One in three (32%) affluent and high net worth investors have assets currently sitting in former employer retirement plans like 401(k), 403(b) and 457 plans, according to a new report on the rollover IRA and retirement income market from Cogent Research. Thirty-nine percent of those surveyed said they are likely to roll their assets into an IRA within the next 12 months. With an average account balance of nearly $200,000, this puts about $450 billion dollars of retirement assets potentially in play over the next 12 months.
Online investment providers, as opposed to the full-service advisory practices, are most likely to be the beneficiaries of these rollover assets in motion, according to Cogent. Four of the top five rollover IRA destinations are firms that are traditionally known as online or discount brokers, many of which also have substantial 401(k) plan franchises. The top destinations for rollover IRA assets include Fidelity Investments, Vanguard, Charles Schwab, Merrill Lynch and USAA, the data showed.
Several players in the credit union industry have beefed up online alternatives for services ranging from financial planning to buying and selling trades. Credit unions may have an advantage to capture some of those IRA rollovers given the loyal relationships they've built with members, said Eric Dolan, a project director and co-author of Cogent's report, "Assets in Motion: The Rollover IRA & Retirement Income Market Opportunity."
"Consumers that have relationships with credit unions are often very satisfied," Dolan said. "[Credit unions] can leverage and manifest that loyalty into expanding those relationships [through rollovers]."
Of the 4,000 investors surveyed for the report, 20% said they have not decided what they will do with 401(k) assets from previous employers, Dolan said.
"The foundations of these relationships are those that investors can trust. I think credit unions have a leg up here. They have a position to make those assurances."
One of the drivers of the IRA rollover online trend is firms are communicating more with investors about the decisions they can make with their former 401(k) plans, Dolan said. Another factor is many of the top firms have existing relationships with employers, "So it's a natural place for investors to return." Others have defected from other firms and have gone to some of the bigger firms mentioned in the report. Cogent found that full-service firms have not been as proactive about raising the rollover issue with their clients.
"Online brokers have spent a lot of time and money encouraging investors to use their rollover services, and it's working," said Christy White, principal of Cogent.