As advisors constantly look for growth and ways to deliver more of their value to more clients, retirement and workplace benefits have emerged as a way to do so—and a major opportunity.
Financial advisors will benefit from new technologies in the retirement market—including those that minimize reliability concerns and plan service challenges—making it easier to offer retirement services as part of their practice. Offering retirement services offers a way to holistically manage more of their clients' wealth, deepen client relationships and attract new clients. And most importantly, it aligns with Americans' increased focus on retirement planning, which according to Envestnet's latest Gen 2 research, is their top financial concern.
As the workplace becomes an important avenue for advisors to grow their business, it is important to identify and understand three types of potential clients.
Small and medium businesses
Helping small business clients start offering a retirement savings plan for their employees is a win for everyone–and advisors looking to expand their offerings and address more of their clients' financial needs can work with their business owner clients to understand their retirement plan goals and objectives.
Today, about 56 million private sector workers–nearly half (48%) of US workers–Lack of access to a retirement savings plan through jobs, and the retirement savings gap stands to create an economic burden of $1.3 trillion by 2040, according to Pew Research. At the same time, only 34% of small businesses currently offer retirement savings to employees today, according to Fidelity Investment 2023 Small Business Retirement Index.
Across the country, there are ongoing campaigns at the state and federal level to encourage more small and medium-sized businesses to consider offering employees some type of retirement plan. The SECURE 2.0 Act, for example, provides new tax incentives for small firms that provide retirement savings opportunities for employees.
Additionally, employers are increasingly looking to integrate financial wellness tools into their benefits packages as a competitive differentiator, driving higher employee satisfaction, productivity and employee retention levels.
Retirement/rollover business
According to government data, about $40 trillion is currently in US retirement plans and accounts, of which $26.3 trillion was in employer-sponsored plans and $11.5 trillion was in IRAs. Over the past 10 years, about 25 million Americans left behind money in a 401(k) account when they left an old job, according to the Government Accountability Office. Millions of people left money in two or more accounts, according to the research. The need for financial guidance in these cases could not be more apparent.
Advisors are already winning change through existing relationships and the playing field is open. According to Cerulli, $535 billion in defined contribution plan assets managed by a plan advisor were rolled over in 2022, and the majority (85%) of those who rolled over accounts continued to stay with the same advisor after the rollover.
Meeting NextGen at work
According to PwC researchGen Z and millennials currently make up roughly 38% of the global workforce, and that percentage will grow to about 58% by 2030. Meanwhile, Cerulli's research suggests that younger consumers are meeting with their advisors seeking advice on plans their 401(k).
In addition, according to research from JP Morgan Asset Management, a growing number of US employers (40%) are now offering employees the opportunity to open a “self-directed brokerage account” within their 401(k) as an alternative to investing only in the company's chosen plan menu . Considering all factors, advisers offering retirement services can find a perfect storm of opportunity in the influx of new clientele.
Next steps
The pensions market presents a significant growth opportunity for financial advisers who want to take advantage of the emerging dynamics. And technological innovations have made it easier than ever for non-expert retirement advisors to provide retirement solutions.
By understanding the growing demand, embracing technology, adopting a holistic approach and implementing effective strategies, advisors can position themselves as leaders in the retirement planning space. Tailoring retirement plans to fit individual goals, risk tolerance and lifestyle preferences demonstrates a commitment to meeting specific client needs while enhancing the overall client experience.
Taking advantage of this opportunity requires a proactive mindset, a commitment to continuing education, and a genuine commitment to helping individuals achieve a secure and fulfilling retirement. As the retirement landscape continues to evolve, advisors who embrace innovation and prioritize client-centric solutions will undoubtedly thrive in this expanding market.
Dana D'Auria is Group President, Envestnet Solutions and Co-Chief Investment Officer at Envestnet