Despite reports revealing inflation’s toll on investor and participant behavior, close to three-fourths of financial advisors say the market environment has not affected the retirement business with small plan clients.
That’s according to new data from Vestwell, which found 70% of advisors do not believe the uncertainty has had a negative impact on retirement within the small plan market in the last year. Instead, the findings show that 40% of advisors anticipate their practice to considerably grow due to the swift expansion in the small plan market due to state mandates, tax incentives, and other motivators, according to Vestwell. This was compared to 33% of advisors who stated they weren’t sure if their business would grow, and 27% who believe it will not.
The survey found that advisors are utilizing new tools to better service their clients, including managed accounts (55%), health savings accounts (HSAs) (46%), 529 plans (32%), and emergency savings accounts (19%). Eighteen percent of advisors who do not currently offer managed accounts want to introduce them next year, while nearly a third of employers intend to expand their employee benefits, with 66% interested in offering HSAs.
“Financial advisors have an incredible opportunity to harness the momentum in the industry for their own practice growth. We’re seeing those who offer personalized investment options, such as managed accounts, and look to expand their offerings with college, health, and emergency savings will have a significant competitive advantage,” said Aaron Schumm, founder and CEO of Vestwell.
The Vestwell research surveyed over 500 financial advisors on how technology and savings products are revitalizing the retirement industry. The findings included responses from 1,300 employees and 250 small business owners as well.
Advisor support is becoming crucial for small plan clients
Among the over 200 small plan clients surveyed in the report, 80% of them said they work with a financial advisor and 34% were offered a retirement plan due to an advisor or accountant’s recommendation.
Additionally, 44% of employers said they were considering plan design changes (a recommendation that Vestwell reports usually comes from an advisor) and 47% believed personalized investment recommendations for their employees was a value-add from advisors.
When asked what they look for in an advisor, employers listed their top three qualities as “recommending and monitoring plan investment” (65%), “educating employees” (62%) and “recommending plan design” (57%). Other qualities were “plan administration education” (54%) and “fiduciary oversight” (50%).
One of the most crucial findings surveyed employers on the value-add advisors bring to retirement plans and investment decisions. The Vestwell research found that 47% of employers said they believe advisors add the most value when educating employees about 401(k)s and investment decisions.
Similarly, 22% of advisors believe the area where they add the most value is employee education, followed by plan administration education (21%), plan design recommendations (21%), investment recommendations and management (20%) and fiduciary oversight (16%).
Advisors expanding their practice with value-added features
Among some of the top interests for advisors in 2023 includes expanding the number of plan features and plan types offered.
When asked if they are interested in expanding their practice to incorporate other savings program within the next year, most advisors said they are. Vestwell found advisors are largely interested in adding HSAs (46%), followed by 529 college savings (32%), emergency savings accounts (18%), and 529A-ABLE (4%).
Vestwell adds that new legislation like SECURE 2.0 may also contribute to advisor interest when expanding their businesses, considering the new tax credits that will become available to small employers who open a new plan.
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