Industry Insight from Fred Barstein
Capturing IRA Rollovers - Easier Said than Done

For years, some record keepers and investment only providers (IO’s) have justified their foray into the defined contribution (DC) business by projecting huge assets from capturing IRA rollovers.  The theory goes that the providers, whether record keeper, IO, or broker through their advisor, have to touch the participant while they are in the DC plans to even have a chance at capturing the rollover.  Those providers counting on DC advisors to help them capture rollovers are in for a rude awakening, especially in the short term.

Based on the 2010 DCP Advisor Study, DC advisor commissions from rollovers have dropped 36% over the past six years, while participant interest in IRA rollover has fallen by almost 15%.  One provider who actively promotes and supports DC advisors in capturing rollovers gives the following results.  Of those “rolling” participants interested in speaking to an advisor or who exceed the advisor’s dollar amount threshold, less than 25% of the +$100,000 accounts end up with that advisor, as do less than 10% of the smaller accounts.  While home offices of broker dealers seem maniacally focused on IRA rollovers, getting their DC specialists to become equally excited is more of a pipe-dream than a reality.  Although DC advisors are in a great position to make the elusive mass affluent their clients, the results are mixed at best.  These mixed results are caused by a combination of four factors:

1. High net worth participants with more than $2.5 million of investable assets most likely have an advisor, while those with less than $250,000 cannot afford one.

2. Most DC specialists do not have the expertise and resources to capture rollovers.  Working with participants is a retail/marketing driven activity whereas capturing plans takes institutional sales skills.

3. There is so much confusion about what a plan advisor can or cannot do when it comes to advising on individual participant assets.

4. With the focus and pressure on fees, it can be a PR nightmare for plan advisors to charge participants more than they charge them as members of their plan.

Though we should not completely ignore or discount the rollover market, the industry needs to be realistic, patient, and find ways to address these four factors. 

Truly gifted DC advisors have never been so busy, making it difficult to slow them down after a corporate sale.  Why stop to harvest all the meat off of the bone, when they can more easily just make another corporate sale?  They are trained to help participants accumulate assets focusing on deferrals and returns.  The shift to the distribution phase requires an understanding in managing risk and longevity, as well as household financial planning, areas most DC advisors are not well versed in. 

So while DC advisors may have the best opportunity to turn mass affluent participants into clients, not just capture rollovers, they will need a lot of help, understanding, and particularly patience from providers, vendors, and home office broker dealers.

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