Data & Research November 25, 2013

IRA Owners Make Thorough Investors

Research from the Investment Company Institute (ICI) shows a strong majority of Americans owning individual retirement accounts (IRAs) have developed a sophisticated retirement income strategy.
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The study, called “The Role of IRAs in U.S. Households’ Saving for Retirement, 2013,” shows around 73% of IRA-owning households have a multistep strategy for managing income and assets in retirement.

Plan elements most frequently cited include setting aside emergency cash, developing a retirement income plan, reviewing applicable insurance policies, determining retirement expenses and testing when to take Social Security benefits.

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A weaker majority (63%) of IRA-owning households reported having consulted with a financial adviser when developing their strategy. Other results from the study show Americans are accumulating significant resources in traditional IRA products—largely through rollovers from employer-sponsored retirement plans.

Among households with rollovers included in their IRA balance, more than eight in 10 (85%) indicated they had rolled over their entire balance from a previous job’s retirement plan into an IRA.

For the 46.1 million U.S. households owning IRAs in May 2013, IRA assets accounted for about one-third of their household net worth. With $5.7 trillion in assets, IRAs accounted for more than one-fourth of all U.S. retirement assets in the second quarter of 2013.

“Our research consistently finds that IRA owners are good stewards of their money, building substantial financial assets,” says Sarah Holden, ICI’s senior director of retirement and investor research.

Other encouraging findings from the study show IRA withdrawal activity continues to be relatively infrequent and is most often related to retirement. Only about one-fifth (21%) of traditional IRA-owning households reported that they took withdrawals in tax year 2012. More than three-quarters of the households with withdrawals reported that someone in the household was retired.

The most commonly listed use of IRA withdrawals was to pay living expenses, cited by 38% of retired IRA-owners taking withdrawals.

A full copy of survey results and highlights is available here.

Compliance November 22, 2013

SEC Issues Call to Expand Oversight

The Securities and Exchange Commission (SEC) released twin recommendations advising Congress to align adviser and broker/dealer fiduciary standards and exact “user fees” from SEC-registered advisers.
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The SEC’s Investor Advisory Committee (IAC) says both actions, which require approval from a divided Congress to take effect, are necessary to ensure the oversight authority can complete its stated mission of protecting consumers and maintaining market integrity.

In a statement from the IAC, regulators contend the SEC must eliminate the regulatory gap that allows broker/dealers to offer investment advice without being subject to the same fiduciary duty as other investment advisers. This is necessary to promote fairness in the financial services industry as the roles of broker/dealers and financial advisers converge through technology and new business models, according to the statement.    

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The recommendation also stresses the importance of allowing broker/dealers to continue to offer transaction-specific advice compensated through transaction-based payments. The IAC feels this is possible even under a stricter fiduciary standard for broker/dealers, who are presently only required to sell or recommend products that are “suitable” for clients.

The suitability standard is generally considered an easier hurdle than the fiduciary standard applied to SEC-registered advisers, who must make all investment recommendations in their clients’ best interest.

In a separate statement, the IAC outlines a recommendation that Congress authorize the SEC’s Office of Inspection, Examination, and Enforcement to impose what would amount to user fees for SEC-registered investment advisers.

Revenue from the fees would be retained by the SEC to fund an enhanced investment adviser examination program, including more frequent on-site examinations. Under current funding and staffing levels, registered advisers are typically only subject to on-site audits by the SEC once every 13 or 14 years.

The IAC, in its second statement, calls this level “simply inadequate to detect or credibly defer fraud.”

The text of the first recommendation on merging fiduciary standards for advisers and broker/dealers is available here.

The second statement on SEC user fees can be read here. 

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