IRA rollovers are big business for many wealth advisors, with close to or over $800 billion leaving DC plans annually over the past three years, according to Cerulli. While some RPAs focus on returns, most see them as lost revenue opportunities. But with the new DOL fiduciary rule, the potential for in-plan retirement income, and financials like Pontera and Future Capital, will IRA returns diminish or evolve?
Cerulli shows that 63.5% of returns went to advisers in 2023 up from 57% in 2021 with existing advisers capturing 84.6% last year, down slightly from two years ago. Existing advisors captured about 85% of the assets of advisors with account balances over $200,000 while new advisor account balances were 28% lower. Self-directed IRAs accounted for 28.4% of assets in 2023 from 34.5% in 2021 with account balances falling to $110,300 from $120,800. Plan to plan was the lowest segment by about 8% over the past three years.
IRA rollovers are the most common form of convergence although some RPA aggregators like Captrust don't think it's good business. Cerulli's numbers show that most assets go to advisors with existing advisory relationships.
So the existential question for RPAs is whether they can use their advantage to build relationships with participants, especially the wealthiest ones, and be there or know when a rebound event is going to happen. Wealth advisors have a distinct advantage with existing clients, but the DOL's fiduciary rule will require an assessment of whether it is in their client's best interest to opt out of their plan. Those using Pontera or Future Capital may not see an advantage as they can manage money and still get paid.
Firms like IRALogix are being tapped to make IRAs more “institutional.”
If the pension income within the plan ever grows, especially embedded within TDFs or managed accountsit can hinder returns if these investments are not readily available off-plan.
As the momentum for the convergence of wealth and retirement continues, RPAs are trying to build relationships with participants early on, especially HENRY. Identifying attractive wealth clients is not easy or obvious—some with low account balances may have significant assets elsewhere. Of course, highly compensated employees are obvious opportunities, as well as savvy participants using HSAs, but much of the wealth in the US is hidden, making access to data inside and outside the workplace essential.
The key is marketing and awareness, and while record holders may seem to have an advantage because their brand is on the website and statements, according to recent research from the Institutional Defined Contribution Investment Association and a major consulting firm, most of the participants do not even know who. their provider is, which is even more challenging for RPAs.
IRA rollovers can be the tip of the sword for working with participants as a growing number of RPAs are trying to either find wealthy participants to sell financial plans and other wealth services or provide scaled advice to the masses, which is beginning to attract wealth advisors to the DC market in part because of explosion of smaller planes.
The workplace is a clear and potentially easy way to access and assist DC participants without an advisor, rated at 97%, with some data available and greater trust and fiduciary oversight important to less investors sophisticated. And while collecting IRA returns, most with modest balances, may not be great business, it's just one of many services advisors can provide to plan participants that they manage to build relationships that lead to a more profitable engagement.
Which, of course, can put advisors and registrants at odds over who will work with these participants and how best to collaborate, which is the proverbial sticking point.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.