Rollovers - Getting From A to B

Advisers considering entering the rollover field have to take a long look at what might be in it for them. Some advisers see rollovers as a tempting business that can help enhance their standing in the industry and boost revenues. Others do not want to be bothered by a process that is not part of their core business. Others regard participant accounts as generally being too small to justify their involvement in the rollover field.

For the amount of work it takes to engage individual account holders and sell them on the idea of rolling over their assets, there is not much money to be made from most accounts. J. Spencer Williams, President of RolloverSystems, says that data provided by the Employee Benefit Research Institute show that 44% of departing participants’ accounts have less than $10,000, and fewer than a third have more than $50,000. What’s more, advisers often have a number of retirement plan providers with whom they do business, and some of those might be looking for the rollovers to remain with the company, meaning they have to deal with different platforms. “The fractured nature of the rollover business makes it very difficult for plan advisers to build a business around it,” says Williams.

Regardless of an adviser’s position on accepting rollovers, however, plan sponsors might look to their retirement plan advisers for assistance in communicating with plan participants about their options or in moving participants out of the plans. Here are five topics an adviser should be prepared to discuss with a plan sponsor client:

Platform Solutions 

For those not interested in taking on private wealth clients, or those who are not interested in small-balance participants, there are rollover platforms that can administer much of the work of migrating participants out of the plan and into an IRA. Rollover solution providers offer electronic linkages to various IRA providers that can facilitate a seamless transfer from a retirement plan account to a retail account when participants hit a distributable event (such as termination or retirement).

Advisers opting to get into the field, but deciding not to take all account sizes into their practices, might find it necessary to offer plan sponsors a number of different rollover options for their departing participants, according to Williams. Some sponsors, he says, “are wary of advisers who come in and just want to deal with the executive suite.” They will not choose to deal with advisers who want to cherry-pick only the wealthier participants. So, advisers handling rollover accounts likely will need to segment their business onto different platforms, and rollover solution providers can help provide options for plan participants that do not meet the advisers’ minimums.

Conflict of Interest

Advisers have to be aware of potential conflicts that are inherent in their involvement in the rollover arena, says Jonathan Murray of the Murray Group, which is associated with UBS Financial Services. In selling retirement plan platforms, the adviser and provider work as a team for the benefit of the plan sponsor. But when it comes to selling rollover solutions to a plan participant, the adviser should be working for the benefit of the departing participant. That might mean moving the assets to a different vendor or negotiating for a better deal for the participant. The interests of the adviser and the provider, which hopes to retain the assets, no longer are aligned for rollovers. Representing the participant thus could impair the adviser’s standing with the provider, on whom he or she depends for core defined contribution business. Advisers also must be aware of fiduciary liability rules, especially when they get fees from rolling assets into proprietary accounts.

One thing for plan advisers to consider is whether they want to partner with another adviser to provide guidance to participants about this topic. Instead of dealing with institutions, rollover experts must have retail skills and work with individual participants. If advisers want to handle rollovers, they should partner with a wealth management shop or designate a wealth management specialist within their own firm, suggests Murray.

Cost

Some fund families will offer a discount to a participant if a balance is rolled over into an IRA managed by the same fund family. Murray says advisers should learn whether such discounts are available on sales charges or commissions. While such a discount can be helpful to the individual participant, advisers themselves can sometimes make commissions when the plan participant chooses to roll over his assets onto a competing firm’s platform. So, advisers must decide which process is most advantageous to the employee and to the adviser. Ultimately, says Murray, the retirement plan adviser’s top responsibility when it comes to rollovers should be to the plan sponsor, by taking these accounts off the sponsor’s books.

Participant Services

Many advisers think the time to begin rollover talks with participants is when they are nearing retirement. However, that is not a good approach for advisers to take if they hope to be successful in the rollover arena. It is important to develop a relationship with participants far in advance of retirement. “You have to have a presence at the company, be seen out there, and talk to as many people as possible,” advises Richard L. Schooley, Corporate Client Group Director with Morgan Stanley Smith Barney. “You can’t wait until the participant is on the cusp of retirement.” That might mean educating the plan sponsor about the need to get in front of participants with this topic earlier than the plan sponsor anticipated as well.

Advisers also should be prepared to answer questions. Although some participants just want someone to tell them what to do with their assets when they leave a plan, many have more questions, and advisers must be able to serve as actuaries. They need to be able to answer participant questions such as: Can I afford to retire? If so, how do I go about it, and where’s the best place to put my money? If I can’t yet afford to retire, what should I do? The participants want answers to where their money should go next, and the smart advisers will help lead them along that path.

Privacy Issues

Because advisers will be sending individual accounts to a firm with a rollover platform, personal data, such as Social Security numbers, also will be shared with that company. And plan sponsors, as well as participants, might not be pleased that such information is going into the hands of a third party that is processing the rollovers, according to Lee Martin, a Partner with financial consulting firm TRUEfinancial, of Bellevue, Washington. Because it is up to the adviser to ensure that such information is kept secure, the adviser should apprise the plan sponsor and the participant and gain their permission to share such private information. With the hacking of corporate data a looming threat to privacy, advisers will want to reduce their own liability should a system be hacked.

—Louis Berney