Small retirement plans with less than $50 million in assets remain underserved and their sponsors are hungry for help.

Fifty-two percent of small plan sponsors that aren’t working with an advisor are looking for one or might be considering it, according to a survey from TIAA that focused exclusively on not-for-profit plans.

“It’s definitely a lucrative area for advisors to get involved in,” said David Swallow, TIAA’s consultant relations practice leader. It’s also an area that’s been “relatively untapped" by consultants and plan advisors, he added.

Among other findings, most plan sponsors working with an advisor rely on their advisor for education on fiduciary responsibilities (92 percent) and for help with investment selection, plan design and monitoring plan investments (69 percent). All plan sponsors who work with an advisor said they’d recommend the use of a plan advisor to their peers.

The survey also revealed that 85 percent of small nonprofit plan sponsors who enlist the support of a plan advisor feel more confident that they’re meeting their fiduciary responsibilities, compared with 80 percent of plans without an advisor. Sponsors with an advisors were also more likely to say their plan’s fees are fair and competitive (79 percent versus 57 percent) and that their employees are saving adequately (40 percent versus 8 percent). 

Advisors are helping plan sponsors understand the range of available investment options, meet their plan’s individual goals and objectives, streamline investment options and build more diverse portfolios, said Swallow.

Advisors interested in small, nonprofit plans, which are primarily 403(b) plans, should learn the rules, get to know the providers and familiarize themselves with the unique products, he said, adding that these plans tend to have built-in annuity options.

Many smaller, for-profit companies also need help. According to the 2017 Small Business Retirement Survey by the Pew Charitable Trusts, 40 percent of full-time employees lack access to a retirement plan. The most common reasons employers cited for not having a plan were the expense of setting up a plan, limited resources to administer a plan and lack of employee interest. Yet the vast majority of employees will participate if they have access to a plan, the survey noted.

Filling A Niche

Grass Valley, Calif.-based Owens Estate and Wealth Strategies Group, a comprehensive wealth management firm and Raymond James affiliate, manages more than 100 retirement plans for nonprofits and for-profit companies. The largest plan has just under $5 million in assets and the smallest plans, both new and in the funding stage, have about $20,000 in assets, said Mary Owens, a CPA and principal.

“There is a tendency in our industry to ignore the small ones, but I think that’s a mistake,” she said. Although initial compensation is very low relative to the level of service required to open a small plan, she said, “You’re at the place where both the business and the employer need your advice desperately and long term.”

And because these plans generate many referrals and “such an expansion of your sphere of influence within your community,” she said, “they’re exquisitely important to take on.”

Most of her small-plan business has stemmed from conversations with business owners while evaluating their savings and business tax returns. “You’re introducing it usually in a situation where someone has come to you and said, ‘I’m working 70, 80 hours a week and I’m not able to save much and it’s not because I don’t want to—I don’t know how,’” she said. In response, she explains they can put away more for themselves and their employees and also reduce their business’s tax liability.

Owens has also reached out to some local businesses after hearing them voice frustrations at chamber meetings. She’s considered advertising, but for now the referrals keep coming, she said.

It often takes six months or more between meeting a client and getting a plan in place, said Owen, who added that coaching is required for plan sponsors. “The best value we bring to the table is we act as the quarterback to get all the members of their professional team on the same page,” she said.

The first step is ensuring a business is operating under the correct entity—half the time they’re not, she said—because that dictates what type of plan can be used. Getting it right initially “will save time, money and frustration,” she said, because changing an entity later can create challenges for a plan.

The second step is figuring out the best plan design based on such considerations as employee turnover, key-employee retention and cash flow, she said. Businesses seeking long-term success must be able to keep their most important employees, so Owens said she talks to their long-term and key employees about their total compensation.

Nonprofits need to be able to fund plans with variable contributions, she said.