2021

Retirement Industry Trends Report

Intro

How to stay ahead of the technological changes transforming the retirement industry

Zoom calls and remote-offices. TikTok and Gen-Z. Cars and chip shortages.

These are just some of the new pairings we’ve become all too familiar with. But what about one that is perhaps less obvious?

Retirement and tech-forward.

While the last pair may not feel as natural rolling off the tongue, the recent findings of our survey prove it’s definitely a duo that deserves a spot alongside the others.

Over the past few years, innovative financial companies such as Robinhood and Plaid completely changed the game for the personal investing and payments industries. During that time, it’s been mostly crickets in the world of 401(k)s. But now investors agree that it’s the retirement industry’s time to shine. Big banks and private equity firms poured a whopping $700M+ into the industry over the past year alone.

This funding is long overdue for the retirement industry. The vast majority of 401(k) plans are run on outdated recordkeeping technology that was built in the ‘80s. This legacy technology leads to high costs, administrative headaches, and rigid plan designs for millions of plan sponsors. It also creates a barrier to entry for those in the small business space who don’t have the financial or administrative resources to support a quality plan. In fact, there are over 30 million small businesses in the US, yet only 600,000 401(k) plans in total.

The friction that small businesses experience along with the momentum from substantial funding is quickly leading us to a retirement revolution. Every aspect of the industry is changing and technology is at the core of it all. Advisors rely on social media to connect with prospects, employers depend on payroll integrations to keep their plans running smoothly, and participants expect the same experience with their 401(k) plan as they do with their online banking.

Advisors are feeling more and more pressure to deliver on clients’ heightened expectations. According to this year’s survey, 85% of advisors place a greater emphasis on the technology used to run their business as a result of the past year. Below, we take a look at several new ways in which the push for tech-forward solutions has manifested itself, from prospecting, to plan management, to client demands and beyond.

New technology is quickly turning the 401(k) world into a different kind of ball game, and it’s up to advisors to learn the new rules.

As a result of this past year...

I place a greater emphasis on the technology I use to run my business.

Agree
85%
Disagree
15%
Trend No.1

Advisors are more heavily using digital solutions to find leads

One of the most difficult parts of an advisors’ role is prospecting. And while referrals will always be a great source of leads, advisors agree there are other extremely valuable sources that can be tapped into via technology, namely, social media. According to the survey, 45% of advisors are finding social media more valuable now versus previous years.

Less or more valuable?

How has your marketing strategy changed over this past year?

  • Social media
    45%
  • In-person meetings
    41%
  • Website*
    40%
  • Digital advertising
    34%
  • Email campaigns
    32%
  • Events
    26%
  • Cold calls
    6%
  • Referrals
    76%
* Some percentages may not equal 100 due to rounding.

This trend towards favoring digital solutions may have accelerated given the past year or so, favoring a remote-first environment and limiting in-person meetings. So as these tools continue to permeate the financial services industry, it’s safe to say that if you aren’t on LinkedIn looking for leads, there’s a good chance your competitor is. In fact, when we asked advisors about their most valuable source of leads, the second most common answer was social media (referrals was first), beating out events, websites, and cold calls.

Select one

What has been your most effective tactic for finding leads?

Social media
25%
Events (Webinars, roundtables, etc.)
23%
In-person meetings
23%
Website
14%
Digital advertising
5%
Email campaigns
5%
Cold calls
5%

Are you looking to explore a new digital solution?

Trend No.2

Plan advisors are demanding a digital solution for personalized wealth management

Now, more than ever, clients expect a more individualized approach when it comes to their retirement plans. From cryptocurrency to ESGs, we asked advisors what they believe clients are most interested in incorporating into their plans, and the number one response for both employers and employees was personalized advice in the form of tools like managed accounts.

How interested do you believe participants are in incorporating the following into their 401(k)s?

Personalized advice (i.e Managed accounts)

Guaranteed income solutions

401(k) matching on student loan repayments

ESG funds

Cryptocurrencies

With personalization comes added time and added cost. Fortunately, the technology powering managed accounts has come a long way over the past few years, making these solutions more affordable and easier to offer. And advisors have noticed. According to our results, 68% of advisors who offer managed accounts said they have seen an uptick in adoption over the past year alone.

Have you seen an uptick in managed account adoption over the past year?

Yes
68%
No
32%

Are you looking to explore a new digital solution?

Trend No.3

New technology can = increased cybersecurity risk

There has been a 300% increase in cybercrimes since early 2020, and 43% of those cyberattacks are on small businesses. Given that 401(k) plans are an attractive target for hackers (loads of PII and money!), it came as no surprise when the DOL finally released cybersecurity guidelines for plan fiduciaries in April of 2021.

Employers rightfully feel increased pressure to address these risks. In fact, 73% of advisors agree that their clients care more about cybersecurity following a year of uncertainty. In addition to releasing guidelines, the DOL has also begun auditing plans to test whether they were following proper security protocols. This added scrutiny means advisors are also feeling the pressure to carefully vet and select secure technology providers. According to our survey results, 30% of advisors listed cybersecurity as a top concern for the future of their practice, impressively beating out prospecting and client retention.

Given the uncertainty of this past year, how have your clients’ plan views changed when it comes to the following?

  • Care more
  • No change
  • Care less
Cybersecurity
Customer service
Fiduciary oversight
Cost
Plan design flexibility
Investment options

Looking ahead, what do you think will pose the biggest challenge to your practice?

Top 3 most common answers
  1. Government regulation
  2. Fee compression
  3. Cybersecurity
Trend No.4

Plan sponsors undervalue solutions that tech can solve for, and advisors know it

Running a plan can be quite time consuming for employers. However, the right plan setup can drastically reduce that administrative burden, especially when it’s backed by good technology. Advisors know this and when asked which aspects plan sponsors most often wrongfully undervalue when selecting a plan, in second and third place were plan design flexibility (39%) and investment flexibility (37%), both of which are highly dependent on the recordkeeper and other tech providers for a plan. These two features trailed behind fiduciary oversight (50%) which was the top response.

Select all that apply

Which of the following do you believe employers wrongfully undervalue when purchasing a plan?

  • Fiduciary oversight
    50%
  • Plan design flexibility
    39%
  • Investment flexibility
    37%
  • Payroll integrations
    36%
  • Security
    26%
  • 3(16) administration
    25%
  • None of the above / other
    7%

Managing a plan isn’t only in the hands of a plan sponsor; it’s the plan advisor’s role, too. That means the underlying technology powering these plans can make an advisor’s life easier or harder. According to the survey, 93% of advisors agree that working with a tech-forward recordkeeper will make it easier to manage their plans. This is interesting to compare to the 2020 data in which only 7% of advisors voted fintech recordkeepers as their provider of choice (2020 Retirement Trends Report). This may suggest that effects of the funding to the space is starting to take hold as advisors start to favor more tech-forward providers instead of traditional ones.

Agree or disagree?

I believe working with a tech-forward recordkeeper will make it easier to manage plans.

Agree
93%
Disagree
7%
Conclusion

Looking ahead

Looking ahead

Technology is undeniably transforming the retirement space. The
arrival of fintech recordkeepers, better managed account solutions,
and increased cybersecurity threats is opening new doors for advisors to better manage their practice and discover more potential clients. Moreover, the large number of small businesses without a company-sponsored plan in place shows that there is a clear need for innovation. New entrants and state-mandated IRAs will likely play a big role in addressing the lack of companies with workplace savings plans and may even begin to close the retirement savings gap.

In an industry that is undergoing significant changes, it is essential for advisors to understand why these new entrants exist and how they may help - or compete - with their businesses. To keep up with their competitors, plan advisors will likely feel increased pressure to incorporate many of the trends outlined above. As we enter a new era for 401(k)s, those who remain nimble, are open to trying new tools, and seek to understand the changing landscape are bound to find success.

Solution

Are you looking to explore a new digital solution?

About the survey

Vestwell conducted a survey in summer of 2021 to identify the ways in which technology and new products are transforming the retirement industry and affecting plan advisors. We received responses from over 500 advisors, all of whom manage at least one company-sponsored retirement plan.

About Vestwell

Vestwell is the engine powering modern-day workplace savings and investing programs, such as 401(k) and 403(b) plans. Our cloud-based digital recordkeeping platform provides the underlying architecture to support financial services and payroll partners, while bringing clients an easier, more flexible, and user-friendly experience delivered at a fraction of the cost. Learn more at https://www.vestwell.com and on Twitter @Vestwell.

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