Customer Contact Critical To Retaining Rollover Assets

By Cyril Tuohy

InsuranceNewsNet

When it comes to keeping defined contribution assets from rolling over to another plan provider, a simple phone call at the right time might just be worth $1,000, or $10,000 or even $100,000.

Retirees who have a positive relationship with their defined contribution retirement plan provider are more likely to keep their assets with that provider, according to new research published by life insurance industry clearinghouse LIMRA.

The findings are consistent with similar studies conducted in 2011 and 2009. They underscore the importance of client service and the role that relationships play in account retention because every time an employee retires or changes their job and decides to move their retirement assets, it provides opportunity for a plan provider.

About half of the retirees and preretirees in the study said that their defined contribution plan provider contacted them around the time that they left their former employers.

Among retirees who were contacted, more than one out of two (52 percent) chose to keep their money in the plan, or rolled their money to an individual retirement account offered by the same plan provider. Of the retirees who were not contacted, less than one third (32 percent) elected to keep their money in the plan or roll the funds over to the plan provider’s IRA.

“Our statistical model indicated that this proactive contact was very strongly linked to retention, controlling for other factors,” said Matthew Drinkwater, associate managing director for LIMRA Retirement Research, in an e-mail to InsuranceNewsNet.

One in five (20 percent) of the individuals retained in a particular defined contribution plan are at risk of leaving for another provider, and 17 percent of the total dollar amount in a defined contribution plan is at risk for moving to another provider, the survey found.

The “at risk” portion has changed little over the past few years. Between 2011 and 2012 the proportion of retirees and preretirees who chose to roll over their money to an IRA increased from 36 percent to 41 percent, the survey found. Over the same period, the proportion of retirees and preretirees leaving their money in the defined contribution plan decreased from 47 percent to 42 percent, the study also found.

“To me, the consistency of our overall results indicates that the patterns we have observed – especially the links between retention and various participant and provider characteristics – are robust,” Drinkwater said.

Every year, $350 billion becomes available for rollover as retirees and preretirees leave their employers, and providers who offer the most convenience in terms of ease, transparence and seamlessness have the greatest chance of capturing the rollover assets.

Rollover funds are typically destined for mutual funds, money market funds, managed accounts, and individual stocks, with only 10 percent of respondents mentioning annuities as the destination of the rollover funds, the survey found. Life insurance and long-term care were “essentially unmentioned,” Drinkwater said.

Outbound call center representatives are the most likely people to reach out to retirees and preretirees, the survey found. For participants with large balances, however, specialists might be called in to handle the transaction, or execute a “warm hand-off” to an advisor, he said.

Thresholds for companies initiating serious retention efforts vary by provider, with some initiating it on account balances with $25,000 all the way up to $100,000. “Whether such large balances will also mean advisor involvement varies across company depending on their own distribution system and business models,” said Drinkwater.

Large mutual fund companies have advantages over many insurance companies because of the strength of their retail asset management/investment brands, and because of their links to retirement expertise, he said.

Though smaller companies might not have the resources to respond quickly to the status participant, they could ultimately be easier to deal with as they may be less “siloed with the retail and institutional sides completely separated and having different incentives and goals,” he said.

Cyril Tuohy is a writer living in Pennsylvania. He has covered the financial services industry for more than 15 years. He has also written about food, restaurants and travel. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].