Where 401(k) Providers Fail, Advisors Can Succeed

Advisors have a great opportunity to build up their retirement rollover business because so many recent retirees are unhappy with their old plans, according to a survey released this past week.

Advisors have a great opportunity to build up their retirement rollover business because so many recent retirees are unhappy with their old plans, according to a survey released this past week.

Nearly 75 percent of 401(k) plan participants who have retired during the past three years have either reinvested their savings into an IRA or are exploring options to move their funds to a new provider, according to Maritz Research, a St. Louis-based market-research firm. More than 500 retirees between 50 and 70 years old were polled.

“Employers who take an interest in helping employees beyond retirement are few and far between,” says Elmer Rich, Maritz’s financial-services manager, in explaining the main reason why so many participants are going or are already gone.

The immediate potential, of course, is with retirees that haven’t made their move yet. That amounts to one-third of the market, and research shows they are actively seeking out rollover options. “The thing is that 401(k) providers have not done a good job establishing relationships with employees,” says Rich. “They have got to realize that the experience of retirement is very different than the accumulation stage.”

In all fairness, plan providers have not actively provided advisors for good reason. Federal law makes them liable when the investment advice proves to be wrong and, consequently, plan sponsors have refrained from offering advice for fear of lawsuits. However, with much fanfare from the financial-services industry, Congress is currently attempting to rid employers of such liability and, in turn, open the way for advisors to develop relationships with 401(k) contributors beyond the often-rare educational seminar.

In the meantime, advisors can market their expertise to a burgeoning market—the 78 million baby boomers retiring or heading in that direction in the coming years. Many may just be ready for a pair of open arms. As Rich points out, a large number of people wait until the very end, when they’re retiring, to think about what they’ll do with the hundreds of thousands of dollars they’ve accumulated.

Still, some advisors are likely to have advantages over the competition. That’s because, according to Rich, hesitant retirees, often those who have had little or no experience working with a financial advisor, are more comfortable working with companies with big brand names, like Merrill Lynch, Morgan Stanley and Smith Barney.

Advisors shouldn’t ignore the 26 percent that are staying with their old provider either, at least as the law still exists. “There’s very little benefit for retirees to stay with their 401(k) providers after they stop making contributions,” says one Merrill Lynch advisor.

Among the advantages advisors have over plan sponsors, he says, are having more funds for clients to pick from, keeping clients better informed and helping them to become more comfortable managing their finances. Provide all that and potential clients should have an easier time moving from an old plan sponsor to an advisor.

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