Four reasons to consider selling retirement plans
The line between financial planning and retirement planning continues to fade as more people seek advice for their entire financial life. That’s why many wealth management firms now offer retirement plan advisory services. If you’ve been hesitant to jump into the retirement plan market, it might be time to reconsider. Selling retirement plans may help you provide a cohesive service offering, stay competitive, and generate new business.
The defined contribution market is ripe with opportunity
Your time is a precious commodity, and you need to focus your sales efforts on the markets that can help you gain clients. Defined contribution (DC) retirement plans are one of them. Approximately 8.5% of plans with $25 million or less in assets are expected to change providers in the upcoming year. This equates to over 55,000 plans in motion and nearly $123 billion in assets.1
Projected plan turnover
||Projected turnover rates||Plan turnover (plan counts)||Asset turnover (billions)|
These figures don’t include other potential sources for new clients, including:
- The 35,000 start-up plans that are expected to come into existence1
- The three million firms with less than 100 employees that don’t currently have a retirement plan1
All these numbers combined represent a tremendous opportunity for financial professionals to turn retirement plans into a business generator.
You don’t have to be a retirement plan specialist
Perhaps you’re already aware of this opportunity and something else has been holding you back—the belief that you have to be a retirement plan specialist. But that’s not the case. For the majority of financial professionals serving this market, DC plan assets make up less than 15% of their total assets under management (AUM).2
DC plan advisors
|Financial professional type||Number of financial professionals||Assets||Percentage of AUM in DC assets|
|Dabblers||62,096||$844.3 billion||15% to 49%|
What you’ll generally need is a basic understanding of 401(k) plans and ERISA and a network of retirement plan professionals to collaborate with. Think of yourself as the plan’s quarterback. You manage the client relationship and coordinate the other service providers, which may include:
- A third-party administrator to assist with plan design, compliance testing, and annual reporting
- The plan’s recordkeeper to help you with plan setup and ongoing management
- An independent 3(38) investment manager to help screen and select appropriate investments for the plan
Your role also typically entails providing investment advice at the plan level, conducting annual plan reviews, and offering participant education. Of course, you can decide which services make the most sense for you based on your business goals and initiatives.
Let’s take a look at what offering retirement plan advisory services could potentially mean for your firm.
Four ways DC plans can help supplement your practice
1 New assets every payroll cycle
401(k) contributions usually happen every pay cycle automatically, regardless of what’s happening in the financial markets even during market volatility.
The effect of market fluctuations on 401(k) contributions
Source: “ICI Research Report, Defined Contribution Plan Participants’ Activities, First Quarter 2021,” Investment Company Institute (ICI), June 2021; results are as of Q1 of each year. “S&P 500—10 Year Daily Chart,” macrotrends.net, 3/15/22. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. It is not possible to invest directly in an index. Past performance does not guarantee future results.
2 Access to highly compensated employees
Discussions about a business’s retirement plan typically involve the owner, c-suite executives, and other senior leaders. Your interactions with these individuals can help you build personal connections, which can lead to financial planning opportunities. Highly compensated employees tend to have complex financial lives, and they want help preserving and managing their wealth.
3 Ancillary business opportunities
While your connection with plan participants may start with their retirement plan, it doesn’t have to end there. Many of these individuals need help balancing their current financial needs with saving for retirement. As the financial professional for their plan, you’ll likely be the first person they contact for assistance. They may also reach out for help rolling over their 401(k) account to an IRA, which can help you gather and retain assets.3
4 Referral business generator
One 401(k) plan isn’t just one sale. It has the potential to be many new relationships, new sales, and new referrals. Business owners network with other owners and will most likely share their plan experience with them. You can consider asking these clients to provide warm introductions for you based on the results, services, and value you’ve delivered. The same holds true for participants who you’ve helped in addressing their current and long-term financial goals.
Pursuing the DC market
If you decide it makes sense to offer retirement plan advisory services, you’ll need a lead-generation strategy. A good place to start is by looking through your current book of business to identify small business owners where you’re already managing their personal assets. Your everyday contacts, such as your dentist, family doctor, gym members, and contractors, may be another good source. You already interact with them, and chances are they have a retirement plan or are considering one. And don’t forget your nonbusiness owner clients. Ask them what they like and don’t like about their retirement plan. If it sounds like a good opportunity, you could then consider asking them to make a warm introduction to their employer’s decision makers.
One last tip—if other financial professionals in your practice already serve this market, consider asking if you can team up for a short period of time to help you learn the ropes and gain experience.
Changing times are fueling fully integrated service offerings
The volume of wealth management teams adding DC plan advisors and vice versa reflects the growing desire of investors to receive comprehensive financial planning. If you haven’t already, now’s the time to assess the role retirement plan advisory services could play in your practice. Because if you’re not currently talking to your clients about their retirement plans, there’s a good chance another financial professional is.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.
Intended for financial professionals.