Migrating Money

Why should advisers be excited about the rollover market? According to research from Cerulli Associates, nearly 40% of advisers’ books of business is attributable to rollovers, and another Cerulli report estimates that rollovers from 401(k), 403(b), and 457 plans will represent almost $1.9 trillion of individual retirement account (IRA) asset flows by 2013.

Further, the Cerulli Associates report, “IRA Rollover and Retention: Strategies and Positioning,” found that a significant number of advisers also are using the rollover event to set client wheels in motion for consolidation of assets held at different firms in different account types. To capture rollovers, most advisers are relying on “tried and true” methods, such as referrals from existing clients. However, those can be a relatively inefficient means—and the report notes that a growing number of advisers are looking for help in improving their odds of capturing rollovers; education and training are seen as key methods of doing so.

One such option for a financial adviser with a hybrid book of business—that is, both plan advisory services and wealth management—is a rollover solution provider. Those programs can become an adviser’s new best friend as a bridge between an employer plan and the high-net-worth world where recently departed participants who meet program eligibility requirements can become retail advisory clients. Recently, those rollover services have been extended to reach “missing participant” account balances as well.

The rollover solution provides the adviser an opportunity not only to build out a wealth management practice, but also to help his plan sponsor client address the challenges of having to keep track of terminated participants who can no longer be located for the purposes of making a distribution. It also can represent a way for a financial adviser to fulfill his or her long-term philosophical responsibility to participants by giving them an easy way to “stay in the system” —that is, to keep their retirement funds tax-deferred.

Here is how it works: The rollover provider has electronic ties to various recordkeeping platforms that allow the distribution event (such as a termination distribution) to be flagged and subsequently checked against criteria established by the adviser (or provider in a direct processing environment). At the point of distribution, that flag triggers an alert from the rollover provider to the adviser, so that the adviser can reach out to the participants and consult with them about their rollover options. The rollover provider also has electronic linkages to various IRA providers that can facilitate a seamless transfer to a retail account when an adviser is not involved, or when the account balance is too small to require the adviser’s engagement.

Writing for PLANADVISER.com last year, Spencer Williams, President and CEO of RolloverSystems, said that every party wins with an automated rollover solution. It benefits plan sponsors by reducing their administrative burden and liability exposure, increasing average account balances (by rolling smaller balances out of the plan), and realizing true cost savings. Participants benefit by being able to consolidate their account balances in one place, making it easier to monitor and manage retirement savings, while advisers and third-party administrators (TPAs) can improve revenue, differentiate their practices, and enhance their value to their clients. In addition, they can structure the process so that they maintain relationships with participants with the highest balances and outsource the less profitable accounts.

Two key players in the rollover space—Charlotte, North Carolina-based RolloverSystems and Wealth Management Systems Inc. (WMSI) of Bedminster, New Jersey—not only accommodate, but also feature, financial advisers as part of their process of channeling plan assets into rolled-over IRA accounts, according to representatives of both companies. In fact, RolloverSystems funnels all of its rollover business through advisers.

What To Consider

Key considerations for an adviser in selecting a rollover provider for a client plan, according to advisers and providers include:

Separation of service notification. Advisers say it is critical to have a rollover solution that includes an organized way to be notified whenever an eligible participant departs from the plan. “That’s a huge reason to have a system in place because usually the [financial adviser] is the last to know when a person leaves the company,” says adviser Jim Sampson of Telamon Insurance & Financial Network in Newton, Massachusetts.

Back-office support. Many advisers need support to process the necessary paperwork, to field phone calls to answer investors’ questions and concerns, and to generate rollover educational materials. While perhaps less of an issue for larger advisory shops (that either keep the functions in-house or outsource them to a TPA), it can be particularly critical for small advisory firms.

“You have to be geared up to respond when you’re notified, which is easier said than done,” admits adviser Jamie Worrell of GPS Investment Advisers of Providence, Rhode Island. “You may get 10 notifications and then you say “Whoops, I have to call them and respond to them.””

Williams suggests advisers “look for a provider that locates and communicates with terminated participants, is equipped with licensed professionals that can help participants understand their options, and provides complete transaction assistance” (see “The Efficiency of Adding an Auto-Rollover Provision“). Participants left to find their own way are likely those who need the most help and will cash out their retirement savings without guidance, he says.

Don’t forget the small balance participant: Jim Langenwalter, Chief Marketing Officer at RolloverSystems, says advisers cannot forget that plan sponsors ultimately want the rollover needs of everyone in their plans taken care of, regardless of account balance. In addition to referring departing participants meeting account minimums to the adviser, RolloverSystems’ Retirement Center personnel are available to help the remaining participants with lesser balances.

Choice. While WMSI offers a similar service menu to Rollover Systems, it markets its open-architecture IRA “supermarket” with 20 to 30 IRA products on its platform. Jacqueline Rynn, Wealth Management Systems’ Vice President of Marketing and Product Development, argues plan sponsors consider a wide IRA lineup as a competitive advantage when considering whether to add a rollover solution.

Speedy processing. A rollover provider’s platform needs to be robust enough to process rollovers quickly. Advisers and providers say that is not only because of the sponsor’s desire to provide high-quality participant service, but also because a rapid rollover turnaround is key to convincing participants to keep their retirement assets tax-deferred.

With the proper selection of an automated rollover solution provider, the terminated and orphan participant problem can be turned into a beneficial experience for the adviser, plan sponsor, and participant.

Illustration by David Flaherty