Almost Half of Projected IRA Rollover Assets ‘At-Risk’ Post-DOL Conflict of Interest Rule

While the $7.3 trillion individual retirement account (IRA) market is the largest and fastest-growing segment of the U.S. retirement market, the Department of Labor (DOL)’s new Conflict of Interest Rule will impose greater scrutiny on the rollover market potentially disrupting future flows, Cerulli reports.

“There is general consensus in the retirement industry that more assets will remain in employer-sponsored DC plans because of the rule,” says Jessica Sclafani, associate director at Cerulli. “While Cerulli generally agrees with this statement, there are additional considerations, such as the influence of existing adviser relationships, which is the greatest driver of IRA rollover assets, in addition to DC-plan-specific considerations, such as current DC plan design and lack of in-plan retirement income solutions, that may continue to support the migration of DC plan assets to the retail IRA market.”

Cerulli finds that 29% of respondents said they rolled over their retirement savings from an employer-sponsored account into an IRA because of advice from a financial professional. Another 29% consolidated their retirement savings into an existing IRA.

Under the final rules of the new DOL Conflict of Interest initiative, “the recommendation to roll assets from an employer-sponsored plan to an IRA is explicitly called out as a covered recommendation that would trigger fiduciary status for the financial adviser,” according to Cerulli.

The research firm calls this aspect of the new rule “one of the most significant changes the rule introduces. For financial advisers who rely on IRA business as a significant component of their book of business, it is unlikely that they will abandon IRA revenue opportunities post-implementation of the rule. Rather, Cerulli anticipates a greater bifurcation in the services that will be offered to IRA clients based on their account balances.”

So would transparencies in fees, the firm suggests. According to Cerulli’s research, 20% of respondents said they don’t pay any fees into their 401(k) retirement plans and 23% said they don’t know whether they do. As for services that participants want from their recordkeepers, Cerulli found that 53% want financial planning, 52% want information about investments, and 51% want projections of future retirement.

Still, the IRA market continues to grow. Cerulli attributes much of the IRA asset growth to Baby Boomers entering retirement. The firms says growth in traditional IRA assets is influenced heavily by rollovers, but growth in Roth IRA assets is dictated more by investor contributions and Roth conversions. Cerulli projects Roth IRA assets will grow at a double-digit yearly rate for the duration of the decade and exceed $1 trillion by 2019.

One top-10 IRA provider tells Cerulli that Roth IRA contributions were more than 2,5 times greater than contributions made to a traditional IRA in 2015. Moreover, the firm points to research by Vanguard which in April 2016 revealed that more than $2 of every $3 contributed to a Vanguard IRA went into a Roth IRA.