Young Members More Likely to Have Individual Retirement Accounts, IRA Rollover Flush May Create Scramble

WASHINGTON – While only a small percentage of members have an Individual Retirement Account at their credit union, many more may be open to the possibility if more information was made available. According to a recent Callahan & Associates Web-based survey, only 5.2% of members have an IRA at their credit union but 25% said they would be interested in opening one. Callahan found that members between the ages of 18-39 years old are most likely to open an IRA. This group may have less money to invest immediately but their future contributions and balances are enough of an incentive to pursue them, Callahan said. The average credit union IRA balance is over $10,000, more than five times the average balance of both share drafts and regular shares. IRA balances now account for $46 billion of the credit union industry’s $532 billion of member shares, Callahan said. Those numbers could increase given the recent change, which allows up to $3,000 in contributions annually. In related news, asset management companies may struggle to capture IRA rollover assets over the next decade, according to a new report from Financial Research Corp. (FRC). Even as $2.4 trillion is expected to be rolled over from employer-benefit plans to IRAs between 2003 and 2010, of which nearly $800 billion will be invested in mutual funds, this rapid increase poses several challenges. Financial Research Corp. surveyed 574 “PowerBoomers” – persons between the ages of 50 and 60 that have a minimum of $100,000 of investable assets and invest in a 401(k), 403(b), 457, profit-sharing, or a cash balance plan. Roughly 86% had existing IRAs and two-thirds had been working with their financial advisor for at least five years. “For asset managers that do not possess an affiliated distribution outlet, these findings support the notion that capturing IRA rollover dollars with a proprietary IRA offering is becoming increasingly difficult,” said Chris J. Brown, FRC’s Director of Retirement Markets Research. “Most asset managers need to focus rollover efforts on marketing products to investors through third-party distributors.” Still, FRC predicts that 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) and annuities increase driven by a greater emphasis on asset allocation and protection against downside risk. Asset managers that develop the capability to chart managed products and look for opportunities to sub-advise the funds of other financial services firms, may have greater success in capturing rollover dollars, Brown said. -