Small Retirement Plan Market: A Guide for Wealth Advisers

You’ve likely seen headlines recently about the small retirement plan market's expected exponential growth. In fact, Cerulli Associates estimates that the 401(k) market will add an estimated 330,000 micro plans (less than $5M in assets) over the next six years, an increase of 50% from 2023.¹  This growth is the result of a perfect storm of events—new tax incentives through the Secure Act 2.0, an expanding number of states that require small employers to offer retirement plans or face stiff fines, and a shift in attitude in which employers increasingly assume more responsibility for their employees’ financial futures.  

The good news is that a good number ² of these new retirement plans will be adviser-sold. However, some wealth advisers may still sit on the sidelines as the growth in new retirement plans mounts, mistakenly believing that this work is the exclusive domain of specialist retirement plan advisers and consultants. Some wealth advisers may feel reluctant to jump into the retirement space for various reasons including that they don’t want to assume the fiduciary risk or don’t believe they have the expertise or resources to build and manage retirement plan lineups for their clients.  

But offering retirement plan services—especially in the growing small plan market—can be both a new revenue source and a way for you to capture more wealth leads. And with support from third-party fiduciary service providers like Morningstar Investment Management, it can be easier to design, build, and manage investment lineups. 
 

Most small business owners who are your wealth clients may have little interest in working with a specialized retirement plan adviser because they already trust your guidance and advice. Additionally, many specialist retirement plan advisers often don’t touch small plans as they are hunting for bigger asset pools. Since company owners may be well-connected with other business owners in the community, you’re likely to pick up additional retirement plans from referrals once you help your first client. As a result, you could have a burgeoning retirement business that's also a new revenue stream for your practice.  
 
Additionally, for many wealth managers, a retirement plan could be a great way to expand their wealth business. Within any given plan you’re overseeing, you’ll have access to all the highly compensated and mass affluent employees within that plan whom you can prospect for future wealth customers. There are also other ancillary revenue opportunities that potentially come out of selling retirement plans, especially in the rollover business as employees retire or change jobs.

Adding retirement plan services to your practice doesn’t have to be difficult—thanks in part to Morningstar Investment Management's fiduciary services, which simplifies the process of building and managing a retirement plan lineup. Morningstar Retirement offers both a 3(38) and 3(21) fiduciary service. Our 3(38) option assumes discretionary authority over the plan’s lineup and full fiduciary responsibility for the investment decisions.  

With 3(21), we provide the adviser and the plan with a select list of investments, and you work with the plan to select from that list to fulfill an asset class framework that we’ve designed. This service allows us to serve in a more co-fiduciary role with you and your client.  
One way to think about the distinction between the two is that a 3(21) is like having someone sitting in the back of your car providing directions while you drive. Even though they’re there to guide you, it’s still up to you to arrive at your destination on time and without incident. With a 3(38), you hand over the keys to a professional driver, sit in the back seat, and let the service get you there.

Although it might feel counterintuitive for an adviser to offer the investment reins of a retirement plan to a third party like us, our service helps make it easy for advisers to stay front and center with their clients. If you use our service, we ‘ll provide you with progress reports on the plan, fund fact sheets to explain the different investments in the plan, and memos on why we’re putting funds on watch or removing them.  

Morningstar Retirement is also designed to help you and your client offer the best available lineup to employees based on investment options that the recordkeeper makes available to us. Our goal is to provide employees in your plan with access to the building blocks they need to create a highly diversified portfolio for their retirement accounts. Additionally, our network of recordkeepers and data connections with those recordkeepers helps ensure that the plan stays compliant with its investment policy statement—which Morningstar Investment Management will furnish to you and your plan. And lastly, all of the decisions we make are created to assist you and your client in adhering to the Department of Labor’s requirement that fiduciaries act prudently when selecting investment for a retirement plan.

Ready to get started? 
If you want to learn more about the benefits of offering a retirement plan and how Morningstar Retirement can help you, please reach out to fiduciarysales@morningstar.com. 

Sources:  

1. Cerulli Associates. 2024. U.S. Retirement Markets 2024. http://www.cerulli.com/reports/us-retirement-markets-2024  
2. Investment Company Institute. 2024. ICI Quarterly Retirement Market Data, Q3 2024. http://www.ici.org/statistical-report/ret_24_q3