Bridging retirement savings and wealth management for client success

Across ages and wealth levels, retirement is often the top goal for investors. For most American’s their employer sponsored defined contribution (DC) plan is the primary way they build their retirement savings—especially among those who are still early in their career.

The ease and simplicity of these plans lend itself well to asset accumulation. However, these plans are not designed to cope with increasingly complex needs that often arise as investors age. Nor are they built like legacy defined benefit plans to address the ultimate goal of turning retirement savings into retirement income.

As investors progress through their careers, DC plans alone are unlikely able to address the full range of their needs—highlighting the need to bring retirement savings and wealth management services together.

The convergence of retirement and wealth management has been building for years

The need among investors for more comprehensive support is not new. However, a confluence of factors has greatly increased the need for wealth management services among retirement savers, including:

• The trend among U.S. employers to favor the DC retirement plan model;
• The surge in small DC plan formation due to increased state-level regulatory requirements;
• And the Federal incentives, introduced by the SECURE 2.0 Act, for small businesses to establish retirement plans.

These trends mean that a greater and greater share of investor wealth is being accumulated in DC plans. Yet, as the number of plans is increasing, the number of financial advisors who specialize on retirement plans remains relatively small. The result is a growing need, across the nation, for advisors who can offer comprehensive financial guidance at every stage of life.

 Seizing the convergence opportunity

This trend presents an opportunity for financial advisors who are willing to evolve their business model to include retirement plan services. Advisory firms that properly empower and incentivize their advisor practices to capitalize on synergies between retirement plan and wealth management business will enhance the financial well-being of retirement investors and reap the benefits of organic asset growth.

1. Retirement plan advisors can diversify their revenue streams

   While individual wealth management clients often generate more revenue on a per-head basis, serving a large pool of DC plan participants as a retirement plan advisor can tap into a new source of revenue for their practice.

   The size of many plans can greatly exceed that of an individual household, allowing fee-based advisory practices to generate significant, sticky recurring revenue from a single relationship.

   Serving retirement plans also offers an opportunity to implement tiered pricing where additional fees are charged for delivering wider-ranging retirement planning advice to plan participants, such as one-on-one planning consultations with employees.

2. Retirement plan advisors can build a pipeline of future clients

   Retirement plans also serve as a powerful source of potential new wealth management clients. By working with investors during their early working years, they are well positioned to foster relationships and establish themselves as a trusted source of information and guidance as a participant’s needs grow more complex.

   Serving retirement plans also offers advisors access to a deep pool of participant data that enables more strategic client engagement. By leveraging data-driven insights, advisors can identify key inflection points in participants’ financial lives and craft truly germane, actionable engagements. In doing so, advisors are better positioned to offer participants the right products and services at the right time, helping participants improve their financial well-being.

   As retirement investors’ financial lives become more complex, many could potentially benefit from more comprehensive, traditional wealth management services. Factoring in that the wealth management asset growth advisory firms can source from their retirement plan business may allow advisory firms to price their plan business more competitively without sacrificing the quality of their plan and participant services.

3. Retirement plan advisors can better defend their practice from the competition

   For advisors who serve business owners and other executives, offering retirement plan services can also help insulate these relationships from the competition. As retirement plan focused advisors look for ways to expand their own practice, offering wealth management services to business owners is a natural area to explore.

   As industry trends drive an increase in the number of firms that offer retirement plans, the risk of other advisors establishing relationships with your clients only increases. Advisory firms that effectively partner wealth advisors with business-owner clients with retirement plan advisors or empower wealth-oriented advisors to take this business on themselves will be best positioned to retain and expand these key advisory relationships.

The bottom line about convergence

With an increasing number of DC plans and increasing numbers of plan participants, we believe that the convergence of retirement and wealth management represents one of the most significant growth opportunities for financial advisors.

Taking proactive action to evolve how you help investors save and invest for retirement, inside and outside of their employer sponsored retirement plans, will help you drive lasting success in your practice.