The majority of dollars that wealthy investors formerly allocated to workplace-based retirement accounts like 401(k)s and 403(b)s are now being poured into individual retirement accounts, according to a report by Cogent Research LLC.
The report, Investor Assets in Motion: IRA & Retirement Marketplace Opportunities, surveyed 4,000 affluent and high net-worth Americans nationally and found that while ownership of both IRAs and employer-sponsored retirement plans has declined since 2006, ownership of 401(k) and 403(b) accounts have tumbled further.
Since 2006 IRA ownership has fallen by 5%, according to the report, while ownership of employer-sponsored retirement plans has plummeted by 23%. This marks the first time high-net worth Americans are holding a larger proportion of their assets in IRAs than in other employer-based plans, with 31% using IRAs versus 25% holding assets in employer-sponsored retirement plans.
“The good news here is that while many Americans are losing access to 401(k) plans as a result of job separation, choosing to bypass their 401(k)s, or simply retiring they are making smart decisions regarding where to move their money – namely putting it in an IRA.” Meredith Lloyd Rice, a senior research director for Cogent who wrote the report, said in a statement.
This is also good news for distributors of plans who are competing to attract IRA assets. An analysis of nineteen leading distributors by Cogent found that over the past year firms managed to increase the proportion of primary client assets held in IRAs accounts by 15%. Seven firms were able to increase the average proportion of primary client assets in IRAs by twenty percent or more: Fidelity, ING, Merrill Lynch, Raymond James, USAA, Vanguard, and Wells Fargo Advisors/Wachovia.
Nine firms hold one third or more of their individual primary clients’ assets within IRA accounts: Ameriprise, Charles Schwab, Edward Jones, Fidelity, LPL, Merrill Lynch, Raymond James, UBS, and Vanguard.
And it doesn’t seem like the urge to rollover will fade. Cogent found that those investors who still have assets sitting in former employer retirement plans today are even more likely to plan to rollover those assets into an IRA, with 45% saying they were likely to rollover to an IRA in 2009, up from 39% in 2008.
This year, for the first time, individuals can convert traditional IRAs or other eligible retirement plans to a Roth IRA regardless of income level or tax filing status, which according to Rice intensifies the competition between distributors to capture IRA rollover assets.
“Given this new legislation and what investors are telling us, there has never been a better time for an investment firm to put more muscle behind their company’s rollover strategy,” she said.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access