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Financial Advisors Shouldn't Overlook This Loyal Client Base

·4 min read
Financial advisors may connect with new clients via DC plans.
Financial advisors may connect with new clients via DC plans.

Workplace 401(k) providers are working as matchmakers, hooking up investors with wealth managers and fostering advising relationships that can last into retirement. Financial advisors who can onboard clients before retirement and navigate the transition between the asset-accumulating and asset-decumulating phases may stand to benefit from this trend. Here's what advisors should know about this client base.

How 401(k) Plan Participants Connect With an Advisor

Today's investors are finding financial advice and wealth managers through their workplace retirement plans, according to an analysis from Cerulli Associates, a global research and consulting firm.

In fact, 27% of 401(k) plan participants connect with their advisor through a 401(k) plan provider. Additionally, 34% of active 401(k) participants name their 401(k) provider as their primary source of retirement planning and advice, according to Cerulli's "U.S. Retirement End-Investor 2022" report.

As fees continue to "compress" in the defined-contribution plan space, this funnel to professional financial advising services may present an opportunity for plan providers and wealth managers alike. And savvy advisors with access to DC plan participants may be able to catapult a workplace advising relationship into a long-term, post-retirement account.

From Plan Participant to Client

Many workers meet a financial advisor through a workplace retirement plan.
Many workers meet a financial advisor through a workplace retirement plan.

Not every advisor has access to advice-hungry DC plan participants. But advisors hoping to work with retirees shouldn't overlook the value of solidifying their advising relationship while their clients are relatively youthful.

"Research shows that if a person already has a trusted financial advisor relationship during their working years, they are likely to continue that relationship into retirement," writes David Kennedy, senior analyst for retirement research at Cerulli Associates, in an email to SmartAsset.

Financial professionals hoping to secure rollovers from defined-contribution plans should understand the importance of building relationships with participants earlier in those clients' careers, even years prior to potential rollover events.

Data shows that clients tend to stick with the advisors they already know and trust.

For example, in 2021, of the $444 billion in defined-contribution assets that investors rolled into advisor-managed individual retirement accounts (IRAs), $381 billion were directed to an advisor relationship that existed before the rollover, Kennedy says.

What Advisors Should Know About This Client Base

Advisors should be aware of the client base accumulated through defined-contribution plans.
Advisors should be aware of the client base accumulated through defined-contribution plans.

The takeaway: When possible, financial advisors should consider establishing relationships with clients early, even years before retirement. Here are additional ways to tap this financial advisor client base:

Find the path of least resistance. The majority of clients find their advisors through referrals (33%) or via their 401(k) provider making them aware of its wealth management services (27%), Kennedy says: "Having a system for asking (for) referrals from existing clients and, to the extent it is applicable, leveraging their firm's DC client base, are the ‘paths of least resistance' to establishing those new relationships."

Prepare for decumulation vs. accumulation. Advisors who want to support a client from asset accumulation (in working years) through the drawdown phase (in retirement) must keep in mind that the skills, partnerships and strategies are different in each phase. Advisors should be versed, or hire staff who are skilled, in everything from debt payoff and short-term savings strategies to retirement income, Medicare and Social Security.

Put up a welcome sign. Many potential clients may not think they have sufficient assets to work with a financial advisor, according to Cerulli data. But, in fact, a healthy percentage of those folks have investable assets north of $250,000. If advisors are able to work with clients at that level of wealth, they "may want to incorporate language that can signal their willingness to work with these clients and the value they could expect from an advice relationship," Kennedy says.

Keep an eye on M&A. To optimize performance in this space, Cerulli foresees additional wealth managers and DC plan providers collaborating through mergers and acquisitions and strategic partnerships.

Bottom Line

Retirement plan providers are positioned to foster robust relationships with clients to and through retirement. Advisors should be aware of this opportunity and take advantage when they can.

Tips for Growing Your Financial Advisory Business

  • Let us be your organic growth partner. If you are looking to grow your financial advisory business, check out SmartAsset's SmartAdvisor platform. We match certified financial advisors with right-fit clients across the U.S.

  • Expand your radius. SmartAsset's recent survey shows that many advisors expect to continue meeting with clients remotely following COVID-19. Consider broadening your search and working with investors who are more comfortable with holding virtual meetings or spacing out in-person meetings.

Photo credit: ©iStock.com/fizkes, ©iStock.com/shapecharge, ©iStock.com/aluxum

The post Financial Advisors Shouldn't Overlook This Loyal Client Base appeared first on SmartAsset Blog.