Already prevalent advisor-sold 401(k) plans are becoming even more prevalent due to the significant growth of the micro 401(k) market—plans with less than $5 million in assets—according to just-released data from The Cerulli Report—U.S. Retirement Markets 2024.
Over the next decade, Cerulli projects the 401(k) market will grow to more than a million plans in the micro plan market, and wealth advisors will increasingly be involved in selling these plans.
Cerulli data released Jan. 9 finds most (57%) of DC recordkeepers indicate that 50%-99% of plans sold in 2023 were sold through advisors. Over the next decade, Cerulli projects that the 401(k) market will grow to more than a million plans in the micro plan market, and wealth advisors will increasingly be involved in selling these plans.
Changes at the federal and state level are driving this increase in private sector retirement plan adoption, and SECURE 2.0 tax incentives will lessen the burden of starting up these micro plans.
Cerulli anticipates wealth advisors will capitalize on existing relationships with small business owners to sell retirement plans to these clients. When non-specialist retirement plan advisors (advisors with less than 50% of their assets under advisement with employer-sponsored retirement plans) were asked where additional support would make them pursue more DC business, 46% said cultivating wealth management clients from the DC business, and 43% said sourcing plan sponsor clients.
In addition, wealth advisors may seek to sell retirement plans to small businesses, viewing them as an opportunity to build relationships with potential new wealth management clients. According to Cerulli’s 401(k) participant survey, 25% of 401(k) participants who work with a financial advisor found their advisor through their 401(k) plan provider or plan advisor. As such, 83% of DC recordkeepers say that the percentage of wealth advisors or non-specialist retirement plan advisors who sell plans with their firm will increase over the next 3 years.
“Recordkeepers and plan advisors have always had to collaborate to serve plan sponsor clients best,” said Elizabeth Chiffer, research analyst at Cerulli. “For example, 83% of DC recordkeepers polled share participant data with advisors, 64% of DC recordkeepers allow advisors to leverage their financial wellness program, and 24% share all rollover and participant services with advisors. The growth of the micro 401(k) market will further the ongoing convergence of the wealth management and DC plan markets.”
At the same time, recordkeepers and plan advisors are also in competition to capture rollover assets and build retail relationships. Nearly half (48%) of recordkeepers indicate that they share only some rollover business and participant services with plan advisors, and 29% retain all rollover business and participant services.
“We expect that recordkeepers will continue to develop clearer lines of separation with advisors and execute agreements about data sharing, financial wellness, and rollover business to help navigate this potentially competitive environment,” Chiffer concluded.
In its 22nd iteration, “The Cerulli Report—U.S. Retirement Markets 2024” (available for purchase) represents Cerulli’s broadest coverage and sizing of the U.S. retirement market. It addresses the following market segments: individual retirement accounts (IRAs), corporate and not-for-profit (NFP)/governmental defined contribution (DC) plans, Taft-Hartley DC plans, DC multiple employer plans (MEPs), and corporate and public defined benefit (DB) plans. The report also highlights results from Cerulli’s annual DC recordkeeper and 401(k) plan sponsor surveys.
Key metrics such as historical and projected assets, the number of plans, and the number of plan accounts within these segments are examined, as are other demographic and plan design trends within U.S. employer-sponsored retirement savings.
SEE ALSO:
• Small Businesses: Overcoming Barriers to Retirement Plans
• How Advisors Can Prepare for the $124T Wealth Transfer
• Just 28% of Micro Businesses Offer a Retirement Plan
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.
