Financial advisors can dive into the growing retirement planning market if they help small business owners provide plans for their employees and then use that as a crossover opportunity to do personal financial planning for the business owner.
In fact, the entire retirement market is opening up a unique opportunity for financial planners, as $303 billion in potential investments becomes available in the next few years in rollovers, IRA transfers and transfers of taxable money earmarked for retirement as the baby boomers hit their retirement years.
The new opportunities are explored in a study by Pershing, a BNY Mellon company, The Secret Knock: Unlocking the Retirement Opportunity. Many firms are still reeling from the market disruptions of 2008 and 2009, but "with challenge comes opportunity--and those financial institutions prepared to move aggressively to capitalize on a period of great change will be rewarded," the study says.
One way of capitalizing on those possibilities is to court the small business owner who wants to provide the best retirement plan options for his employees.
"The small business owner retirement plan market is much larger than most financial professionals may realize," the report says. "For example, 53% of small businesses with fewer than 100 employees do not have a plan."
Proposed legislation requiring business owners to provide IRA opportunities may significantly increase the demand for small business retirement plans. Providing business retirement plans also opens the possibility for financial advisors to serve as a business owner's personal financial planner. The study shows 61% of small business owners who have advisors use the same advisor for the employees' retirement plan and for their personal investments. Those responding to the survey included 2,086 investors and 401 small business owners who work with financial professionals.
This crossover business potential for financial advisors "is one of the best opportunities to come along because the number of small business owners continues to grow," said Robert Cirrotti, retirement practice leader for Pershing. "Advisors need to develop their retirement expertise as a primary positioning advantage to help their existing clients and to recruit new ones."
Small business owners are an attractive sub-segment of the affluent investor market with an average of $1.1 million in investable assets, the study says.
Registered investment advisors have the highest average assets under management when compared to other types of planners in the small business retirement plan market, which is defined as plans with less than $10 million in investment assets. RIAs have an average of $12.6 million per advisor from this market, followed closely by bank financial representatives, who have an average of $11.2 million in assets under management per representative.
Independent advisors gained an average of $2.7 million in retirement plan assets per advisor and 6.4 new retirement plan clients over the last 12 months.
To capitalize on this market, financial advisors need such things as expertise in legislation affecting retirement plans, a wide array of guaranteed income products to offer clients and the detailed knowledge to offer sound advice to clients.
"There is a different skill involved for the financial advisor in helping clients accumulate wealth during their working years and in helping them turn that into cash flow when they retire," says David Giegerich, managing partner and co-owner of Paradigm Wealth Management LLC in Bridgewater, N.J. The firm, which uses First Allied Securities Inc. in San Diego as its broker-dealer, specializes in clients in or near retirement.
"These clients have already rolled over their IRA and may or may not have a defined benefit pension plan. They have issues around such things as inflation-adjusted income planning, required withdrawals from retirement accounts and whether they are in the right structure for the disbursement phase of their retirement plan," Giegerich says. "The financial planner needs to transition his or her skill set as the clients age."