Retirement has garnered significant attention due to the opportunities it presents for the wealth management industry. Let’s explore how financial advisors can participate and where Envestnet fits into this landscape.
The retirement planning opportunity
American workers are concerned about retirement security, retirement income, and healthcare, indicating a strong demand for comprehensive retirement planning and advisory services. Retirement planning represents a potential business opportunity for our industry, valued at around $38 trillion, with two-thirds tied to workplace plans such as 401(k)s.1
With the decline of defined benefit plans and limited Social Security funding, 401(k) plans are increasingly viewed as a critical element of retirement savings. However, there is a significant gap in 401(k) coverage. According to Fidelity Investment’s 2023 Small Business Retirement Index, there is an opportunity for small employers to offer competitive retirement benefits with only one-third (34%) of small employers currently offering retirement savings plans to employees today.2 Recent legislation, such as the SECURE Act and SECURE 2.0, along with tax credits for startup costs, aims to encourage the formation of new retirement plans, particularly for small businesses.
This is where the wealth management industry can step in. Financial advisors can help more companies establish retirement plans, and partnerships like Envestnet’s with Empower make it easier and more accessible for advisors to offer customized retirement plans through intelligent digital retirement solutions.
Challenges facing the retirement industry
No industry is without challenges. Five key challenges facing the retirement industry today include:
- Access to retirement plans is a significant issue, only one-third (34%) of small employers currently offering retirement savings to employees today.2
- Disparities in retirement plan participation and savings rates across different demographics, including gender and race, contribute to uneven retirement security among various groups.
- Recent inflation has affected us all, leading to adjustments in contributions and an increase in loans from retirement accounts, indicating that many individuals are struggling to maintain their retirement savings amidst economic pressures.
- The industry is grappling with complex and lengthy new regulations, such as the Department of Labor's new rules and the SECURE Act 2.0, requiring significant adaptation and compliance efforts from retirement plan providers.
- Increasing incentives for individuals to save and implementing auto-enrollment features in retirement plans are essential. Currently, many plans lack these features, and their implementation can lead to higher engagement and savings rates.
Financial advisors and retirement planning
Industry leaders, including firms like Envestnet and Empower, are implementing several strategies to help financial advisors address the challenges in the retirement industry:
- Simplifying plan implementation: Industry leaders are creating easy-to-use platforms that streamline the setup and management of retirement plans. This includes reducing paperwork, automating processes, and providing digital solutions to make it seamless for advisors to offer retirement plans to their clients. For example, our technology partnership with Empower creates ease and support in eliminating the complexity and administrative burden by providing straightforward, digital solutions that enable advisors to implement plans with just a few clicks.
- Training and support: Leaders in the industry are investing heavily in training programs for financial advisors. This includes providing education on regulatory changes, best practices, and how to effectively use new tools and platforms. By equipping advisors with the necessary knowledge and skills, they can better navigate the complexities of the retirement industry and offer more comprehensive services to their clients.
- Access to investment products: Companies are developing tailored investment products and making them easily accessible to advisors through integrated platforms. This allows advisors to offer customized solutions that meet the specific needs of their clients without having to worry about the backend complexities. The creation of such products and their integration into existing ecosystems enable advisors to focus on client relationships rather than administrative tasks.
- Regulatory and fiduciary support: Leaders are providing fiduciary support to advisors, helping them comply with regulatory requirements without having to become specialists in the field. This includes offering tax credits to offset startup costs for new plans, which simplifies the process and reduces the perceived risk for advisors entering the retirement space.
- Public policy advocacy: Industry leaders are actively involved in shaping public policy to create a more favorable environment for retirement planning. This includes advocating for mandatory retirement plans for businesses, promoting auto-enrollment and auto-escalation features, and working on legislative changes that support small businesses in offering retirement plans. These efforts aim to expand coverage and make it easier for advisors to serve a larger segment of the market.
Through these comprehensive efforts, industry leaders are not only enhancing the capabilities of financial advisors but also driving the growth and accessibility of retirement planning, ultimately ensuring a more secure financial future for a broader range of individuals.
Powerful partnerships drive innovation
The partnership between Empower and Envestnet is poised to make a powerful impact on our industry by leveraging the technology and experience from each organization. By combining Empower's extensive retirement services and Envestnet's investment management capabilities, we aim to simplify the retirement planning process for both advisors and participants. This partnership focuses on streamlining investment options and ensuring that solutions are easy to understand and implement—critical for maintaining compliance with regulatory changes. This collaboration has led to the development of a tool called Retire Complete, which integrates various services and technologies from the companies to support plan sponsors and financial advisors in managing retirement plans more effectively.
The partnership also aims to address significant market gaps, particularly in the micro and small business segments, by creating cost-effective and scalable solutions that encourage more small businesses to offer retirement plans, thus expanding access to retirement savings for a broader range of employees—making retirement savings plans an option for more Americans.
In our rapidly evolving industry, the collaboration between Empower and Envestnet is not just about creating innovative products but also about expanding access to retirement planning for more Americans. By focusing on simplifying processes, educating advisors, and addressing key market gaps, we are driving meaningful change that will help secure the financial future of millions.
We’re here to help you incorporate retirement offerings into your practice with ease. Visit https://www.envestnet.com/workplace to learn more.
