The epitome of the convergence of wealth and retirement at the workplace is , which affect almost all 120 million defined-contribution accounts. Yet most record keepers and retirement plan advisors fail to capitalize on this opportunity, starting each year with a $800 billion deficit. A group of third parties is trying to help advisors and record keepers stem the leakage, but as significant as the opportunities are, so are the challenges, which could define the winners and losers of this high-stakes game.
“It takes three attributes to be able to capture rollovers,” noted Steve McCoy, CEO at iJoin. “They include prospecting, which requires data, compliance and technology, with the ability to open and operate IRA accounts efficiently.”
Record keepers like Fidelity, Schwab and Vanguard, with Empower close behind, are focused on the IRA market, giving them a huge advantage over competitors that do not and even RPAs that do. Fidelity, the largest DC record keeper, has long been rumored to operate at a deficit while making it up through proprietary products like target date funds and IRA rollovers. It’s hard enough to compete head-to-head with the market leaders. Even though Schwab does not have scale, their rollover business keeps them in the game, and while all four providers now work with advisors, they also have a robust direct-to-participant business.
Not only do record keepers have an advantage over advisors to capture rollovers because their brand is more well known to participants, but they also have the data alerting them to when an event is happening. They also have an integrated platform that seamlessly allows for transfers, which lets them accommodate even the smallest accounts, something advisors cannot do.
At the inaugural RPA Aggregator Roundtable in 2018, CATRUST CEO Fielding Miller announced, “IRA rollovers are a bad business for advisors.” Likely he meant small accounts.
It’s no wonder that Fidelity, Schwab and Edward Jones reportedly hired the most CFPs in 2024, with Vanguard likely close behind and Empower boasting 1,000 phone reps.
At the 2024 RPA Aggregator Roundtable, Luke Vandermillen, head of Mariner’s DC business and formerly with Principal, stated, “It’s critical to be able to help participants during the first call.” And who gets that first call most of the time?
So third parties like iJoin, in partnership with Penchecks, IRALOGIX, Inspira and Group IRA, are gearing up to help record keepers that either want to capture rollovers themselves or enable RPAs, along with advisory firms and broker/dealers to stem the tide and capture more rollovers.
Inspira and Penchecks, along with RCH, are leaders in the involuntary IRA market, which, while noble, will not interest most advisors and record keepers. It’s all about the voluntary market, especially higher account balances. However, just being the record keeper or RPA does not give either the right to capture rollovers.
Cerulli shows that 63.5% of rollovers went to advisors in 2023, up from 57% in 2021, with existing advisors capturing 84.6% last year, slightly down from two years before. Existing advisors captured about 85% of advisor assets with account balances above $200,000, while new advisor account balances were 28% lower. Self-directed IRAs accounted for 28.4% of assets in 2023, down from $34.5% in 2021, with account balances dropping to $110,300 from $120,800. Plan to plan was the lowest segment at about 8% over the past three years.
It takes a combination of grit, capital and technology to capture rollovers, as well as marketing to build relationships with automated systems and robo advice to profitably manage the process. Firms like Morgan Stanley are seeing success reporting $300 billion from the workplace since 2024 following former CEO James Gorman’s 2023 prediction that the workplace will be the greatest source of assets for financial advisors in the next decade.
PTE 2020-02 was promulgated to ensure that DC participants were not being taken advantage of by firms and advisors that moved clients from relatively low-cost DC plans to higher-cost retail IRA platforms. Though the 1% advice fee charged by most wealth advisors and financial planners may be justified, they target less than 10% of participants and will not get institutional pricing, something Pontera is trying to address by allowing clients to stay in the plan.
Third parties like iJoin and Penchecks, through their Next Level IRA service, and IRALOGIX, are partnering with providers and advisory firms to address the other 90% and even target the higher balances.
Pete Littlejohn, President at IRALOGIX, started his career in the Cigna large DC market group and is trying to institutionalize IRAs using an Amazon cloud-based no-paper system with no account minimums. He’s white labeling the solution for record keepers and advisors, partnering with Morningstar or allowing an advisory firm to control the lineup using institutional share pricing, leveraging omnibus trading, just like 401(k) plans.
This process, Littlejohn claims, allows providers and advisors to make money on even the smallest account with advisors stepping in to actively manage larger ones. While many record keepers intentionally make it hard for participants to take money out hoping to retain assets, Littlejohn hopes that IRALOGIX will not only encourage them to help participants but also become better partners with advisors.
The battle for participants between providers and advisors over participants, which is only heating up starts with IRA rollovers. While some view this negatively, competition is good for the consumer if fair and transparent. Many record keepers like John Hancock and T Rowe Price are announcing their intent not to compete with the RPAs who brought them the plan, but words and intent alone mean little. Efficiently enabling advisors to capture rollovers, big and small, is a proof point and may determine which record keepers savvy and well-equipped advisory firms choose to work with in the future.
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