Advisers Not Discussing Roth Conversion Opportunity

Although 58% of advisers say their clients earn more than is needed to make the Roth IRA conversion under the new rules, a surprisingly small proportion of these high earners have had Roth conversion discussions with, or analysis done by, their adviser.

In fact, although the majority of clients are showing little interest in the conversion opportunity, advisers are doing little to publicize the new rules or educate clients about potential benefits, according to a poll of 242 investment advisers by Advisors Trusted Advisor. Advisers believe the analysis is too complicated or the arguments for conversion aren’t compelling enough or, if they do see compelling reasons, advisers do not want to tell higher-earning clients or prospect they need to pay conversion taxes now or are being told by clients that they won’t do it, according to a release of the research results.

Furthermore, advisers and clients do not trust government to not dramatically change the rules in the future, making current “converters” the losers.

“The data, including many comments, suggest that there are three distinct groups in relation to Roth,” said Mike Slemmer, principal at Advisors Trusted Advisor. “The Enthusiasts see clear benefits to Roth conversions, are educating themselves, and see that clients and prospects need to at least hear about the new rules. The Deliberators have investigated Roth but respond that clients refuse to pay taxes now or believe it’s too hard to convince them. They also believe there are few if any software tools that offer sound advice. The Skeptics don’t trust government and believe Wall Street is over-hyping conversions, and so respond ‘I’m going to ignore the whole thing!’ But the EGTRRA sunset and new health care taxes make it even more imperative that clients understand the conversion option.”

According to the survey, the average adviser respondent’s firm has assets under management of $317 million and 296 clients, with an average non-Roth retirement account balance of $382,842.

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