What Motivates Investors to Switch IRA Providers?

By Ted Godbout • September 08, 2017 • 0 Comments

In a recent LIMRA study, the top two reasons retirement investors gave for selecting another company to manage their IRAs were relationships and recommendations.

The LIMRA Secure Retirement Institute explains that relationships are cited most by those who have an existing relationship with a chosen IRA provider, while recommendations are more important for those selecting a provider with which they have no existing relationship.

According to their findings, 16% of IRA owners said they made the change because it was recommended to them by a family member or friend. This factor was more pronounced among men, nearly a third (32%) of whom said a recommendation played a role in their decision-making, compared to 24% of women.

The study also found that 13% of IRA owners are about as likely to say that reputation and recommendations drew them to a specific IRA provider as they are to say that they had an existing relationship with that firm. Women were more likely to cite an existing relationship as one of the reasons they switched providers, with a third saying they have other accounts or products with the new firm, compared to less than a quarter of men.

LIMRA found that 9% of all IRA owners transferred their IRA assets to another firm within the last 24 months, and that the majority of these transfers were conducted by workers (82%), not retirees (18%). In addition, men were nearly twice as likely as women to have done an IRA-to-IRA transaction within the past two years (63% vs. 37%, respectively).

The study also found that younger IRA owners (ages 40-44) are more likely to move their assets than those age 45 or older (29% vs. 11%).

The reasons IRA owners choose to switch investment companies do change as they grow older, the report notes. For example, younger IRA owners may experiment with different companies, as their relationship with an existing investment firm is not as established.

On the other hand, as people age, they may be less apt to switch institutions because they may not be as motivated to pursue new relationships. Older IRA owners may also be persuaded to leave an existing relationship if the new company offers products or services that address issues that begin to take on greater importance, the report noted.

Lower Fees Not the Top Priority

The study found that low-fee investments was not a top reason IRA owners considered when choosing a new provider, except among household with greater financial assets. Other factors such as advisor interaction, reputation and branding heavily influence owner decisions among those shifting their assets to a firm where they do not already have accounts or products, the report notes.

The report emphasizes that IRA providers that focus heavily on their low-cost offerings may be missing a substantial portion of the IRA-to-IRA transfer market. “Depending on their customer segmentation strategies, companies that do not (or cannot) compete on fees alone should highlight their brand and overall customer services, and leverage their unique strengths,” LIMRA recommends.

Advisors Most Influential

Finally, LIMRA notes that advisors do play a key role in IRA transfer decisions. Half of older IRA owners (ages 50-75) who transferred their retirement assets from one investment firm to another discussed the decision with an advisor. Moreover, 6 in 10 respondents said their financial advisor was the most influential factor in the decision to move their money.

For younger IRA owners, call center reps from both the former provider and the new one played a role. The report shows that nearly a third of IRA owners ages 40-49 said they discussed their decision with call center reps from one of the companies.

Interestingly, 22% of these IRA owners in their 40s said the decision to transfer their money was most influenced by a call center rep at their former IRA firm. “This suggests that companies should ensure their representatives are well versed on the features offered by their company and are able to share these with clients when they call,” LIMRA advised.