How do you boost your endurance for the grand IRA rollover marathon anticipated in the years ahead? Gaining a deeper understanding of rollover investors may be just the strength training you need to go the distance. And the rewards can be significant. We measure our industry in multi-trillions these days and that’s a good indication of the potential rewards for those with an eye on the IRA prize – these assets are expected to reach over $7 trillion by 2011, fueled primarily by rollovers from institutional defined contribution accounts. Mobile job seekers. Pre-retirees. “First-wave” baby boomers currently retiring. No matter the life stage, all these investor segments evidence increasing concerns about having sufficient income to fund their future dreams. They’ve gotten the “save” message and now want practical solutions for maintaining adequate income to cover comfortable life styles, health care expenses and for many, education and elder care. In fact, these respondents are banishing the “R” word and replacing it with a host of goals and aspirations, using terms such as “freedom,” “a new phase in life,” “second career” and “lifestyle choices.” To help firms better understand the mindset of rollover investors, PFPC, in conjunction with Claritas Inc., recently surveyed nearly 1,300 individuals who had made an IRA rollover within the last three years. The joint study sought answers to key rollover factors, including why money is moved, where it is moved, when planning for the future is started and how financial advisors are used. Our research uncovered some surprising statistics and investor attitudes. -New beginnings or cleaning up. Whether from the baby boomer generation or under age 40, nearly half of our survey respondents rolled their 401(k) funds to an IRA because of a job change. Over 20% made a rollover due to retirement, while a healthy 14% wanted to consolidate accounts – a key driver for older investors and those with higher net worth. -Older and bigger. While the average rollover amount was $37,000, 60% of respondents aged 60+ moved balances greater than $50,000. Gender is also a factor. Men, overall, moved higher amounts than women – 47% of men had balances of $50,000+ versus 30% of women. -Where does it all go? Our respondents most often opted to make rollovers to investment companies (41%); however, brokerage firms (29%) and banks (21%) combined accounted for half of the choices, underscoring a variety of ways to develop solutions to help rollover prospects manage future income needs. -She who plans. Baby boomers in our study recognized the importance of planning ahead. An impressive 45% of boomer women began retirement planning before age 35. One-third of boomer households overall began planning before age 35, while another third began planning between ages 35-44. -The advisor is in. Currently, financial advisors appear to have the greatest opportunity among rollover investors in the 60+ age group and among households with incomes of $75,000 or greater. Attitudes and Insights According to survey participants, reaching a typical “retirement age” is no longer viewed as an end to a productive life, or even an end to working. For most, “freedom” is an underlying current, with time to explore new things and spend more time with family or other fulfilling activities. For some, it’s a time to keep working to avoid financial shortfalls. The baby boomers we surveyed view this stage of their life as being well into the future. Most indicated their retirement was more than ten years away and believed when it did come, they would likely start new careers or become active in the community. In this study, baby boomers moving closer to retirement tended to consolidate accounts and seek more financial advice. To retain and attract new clients, advisors would be wise to focus more of their practice on distribution versus asset accumulation if they are not already doing so. Overall, where money moved during rollovers was clearly influenced by investors having existing relationships with specific firms or by recommendations from their advisors. Women were more inclined to work with advisor-assisted channels than men and indicated that working with someone they trust was a key factor in choosing an advisor or investment firm. In addition, the Claritas Market Audit data indicates that women make greater use of short-term investments than men. Women have more money saved in flexible deposit-type accounts, such as CDs and savings accounts. Boomer women who participated in our rollover research held balances of over $100,000 in these types of accounts and could benefit from advisor assistance. Our research indicates that if an advisor builds trust with female investors, the client-advisor relationship tends to have a longer life span than that of male investors. Marital status may also have key implications on future planning. Take the issue of health care among married couples. Over the past decade, there has been a great deal of attention on the soaring costs of health care in retirement. This leads to the question, will both spouses retire at the same time? If one partner works, health insurance coverage may be available to cushion the impact of medical expenses. Yet, more than one-quarter of our married survey respondents have not thought about the timing of their retirement in relation to their spouse. Based on this study’s findings, the marathon route seems to be wide open for IRA rollover asset retention and attraction, but the insights from this diverse group of respondents highlight the need for more personalized solutions. It’s unlikely that the answer will rest in products alone; it’s more likely that tailored products and services will be needed to help advisors address the issues their clients face. Advisors making the transition from a product-focused to a more consultative, holistic approach – seeing that their clients are preparing for the rest of their lives rather than “retiring” or “going away” – are well-positioned to be in the vanguard of the IRA marathon. And asset managers can improve their racing legs by developing tools that will help advisors facilitate this transition. PFPC is a leading provider of processing, technology and business solutions for the global investment industry. With 4,400 employees, PFPC provides services for $2.2 trillion in total assets and 68 million shareholder accounts. PFPC is a member of The PNC Financial Services Group, Inc., one of the nation's largest diversified financial services organizations.Statistics as of 3/31/2007
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