ira rollover fee study early insights - fi360 · 2016. 11. 17. · ira rollover transactions. on...

Research Views from Ann Schleck & Co. and fi360

WebcastNovember 17, 2016

IRA ROLLOVER FEE STUDYEARLY INSIGHTS

© 2016 Ann Schleck & Co., an fi360 Company. All Rights Reserved. 2

Introductions.

Leveraging the expertise and support of our fi360 team of thought leaders:

• Blaine Aikin - Executive Chairman

• Rich Lynch - Director

• Duane Thompson - Senior Policy Analyst

• Matt Wolneiwicz - Head of Sales

• Doug Warzinski - Senior VP, Products

• Dave Palascak - VP, Tools

• Heather Rosales - Research Manager

• Brinn Watson - Research Manager

• Andrew Ziolkowski - Research Consultant

National Account Directors

• Sean Flood

• Katie Megan

• Jeff Hladun

• Tim Daniels

Robin GreenVice President,

Head of Research

John FaustinoChief Product & Strategy Officer


A history of what brought us to today.

DOL Advisor Opinion 2005-23A “An IRA rollover is not investment advice”

2005 2013 MAR

GAO Report“Advisors hard-selling rollovers is not in client’s best interest”

FINRA Conflict of Interest Report“Need for product-neutral compensation grids”

2013 OCT 2014

FINRA Alert to Investors “10 Tips to Making a Sound Decision”

2015

DOL Comment LetterPreviewed the rule for firms to react and provide input

1974

ERISA “Maintain a duty of loyalty to clients”

2013 DEC

FINRA Notice 13-45“Rollover subject to suitability reminders”

2016 APR

DOL Fiduciary Rule“Advisors must act in the best interest of clients and provide proof of reasonable fees”


In the news.

Headline Sources:*Wall Street Journal**Investment News

Seven firms will maintain fee and commission-based fees, while four firms will move to fee only.

Nov. 1 : Bank o f Amer i ca

Mer r i l l Lynch te l l s adv i se rs

to s top se l l ing mutua l funds in b rokerage IRAs

now **

Nov. 10: JPMorgan Chase

wi l l s top charg ing commiss ions on IRAs due to DOL f iduc l ia ry ru le **

Nov. 16:Cap i ta l One

wi l l e l im inate commiss ions on

IRAs **

F I N A N C I A L N E W S

Oct . 6 :

Mer r i l l Lynch

e l iminates

commiss ion

IRA bus iness in

response to DOL f iduc ia ry ru le **

Oct . 24:

Commonwealth

Financial

eliminates

commission-

based retirement

products in wake of DOL rule**

Aug. 17: Edward Jones shakes up re t i rement o f fe r ings ahead o f f iduc ia ry ru le *

Aug 24: DOL f iduc ia ry ru le sparks LPL to s tandard ize fees on mutua l funds **

Oct . 26 : Morgan S tan ley to keep commiss ion-based IRA bus iness desp i te DOL ru le in cont ras t to Mer r i l l Lynch **

Oct . 26 : Amer ip r i se wi l l s t i ck wi th IRA commiss ions under DOL f iduc ia ry ru le **

Oct . 27 : Raymond James wi l l cont inue to a l low commiss ions fo r IRAs under DOL f iduc ia ry ru le **

Nov. 1 : Cambr idge, Cete ra wi l l cont inue to pay commiss ions on IRAs under DOL f iduc ia ry ru le **

Nov. 3 : S t i fe l w i l l re ta in commiss ions in re t i rement accounts under DOL ru le **


About the research.

What we’re gathering from advisors...

Client Household

AUM

Rollover Amount

Product TypeDid you

receive an up-front fee?

What was your fee in dollars?

If you receive trail revenue, what is the anticipated

amount per year?

Entry Type Dollar Entry Dollar Entry Drop Down Drop Down Dollar Entry Dollar Entry

Rollover 1

Rollover 2

Rollover 3

Rollover 4

Rollover 5

Rollover 6

Rollover 7

Rollover 8

Rollover 9

Rollover 10

SURVEY TARGET Reach 200+ advisors with data for 2,000+ IRA rollovers


What we’ve heard so far.

Advisor Profile330 rollovers in database as of today, from 50 advisory practices.

48% independent or dually registered.

36% fee-only RIA.

16% affiliated.

Advisor Rollover Experiences

62% recommended rolling assets into the advisor’s solution.

14% recommended the money stay in plan.

Average IRA rollover was $105k.

67% of rollovers were placed into a wrap/managed solution.

72% of advisors did not receive up-front compensation.

For those who did, the average comp was $1,255 and trail of $765.

About their Clients

170 average number of clients served.

59 average number of clients who have completed a rollover.


How the research will be used.

The IRA Rollover Fee Evaluator guide is designed to:

• Explain the DOL Fiduciary Rule with interpretation and tips from our experts

• Walk an advisor through four key steps to understanding and complying with the new DOL fiduciary rule TABLE OF CONTENTS

A Message from our Fiduciary Team 3

Our fiduciary experts weigh in

Rollover basics

Tips for working with IRAs

Fiduciary or Not 10

1. Determine if you're a fiduciary

Catalog of Conflicts 14

2. Select an exemption

Fee Evaluator 19

3. Benchmark your fees and services for rollovers

Compare Options 32

4. Compare existing solution to new options

Resources 36

About the research

Ann Schleck & Co. and fi360 resources

Industry references

About Us 41

DRAFT


First steps.

1. Fiduciary or Not

2. Catalog of Conflicts

3. Fee and Service Evaluator

4. Compare your client’s existing solution to the new options

9© 2016 Ann Schleck & Co., an fi360 Company. All rights reserved.

FIRST STEPS

DRAFT

Benchmarking your fees and services for IRA rollovers is an important part, and the primary goal, of The IRA Fee Evaluator.

Along the way, we'll examine the key concepts and offer practical steps to help you better understand and stay within the boundaries of the rule. Our fiduciary team has included tips, tools and ideas to help you effectively work with your clients on IRA Rollovers. It's all been organized neatly into six steps for you:

1. Fiduciary or Not

Determine if you're a fiduciary

Fiduciary options

Apply the duty of care

If you plan to avoid being a fiduciary, stop here.

2. Catalog of Conflicts

Identify if there are prohibited transactions and review the catolog of conflicts

What is a prohibited transaction

What exemptions to use

Catalog of conflicts of interest

Prohibited transactions are absolute prohibitions and need an exemption

3. Fee and Service Evaluator

Survey Methodology

Trends by Product

Fees & Services by Client AUM

Fees & Services by Client Rollover Value

Fee and service reasonability is a core fiduciary requirement

4. Compare your client's existing solution to the new options

Client priorities may justify product selection and fees

STOP


A look inside: fiduciary or not.

Fiduciary Reminder: The minute you provide any advice or direction on the best option for an individual, you are a fiduciary.

STOP

11 © 2016 Ann Schleck & Co., an fi360 Company. All rights reserved.

1. WHAT MAKES ME A FIDUCIARY?

The new fiduciary rule has emblazoned the line between providing information and providing advice. For DC Specialist Advisors and Wealth Advisors, you may present options to an individual regarding their retirement plan without becoming a fiduciary. But, if you advise an individual on what decision appears best for them, you are accepting fiduciary responsibility.

In relation to IRA Rollover Business, there are four key ways to handle retirement plan assets. If you recommend any one of these, you become a fiduciary.

Leave it Leave your money in the previous employers plan. Individuals do this to take advantage of lower fees or high performing funds.

Move itMove your money to the plan of your new employer. This option can help consolidate plans, take advantage of lower fees or better performing funds.

Roll it

Roll your money to an Individual Retirement Account (IRA). Reasons to choose this may be to consolidate assets from multiple plans, achieve a more customized approach to managing investments or because you're employment has ended and you are required or desire to move your money out of the retirement plan.

Cash itCash out your employer sponsored plan. This happens because an individual is of an age to withdraw penalty-free or they need immediate cash flow and are willing to accept the penalty.

DRAFT

Fiduciary Reminder: The minute you provide any advice or direction on the best option for an individual, you are a fiduciary.

STOP


A look inside: catalog of conflicts.

The most common exemption is the level fee exemption. 83% of advisors plan to use this exemption.

For All My Business

Frequently or Occasionally Not Sure Yet Never

Level Fee 41% 42% 8% 8%

Best Interest Contract (BICE) 9% 42% 20% 27%

Grandfathering 5% 49% 16% 30%

Sophisticated Investor (Counterparty Transactions) 0% 23% 19% 57%

Avoid Being A Fiduciary 2% 2% 18% 77%

Unsure 3% 6% 41% 50%

Note: Not all rows add to 100% due to rounding


2. PROHIBITED TRANSACTIONS

What is a prohibited transaction?

Definition

Prohibited transactions are when advice causes the advisor, firm or its affiliates and other parties in which it has an interest to receive additional (variable) compensation or compensation from a third party (e.g., referral fees, commissions, proprietary fund fees, 12b-1 fees).

ExemptionsSee the chart on the next page for determining which Prohibited Transaction Exemption may apply in each scenario you encounter.

Consequences of moving forward

without an exemption

If an exemption is not satisfied, the advisor and firm, etc. may have to undo transactions, disgorge (return) their compensation, pay excise taxes, and suffer other consequences.

How frequently do advisors believe they will use each of the following exemptions when the new fiduciary rule is in effect, January 2018?

49%Level Fee

For All Business

Frequently Use

BICE

42%

49%Frequently Use

Grandfathering

Never

Avoid Being a Fiduciary

77%

19%Not Sure Yet

Sophisticated Investor

Source: 2016 fi360 IRA Rollover Study

DRAFT

Fiduciary Reminder: Absent an exemption, prohibited transactions are absolute prohibitions—it is no defense to argue the recommendation was a good one.


A look inside: fee and service evaluator.

This is a sample of how fee and service benchmarking data may be laid out in the guide.

This will be a comprehensive section of fees and services broken down by individual rollover value ranges and household assets under management ranges.


Fee details

MEAN MEDIAN MODE

$1,686 $1,165 $0

Fee Trends

• Fees range from $0 to $16,000

• 67% of these IRAs are placed into a wrap/managed solution

• Average household AUM is $589,258; average rollover amount is $149,336

• 1.11% average up front fee as a percent of the rollover amount

Fee frequency: up-front and trail

High

Ad

viso

r C

om

pen

sati

on

Over $10K

$10,000

$8,000

$6,000

$5,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$750

$500

Up to $250

$0

Low 5 10 15 20 25 30 35 40 45

Number of Rollovers

$101K - $250K ROLLOVER VALUE AND ADVISOR FEE AVERAGES

DRAFT

Up-front fee revenue Trail revenue


$101k - $250K Rollover value Included as Part of Fee Schedule

Provided for an

Additional Fee

Not Provided/

Not Applicable

Rollover advice 94% 6% 0%

Investment strategy 97% 3% 0%

Investment selection - asset classes 97% 3% 0%

Investment monitoring 91% 9% 0%

Account statements 91% 0% 9%

Website (account access and tools) 88% 0% 12%

Transactions 73% 9% 18%

Access to call center 50% 0% 50%

DRAFT

SERVICE AVERAGES


A look inside: fees by rollover value.


Fee details

MEAN MEDIAN MODE

$1,686 $1,165 $0

Fee Trends






High

Ad

viso

r C

om

pen

sati

on

Over $10K

$10,000

$8,000

$6,000

$5,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$750

$500

Up to $250

$0

Low 5 10 15 20 25 30 35 40 45

Number of Rollovers


DRAFT



A look inside: fees by household AUM.


Fee details

MEAN MEDIAN MODE

$3,394 $1,500 $0

Fee Trends




• 85% of advisors do not charge an up front fee

Fee frequency [sample data only at this time]

High

Ad

viso

r C

om

pen

sati

on

Over $10K

$10,000

$8,000

$6,000

$5,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$750

$500

Up to $250

$0

Low 5 10 15 20 25 30 35 40 45

Number of Rollovers

$501K-$1M HOUSEHOLD AUM AND ADVISOR FEE AVERAGES

DRAFT


A look inside: fee details.

This is a sample of how fee frequency may be displayed.


Fee details

MEAN MEDIAN MODE

$1,685.53 $1,165.00 $0

Fee Trends






High

Adv

isor

Com

pens

atio

n

Over $10K

$10,000

$8,000

$6,000

$5,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$750

$500

Up to $250

$0

Low 5 10 15 20 25 30 35 40 45

Number of Rollovers


DRAFT


$101K - $500K Rollover Value


A look inside: services by rollover value.


$101k - $250K Rollover value Included as Part of Fee Schedule

Provided for an

Additional Fee

Not Provided/

Not Applicable

Rollover advice 94% 6% 0%

Investment strategy 97% 3% 0%

Investment selection - asset classes 97% 3% 0%

Investment monitoring 91% 9% 0%

Account statements 91% 0% 9%

Website (account access and tools) 88% 0% 12%

Transactions 73% 9% 18%

Access to call center 50% 0% 50%

DRAFT

SERVICE AVERAGES


Scope of services.

90% or more of advisors offer most of the services below to their clients.

Other services noted by advisors include: planning tools, titling of assets, charitable giving, estate planning and education planning.

96%

2%

2%

Investment Strategy

94%

4%

2%

Rollover Advice

96%

2%

2%

Investment Selection (asset classes)

93%

7%

0%

Retirement Planning Guidance

92%

6%

2%

Investment Monitoring

92%

0%

8%

Account Statements

73%

27%

0%

Comprehensive Financial Plan

88%

0%

12%

Website (account access & tools)

58%

0%

42%

Access to Call CenterDistribution Planning

87%

0%

13%

Transactions

73%

16%

10%

DATA KEY

Included as part of fee schedule

Provided for an additional fee

Service not provided or not applicable


A look inside: compare your client’s options.

• Guidance on how to communicate with clients

• Tactical worksheets for holding client conversations and documenting outcomes


EVALUATION CRITERIAPriority For Client

1 low 5 highCurrent State

(DC Plan, DB Plan, IRA)Future State if Change

is Implemented

Recordkeeping Fees <$ or Basis Points> <$ or Basis Points>

Investment Product Fees

<$ or Basis Points> <$ or Basis Points>

Advisory Fees <$ or Basis Points> <$ or Basis Points>

Affiliate Compensation or Other Fees

<$ or Basis Points> <$ or Basis Points>

All In Fee Sum 1 2 3 4 5 <$ or Basis Points> <$ or Basis Points>

Income generating solutions

1 2 3 4 5 Yes | No Yes | No

1:1 advice, personalized education and guidance

1 2 3 4 5 Yes | No Yes | No

Customization of portfolio and investment options

1 2 3 4 5 Yes | No Yes | No

Ongoing personalized support

1 2 3 4 5 Yes | No Yes | No

Ability to consolidate 1 2 3 4 5 Yes | No Yes | No

Client desire to work with advisor

1 2 3 4 5 Yes | No Yes | No

WORKSHEET: COMPARE YOUR FEES AND SERVICES

DRAFT

Complete this worksheet for each qualified plan to IRA rollover

Client Initial and Date _______________


Advisors tell us they recommend rollovers.

We asked advisors to tell us what percent of their 2015 rollover conversations resulted in each of the following recommendations:

Rollover assets to a solution with your business

Keep money in the plan

Select another IRA rollover provider

Roll money into another plan

Not applicable62%

14%

9%

9%

6%


IRA rollover transactions.

On average, advisors expect to complete 9.5% more IRA rollovers in 2016 than they did in 2015.

TIME PERIODAverage Number of

IRA Transactions

Full-year 2015 16.9

Actual up to 7/31/16 10.6

Projected full-year 2016 18.5

The survey has been revised to include your projected number of IRA rollovers for 2017.

As part of the webinar registration 280 advisors shared their 2016 and 2017 projections.




IRA rollover products.

38% of the rollovers documented use a Wrap/Managed Solution.

Regardless of product type 66% are non-proprietary.

75% of wrap/managed solution rollovers were placed in non-proprietary products.

82% of mutual fund rollovers were placed in non-proprietary products.

69% of the annuity rollovers were placed in non-proprietary products.

“Other” was identified as ETF Portfolios.

38% Wrap/ Managed Solution

30% Mutual Fund

16% Other

16% Annuity

2015 Rollovers by Product Type


How you can participate.

Advisors

Take 15 minutes to complete the online survey.

Multiple advisors from a single practice are welcome to participate.

What you’ll get: executive summary of the results and an exclusive webcast sharing the results.

Institutions

Share with your advisor network and encourage them to participate.


Thank you!

We welcome your input as we continue to develop this and other products. Contact us at:

Institutional Retirement Research

Robin Green

651.336.4963

[email protected]

Product Development

John Faustino

412.504.0748

[email protected]

ira rollover fee study early insights - fi360 · 2016. 11. 17. · ira rollover transactions. on...

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