The top reason investors say they move money from 401(k) plans and other accounts is to “simplify their finances,” according to a new Hearts & Wallets report.
But “simplify” can have different definitions no matter whether the action is a rollover, cashout, transfer or even a new deposit into a new account.
Over a third of consumers involved in money movement seek to “simplify their finances” with younger consumers leading in number of transactions during the past three years, according to the retail investor data and insights source’s report, titled “The Money Movement: Tap into Consumer Motivations to Drive Trial and Transfers.”
Rye, N.Y.-based Hearts & Wallets says it created the report to provide actionable analysis and greater visibility into money movement transaction dynamics both at their origin and destination for a full picture of opportunity and potential threats. The report covers new deposits in new accounts, cashouts, transfers and rollovers.
Easy Driver
At the national level, “to simplify my finances” is the No. 1 factor motivating money movement, cited by 37% of Americans.
“To consolidate for better retirement planning” was second at 28% with a tie for third at “to get more involved myself” and “to put more money at the firm that offers me better results” at 22%.
Transaction size influences motivations. Smaller transactions of under $250,000 are driven by factors of “simplify my finances” and “get more involved myself.”
Factors like “because I was dissatisfied with my employer-sponsored plan provider” are more common in bigger transactions and other factors that indicate a desire for better service.
“Different groups of consumers define ‘simple’ differently and that has major implications for product development and communications,” Laura Varas, founder and CEO of Hearts & Wallets said. “For consumers with smaller transactions, simple can be about the ease of making the transaction by themselves, aided by technology and support staff. Consumers who are making larger transactions often have more complex needs and are looking for more of the traditional service model where the financial professional does it for them.”
More Key Findings
- Only 15% of consumers are comfortable leaving money in a previous employer’s retirement plan
- 18% of rollovers go to new employer plans, up +4 percentage points vs. 2016. 49% rollovers go to “external” IRA platforms, down -4 percentage points vs. 2016
- 71% of rollovers are less than $50,000
The Young and the Restless
Younger consumers are the most active money movers with nearly half (48%) of consumers ages 21 to 28 and 43% of consumers ages 29 to 39 having executed transactions in the past 3 years.
For the youngest group, ages 21 to 28, the transaction of preference is opening new accounts funded with new deposits as 41% have taken this action in the past 3 years.
“Younger consumers will continue to be the most active group in the future,” said Beth Krettecos, subject matter expert and co-author of the report. “In all, 4 out of 10 consumers ages 21 to 28 are considering a transaction within the next year. When looking at this market from the standpoint of size, that translates into 5.4 million households. That’s an important opportunity now, and a chance to build loyalty long-term for a firm.”
Moving Money Out of Plan
Most consumers are uncomfortable leaving money in a previous employer’s retirement plan. “To simplify my finances” and “better retirement planning” are the main motivators for rollover.
Outright dissatisfaction with former employer-sponsored plans is a motivator in about 1 in 10 rollovers.
“Firms are recognizing the folly in attempting to retain former employees in their old plans,” Varas said. “Consumers who need greater depth and breadth of advice may need to seek advice outside of employer plans, which are limited to one-size-fits-all offerings because of regulatory requirements.
Firms can facilitate rollovers, if not to IRAs, then to new employer-sponsored plans, in response to the consumer desire for simplicity. A differentiated approach to rollover based on balance size will pay dividends and address consumer needs.”
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
