U.S. Rollover Assets to Double by 2013: Study

FRC estimates that total rollover assets in the U.S. will nearly double over the next five years, from $4.7 trillion to $8.7 trillion.

This is a substantial amount of wealth which group retirement plan providers, such as asset managers for defined contribution plans, are aggressively seeking to retain. The FRC expects about $40 billion in assets a year will be available for retention.

“The most common strategy is to keep the assets on a common proprietary retail platform,” Fleites says. “At a high level of their industry, 21% of rollover stays with the original platform; the majority of it goes to third parties.”

Fleites says those that retain assets tend to be asset managers that have a stringent record-keeping process in place and can track the transition of plan members’ assets. Often advisors’ are crucial to facilitating retention.

“Advisors are going to play a very important role. The tendency is going to be for them to focus on the larger balances, which is a smaller subset of the total rollover numbers,” he says. “If there is a prior-existing relationship with an advisor that a retirement plan participant has, they’ll typically roll over their assets with them.”

The recognition of advice as a key to retaining assets has been a factor for the success of Canadian plan providers such as Sun Life, to grow the rollover business, says Tom Reid, vice-president of rollover markets for Sun Life.

“In this particular context you have about $130 billion in capital accumulation plans in Canada right now. You can imagine the average balance gets a lot larger as the plan member ages,” he says. “A lot of that money is sitting in the accounts of employees who are 55 to 60 years of age. As they start to transition towards retirement, there is going to be a lot of money in motion. That’s a tremendous opportunity for advisors.”

Over the last few years, Reid says Sun Life has been growing its rollover sales by more than 30% a year. This year they will reach a retention level on exiting assets of nearly 40%.

“Last year we did about $725 million in sales of rollover assets; that would have been a compound annual growth rate of 33% over the last three or four years,” he says. “Over the last two or three years our retention rate has improved from the low 20s to just over 40%. That [retention rate] would be neck and neck with the best in class in the United States.”

Reid credits a lot of that growth to an in-house call centre of advisors the company uses to service employees.

“We have 17 advisors in what we refer to as our customer solution centre, and they are contacting plan members when they are in transition — either changing jobs or retiring — and they are discussing options with them,” he says. “Quite frankly it’s a lot more of a service opportunity for those advisors than a sales opportunity, but we find if you do a good job servicing customers the sales will follow.”

In comprehensive financial planning cases, Sun Life farms out the rollover client advice to its career sales force, or to independent advisors who may have a pre-existing relationship with plan members.

“We have a pension referral program, so when we contact members, they often have much more comprehensive financial needs that our team is not qualified to do. We will return them to our career sales force that usually results in significant opportunity for them,” he says. “Probably about 30% of our business is in the corporate account or smaller case market, and the vast majority of that business is sold through group advisors. We’ve created a model that will allow those group advisors to work with our customer solution centre advisors on the phone, to help in a co-operative way to bring those group members onto our platform.”

Reid says this allows group-focused advisors — who are seeing their opportunities dry up with the large wave of retiring boomers — to transition their business to more retail-focused retirement planning.

From the advisor perspective, the type of products offered on the rollover platform may not be as lucrative in compensation as standard mutual funds. The pre-existing relationship client have with their former plan provider, an identified need for retirement advice, and generally lower MERs on rollover products, should make for an easier sale.

“The products we have, which we call our Group Choices products, would have anywhere between 50 to 55 funds. The pricing is significantly lower than retail — in the 135-basis point range for a typical Canadian equity fund,” Reid says. “On average we charge about 100 to 110 basis points lower than regular retail.”

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com