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Retirement Planning > Retirement Investing

Underserved small-group market provides big opportunity

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Recent changes in the market, government regulations and other factors have made it an ideal time to find great sales opportunities in small-business retirement plans.

Consider these facts:

  • 99.7 percent of businesses are “small,” with fewer than 500 employees.1
  • The small-business marketplace is the fastest growing retirement plan segment at 7 percent growth.2
  • 63 percent of retirement plans, or more than 400,000 plans, have $1 million or less in assets.3
  • 2.8 million businesses said they would add a retirement plan in the next 12 months.4
  • 83 percent of small-business owners engage the financial advisor for their personal financial and retirement planning.5

As you can see, the selling environment is ripe for small-market retirement planning. There is currently $4.2 trillion held in retirement plans and about 727,000 retirement plans, yet 92 percent of those are under $5 million.6

The small-business market is underserved, with a core group of financial advisors focusing on very large plans worth considerably more than $1 million. Many plans also lack proper design or have ineffective due diligence. And with government regulation now requiring plans to disclose their fees to participants, many small-business owners may see for the first time how much they are actually paying in additional charges. They may also be paying higher taxes.

Identify new opportunities with current clients

You can take advantage of the opportunities this small retirement plan market offers by creating synergies with your current clients. While you are discussing employer and participant needs, such as life, disability and financial planning, ask about retirement plan needs. There is often little attention paid to how a plan is set up, and there have been many recent changes to retirement plans. It isn’t easy for a small-business owner to stay on top of all these changes.

Once you open the door with the business owner, ask to present your new plan to all of the company’s participants. Take advantage of the opportunity to personally introduce yourself as someone who also works with clients individually for their financial needs. Most of those in the group meeting will usually be receptive to work with you on a one-on-one basis.

For example, I recently worked with a business owner who has a small company with 20 employees. I, along with our retirement plan representative, reviewed the company’s 5500 filing, the plan’s tax return, and found a few issues with the current retirement plan. After discussing the plan with the owner, he signed off on a new plan, and I presented it to his employees in an enrollment meeting.

During the meeting, I also discussed how I can work with individuals on their personal financial needs. Out of those 20 employees, 17 signed up for individual consultations.

Use your research to attract new clients

The market is also ideal for new clients. You can research prospective new clients by identifying human resource managers, business owners or anyone with access to a company’s retirement plan. Use the rule changes as an “in” to discuss the company’s 401(k) needs.

You can also research a company’s 5500 filing to help company heads identify possible gaps in the current plan’s design and operation. Form 5500 is required under ERISA and is a matter of public record.

Remember the $7:$1 rule

Not only is there a lot of opportunity in the small-group retirement market, but retirement planning can be used as a springboard for other lines of business.

Retirement planning is a driver for core business and is reflected in the $7:$1 rule7 — for every dollar spent in retirement planning, $7 is spent in other ancillary lines of business.7 In fact, $393 billion in rollover business is expected in 2013.8 More than 54 percent of rollovers are to advisors with a prior relationship with that client.9

It is important not to get sidetracked from your core business, but researching opportunities in the small-business retirement market can lead to greater sales there as well as for other lines of business. Find support with your regional representative, the home office or your retirement plan wholesaler to help you take an inventory of your existing clients’ 401(k) plans or research prospective clients’ 5500 filings to find any red flags. They can also give the introduction to the presentation regarding the details of the 401(k) plan to the company while you give your own personalized introduction.

See also:

Building a fully-funded retirement plan in under a decade

8 annuity tax facts you need to know now

Revealed: The 5 biggest barriers to retirement planning


1. Small Business Administration Office of Advocacy, September 2008

2. Cerulli Associates, Small- and Mid-Sized Retirement Plan Markets Report, 2010

3. CFDD Statistical Supplement, 2008

4. The Principal Financial Group, Business Owner Market Study: A Balancing Act — Priorities vs. Plans, December 2010

5. Merrill Lynch, The 2007 Merrill Lynch New Retirement Study: A Perspective From Small-Business Owners and Their Employees

6. Plan Sponsor, 2011 Recordkeeping Survey

7. 401(k) Coach, March 2011, “$7 to $1 Solution”  

8. Cerulli Associates Quantitative Update, 2008

9. Brightworks, Retirement Income Study, 2006


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