Small-Market 401(k)s Mean Big Opportunity for Retirement Plan Advisors

Small-Market 401(k)s Mean Big Opportunity for Retirement Plan Advisors

Who doesn’t want to land the big client? Doing so is the very definition of the adage “work smarter, not harder.”

It’s why the financial services industry is so focused on the high-net-worth market segment, and why lower income individuals and families are so underserved. Yet as more advisors fight for fewer high-net-worth scraps, the mass-affluent market isn’t looking so bad. The same holds true for retirement plan advisors—the small market 401(k) area is a solid source of business now, and could pay significant dividends down the road. Here’s why:

The small market consists of 401(k) plans that have under $5 million in assets. This segment makes up 95 percent of all qualified plans, according to data from Cerulli Associates. The Investment Company Institute reports that $4.6 trillion was held in 401(k) plans as of Dec. 31, 2014.[1] Cerulli further predicts that plan assets will reach $7.3 trillion by 2017.[2]

Simple math therefore reveals the current and future size of the opportunity—and it’s massive.

Retirement plan participants and assets typically grow with a company. For retirement plan advisors with long-term business development strategies, targeting the small market makes sense; it will eventually become a large market.

Small market 401(k)s are especially right for advisors who are new to defined contribution plans, as the size and lack of complexity can help them get acquainted with the space. Yet experienced advisors that typically focus on larger plans can also benefit by diversifying their revenue stream. Small market 401(k)s can also assist with succession planning by serving as a focus for younger, less-experienced employees of larger retirement planning firms. 

One advisor recently described a meeting with a veterinarian whose practice is fast-growing. While the meeting was originally scheduled to discuss personal assets, the advisor took note of the veterinarian’s recent hires, and suggested the implementation of a 401(k). The client jumped at the tax benefits and the plan took a relatively small amount of the advisor’s time to establish. The advisor has a greater amount of the client’s wallet share and the assets are now “sticky,” meaning the client is less likely to move to a different advisor.

In other words, the advisor did what was right, and what every advisor with the personal assets of small-business owners should be doing. He offered a plan with myriad benefits to the employer, not the least of which is a competitive advantage in attracting and retaining talent to help them grow; employees are able to save for retirement, and the advisor adds to his book of business, one that will expand with time as assets in the plan grow. It’s a win-win (win) all around, one this advisor—and every other in similar circumstances—would be remiss in not pursuing.


[1] “Retirement Assets Total $24.7 Trillion in Fourth Quarter 2014.” Iciglobal.org. March 25, 2015.

[2] “U.S. Retirement Markets 2012: Market Sizing, Projections, and Segmentation of Public and Private DB and DC.” Cerulli.com. January 2013.

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