FRC: IRA Rollover Dollars Flowing Away From Funds

Should mutual fund companies eventually be locked out in the cold, they will miss out on a substantial flow of assets, according to research conducted by the Financial Research Corp. (FRC) and Synovate of 574 “PowerBoomers” – individuals between 50 and 60 who possess a minimum of $100,000 of investable assets and invest in a 401(k), 403(b), 457, profit-sharing, or cash balance plan.

FRC, in its IRA Rollover Trends: Distribution & Product Strategies for Successful Asset Growth report, predicts that $2.4 trillion will be rolled from employer-benefit plans to IRAs between 2003 and 2010, of which one-third, or approximately $800 billion, will be invested in mutual funds. In fact, when asked which investment vehicles they would consider for their retirement assets, 61% of the research sample selected stock and bond mutual funds, followed by individual stocks and money market funds with 39% and 37%, respectively.

Additionally, PowerBoomers presently have 44% of their existing IRA assets invested in stock and bond funds, versus just 18% for individual stocks and 11% for money market funds.

However, even though a significant portion of IRA rollover assets are expected to be directed into mutual funds this year, FRC does not see a continuation of this trend long term. Rather, the mutual funds’ share of rollover flows will gradually decline in the years ahead as other managed products, such as separately managed accounts (SMAs), multi-discipline products (MDPs), Exchange-traded funds (ETF) and annuities, capture an increasing share of rollover assets.

FRC attributes the likely rise in these other investment vehicles due primarily to the increasing reliance of Americans on investment advisors to help them make important decisions regarding their retirement savings. In addition, a greater focus among investors and advisors on the importance of asset allocation and protection against downside risk will also drive increased flows into these products.