated they had rolled over the entire balance.
Even more telling is that the majority of individuals (60%) consulted a professional financial advisor regarding their rollover, and for 50% of individuals, a financial advisor was their primary source of information. The top three reasons for electing a rollover were:
- Did not want to leave assets with the former employer (64%)
- Wanted to preserve tax treatment of the savings (63%)
- Wanted more investment options (58%)
As Washington attempts to sort out its regulatory agenda, financial advisors can proactively take steps today to help make the most of the rollover opportunity while also positioning their practice for potential changes in the future. These three steps include refining your value proposition, preparing to answer tough (but fair) questions and putting the clients’ interests first.
Refine Your Value Proposition
A value proposition should answer three questions: What do clients want when hiring you for help with their rollover; what do you provide rollover clients; and how are you different from other available options when it comes to rollovers. To help get started, here is an example:
“Most of our clients hired us because they were looking for peace of mind, that they will be able to meet their expenses in retirement. We start with a thorough financial planning exercise that, when completed, provides clarity for our clients about their financial future. We also take time to really know our clients. We recognize their voices on the phone when they call, are familiar with their family situations and even know their favorite restaurants and places to vacation. This deeper understanding is important because it helps us align our investment work with the sort of lifestyles our clients want in retirement.”
There is no right or wrong way to approach this exercise, and over time, most advisors’ value propositions change. The most important element in our view is that the value proposition resonates with clients, piques their interests and invites them to ask for more information.
Prepare to Answer Tough (but Fair) Questions
Advisors should be prepared to answer questions likely to be posed by rollover-eligible clients and prospects. Here is an example:
A client asks, “My employer told me I can leave my money in the 401(k) plan for as long as I like. If that is the case, why would I need an IRA rollover?”