CAMBRIDGE, Mass.-In the race to capture rollover retirement assets, retail banks have been somewhat of a sleeping giant.
But banks, which benefit from sheer scale, brand recognition and a brick-and-mortar presence in communities across the country, are stirring to action.
"We are awakening," said Keith Piken, managing director of the retirement product team at Charlotte, N.C.-based Bank of America, at Financial Research Associates' IRA Rollover Retirement Summit held here this month.
In the past, the bank has focused on its major revenue centers, such as deposits and loans. Retirement planning services rarely ranked even within the top five, he noted. But that has changed as the 77 million Baby Boomers ramp up for retirement, and banks recognize how well they are placed to capture the billions that will be up for grabs each year.
"I wouldn't say we have a Mao Tse-Tung five-year plan, but our awareness of retirement has grown exponentially in the past five years," Piken said.
With 6,000 branches and 16,000 automated teller machines, Bank of America, like other national and regional retail outlets, has the opportunity to interface with potential investors in ways mutual fund companies could only dream of, and access that would cost millions to replicate.
What's more, because companies like Bank of America, owner of the Columbia Management fund company, and Dutch giant ING, which offers it own investment line-up, have such vast scale, between their retail, commercial and wealth management enterprises, they can manage small, less profitable, rollover accounts that other companies choose to ignore.
"We see it as an obligation," Piken said.
It's also a significant opportunity, said Ron L. Bush, a principal at Stamford, Conn.-based Brightwork Partners. Of the 7.7 million likely to claim distributions from their qualified retirement savings plans this year, about 3.4 million have less than $25,000 saved. Together these small accounts represent only $10 billion of the $500 billion in distributions.
But those with between $50,000 and $99,000 in rollover assets represent a $100 billion market, and they're not getting paid much attention. Wealth management firms generally target those with at least $100,000 to invest, often referred to as the mass-affluent.
"There is a whole sea of people not targeted," Bush said.
Bank-managed funds are also more attractive to investors than they were in the past since the 1999 repeal of the Glass-Steagall Act. Its repeal resulted in a swell of mergers between banks and investment companies, and allowed for the formerly expensive bank-advised fund to become much more competitively priced, said Tom Roseen, a senior research analyst with Lipper of New York.
Retirees are not the only rollover clients. Job-changers, who may have small assets now, but are likely to accumulate more through future posts, are also candidates. In fact, overall, job-changers account for about $213 billion of the $500 billion in play.
Once a bank has that rollover business, these investors are likely to stick with the brand through their accumulation years, Bush said.
Sometimes, a simple customer service call can uncover far greater assets up for grabs, said Srinivas Reddy, vice president of Horizons Distribution and product management at ING.
Reddy recalled one client with a $60,000 qualified plan who an adviser passed on calling. ING's policy is for representatives to follow up every distribution request by what Reddy described as a "courtesy call." In this case, the $60,000 account happened to belong to an individual with $4 million to invest.
ING got it all. To some degree, situations like that are common, he said.
While advisers and representatives will make a greater effort to capture distributions of 401(k) accounts with more than $100,000, banks should not ignore $15,000 account holders wholesale, Reddy said.
ING uses its popular Orange online savings accounts as an opportunity to advertise retirement products through splash screens and banner ads. The goal is to get the attention of retail customers while they are thinking about their finances, and alert them to services and products they may not realize the bank can provide.
Roseen noted retail banks' reputation for working very well within tight margins, making them better suited to handle such small accounts.
Other times, such advertising can result in better retention of assets from bank-controlled qualified plans. "We don't make money rolling people out [of ING-controlled qualified plans]," Reddy said. While 32% of those who leave their employers, whether through retirement or a job change, leave their investments in the employer's plan, half of that disappears within three years, according to Bush.
Right now, national and regional broker/dealers win the greatest number of rollovers, with an average balance per account of about $205,000. Wirehouses win the fewest number of accounts, but have the highest balances, with the average rollover at about $289,000. The average account won by independent broker/dealers is about $163,000, while those who roll their assets into annuities and other products offered through insurance companies tend to have the smallest accounts, with balances, on average, of $127,000, according to Brightwork statistics.
Banks are poised to take market share from each.
"It's about consistency of message," Piken said. "Rollover is not one event." Bank of America uses customer relationship management software (CRM) to help advisers target potential rollovers. Groups are segmented by age: the up-and-coming professionals over 45, the so-called "older elites" who are between five and 10 years from retirement, and those with significant assets who are over 60.
Advisers use these tools to mark milestones. For example, when a client turns 50, clients may get a mailer suggesting it's time to start planning retirement spending strategies. Likewise, if a client stops making regular direct deposits of his or her paycheck, an adviser may call to talk about rollovers.
Banks that want to compete for these retirement assets cannot ignore the importance of the regulatory issues surrounding qualified accounts and advertising. "If you want to have a competitive advantage, you really have to have a crack legal, risk and compliance team," Reddy said.
Still, for banks looking to build their business, the investment can be a worthwhile one, Bush said.
"That rollover, although relatively small, is the trigger," he said. "It triggers change and a relationship."
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