The IRA market is the single largest sector of the retirement market, topping defined contribution plan and defined benefit markets assets and the fastest growing one, according to the research firm Cerulli Associates.
IRA assets total $9.2 trillion and they grew at a compounded 9.7% annual rate between 2012 and 2017, representing a “significant opportunity for financial advisors as well as asset managers and account providers,” according to Cerulli.
In two recent retirement reports, Cerulli analysts include several recommendations about how advisors, asset managers and IRA providers can best serve the IRA market.
1. Segment IRA clients by age.
“Age-based segmentation is a useful method to uncover trends among the broad population of IRA owners” and to help determine “the most effective engagement strategy,” such as email, social media or phone call, according to Cerulli.
As of year-end 2017, IRA investors 60 and older accounted for 70% of IRA assets, or nearly $6.5 trillion, and those 50 to 59 accounted for 20% of those assets. That leaves just 10% of assets, or less than $1 trillion, held by investors under age 50.
One part of that latter demographic, investors under 40, own just 2.7% of IRA assets, but they represents the biggest potential IRA market for advisors and others because unlike boomers, who will be withdrawing funds, these investors will be accumulating and growing assets.
“View the small balances of today as the potential large balances of tomorrow,” Cerulli analysts write.
2. Establish relationships with next generation of investors.
Advisors should target these investors not only to expand their client base but also because many young investors will be inheriting the wealth of their parents in the future, feeding into those potential large balances.
Moreover, more than 25% of IRA owners under age 30 and 40% of IRA owners between 30 and 39 who use a financial advisor work with one who has served their parents or other relatives.
One way to retain those younger clients is to connect them with younger advisors in the firm because like most clients, young IRA owners prefer to use an advisor who can relate to their life experience.