In study about how IRA holders reacted to the Great Recession, the ICI — using data from the IRS and SIFMA — found that traditional IRAs, or those with a consistent balance from 2007-2011, weathered the storm with relative calm. Analyzing 5.8 million accounts, the study found that there was little reaction to the economic crisis: Withdrawals rose only slightly, contributions were frozen for a relatively few, and the move out of equities was smaller than expected. In fact, account balances were higher at the end of 2011 than in 2007.
IRAs included $5.734 trillion at the end of Q3 2013, or more than 27% of all retirement assets and 9.1% of U.S. household wealth; IRAs covered 40.4% or 48.9 million households in America.
Most IRAs are generated through rollovers from qualified plans that tend to have larger account balances. Yet relatively few traditional plan advisors focus on this market, because account balances are too small, they don’t understand how to market to consumers versus selling to corporations, or they’re concerned about conflicts. Additionally, the DOL’s proposed new definition of fiduciary could squeeze out commissioned brokers from this market.
No wonder 130 online advice start-ups have been funded since the Great Recession, with $300 million raised this year alone. At the same time, 61% of plan advisors who responded to last week’s NAPA Net reader poll get less than 10% of their revenue from rollovers and wealth management, and only 22% get more than 50% of their revenue.
Yet aren’t plan advisors — as the only advisors many of these investors will ever meet — in the best position to capture these rollovers? As Baby Boomers transition into retirement, isn’t the IRA market just the DC market in different clothing? Why give up assets that plan advisors have worked hard to gather to another advisor or an online service?
