It s a BIG opportunity.

Transcription

1 IRA Rollover Dynamics 2008 Market Sizing, Benchmarks, & Best Practices It s a BIG opportunity. How will you compete for IRA Rollovers? IRA Rollover Dynamics 2008 explores best practices and approaches to compete in the IRA rollover marketplace. The study evaluates existing distribution platforms and assesses the involvement and impact of asset managers in capturing and retaining rollover assets. A detailed examination of current and future market size projections offers a unique analysis behind the trends shaping these projections. The study also provides insights into advisor preferences for value-added programs that will assist in better positioning and targeting these programs with relation to retirement and rollovers. Copyright 2008 by Financial Research Corporation. All rights reserved.

2 Study Overview MARKET SIZING & ROLLOVER BENCHMARKING METRICS Provides the foundation of market sizing metrics to quantify the rollover opportunity. FRC projects that IRA assets will nearly double from $4.7 trillion in 2007 to $8.7 trillion in COMPETITIVE OVERVIEW OF IRA PLATFORMS Assesses and provides analysis of the following major IRA platforms based on four primary distribution channels: Distribution Channel Self-Directed Brokerage Full-Service Brokerage Insurance Bank IRA Platforms Fidelity, Schwab, T. Rowe Price, and Vanguard Ameriprise, Merrill Lynch, and Morgan Stanley AIG/SunAmerica, John Hancock, Principal, and Prudential Bank of America and Wachovia EVOLVING RECORDKEEPER LANDSCAPE Focuses on the changing recordkeeper landscape, highlighting the distribution of defined contribution assets, impact of regulatory changes, and approaches to tackle the rollover opportunity. ROLLOVER OPPORTUNITY FOR ASSET MANAGERS Analyzes how asset managers can improve their effectiveness in the rollover market, beginning with how they define the opportunity. ROLLOVER BEST PRACTICES FOR ASSET MANAGERS Reveals the success factors and best practices exhibited by asset managers that are already doing a good job at influencing rollovers through third-parties.

3 ADVISOR PROFILES Identifies what types of advisors are focused on IRAs and defined contribution plans, and examines their demographics, product usage, and preferences for value-added topics. Methodology This study was derived from a combination of proprietary and third-party quantitative data, qualitative interviews with executives at leading financial services firms, and FRC s repository of IRA research. FUTURE IMPLICATIONS Uncovers six future implications that FRC believes will impact the IRA rollover market going forward. 1. Higher consumer awareness of rollovers 2. Consumer preference and distributor efforts will lead to an increase in rollover distributions from DC 3. More data will be available on rollover flows 4. Individual investment products have potential to change rollover dynamic 5. A renewed appreciation for the strategic importance of DC will emerge (b) market will begin to mirror 401(k)plan The foundation for this study was primary research obtained through two industry surveys. The FRC Rollover 2008 Recordkeeper Survey, conducted in second quarter 2008 which provides the foundational and directional support for FRC s market sizing analysis. The second survey, the FRC Rollover 2008 Asset Manager Survey, was conducted between first quarter and second quarter 2008, representing managers with approximately $3 trillion in assets under management. FRC also conducted interviews with executives at leading recordkeeping firms, asset management firms, distributors, and other providers that represent a cross-section of firms interested and focused on the IRA Rollover market. In addition, detailed assessments of IRA platforms were conducted by FRC analysts through public searches of Web sites, interviews with platform providers and representatives, and analysis of existing platform marketing materials. Also, for Chapter Six, FRC constructed advisors profiles based on a survey of 1,800 financial advisors conducted by FRC and Horsesmouth from November 2007 through early January 2008 for FRC s ADVISOR INSIGHT series. The survey, conducted by Horsesmouth, was executed online and drawn from Horsesmouth s database of financial advisors.

4 Study Excerpts Current Business Benchmarks Opportunity Sizing FRC believes that offering a 401(k) platform, either by owning a recordkeeping division or by offering a private label 401(k) program delivered through an outsourcer, is almost guaranteed to focus the organization on rollover. But asset managers whose companies are not planning to own or offer 401(k) programs should not ignore the rollover opportunity. And asset managers that do own recordkeeping divisions should not ignore rollovers through their third-party distributors, which happens at many firms today. The exhibit below shows that if IODC asset managers could achieve a best practices level of rollover retention, as a group, they could retain up to nearly $38 billion each year. There will be $290 billion in rollover flows in 2008, of which 43%, or approximately $125 billion, is assumed to be investmentonly, or products managed by managers other than the one sponsoring the recordkeeping platform. Rollover Leakage The Opportunity for IODC Asset Managers ($Billions) $140 $120 $100 $124.7 Current 10 Asset Manager Rollover Retention Potential Flows with Improved Retention Potential Savings $80 $60 $78.2 $40 $20 $37.4 $49.9 $0 $8.7 Estimated Rollovers of IODC Assets 2008 Current Retained Rollover Flows: 7% Rollover Retention Rate Potential: 30% Rollover Retention Rate Potential: 40% Rollover Retention Rate Savings 2013 Source: Financial Research Corporation (FRC) IRA Rollover Contributions FRC chose to look at aggregated employer-based plan distributions to determine the level of rollover eligible flows. FRC estimates that IRA rollover contributions from employer-based plans reached $260 billion in Rollovers are expected to steadily increase and nearly reach $500 billion by 2013, and rollover contributions between 2008 and 2013 are expected to surpass the $2.3 trillion mark. Estimating annual rollover contributions is part art and part science.

5 Table of Contents (Page 1 of 2) Directory of Exhibits iv Key Study Findings Biographies Methodology Executive Summary Chapter One Market Sizing & Rollover Benchmarking Metrics Defined Contribution and IRA Assets IRA Rollover Contributions IRA Account Balances Recordkeeper Retention Chapter Two Competitive Overview of IRA Platforms IRA Role in Corporate Business Mix Assessment of Retail Retirement Strategy Target Market, Product, & Pricing Strategies Competitive Evaluations Chapter Three The Evolving Recordkeeper Landscape Distribution of DC Assets by Channel Type Mutual Fund Providers Insurance Banks Broker/Dealers TPA/Other Regulatory Changes (b) Opportunity PPA Investment Advice Tackling the Rollover Opportunity Traditional Approaches Partnerships Product Approaches Chapter Four The Rollover Opportunity for Asset Managers Current State Current Business Benchmarks: Rollover Retention Rates & Capture Metrics by Business Model Current Business Benchmarks: Opportunity Sizing Organizational Dynamics Intra-Divisional Conflict DC M&A: To Own or Not to Own? Internal Organizational Confusion Intra-Divisional Challenges Challenges Measurement Best Practices Conclusions

6 Table of Contents (Page 2 of 2) Chapter Five Rollover Best Practices for Asset Managers Most Important Capabilities Fine-Tuning Capabilities for Acquisition and Retention Advertising Sales Organization Structure Compensation Headcount by Function Product & Operational Capabilities Roll-in-Kind Rollovers at NAV Advisor Decision Process Winning Rollover Business by Supporting Distributors Most Important Components in the Traditional Concept of Value-Add Program Top Themes What Support Really Looks Like Future Plans Chapter Six Advisor Profiles ADVISOR INSIGHT Demographics Product Usage & Sales Targeting Strategies Product Usage Sales Targeting Strategies Value-Added Topic Preference Chapter Seven Future Implications Appendix A: Recordkeeper Survey Appendix B: Asset Manager Survey

7 Directory of Exhibits (Page 1 of 2) Exhibit 1-1: DC and IRA Assets ($Billions) Exhibit 1-2: Age and Tenure of 401(k) Participants Exhibit 1-3: DC and IRA Assets as a Percent of Combined DC and IRA Assets Exhibit 1-4: Five-Year CAGR for IRA and DC Assets Exhibit 1-5: IRA Assets by Type Exhibit 1-6: DC Distributions as a Percent of DC Assets ($Billions) Exhibit 1-7: Hybrid Plans and Participants Exhibit 1-8: Annual IRA Rollover Contributions ($Billions) Exhibit 1-9: Percent of IRA Households Likely to Withdraw from a Traditional IRA Prior to Age 70 ½ Exhibit 1-10: Components of Traditional IRA Growth by Selected Time Periods ($Billions) Exhibit 1-11: Change in Expected Traditional IRA Component Assets between and Exhibit 1-12: Traditional IRA Households with Rollover Assets Exhibit 1-13: Account Balance Distribution for Traditional IRA Households and 401(k) Participants Exhibit 1-14: Destination of DC Distributions Exhibit 1-15: Percent of Rollover Assets Retained by Recordkeeper Type Exhibit 1-16: Estimated Third-Party Rollovers by Recordkeeping Source ($Billions) Exhibit 2-1: Overview of Business Mix Exhibit 2-2: Key Retirement Branding & Positioning Statements Exhibit 2-3: Unique Retirement Offerings, Tools & Calculators: FRC Comments Exhibit 2-4: Assessment of Competitive Emphasis & Effectiveness Exhibit 2-5: Investor Segmentation Strategy Exhibit 2-6: Target Market Sweet Spot Exhibit 2-7: Product Overview, Including Advisory Products and Pricing Commentary Exhibit 2-8: Competitor Ratings Exhibit 2-9: Strengths and Weaknesses Exhibit 3-1: DC Assets by Recordkeeper Segment Exhibit 3-2: 403(b) Assets ($Billions) Exhibit 3-3: Top 403(b) Asset Managers, 12/31/ Exhibit 3-4: Wealth Management Systems, Inc. IRA Provider Partners and Clients Exhibit 3-5: RolloverSystems IRA Provider Partners and Clients Exhibit 4-1: Growth in Investment-Only DC Assets ($ Billions) Exhibit 4-2: Rollover Retention Rates, Exhibit 4-3: Sources of Rollover Flows Exhibit 4-4: Rollover "Leakage" The Opportunity for IODC Asset Managers Exhibit 4-5: Organizational Dynamics Affecting Rollover Exhibit 4-6: Biggest Challenges for Asset Managers in Rollover Business Exhibit 4-7: Measurement as a Strategic Priority Exhibit 5-1: Most Important Capabilities in Rollover Market Exhibit 5-2: Importance of Capabilities for Retention & Acquisition Exhibit 5-3: Most Important Retention Capabilities Exhibit 5-4: Importance of Advertising Media Exhibit 5-5: Sales Organizational Structures Exhibit 5.6: Asset Managers' Rollover Headcount by Function Exhibit 5-7: Status of Roll-in-Kind Capabilities Exhibit 5-8: Status of Roll-at-NAV Capabilities Exhibit 5-9: Asset Manager Perception of Key Drivers of Advisor Choice of IRA Platforms

8 Directory of Exhibits (Page 2 of 2) Exhibit 5-10: Importance of Value-Add Program Components Exhibit 5-11: Top Current Themes in Rollover Value-Add Programs Exhibit 5-12: Top Strategic Actions: Ranking of Highest Priority Next Investments Exhibit 6-1: Advisor Demographics Exhibit 6-2: Product Usage Exhibit 6-3: VAP Topic Preference by AUM Exhibit 6-4: Capturing IRA Rollover VAP Targets Exhibit 6-5: Retirement Income VAP Targets For More Information, Contact Us Today. Financial Research Corporation 100 Summer Street, 15th Floor Boston, MA (888) [email protected]

9 Study Author Luis Fleites Luis is Vice President, Director of Retirement Markets where he is responsible for leading FRC s research and consulting in both the retail and institutional retirement markets. This role includes the development of primary research, identifying and tracking industry best practices, analyzing and evaluating market developments, market sizing, and other client specific needs. Luis is also responsible for leveraging the extensive retirement research developed by FRC to assist clients in arriving at tactical and strategic business decisions through consulting engagements. Luis recently co-authored Building & Positioning Retirement Income Solutions: Innovation from 2005 to 2007 and Beyond and authored IODC Growth Opportunities: Capitalizing on Changes in a Dynamic Market, which is a dedicated FRC study to the Investment-Only Defined Contribution market. He is also quoted often by the media and frequently invited to speak at industry conferences as well as client meetings to facilitate strategic planning sessions. Prior to working with FRC, Luis was a strategic consultant with Spring Consulting Group, LLC where he primarily focused on retirement markets. His responsibilities also included broader healthcare and employee benefits markets. Before joining Spring, Luis was a senioranalyst with Cerulli Associates, responsible for the firm s retirement research. At Cerulli, he authored multiple studies, including: A Competitive Outlook for the 529 Market Capturing and Retaining Rollovers: Positioning for Success Retirement Income: Positioning for Success Quantitative Update: Retirement Markets 2003, 2004, and 2005 Luis began his career at State Street Bank and spent five years in various divisions of the bank. Luis graduated with a MBA from Boston University s School of Management, and he has a Bachelor of Arts degree in international relations from the College of William and Mary.

10 Study Author & Research Partner Laura Varas Laura Varas, an FRC collaborator since 2004, is President of Mast Hill Consulting, which specializes in research and consulting to the financial services industry, with an emphasis on retirement and investments. Practice areas include strategy consulting for product initiatives and marketing campaigns, research, white paper development, sales force education, meeting facilitation, and vendor selection. She is a frequent speaker at industry conferencesand private corporate events. In over fifteen years of experience in the U.S. and abroad, Laura has held leadership roles in Fidelity Investments mutual fund, retirement and institutional businesses, as well as Citibank consumer banking distribution and strategic planning. Her business line expertise includes investments, retirement, brokerage and banking, through retail, institutional and advisor channels, to various customer groups. She honed her strategy and customer insight skills in earlier roles at Grey Advertising, Colgate-Palmolive, and in the strategy practice of Mercer Management Consulting. She has collaborated with FRC on several retirement income studies, including: Building & Positioning Retirement Income Solutions: Innovation from 2005 to 2007 and Beyond Engaging PowerBoomers: Winning Investment Products & Retirement Solutions Converting Retirement Income Into Practice: Fulfilling the Needs of Current and Future Retirees Keys to Success in the Small-Business Retirement Plan Market: Opportunities in Design,Distribution, and Marketing Retirement Income Products & Services: The Definitive Guide to Development & Delivery She holds a Bachelor of Arts degree in economics from Yale University and a Master of Management degree from the Kellogg School at Northwestern University.

11 FRC Primary Research IRA Rollover Market The New Landscape of IRA Rollover Marketing: Products & Services Targeted to Investor Influence & Life Events (2004) FRC provides projections of rollover market growth and indepth analysis of key market drivers. FRC also takes the analysis to another level by examining specific strategies put in place by market leaders to address key investor issues. These issues include the different product and service approaches taken by distributors, investment managers, and DC plan recordkeepers to serve various wealth segments, such as Mass, Emerging Affluent, Affluent, and High-Net-Worth, as well as key life events segments, such as people changing jobs, retiring, and transferring wealth. IRA Rollover Trends: Distribution & Product Strategies for Successful Asset Growth (2003) This comprehensive study of the IRA rollover market blends information captured through interviews with leading product manufacturers and distributors as well as the FRC-Synovate survey of PowerBoomers (individuals between 50 and 60 with a minimum of $100,000 of investable assets, of which a portion is held in a 401(k), 403(b), or 457 plan). This study features detailed projections on the direction of rollover flows across products and distribution channels, actionable strategies for product manufacturers and distributors to enhance rollover capture and asset growth, and detailed information on PowerBoomers investment experiences, distributor and investment manager relationships, satisfaction with current providers, and financial preparedness for retirement. Money on the Move: Strategies for Capturing Retirement Rollovers (2002) In this study, FRC offers strategies for maximizing your rollover business. FRC explains the tremendous impact that EGTRRA and other recent regulatory developments have on this market. Analysis includes a thorough exploration of current pricing, product, service and marketing tactics for plan providers and looks at the special challenges and key advantages of broker/advisor-sold firms in today s environment. FRC Primary Research Retirement Market Building and Positioning Retirement Income Solutions: Innovations from 2005 to 2007 and Beyond (2007) IODC Growth Opportunities: Capitalizing on Changes in a Dynamic Market (2007) Engaging PowerBoomers: Winning Investment Products and Retirement Solutions (2007) Keys to Success in the Small-Business Retirement Plan Market Opportunities in Design, Distribution, and Marketing (2006) Converting Retirement Income Planning into Practice: Fulfilling the Needs of Current and Future Retirees (2006) Optimizing IODC Distribution New Tactics for Growing DC Market Share (2005) Retirement Income Products & Services: The Definitive Guide to Development & Delivery (2005) IODC Trends: Gathering Assets in the Investment-Only Defined Contribution Market (2004)