Money Management Executive
In the race to capture rollover retirement assets, retail banking companies have been a sleeping giant.
But these companies, which benefit from sheer scale, brand recognition, and a brick-and-mortar network in communities across the country, are stirring to action.
“We are awakening,” Keith Piken, managing director of the retirement product team at Bank of America Corp., said this month at Financial Research Associates LLC’s IRA Rollover Retirement Summit in Cambridge, Mass.
In the past B of A has focused on its major revenue centers, such as deposits and loans. Retirement planning services rarely ranked even within the top five in revenue generators, Mr. Piken said.
But that has changed as the 77 million baby boomers ramp up for retirement, and banks recognize how well they are placed to capture the billions that will be up for grabs each year.
“I wouldn’t say we have a Mao Zedong five-year plan, but our awareness of retirement has grown exponentially in the past five years,” Mr. Piken said.
With 6,000 branches and 16,000 automated teller machines, B of A, like other national and regional retail banking companies, has the opportunity to interface with potential investors in ways mutual fund companies could only dream of, and access that would cost millions to replicate.
What’s more, because companies like B of A, which owns the Columbia Management fund company, and ING Group NV, which offers its own investment lineup, have such vast scale in their retail, commercial, and wealth management enterprises that they can manage the small, less profitable rollover accounts that other companies ignore.
“We see it as an obligation,” Mr. Piken said.
Ron L. Bush, a principal at Brightwork Partners LLC of Stamford, Conn., said it is also a significant opportunity. Of the 7.7 million people likely to claim distributions from qualified retirement savings plans this year, about 3.4 million have less than $25,000 saved. Together these accounts represent only $10 billion of the $500 billion of distributions available this year.
Rollover accounts with $50,000 to $99,000 of assets represent a $100 billion market but are not getting much attention. Wealth management firms generally target those with at least $100,000 to invest, who often referred to as the mass affluent.
“There is a whole sea of people not targeted,” Mr. Bush said.
Bank-managed funds also are more attractive to investors than they were before the 1999 repeal of the Glass-Steagall Act. The repeal resulted in a swell of mergers between banks and investment companies and allowed for the formerly expensive bank-advised fund to become much more competitively priced, said Tom Roseen, a senior research analyst with Lipper Inc. of New York.
Retirees are not the only rollover clients. Job changers, who may have few assets now but are likely to accumulate more through future posts, are also candidates. In fact, they account for about $213 billion of the $500 billion in play.
Mr. Bush said investors who give their rollover business to a banking company are likely to stick with it through their accumulation years.
Srinivas Reddy, vice president of Horizons distribution and product management at ING, said that sometimes a simple customer service call can uncover far more assets up for grabs.
She recalled one client with a $60,000 qualified plan whom an adviser at another company passed on calling. ING’s policy requires representatives to follow up every distribution request with a “courtesy call.” In this case, the client had $4 million to invest, and ING got it all.
To some degree, situations like that are common, Ms. Reddy said.
Though advisers and representatives will make a stronger effort to capture distributions of 401(k) accounts with more than $100,000, bankers should not ignore $15,000 account holders wholesale, she said.
ING uses its popular Orange online savings accounts to advertise retirement products through splash screens and banner ads. The goal is to get the attention of retail customers while they are thinking about their finances and to alert them to services and products they may not realize ING can provide.
Retail bankers’ reputation for working very well within tight margins make them better suited to handle such small accounts, Mr. Roseen said.
Other times such advertising can help banking companies retain assets.
“We don’t make money rolling people out” of ING-controlled qualified plans, Ms. Reddy said.
According to Mr. Bush, while 32% of those who leave their employers, whether through retirement or a job change, leave their investments in the employer’s plan, but half of that disappears within three years.
Right now national and regional broker-dealers are getting the most rollover accounts, and average balance of the accounts they win is about $205,000, according to Brightwork. Wire houses win the fewest number of accounts but have the highest average balance, about $289,000. The average balance for accounts won by independent broker-dealers is about $163,000, while the average for accounts rolled into annuities and other products offered through insurance companies is $127,000.
Bankers say they are poised to take market share from each.
“It’s about consistency of message,” Mr. Piken said. “Rollover is not one event.”
B of A uses customer relationship management software to help advisers target potential rollovers. The potential investors are divided into three groups: up-and-coming professionals over 45, “older elites” who are five to 10 years from retirement, and those over 60 who have significant assets.
Advisers use that software to mark milestones. For example, when a client turns 50, clients may get a mailer suggesting that they start forming retirement spending strategies. Likewise, if a client stops making regular direct deposits of paychecks, an adviser may call to talk about rollovers.
Bankers who want to compete for these retirement assets cannot ignore the importance of the regulatory issues surrounding qualified accounts and advertising.
“If you want to have a competitive advantage, you really have to have a crack legal, risk, and compliance team,” Ms. Reddy said.
Still, Mr. Bush said the investment can be a worthwhile one for bankers looking to build their business.
“That rollover, although relatively small, is the trigger,” he said. “It triggers change and a relationship.”
