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Report: (More) Rollovers Remain with Recordkeepers

Industry Trends and Research

Inertia is a powerful force—and that, combined with simplicity, seems to be acting as a rollover retention magnet for recordkeepers.

In fact, the portion of rollover transactions going to “external” platforms—IRAs at a different company than the provider of the employer-sponsored plan—has slid to 39% in 2022, down from 53% in 2015. In contrast, 42% rolled their account into an IRA at the same firm that provided the employer plan, according to new research by Hearts and Wallets. In 2015 just a third “left” their account with an IRA at that recordkeeper. 

However, over half (51%) of rollovers greater than $250,000 still went to external firms. 

Another dynamic that might be at work—more than a third (36%) of participants surveyed are “not comfortable leaving money in a retirement plan sponsored by a company where I no longer worker,” according to the report. Meanwhile, rolling the balance into an employer-sponsored plan at a new employer has increased slightly from 14% in 2015 to 18% in 2022.

Hearts & Wallets also found that most rollover transactions (69%) performed in 2022 are under $50,000. And while the transactions that move the most volume are rollovers and transfers, the research found that only 8% of rollovers are for $250,000 or more. Additionally, roughly a quarter (24%) are between $50,000 and $250,000, which the report notes has been stable over time.

Motivate ‘Shuns?’

That said, the top motivator for an investor to move money is “to simplify my finances”—from rollovers, transfer of assets (TOAs) to funding new accounts with new deposits according to Hearts & Wallets, based on a survey of 5,993 U.S. households in the latest wave of the Hearts & Wallets Investor Quantitative™ Database. The report notes that motivators are important, since transactions can take time; 35% of rollovers of $500,000 or more can take over two years, though transfers tend to take less time with the vast majority taking less than six months.

The other top motivators of money movement transactions are:

  • “to get more involved myself” (26%); and
  • “to consolidate for better planning” (25%).

And while simplification is a key motivator for all sizes of rollover, it is less so for the smallest and biggest ones. For example, the researchers found that larger rollovers of $250,000 or more are motivated by a desire for “better planning” and “better service” and to “get more involved.”

In addition, “to put money toward a specific purpose” emerges as a top motivator for trial. Top factors for consolidation are “simplify” and “better planning.” The report notes that most money movement transactions in 2022 are going to consolidation, but trial is up year over year.

Decision to Roll

Hearts & Wallets also found that the timing for rollovers varies, partly due to consumer decision-making and partly due to whether the recordkeeper “facilitates or impedes rollover.” Overall, the decision to roll was made within one year of termination for two-thirds of rollover transactions (66%).

In general, the decision to roll occurred within the first six months of leaving a job for about a third of “done” transactions (36%), 7-12 months for slightly less than a third (30%), and from one to two years later for the remaining third (34%).

The decision to roll small (<$5,000) and big ($500,000+) rollover transactions gets made the fastest after leaving a job. With bigger accounts ($250,000<$500,000 or $500,000+), the decision to roll occurs either quickly or takes a longer time (more than two years). Medium-sized rollovers ($10,000 to less than $250,000) are more likely than smaller or bigger ones to occur from seven months to two years after leaving a job.

“Motivations can be harnessed to spur action for money movement, just as motivations can encourage consumers to take action on exercise or weight loss goals,” observes Laura Varas, CEO and founder of Hearts & Wallets. “Simplify can mean different things, depending on the type of account and customer. The competitive landscape within money movement is changing, and firms should understand where the money is going and why.”

The Money Movement 2022: Competitive Trends in Rollover, Transfers of Assets & Trial report is drawn from the section of the Hearts & Wallets Investor Quantitative™ Database (IQ Database) that analyzes how and why investors move money between financial services firms. The latest survey wave was fielded Aug. 15–Sept. 15, 2022, with 5,993 participants.