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RIAs looking to build out broader menus of services in order to grow and diversify revenue streams will find prime opportunity in the pooled employer plan 401(k) market.
In fact, now is the ideal time for advisors to consider entering or broadening exposure into the pooled employer plan (PEP) arena. Because the SECURE ACT has changed everything by making regulatory changes to improve retirement plans for smaller organizations. The act has revised or eliminated rules and regulations which impose unnecessary costs and burdens on small business 401(k) sponsors by creating the Pooled Employer Plan.
The PEP is a game changer because it enables multiple organizations to band together into a single plan and streamlines the process of offering and maintaining a retirement plan because Employers no longer need to sponsor their own 401(k)s and absorb the risks and workload associated with that role.
The end product is stunning, through economies of scale a PEP offers fully integrated fiduciary services at a lower cost than the typical stand-alone plan.
More good news, the market is huge, over 550,000 plans and 8 trillion is assets and here is the key for the PEP, 85% of these plans are under $50M in assets. The new business opportunity is extraordinary and some experts believe PEPs will capture 50% or more of that market in the coming years.
Recent data from Financial Times Financial Advisor IQ indicates a staggering 17.5 million not-too-experienced fiduciaries are overseeing $26.6 trillion in retirement assets, indicating this segment is ripe for disruption by PEPs.
The timing is right as well, more mid-sized and smaller employers need to embrace a 401(k)s not just for the tax benefits associated with offering workers retirement plans, the case for offering employees a high quality 401(k) plan is expanding amid today's ultra-tight labor market. Workers are empowered and emboldened – those are good things – and employers – regardless of size – need to step up their benefits games to attract and retain talent.
Data confirm the PEP market isn't just poised for epic growth, it's also a potential gold mine for nurturing new business for advisors.
“Cross Selling has always been a myth in the financial services industry. Not anymore for an RIA that can offer combined business lines of wealth management and retirement plan services” said NS Capital Senior Managing Director, Louis Day. “We have gotten referrals from both directions, since 2015 when we got established in the retirement plan business line 30% of our wealth management assets came from 401(k) relationships and 20% of our 401(k) plans came from wealth management.
Bottom line: Advisors seeking more growing and diverse revenue streams and enhanced breadth in product offerings might want to consider bringing PEP offerings into their fold.
Does all this sound too good to be true? Until now the answer would be yes because the barriers to entry for the retirement plan business line are significant and costly. The is why NS Capital created the Pool Employer Plan Partnership which takes away the barriers and costs.