Affluent Investors Can Bring in Billions
With more than $350 billion in assets, affluent investors unhappy with their current employer-sponsored retirement plans have no misgivings about moving their funds elsewhere.
Cogent Research revealed that discovery in its “Investors in Action” report. The data showed that of the 25% of affluent Americans who have assets sitting in former employers’ retirement plans, about half (42%) said they are likely to roll over the assets into an IRA sometime within the next year. That group has approximately $350 billion in assets ready to shift.
Cogent defines the affluent as those with $100,000 or more in investable assets, excluding real estate. The firm’s report surveyed more than 4,000 investors.
On average, 45% of affluent investors said they were satisfied with the provider their employer had chosen to run their retirement plans. Forty-three percent said they were only somewhat satisfied, and about one in 10 (12%) expressed dissatisfaction. Satisfaction levels were lowest among Gen X investors (40% on average), with baby boomers being only slightly more satisfied (48%).
“Keeping plan participants happy can have a multiplier effect,” said David Feltman, managing director of Cogent Research. “Satisfied plan participants are three times more likely to roll dollars into an IRA with their current 401(k) or 403(b) provider than are those that are not happy.”
For credit unions, competing against some of the big-name retirement plan providers is a shrewd move in building long-term and potentially cross-sell relationships, said Hendrix Niemann, managing director of wealth management and trust services at CUNA Mutual Group.
Cogent found that four providers–TIAA-CREF, Vanguard, Fidelity and T. Rowe Price–fared better than other firms among respondents in its survey. TIAA-CREF topped the list with 63% of their affluent plan participants being satisfied with the record keeper.
Vanguard came in second with nearly six in 10 (59%) of their affluent plan participants expressing satisfaction. Fidelity and T. Rowe nearly tied for the third spot, with both firms exceeding a majority at 55% and 54%, respectively.
Still, “most people are comfortable with a second opinion,” Niemann said. “Credit union advisers have to do two things. Know the plans at their major [select employee groups] and make themselves known to the human resources department.”
Having those tools in place can certainly aid members, particularly baby boomers, who are estimated to move trillions of dollars over the next decade, Niemann said. He’s not surprised at the number of investors who are willing to move into self-directed IRAs, saying the trend is expected to either stay constant or increase.
“That money with an employer or, for those about to retire, their soon-to-be former employer, is only going to stay if it’s not worth the paperwork to move it,” Niemann said.
When Cogent asked affluent investors where they would most likely roll over former employer plan dollars, Fidelity topped the list and was the only firm to reach double digits at 20%. Vanguard came in second, being identified by nearly one in 10 affluent investors (7%). Wells Fargo (5%), Charles Schwab (5%) and Merrill Lynch (3%) rounded out the top five destinations for IRA rollover money.
Feltman said Fidelity scored the highest marks because of its deep penetration in the 401(k) market, highly satisfied participants and a strong retail brand–“all of which predispose large numbers of affluent investors to roll their assets to the firm.”
Meanwhile, most credit unions do a strong enough job of making their presence known in the retail investment space, Niemann offered. Still, others are reacting rather than taking a proactive approach. He said members often have to seek them out, but credit unions that make the first move have a greater opportunity of capturing a far larger share of the IRA rollover market.
When an employee tells the HR department he is thinking about retiring in six, nine or 12 months, the typical response is an HR employee will hand out a list with a handful of firms and their 1-800 phone numbers, Niemann said.
“Employees go with this because they may not know better. Our job is to disrupt that opportunity. We can tell SEGs ‘we would like to do seminars and provide research,’” Niemann said. “That’s why some companies spend so much time making the HR department happy. Those same firms do their best at customer service so when an employee gets ready to retire, everything is default. It’s the credit union’s job to provide a second opinion.”