Retirees that roll over their retirement assets to self-invested accounts with Schwab or Ameritrade pose a particular challenge for advisors.
“I have seen an increasing number of people that request my services after getting frustrated with managing their own portfolio holding last year’s best performing mutual funds or CNBC's ideas," said UBS Financial Advisor Chris Ure in Boca Raton, Fla. “I overcome the obstacle by cultivating a relationship with a potential client before they actually retire.”
Another change affecting retirement plans is a new rule that allows investors to convert assets in a traditional 401(k), including pre-tax salary deferrals, at any age, into a Roth 401(k).
“In reference to conversions in 2012, we reviewed the risk tolerance of clients in the highest tax brackets last year and plan to pay income taxes on the amount converted from tax deferred accounts into Roths,” said Andrew Aran, a financial advisor with Regency Wealth Management in Midland Park, N.J..
The new rules apply equally to 401 (k)s, 403(b)s, thrift saving plans and 457 (b) plans.
“Rates were lower in 2012 than they were likely to be in 2013. As long as clients planned to keep the converted money in the Roth for more than five years, it made sense to pay the taxes in 2012,” said Aran.
Now that Washington has deemed the transfer of assets from 401k plans to Roth IRAs to be legal, plan design is expected to be an area of growth for financial advisors.
“Many business owners think there is only one 401k like there is only one IRA. It's simply not true,” said Ure. “We believe there is a huge opportunity with plans in the $500,000 to $10 million range to improve plan design, offer and or improve online access, enhance participant education, broaden investment options, lower fees and provide more personal customer service.”
According to the Investment Company Institute, $3.5 trillion was held in 401(k) plans as of September 30.
“The owner of the company is typically my client for whom I put together a good quality 401k plan with benefits and structure it in a way that maximizes the owners’ deferrals,” said Ure.