If financial advisors plan ahead, they will have an opportunity to capture a portion of the nearly $6 trillion in expected 401(k) rollovers over the next decade.
The rollover market is expected to increase 10% to 12% in coming years as more baby boomers retire and larger numbers of people lose jobs or voluntarily change employers. And there are steps advisors can take to position themselves to grab some of that market, said Spectrem Group Director Gerry O'Connor.
New financial products will be developed to meet this need--such as new types of annuities--and advisors must keep on top of the new offerings, O'Connor said during a webinar this week sponsored by Spectrem Group. Last year, $489 billion was eligible for rollover. Half of that was moved to IRAs, 20% was taken out as taxable withdrawals, 12% was set up in some kind of an income stream such as annuities, and the remainder was invested in various other ways.
"Everyone who has lived through this current market, and who is nearing retirement or changing jobs, is now aware of how quickly things can change," O'Connor said. "That is a perfect opportunity for financial advisors to offer their expertise."
For potential clients who are 45 or 50 years old, advisors need to be prepared to discuss wealth preservation as well as wealth accumulation.
"More people will need to establish an income stream, so firms need to train their staff to discuss the different products and the tradeoffs that each product type requires versus the client's objectives," O'Connor said.
Only 25% of retirement plan participants say they understand some of their rollover options, while 75% say they have no knowledge. For those people doing 401(k) rollovers, 40% worked of those with $5,000 to $25,000 invested worked with a financial advisor, while 66% of those with more than $100,000 sought an advisor's help.
The fact that a large percentage of people say they don't understand their options, and that a large percentage of those with higher amounts of money invested want financial advice, "presents an enormous opportunity for advisors to help people balance their objectives with the real possibilities, while capturing some of that market," O'Connor said.