Data & Research June 25, 2014

Retiring Boomers Push IRA Assets to $6.5T

Retiring Baby Boomers helped push individual retirement account (IRA) rollovers to $324 billion during 2013, according to Cerulli Associates, with total IRA assets hitting $6.5 trillion by year’s end.
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A new analysis from the financial research and analytics firm shows that retiring Baby Boomers are strongly impacting the IRA rollover market. The growth of $324 billion for total IRA assets via rollovers alone represents an annual growth rate of 17%, explains Chris Nadai, senior analyst at Cerulli Associates. While rollovers are a big part of the IRA growth story, a highly favorable stock market also added significantly to IRAs last year (see “For IRAs, It’s All About the Rollover”).

Nadai says the strong asset growth for IRAs is driving increased levels of competition and noise around rollovers and related support services, putting the onus on sponsors and advisers to educate participants about their best options for holding or moving assets. Firms on the provider side of the equation must be creative with their marketing and adapt quickly as new sales programs, such as rollover cash incentives, grab consumer attention, Nadai says.

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Shaan Duggal, also an analyst at Cerulli, predicts IRA asset growth will continue through at least 2020 as defined contribution (DC) assets held by Boomers and other generations continue to roll into individual accounts. Even with potential new restrictions on rollover recommendations that could arise from the pending from the Department of Labor fiduciary redefinition, Cerulli expects providers to continue to show strong interest in pursuing and winning rollover business from retirement plan clients (see “DOL Delays Fiduciary Redefinition Proposal Again”)

Recordkeepers who want to retain assets amidst heavy retail competition for rollovers need to invest in technology and market research that facilitate a positive customer experience, Cerulli contends. Participants should also be reminded about the potential benefits of keeping assets in-plan, such as maintaining access to institutional share classes and lower expenses.

“Outbound communication to participants who are changing jobs or retiring should use relevant data from their account information whenever possible, because participants are more likely to respond to a personalized approach,” Duggal adds. “Customer service both online and by phone is of critical importance as complex concepts such as retirement income do not resonate well with individuals as they think about their finances and lifestyles.”

To meet the needs of participants in this evolving environment, Cerulli urges recordkeepers, advisers, and related investment services providers to analyze and respond to the highly personal savings and spending decisions that are being made by individual investors. The research finds the primary drivers of rollovers are account consolidation, advice from investment professionals, and familiarity with the future IRA custodian.

Cerulli finds recent IRA rollover trends are also causing providers to consider more retirement income products. Opportunities are emerging for insurers and asset managers to address income via in-plan guarantees, the research shows. Cerulli says the retirement income opportunity market represents as much as $15.7 trillion in total assets, of which $7 trillion is currently held in DC retirement accounts. Individuals looking to convert assets into sustainable retirement income represent the greatest opportunity for providers to secure new assets, Cerulli says, but competition will be substantial.  

Other findings from the Cerulli analysis show recordkeeping firms have the opportunity to gather rollover assets simply by fostering positive relationships with participants. Ultimately, it may be easier and more profitable to acquire rollovers from an old plan than to focus solely on increasing contribution rates, the research suggests.

And even with growth in the IRA market, a greater percentage of assets eligible for distribution remain in-plan rather than roll over each year, Cerulli says. This means that there is always a large pool of assets that could potentially move. In 2013, there was nearly $720 billion in DC assets eligible for distribution that remained in an employer-sponsored plan, the research shows. Cerulli predicts most of this money will eventually move to IRAs, but for now, firms need to identify and market their services to owners of these assets.

Information on how to obtain a full copy of the Cerulli report, “Evolution of the Retirement Investor 2014: Understanding 401(k) Participant Behavior and Trends in IRAs, Rollovers, and Retirement Income,” is available here.

Data & Research June 25, 2014

Financial Wellness Wanted, and It’s in Short Supply

Nearly three-quarters of employees (71%) think financial wellness should be offered to them, according to a survey.
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Additionally, just 33% of employees say they have an Employee Assistance Program (EAP) at work, and of these only 27% say the program includes financial planning help, according to the 2014 Four Seasons Financial Education (FSFE) Financial Wellness Survey. Nonetheless, an overwhelming majority, 55%, have never used the financial planning component of their EAP.

Asked about their most important financial concerns, the majority first cited retirement, followed by budgeting and debt, investments, overall financial planning, insurance, college planning and tax planning.

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As to how often the professionals associated with their retirement plan provide education, 32% said never, 13% said once every two years, 32% said once a year, 12% said twice a year and 11% said more than twice a year. The fact that nearly one-third of employees receive no retirement plan education at their workplace is a surprising result, considering compliance requirements, FSFE says.

Among those who receive financial education at their workplace, the most common topic is retirement, followed by investments, insurance, basic financial planning (budgeting, saving, debt management), tax planning and college planning.

Asked whether they have met with an independent certified financial planner (CFP), 72% of employees surveyed said no. If they could receive personalized, confidential advice from a CFP with their employer footing the bill, 68% said they would take advantage of it.

“Our findings confirm our premise that employers who provide financial wellness benefits to their employees are reducing costs and increasing productivity,” says FSFE President Travis Freeman. “We’ve worked with some very good retirement plan advisers who educate plan participants at least [once] each year, but it appears there is a large employer segment that receives no education at all.”

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