FRC: IRA Rollover Business Could Double By 2010

November 24, 2003 ( - Annual rollovers from employer-sponsored benefit plans to Individual Retirement Accounts (IRA) could more than double from an estimated $188 billion in 2002, to more than $400 billion by 2010.

Further, between 2003 and 2010, $2.4 trillion will be rolled over from benefit plans to IRAs, according to the IRA Rollover Trends: Distribution & Product Strategies for Successful Asset Growth study released by Financial Research Corp (FRC).   With this information, FRC predicts the growth of the IRA market will outpace all other retirement markets throughout the remainder of this decade.

Driving this rollover trend are Americans in their fifties.   In 2002, this age group generated 38% of all rollover flows due to a combination of early retirements and job changes.   In the numbers, FRC detected some other trends that could impact the way financial service firms do business.

Members of the group between the age of 50 and 60 that possess a minimum of $100,000 of investable assets, of which a portion is held in a 401(k), 403(b), 457, profit-sharing, or cash balance plan, indicate they have an average of 44% of their IRA assets invested in stock and/or bond funds, as opposed to just 33% of their non-retirement account assets. In addition, 75% of this age bracket own shares of at least one stock or bond mutual fund in their IRA(s), as opposed to just 57% that own stock or bond fund shares in a non-retirement account. FRC attributes this discrepancy largely to the tax-deferred, long-term nature of IRAs.

In position to capitalize the most from this trend appears to be full-service custodians.   FRC predicts this segment of the financial services industry will increase its market share of rollover dollars from 51% to 54% by 2010. This is the result of a continued migration of larger rollover account holders to full-service advice and guidance platforms.   To date, of the 86% of those polled with existing IRAs, 41% of those with IRA balances totaling more than $100,000 have a full-service broker/dealer as their primary IRA custodian, as opposed to just 31% of those with less than $100,000 of IRA assets.

For this group, asset protection was the overwhelming driving factor in finding a financial firm to handle their rollover dollars.   Two-thirds of the survey respondents indicated they were extremely or very interested in the issue of downside risk among a list of retirement issues that included taxes, selecting the right investment products, estate planning, long-term care needs, and protecting assets from depreciation.