President's Blog - Help! Rolling Over Without Assistance

2/19/2018

The most telling and significant information that comes from Spectrem research often revolves around the high percentage of investors from one segment or another that does not use financial advisors.

From investors who don’t yet have their first million (31 percent) to those with eight figures of net worth (20 percent), Spectrem research shows that advisor usage is not as consistent as one might imagine. Despite the evident wisdom of having professional assistance with investment decisions, many investors choose not to pay for the advice.

New Spectrem research shows another segment of investors who do not use always use advisors: those with sizable rollover amounts. According to the new study The Million Dollar Rollover Opportunity, 30 percent of investors with a net worth of $1 million who rolled over $800,000 or more from one account into an individual retirement account did not use an advisor to make decisions related to the rollover.

The study results represent responses from two groups of investors: those with at least $1 million in net worth who have rolled over at least $800,000 from a DC plan into an IRA or another plan within the last two years, and those with at least $1 million in net worth who intend to rollover the same amount within the next two years.

From an advisor’s standpoint, that first group can help provide the information they could use to attract business from the second group.

Perhaps advisors can get to them in time.

At some point, most investors roll over assets from their employee-sponsored defined contribution 401(k) plan into a rollover or contributory IRA. This decision is not a simple one: investors need to decide where they are going to roll over those assets and who is going to administer the fund.

Such decisions would be much easier with the assistance of an experienced financial advisor. But many such investors choose to make their own decisions and administer those decisions without the help of a professional.

In the study, the investors who have already rolled over their assets from one account to another show just how often, percentage-wise, investors with assets to roll over choose to do it on their own. Those investors are not a target for advisors necessarily; they have already made their decisions and are living off what they chose to do.

However, research on those investors can inform advisors about those investors who have yet to make the decision about what to do with their assets they intend to roll over. It would be possible and probably easy to advertise to investors who are not yet at the stage where a rollover is imminent but who have at least considered the prospect. If those investors worry about making the correct decision, advisors can offer their assistance and expertise and find a new category of clients to work with.

A quick scan of your current client list may provide you with a bevy of investors who are at the stage where they are thinking about what they will do when it is time to make a decision on their 401(k) assets. It is not offensive for an advisor to bring up the topic of retirement assets that someday may be transferred from a 401(k) to an individual retirement account. Such a discussion may determine that the investor’s timing or decision-making process regarding such a transfer is not the best plan going forward.

For investors with a sizable employer-sponsored defined contribution account, those funds represent a huge part of their financial future. According to The Million Dollar Rollover Opportunity, 43 percent of investors with a sizable rollover amount consider those assets to represent about half of their total assets. More than one-third consider those assets to be the largest portion of their retirement account assets.

It’s a big deal, and it is surprising how many investors make the decisions on their own. Financial advisors would obviously benefit from a new business relationship, but investors would probably benefit as well from discussing their rollover plans with someone who has done a rollover before.