Four Reasons to Consider Adding Retirement Plan Servicing to Your Practice

As your financial planning practice begins firming up your 2023 business plans, retirement plan servicing is an area you shouldn’t overlook as a potential growth opportunity.

Increasing lifespans, along with the general trend toward shifting from defined benefit to defined contribution plans, has made retirement plan servicing a central part of financial planning and one of the top financial priorities for many Americans.

Many wealth management firms now offer retirement plan servicing. Given the difficult market conditions over the past year and increasingly competitive financial planning landscape, 2023 may be the right time to consider building out your firm’s offerings by expanding into the defined contribution (DC) retirement plan market.

Here are four of the reasons to consider adding this service when you’re thinking through your firm’s business plan for next year:

1. There Is Plenty of Opportunity in the Market

Operating efficiently means spending your sales and service time on areas that can help you grow. DC plans can represent an excellent opportunity, with roughly 55,000 plans with $25 million or less in assets expected to change providers in the upcoming year, according to a recent report by Retirement Insights LLC.

In addition, there are an estimated 35,000 plans expected to start up in the next year, plus 3 million businesses with less than 100 employees that don’t offer a retirement plan. Together, this offers a plentiful market opportunity for financial professionals looking to make retirement plans into a key part of their business.

2. Continuous Contributions

401(k) contributions usually happen every pay cycle automatically, regardless of what’s happening in the financial markets, even during market volatility. So, during a time that other investors may not be adding to their portfolios, automated 401(k) paycheck deferrals do not stop.

3. You Likely Already Have Much of the Knowledge and the Network

Contrary to what you might think, most financial professionals with the retirement plans are not actually specialists. In fact, for many planning practices that offer these services DC plan assets make up less than 15% of their total AUM, according to a 2021 Cerulli report.

That said, you will need to know the basics of 401(k) plans and ERISA regulations. You’ll also want to partner with a network of retirement plan professionals who can supplement your knowledge. Your role is at the center of the plan, helping to manage the client relationship and coordinate the other service providers. To fill in the retirement plan gaps you might have, you may want to team up with:

• A third-party administrator, who can help with plan design, compliance testing, and annual reporting;
• A retirement plan record-keeper, who will help you with plan setup and ongoing management; and
• An independent 3(38) investment manager, who will help screen and choose appropriate investments for the plan.  

You are also likely be providing investment advice at the plan level, conducting plan reviews on an annual basis and offering participant education. You’ll have the ability to determine exactly how you contribute to the overall effort based on your business goals and initiatives. Some of these services might make you a plan fiduciary, so you’ll want to be sure you understand your duties—and it’s up to you which services you’ll actually provide.

4. You May Gain Access to Additional Business Opportunities

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 and showcase your expertise with a group that is often in the market for financial planning services.  

You’ll also work with other plan participants on their retirement plan and discover they may need help balancing their current financial needs with saving for retirement. As the financial professional for their plan, you are likely to be one of the first people they contact for assistance. They may also reach out for help rolling over their 401(k) account to an IRA, which could also lead to additional opportunities.

Providing 401(k) plans can offer the possibility to open the doors to new relationships and new referrals. Business owners often network with other owners and have the potential to share their positive retirement plan experience with them.

Getting Started

A good place to start is by looking through your book of business to identify small-business owners whose personal assets you’re already managing. You already interact with them, and chances are they have a retirement plan or are considering one. And don’t forget your non-business-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 for an introduction to their employer’s decision-makers.

If you haven’t already, 2023 may be the right time to bolster your financial planning practice by adding retirement plan servicing.