Roth Conversions - Detrimental to business?

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Nov 2, 2009 12:27 pm

With all the talk about Roth conversions for next year, does anyone think it will have a negative impact on business?  The thought is that if we have enough mass affluent/affluent clients doing the conversion, how much will our assets under management decline from the clients paying taxes either from the IRA, or from other non-qualified accounts which we manage?  I'm sure there will a couple clients that we get from presenting this as an opportunity they did not know about prior to meeting us, but I'm not sure from a business standpoint how much of an "opportunity" this is for the advisor.  Not saying that I will not present this because there would be an asset loss, but its definitely something that has to be considered when figuring asset growth projections for our practice over the next year or so.  Thoughts?

Nov 2, 2009 12:34 pm

Lack of RMD should lessen the pain in years ahead.  Granted this will have almost no effect on me given my current book so not much thought put into it.

Nov 2, 2009 12:37 pm

Roth conversion is not going to be the best fit for everyone so I wouldn't worry about a flood of assets leaving your book.  But you better be getting in front of your clients because I guarantee another advisor is calling them about this.  Better to lose a fraction to them paying taxes vs. the entire account because someone else sold them on the benefit.

Nov 2, 2009 2:04 pm
3rdyrp2:

With all the talk about Roth conversions for next year, does anyone think it will have a negative impact on business?  The thought is that if we have enough mass affluent/affluent clients doing the conversion, how much will our assets under management decline from the clients paying taxes either from the IRA, or from other non-qualified accounts which we manage?  I'm sure there will a couple clients that we get from presenting this as an opportunity they did not know about prior to meeting us, but I'm not sure from a business standpoint how much of an "opportunity" this is for the advisor.  Not saying that I will not present this because there would be an asset loss, but its definitely something that has to be considered when figuring asset growth projections for our practice over the next year or so.  Thoughts?

 
 
Is what is in your clients best interest the most important thing to you?
 
If you are worried about assets under management, you might want to consider Roth conversions using existing AUM and asking for referrals to those satisfied clients.
 
Nov 2, 2009 4:17 pm
Takingnames:
3rdyrp2:

With all the talk about Roth conversions for next year, does anyone think it will have a negative impact on business?  The thought is that if we have enough mass affluent/affluent clients doing the conversion, how much will our assets under management decline from the clients paying taxes either from the IRA, or from other non-qualified accounts which we manage?  I'm sure there will a couple clients that we get from presenting this as an opportunity they did not know about prior to meeting us, but I'm not sure from a business standpoint how much of an "opportunity" this is for the advisor.  Not saying that I will not present this because there would be an asset loss, but its definitely something that has to be considered when figuring asset growth projections for our practice over the next year or so.  Thoughts?

 
 
Is what is in your clients best interest the most important thing to you?
 
If you are worried about assets under management, you might want to consider Roth conversions using existing AUM and asking for referrals to those satisfied clients.
 
 
Obviously the clients best interest is at the forefront.  I'm not saying that we should re-consider doing this because there could be a flood of assets leaving, but that in doing business projections for next year (Probably 2011 will be the biggest impact if clients take their money out for taxes at the end of '10 or in April of '11) it would be naive to not take into consideration that tax money will be leaving client accounts.  As far as referrals go, I don't see this being anything that will enhance or diminish an advisors chances of getting a referral.  The only change will be instead of saying "Your accounts have grown 40% since March 10th.  Who close to you would enjoy seeing similar returns in their accounts?" you will now be saying "Next year you will pay income tax on a $500,000 IRA distribution.  This will prevent you from paying income tax on $2,000,000 of IRA distributions during your non-working years.  Who close to you would enjoy also paying tax on a much smaller amount of money?" 
Nov 2, 2009 4:22 pm

Everything I've read about Roth conversions says that it's the most beneficial for the clients not to pay the taxes out of their investments, but instead have enough cash to pay the IRS out of their checkbook.  You should be having a conversation with those clients about what kind of balance they're running in their MMKT at the bank or in their checking account before you suggest the Roth conversion.  I'll bet you'll find a ton of cash sitting on the sideline waiting for the market to get better. 

Nov 2, 2009 4:39 pm

I've heard the same thing, Spiff.  I've read and done some calculations myself and came up with about a 10-13 year breakeven point if clients take the taxes out of their IRA vs. non-qualified money.