With IRA inflows as tailwind, RIAs are taking over U.S. pension assets by the trillions as second act to 35 years of ransacking wirehouse talent and booty

The RIA flogging of the Wall Street retail machine – people and assets – is in its fourth decade, yet RIA domination of U.S. pension assets is just hitting its stride and may roll for decades more, suggests a new Cerulli report. 

Advisors and reps pulled in nearly 63% of the $444 billion in net new IRA assets in 2021, up from 61% of $284 billion in 2017, according to the data of the Boston research firm.

Investors hold $13.913 trillion in total IRA assets, up from just $5 trillion in 2011. 

No hard statistics are available detailing how much of the IRA market is managed by the 30,000 state and SEC-registered RIAs who practice wealth management.

Yet it's clear RIAs are winning in two ways. 

One is that the IRA/401(k) pie finally has the critical mass of the old-line government and corporate defined benefit plans, and RIAs are positioned to vie for those assets.

Second, RIAs keep winning marketshare from the wirehouses, says Scott Smith, director for advice relationships at Cerulli, via email.

“Industrywide we're seeing overall growth in the RIA market, with their advised asset marketshare gaining about 1% annually from employer channels -- mostly wirehouses," he explains.

Critical mass

One out of every four investment dollars, or 41% of US retirement assets will be held in individual retirement accounts, or IRAs, by 2024, at the IRA market's current rate of expansion, according to Cerulli's latest 2022 retirement report.

Not only are IRA assets, on the whole, hitting critical mass, but so are the accounts themselves.

The average value of accounts rolled over into advisor-managed IRAs stands at $211,000 today, up 44% from $146,300 in 2017.

The value of accounts rolled into self-directed IRAs stands at $120,800, up 37% from $88,200 in 2017, according to Cerulli.

But it's not all numbers; it's belief. 

RIAs now see themselves as rightful managers of this ocean of assets.

"[It's] a shift in what is possible, and once you think it is possible, some of it is probable,” says Naj Srinivas, lead spokesman for RIA Fisher Investments, via email.

“[19]40 Act Investment Advisers now target pretty much everything that was once the sole role of Series 7 registered brokers," he adds.

More Agile

RIA fortunes are improving because they are more capable, says David Kennedy, a senior analyst for retirement at Cerulli, in an email exchange.

“[RIAs] have been building out both their retirement and wealth management capabilities over the last several years … [making] the underlying operations of their service models more agile and efficient,” he says.

Indeed, RIAs have worked quietly -- and successfully -- through the last decade to improve their ability to find, track and capture held-away assets -- 401(k) assets in particular.

“Most advisors suffer from ‘out-of-sight-out-of-mind,'  so when they only see clients’ assets on their custodial platform, those are the only assets they think about," says David Root, founder and CEO of Pittsburgh RIA DB Root & Co.*, via email.

"Simply put, we added better tracking," he explains.

Kennedy adds that bigger RIAs are gaining new rollover assets at a faster clip than smaller shops. 

“Much larger firms have been able to leverage their economies of scale to improve the profitability of both servicing defined contribution plans and wealth management services,” he says.

“Hand in hand with that [come] improvements in technology like cloud computing, data quality and availability and algorithmically driven portfolio management. These types of solutions have been adopted by aggregator firms … such as CAPTRUST, NFP, and SageView,” he adds.

“Advisors will continue to capture a significant portion of IRA rollover assets, particularly those that are higher balances,” says Kennedy.

Increasing pace

Even factoring in inflation of roughly 21% since 2017, investors are rolling over just under $34,000 more today into advisor-managed IRAs and $14,000 more into self-directed IRAs than they did four years ago.

Since late 2017, the value of a 100% equity-based index portfolio has risen an estimated 56%.  

A stock and bond portfolio, weighted 60% to equities, has risen roughly 30%, using the S&P 500 and Vanguard’s Total Return Bond Market Index Fund (VBTLX) as benchmarks.

Cerulli expects continued increases in both IRA account share of the retirement market, and the value and pace of 401(k) rollovers.

“Increased mobility in the labor market from job changers, and, more recently, layoffs, is freeing more assets for rollovers out of 401(k)s and other employer-sponsored plans,” says Smith.

Changes to retirement rules in the US, following passage of the SECURE 2.0 Act of 2022 will also likely create a long term boost to the value of the 401(k) market and, downstream, the IRA market, Cerulli reports.

Bear boost

Employers who started new retirement plans on or after Dec. 29, 2022, must automatically enrol employees into their retirement plan by 2025, at a minimum contribution rate of 3% of their wages or salary.

The rate at which retirees rollover assets into IRAs is also likely to increase as a result of the bear market, according to Root. 

A bear market for equities means many of the risky, equity-heavy portfolios used in a number of 401(k) plans will underperform, he says.

“A year like last year can uncover the risks of a ‘set-and-forget’ strategy … as well as highlight the value of seasoned investment professionals,” he adds.

IRAs hold roughly 38%, or $13.9 trillion of the $36.4 trillion managed through domestic retirement vehicles today, up from 31%, or $5.1 trillion in 2011, according to Cerulli data.

Rollovers from 401(k) accounts into IRAs are driving the upward trend -- accounting for about 57%, or $2.9 trillion of all net new IRA assets since 2011.

Valuing advice

Today, roughly $7.2 trillion of retirement savings are administered through government defined contribution plans, and $8.9 trillion is administered through corporate DC plans, of which $6.3 trillion is held in 401(k) plans, according to Investment Company Institute data.

Traditional retirement giants are hitting back against up-start RIAs, however, by adding in-401(k)-plan income payouts -- i.e. annuities -- to dissuade retirees from rolling their accounts into an IRA. See: The BlackRock-Microsoft 'reimagining' of the 401(k) market, arrives looking more like a remix of existing third-party products.

“It's possible that we'll see a greater percentage of assets held in employer accounts … if those efforts are successful," Kennedy explains.

"[But] personal financial advising relationships will continue to be valued by those with greater assets or more complex situations,” he adds.

Better data

Asked what DB Root changed in the last ten years to better capture net new asset flows into IRAs, Root says the key was to be Johnny-on-the-spot when life events – like retirement – took place.

“We could also slice and dice data better -- so we could match up when clients expected retirement dates were, and [then] intentionally schedule meetings around that life event, providing an opportunity … [for] more control over those assets,” he adds.

These automated reminders are where CRM (customer relationship management) brings in the Benjamins, says Wealthbox founder and CEO, John Rourke, via email.

"[It's about] giv[ing] advisors ‘aha’ moments of insight and productivity," he adds.

‘Aha moments’ are now bread-and-butter business development, Root adds.

“When we switched to Wealthbox [CRM] a few years ago, we had a concerted effort to build the pipeline of 'outside' assets that were up for grabs … and well over half of the [new] opportunities are 401(k) rollovers.” 

CRM took off when it became cloud-based.

"Cloud solutions … tilt[ed] the playing field away from established names and wirehouses," says Dave Pederson, principal and founder of Hermosa Beach, Calif.-based RIA, Hermosa Advisors, in a Jan. 26 tweet.

Corona-shift

The current rate and value of IRA rollovers is a product of the boomer generation downshifting after years of riding a bull market, Kennedy explains.

"A significant portion of the employer retirement accounts being rolled to advisors is a result of that growth," he says.

The Coronavirus pandemic was also a catalyst. Many boomers caved into pressure to retire, having previously kept one foot in the working world as consultants, Root explains.

“[Some] 18,000 baby boomers were going to retire every day starting in 2010 … but reality didn’t match up … largely because baby-boomers would go on to consult … utilizing their 401k’s for saving and tax shelter ... in favor of rolling those funds to an IRA," he says.

“But the pandemic pushed those in part-time consulting work into outright retirement … [and] retirees [are] more amenable to move their 401k’s to be managed by their RIA advisor in an IRA,” he adds.

* As well as running a classic RIA, DB Root consults on 50 qualified -- mostly 401(k) -- retirement plans, with over 100,000 plan participants, according to the firm.