Rollover recommendations have increased 150% over the past year at four of the largest regional broker dealers and wealth management firms, according to a new case study from InvestorCom, a compliance technology firm that tracks rollover data.
“We knew the numbers were rising, but never expected to see this type of increase during a year marked by regulatory scrutiny where rollovers are under a magnifying lens. And we believe we’re in just the earliest stages of growth,” Parham Nasseri, vice president of product and regulatory strategy at InvestorCOM, told Financial Advisor magazine.
It is no secret that rollovers from employer-sponsored plans to IRAs are a leading growth opportunity for advisors and one of their most prized asset sources, Nasseri said.
IRA rollovers are expected to grow to more than $760 billion annually over the next five years, according to a LIMRA Retirement study.
Rollovers from defined-contribution plans accounted for $ 2.9 trillion in IRA asset growth, with the average rollover dollar value amounting to $211,100 between 2016 and 2021, according to Cerulli Associates.
But it’s the fact that this skyrocketing growth has occurred as regulators’ increase focus on advisors’ compliance with extensive new regulations that require them to ensure rollover recommendations are in clients’ best interest that make the growth so intriguing, Nasseri said.
The DOL's fiduciary rule has led to increased scrutiny of firms’ recommendations, investment choices and conflicts of interest. Meanwhile, the Securities and Exchange Commission’s Regulation Best Interest (Reg BI), as well as further guidance in March 2022, outline specific expectations around rollover recommendations.
“Our takeaway is that automation has made firms compliant,” Nasseri said. “We have a number of firms who use our rollover analyzer applications and one of the features is that we can track all of the rollover recommendations that are being made, which allows us to collect this data in aggregate."
Because of automation that makes collecting and providing all the necessary information to clients and regulators “firms are telling us it is just simpler to comply now,” added Nasseri, who declined to name the firms in InvestorCOM’s case study.
Sean Michael Pearson, a financial advisor with Ameriprise in Conshohocken, Pa., said he has seen an increase in rollover business over the past year and thinks the trend is driven by consumer demand and greater education regarding the benefits of advice by workplace plan providers and advisors.
“I definitely am seeing more people asking about rollover advice,” said Pearson.
“I think the more companies continue to offer a fee for service in plan, I think it will increase the number of people who are open to and looking for advice. Instead of that creating direct competition for advisors, it opens the door for more conversations with clients,” said Pearson.
There are also more trigger points—for instance the fact that they can retire at age 55 from defined contribution plans and that there have been major changes to required minimum distribution rules in the past three years—that are driving clients to seek advice, he said.
“What I focus on in discussions is using an education process to find the right fit, which lays out the benefits of advice and the costs for each person,” Pearson added.
Ameriprise has developed its own rollover technology and provides advisors with side-by-side analysis showing the benefits, costs and estate plan and tax consequences associated with rollover recommendations from a defined contribution or benefit plan to an IRA.
DOL regulations require that advisors collect all costs for existing and proposed plans and IRAs.
Rollovers don’t have to be the least expensive option, but technology helps advisors collect all the needed information to be able to demonstrate a recommendation is in a clients’ best interest, Nasseri said.
To be effective, analysis and disclosures should not have too many layers, he added. “You want to be able to show clients where they are today and where they’re going in terms of service levels and costs,” he said.