Size Matters When Using an Adviser in Rollovers

The options are finite—leave the money in the plan, roll it over, cash out, initiate installment or annuity payments or transfer to a new employer’s plan—but the assets can be a substantial portion of an individual’s savings.

According to LIMRA’s study, “Asset Retention: Keys to Success in the Rollover Market – 2012 Results,” the size of the account balance directly influences whether an individual chooses to work with an adviser.

Advisers are almost twice as likely to play some role in this decision when the account balance is at least $100,000. Forty-four percent of plan participants with that amount choose to work with an adviser versus 23% of plan participants who have under $100,000.

Balance size dictates in part what can be done with the money, and how these decisions are made. Smaller balances make individuals less inclined to use the services of an adviser because of the associated fees, according to Raymond Nelson, a financial adviser with MetLife. “You can’t have a wrap account if it’s less than $50,000,” Nelson told PLANADVISER. “Even under $100,000, if they put it into an annuity, they can lock in gains and guarantees from a pension standpoint by protecting the balance from the fluctuations of the market.”

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Leaving money in the plan can be an attractive option for those with larger balances. “Individuals with balances of more than $100,000 can retain greater access to more products by leaving their money in the plan,” Nelson said. And plan sponsors want to keep the money in the plan, he pointed out, unless the balance is a smaller one, because of the associated management fees.

Most often, an adviser assists with both the decision-making and the actual transactions among individuals with substantial account balances, according to Matthew Drinkwater, associate managing director of LIMRA Retirement Research and the author of the study. “By definition, there is more at stake,” Drinkwater told PLANADVISER.

Of those people who choose to roll over a defined contribution (DC) plan balance into an individual retirement account (IRA), more than half of respondents (57%) consult an adviser, the study found. Slightly more than half the time (53%) participants choose to work with an adviser to complete the rollover. Drinkwater noted that money is more likely to leave the plan provider when retirees and pre-retirees rely on an adviser.

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The exception is when the adviser actually works for the plan provider, Drinkwater said. “In that case, advisers are partners in keeping the assets within the enterprise, either staying in the plan or rolling to an IRA offered by the plan provider,” he said. These advisers are more likely to initiate contact with the plan participant, which suggests that in these cases, advisers receive referrals from the plan provider.

“Our research shows that these advisers tend to know more about the specific features and benefits of the DC plan,” Drinkwater said. “But most of the time, the adviser has no affiliation with the plan provider, so in most cases, we see people rolling out their money.”

“As people become more familiar with rollovers, or if they receive clearer statements of their distribution options, they may be less likely to rely on a professional to execute the decision, possibly relying more on call center reps or doing it online themselves,” Drinkwater said. “But I still think people will still seek help from professionals when sorting through the various options available and selecting the one that makes the most sense for them.”