A new study by Bain & Co. suggests that more and more affluent Baby Boomers, or those with an average income of $100,000 or more, are rolling over 401(k) money at retirement without the help of a financial adviser.
Overall, the study finds that although 84% of wealthy Baby Boomers employ the services of a financial adviser in some capacity, only 30% are urged by a financial adviser to roll over 401(k) assets when retiring from the workforce.
Rollovers offer a lucrative business opportunity for asset management firms that want to capture a bigger share of the growing pre-retirement market, which is seeing retirees make rollover decisions on their own and shop around for the best financial products to buy at the time of retirement.
For instance, 70% of the 55 to 70-year-olds polled by Bain have rolled money out of a current 401(k) plan. More than 40% have bought financial products to complement their last rollover.
"The rollover is a gateway event where people are open to considering other products and having a discussion about other financial needs they have," said Thomas Dente, a Bain partner and member of the firm's financial-service practice.
While brokers have enjoyed hefty adviser fees in the pre-retirement market, 401(k) providers are fighting back by adding services to hold onto assets. Bain notes that the $8.7 billion U.S. pre-retirement market is growing 4% each year, fueled largely by the $3 trillion individual retirement account market.
This stupendous increase in the retirement market offers more opportunities for asset management firms, as more than two-thirds of Baby Boomers underestimate their retirement income needs, according to Bain. The study notes that 66% of affluent boomers underestimate how much money they will need to retire, although 91% said they had been involved in their own retirement planning.
Getting advice to, and therefore advisement fees from, Baby Boomers might be a tough task, though. The study finds that 70% of Boomers would rather own a financial product that ensures retirement income than a service that offers investment advice.
For the Boomers who do use the services of an investment adviser, return on investment is the most important factor. So much so that Boomers who rolled over their 401(k) to their primary advisers were willing to pay for these returns, as indicated by the fact that they rated cost as the least important in their rollover decision.
Another key finding of the study is that most retirees do not move their money out of an employer 401(k) right at retirement. The most affluent are likely to not make a rollover decision until after ending a job.