There is a burgeoning need among small businesses for retirement planning assistance. And it is in this market that financial services professionals can have a big impact. Yet, many advisors remain reluctant to enter the small business retirement plan market.
This reluctance is too often grounded more in misconception than reality. In fact, there are more opportunities within this segment than many advisors realize. It is time to shed light on five common myths about the small business market.
Myth 1: The small business market is not worth my while.
Actually, the small businesses retirement plan market is growing rapidly and is quite lucrative. Consider this: Retirement plans for businesses with fewer than 1,000 employees represent a multibillion dollar market.
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The number of potential investors is also significant. Small businesses account for more than 50% of the private work force in the U.S. And only about half of those employed by small businesses have access to an employer-sponsored retirement plan. Moreover, most signs point toward long-term growth in the small business marketplace.
Most retirement plans now coming on line originate from small businesses. The small business 401(k) market is projected to grow faster than the overall 401(k) market through 2010. Just last year, less than one-third of firms with fewer than 25 workers offered a 401(k) program to their employees. Because small plans currently enjoy only a small share of the trillion dollar 401(k) market, whoever can reach this market early stands to benefit.
Also, branching out into retirement plans can help advisors increase their “return on investment” with existing small business clients. Many advisors have already sold clients business insurance, group policies, life insurance or other benefits. By building on this existing business with a retirement plan, advisors can expand the number of financial services they offer, create more value and strengthen the client relationship.
Myth 2: Serving small businesses is too complicated.
Another common misconception among advisors is that making the transition to retirement plans for small business is too complicated. The reality is these plans are easier to provide and more accessible than ever before.
Providers are increasingly reducing fees and removing hurdles to make it simple for companies to offer plans. Providers now supply an array of services to assist advisors working with small businesses. These often include help with plan design, sales guidance, regular meetings with interested plan sponsors, as well as employee enrollment and participation training.
These services are particularly helpful for reaching a small business client who typically does not have a dedicated finance or human resources staff to manage the company’s retirement plan.
Myth 3: Retirement plans are cost-prohibitive for small business clients.
Many small business owners mistakenly believe that making a retirement plan available to employees is almost always too expensive. Yet, offering employees a retirement plan may be more cost-effective than many businesses think.
We can now put together a robust retirement plan that costs the client hundreds, not thousands, of dollars. In some cases, providers are also embracing plans with no or very low investment minimums.