Guest Blogger: Bill Winterberg
I am excited to introduce today’s guest blogger Bill Winterberg. Bill is a CERTIFIED FINANCIAL PLANNER™ professional, technology consultant to financial advisors, and technology editor for www.advisorsforadvisors.com.
It should be no surprise to financial advisors that assets from retirement plan rollovers make up a good portion of a firm’s assets under management.
In one report from Tiburon Strategic Advisors titled Financial Advisor Target Markets: Focusing One’s Strategy, one of the data points notes that one-fifth (20%) of all financial advisors’ assets under management come from retirement plan rollovers.
For fee-only advisors, retirement plan rollovers account for nearly two-thirds of all the advisor’s assets under management! For firms that bill on assets under management (AUM), rollover assets account for a significant portion of a fee-only firm’s revenue.
Unfortunately for advisors, most prospects don’t walk in the door ready to roll over their retirement plan. Instead, prospects (who become clients) connect with an advisor at some point in the accumulation phase while looking ahead to retirement, say five or ten years down the road.
In this case, advisors prepare a retirement plan to estimate how much money needs to be saved in various accounts to best meet the retirement income needs once the client stops working. Taxable and IRA accounts are typically moved to the advisor’s custodial platform, but the qualified retirement accounts remain captive inside the client’s current employer plan….
Advisors who calculate fees based on AUM essentially hope that when the client retires, qualified plan assets will be rolled over to an IRA account with the advisor’s custodian. Only then does the advisor take on full management and fee billing on the assets.
There’s the potential that advisors might wait many years for rollovers to occur, and as we learned of fee-only advisors, assets in these accounts can make up nearly two-thirds of the firm’s entire AUM! That’s a lot of unrealized revenue for a fee-only firm in the hope that assets get rolled over, and there’s no guarantee that they will!
However, the good news is that advisors don’t need to wait until a client retires to manage assets held in an employer’s retirement plan. The solution comes through the use of account aggregation tools.
By implementing account aggregation, advisors can retrieve all the necessary information from a client’s captive retirement account to provide asset allocation recommendations and timely performance reporting.
Aggregating captive account data also enables advisors to charge fees on the assets commensurate with the services provided (note that advisors may be required to be bonded under ERISA in order to deliver investment advice for qualified retirement plans).
Therefore, there’s no need to wait until a client retires in order to advise on assets held in captive retirement accounts. Clients benefit from account aggregation in the form of consolidated wealth management all under one roof while advisors benefit in the form of immediate revenue gains for the firm.
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