2023 Advisor Trends Report

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The Next Era in Small Plan Advising

As the leading small business retirement and individual savings platform, we conducted our annual survey to uncover trends in the savings industry that can help businesses and advisors close the savings gap. Encompassing thousands of savers, small businesses, and advisors, our analysis reveals emergent trends, surprising correlations, and intelligence you need to understand retirement in 2023. Our report uncovers the trends that are leading to a new paradigm in 2023: where employers are expanding their benefits, advisors are expanding their practices, and employees are increasingly looking for retirement education as part of a company-sponsored retirement benefit.

This report draws on both survey data and Vestwell’s proprietary saver data to provide evidence for several trends we anticipate in the 2023 small plan market. Among these are employers’ desire for deeper relationships with their advisors, as well as employers’ inclination to upgrade their plans’ offerings with additional features like auto-enrollment. More broadly, our report uncovers a few key takeaways that advisors should consider in the new year, such as:

  • The current labor market conditions and regulatory environment are driving employers to be interested in offering additional savings benefits, opening new opportunities for advisors to explore holistic financial wellness offerings.
  • Many advisors are already expanding their practices as the small plan market grows, offering new savings vehicles and services.
  • Employers are seeking deeper relationships with their advisors, granting an advantage to advisors who can scale their practice effectively while providing personalized recommendations to their clients.

Additionally, for insights into the behavioral trends Vestwell has observed in our proprietary saver data, please reference our Retirement Trends Report found here.

Trend No.1

As the Small Plan Market Grows, the Role of Advisors is More Important Than Ever

Of the employers surveyed by Vestwell, almost 94% of them had under 100 employees. Thus our survey brings unique insight into the small plan market, which in the light of recent government mandates, legislation like the SECURE Act 2.0, and modern technology, is poised to experience rapid growth.

Among our survey group, 80% of small businesses were found to work with a financial advisor, and 34% of employers came to offer a retirement plan as a result of an advisor or accountant’s recommendation. Additionally, 44% of employers stated that they were considering plan design changes, an area employers also noted they seek counsel from advisors on. A further 47% of employers say personalized investment recommendations for their employees was a value-add from advisors. Taken together, these results show a growing market made of employers who highly value financial advice and the services advisors provide.

What prompted you to offer a retirement plan? Please select all that apply.

  • Growth
  • Advisor/Accountant Recommendation
  • Employee Request
  • Other
  • Tax Credits
  • Peer Recommendation

Also of note: over 70% of advisors said that recent market volatility has not affected their retirement business in the small plan market within the last year. Likewise, 40% of advisors anticipate their practice to significantly grow as a result of the rapid expansion of the small plan market, due to state mandates, tax incentives, and other factors.

These results demonstrate the growing importance of advisors in 2023. Despite volatile financial markets, employers are considering upgrades to their plans and are interested in professional advice, while a plurality of advisors believe their practice will expand due to small plan growth. In other words, the small business market is on track to become a big business.

Do you anticipate your practice to significantly grow as a result of the rapid expansion of the small plan market?

  • Yes
  • Not Sure
  • No
Trend No.2

Employers are Upgrading Their 401(k) Plans to Attract Talent

In our survey, we found that almost a quarter (23.7%) of participating employers increased their 401(k) match this year. Excluding employers who made no change at all, the increased match was by far the most popular enhancement this year, representing 41% of plan changes this year. For employees who aren’t yet contributing to their retirement plan, an increased match was one of the most powerful motivators for getting started, behind only an increase in salary. Additionally, our survey found that among employers who made a change to their plan in the last year, 18% relaxed their eligibility standards over this time.

Further, 31% of employers who made a change to their plan in the last year introduced auto-enrollment. According to a May 2020 paper published in the Journal of Economic Behavior and Organization, auto-enrollment’s primary effect is to increase saving behavior among those with low levels of financial literacy. As a result, auto-enrollment may have the net effect of helping advisors expand the plan market into the realm of low-saving propensity individuals, in a major boon for the fight to close the savings gap. To that end, legislation like the SECURE Act 2.0, which was recently signed into law, mandates auto-enrollment among new direct contribution plans, creating an expectation of significant adoption.

Vestwell's survey data, along with research from academia, shows that employers are interested in bolstering their plan features, giving advisors a unique opportunity to attract difficult-to-reach savers. Survey results highlight increased employer match, auto-enroll, and relaxed eligibility standards as the main enhancements in the past year, which are promising for 401(k) plan participation in 2023.

If you've adjusted your 401(k) plan in the last year to attract talent, which of the following changes have you made? Please select all that apply.

  1. Introduced or Increased Employer Match
  2. Introduced Auto-Enrollment
  3. Made Eligibility More Flexible
  4. Reduced Employee Costs
  5. Introduced Managed Accounts
  6. Introduced Auto-Escalation
Trend No.3

Employers Have a Broad Definition of Plan Success, Seek Deeper Relationships with Advisors

Among employers, “plan success” is a multi-faceted outcome, with a host of metrics they find important to meet. When asked to review the qualities they view as most important for success, 58% of employers rated employee satisfaction as an important factor, making it the most popular choice. The next most popular were ease of administration (57%), plan cost-effectiveness (54%), and plan participation rate (53%). Employers were also asked about the importance of average contribution rate, but only 20% of respondents included it in their definition of plan success.

How do you measure the success of your plan?

  1. Employee Satisfaction
  2. Ease of Administration
  3. Plan Cost Effectiveness
  4. Participation Rate
  5. Investment Performance
  6. Average Contribution Rate
  7. I don’t measure plan success
  8. Other

These align well with what our survey found employers most value from an advisor. When asked what they look for in a relationship with their advisors, the top three qualities employers listed were “recommending and monitoring plan investment,” “educating employees,” and “recommending plan design.” All three relate to having an engaged, meaningful relationship with their advisor, indicating that employers value an advisor who genuinely cares about their relationship and strives for mutual success.

In short, small businesses value an advisor who is hands-on in ensuring the success of their plan, and they view success through the lens of employee satisfaction and ease of administration. Advisors who can provide a personalized experience to their clients, while also scaling to take advantage of the growing small plan market, are poised to succeed in the new year.

If you work with a financial advisor, where do you feel that a financial advisor adds value? Please select all that apply.

  1. Investment Recommendations and Management
  2. Educating Employees
  3. Plan Design Recommendations
  4. Plan Administration Education
  5. Fiduciary Oversight
Trend No.4

Advisors Have the Largest Role to Play in Employee Education

47% of employers surveyed indicated they believe advisors add the most value when educating employees about 401(k)s and investment decisions. Similarly, employees surveyed believe companies that offer a retirement plan should also provide education about it. In fact, 90% of workers indicated that their employer should be anywhere from somewhat involved, to very involved, in retirement education. At the same time, 22% of advisors believe the area where they add the most value is employee education.

What do you believe is the greatest value that you bring to your plan sponsor clients?

  • Educating Employees
  • Plan Administration Education
  • Plan Design Recommendations
  • Investment Recommendations & Management
  • Fiduciary Oversight

These facts result in an interesting dynamic: Savers want their employers to be more involved with retirement education, employers wish advisors provided more education, and advisors see offering educational resources as one of their key value propositions.

Taken all together, this showcases the growing role of advisors in the small plan market. Advisors are uniquely positioned to satisfy their clients’ desires while meeting employee demand for educational resources. As the small plan market grows, advisors who build an effective curriculum for retirement education can score high marks from employers opening their first plan.

How involved do you think your employer should be when it comes to educating you on saving for retirement?

  • Very Involved
  • Involved
  • Somewhat Involved
  • Not Involved
Trend No.5

Advisors Are Poised to Expand Their Practices in 2023

Across our survey of nearly 500 advisors, we found great interest in expanding the number of plan features and plan types their practice offers.

Among advisors who do not currently offer managed accounts, 18% of respondents said they intend to introduce them in the next year. This is on top of the 55% of advisors who already offer managed accounts, just under 41% of whom introduced them in the last year. These trends align with our findings on what advisors believe savers are looking for, with almost 57% saying they believe prospective clients are interested in personalized investment advice.

Additionally, when asked “Are you interested in expanding your practice to incorporate other savings programs in the coming year?” a majority of advisors indicated that they are. Breaking down their preferences into specific programs, we find the largest area of interest is for adding HSAs (46%), followed by 529 College Savings (32%), ESAs (18%), and 529A-ABLE (4%). These numbers may foreshadow a future in which advisors increasingly operate full-service practices.

Additionally, legislation like the SECURE Act 2.0, which significantly increases the tax credits available to small employers who open a new plan, may also contribute to advisors’ interest in expanding their business. Not only can the law be expected to increase the number of plans on offer, but its auto-enrollment and auto-escalation mandates can also be expected to increase the average value of each plan.

Rank which savings programs you are most likely to incorporate into your practice.

  • HSA (Health Savings Accounts)
  • 529 (College Savings Plan)
  • ESA (Emergency Savings Plan)
  • 529A-ABLE

Looking Ahead

Our survey data reveals an opportunity for advisors to deepen their relationships with the employers they serve and win business in 2023. There is strong interest among small businesses for new plans, adding new features to existing plans, and building a healthy relationship with their advisor. In an environment where a majority of advisors surveyed plan on growing their practice in the new year, the advisors who invest in their relationships and make the first move on expanding services can begin the year with a head start.