Most Advisers Seeking Options Like HSAs, 529s to Compete for New Plans

Financial advisers are looking to expand their practices into other savings vehicles and services amid passage of SECURE 2.0 retirement reforms designed to boost plan uptake, as well as participant savings, according to small plan provider Vestwell’s annual retirement research.

In a survey of 500 advisers, more than 50% said they are interested in expanding their savings offering to plan sponsors, according to Vestwell. The growth areas of most interest were health savings accounts (46%), 529 college savings plans (32%) and emergency savings accounts (19%). Meanwhile, 40% of advisers expect their practice to grow “significantly” in the new market environment, with 33% saying they are unsure if it will bring more business and 27% saying they don’t think it will.

Vestwell’s research comes as the retirement industry considers a combination of tax incentives and mandates to boost small employer retirement plan offerings and participant uptake from the SECURE 2.0 Act of 2022. Industry insiders are also tracking the potential for more states to pass retirement plan mandates similar to those in California, Illinois and Oregon.

“Financial advisors have an incredible opportunity to harness the momentum in the industry for their own practice growth,” Vestwell CEO Aaron Schumm said in a statement. “We’re seeing those who offer personalized investment options, such as managed accounts, and look to expand their offerings with college, health, and emergency savings will have a significant competitive advantage.”

Full Service Advisement

Adviser interest in offering HSAs, college funds and emergency savings plans all “foreshadow” more advisers operating full-service retirement plan practices, according to Vestwell. The firm has made itself available to be the small plan vehicle for registered investment advisers, and on January 10 announced a partnership with investment advisory Carson Group. Vestwell is also partnering with states, including Oregon, Connecticut and Maryland, to provide small employer plans.

The majority of advisers (57%) believe plan sponsors want to offer personalized savings investment advice to participants, according to New York-based Vestwell. That trend aligns with 55% of advisers who say they are offering personalized managed accounts within retirement plans and another 18% who say they intend to introduce them in 2023.

Vestwell offers an adviser-managed account platform through a partnership with investment firm Franklin Templeton. About half of the 25,000 businesses that use Vestwell offer the Franklin Templeton option, Schumm said in an emailed response. Of those giving the option, about 90% use the managed account features as the default for all or a portion of plan participants, he said.

Dynamic QDIAs

The most popular Vestwell offering, Schumm says, is a dynamic, or dual-qualified default investment alternative, in which a younger employee is defaulted into a target-date fund with an investment glide path to retirement, while participants approaching retirement default into a more personalized managed account. 

“Dynamic QDIA has taken off because plan fiduciaries are able to personalize the default option,” Schumm says. “Many people believe that older participants benefit from personalizing their savings rates and investment approach, given how close they are to retirement.” 

When asked about what advisers think is the greatest value they bring to plan sponsors, a combined 42% noted working with them on the plan itself, either through plan administration education (21%) or plan design recommendations (21%). That compared to 22% who said the greatest value an adviser can bring is education to the plan participants, and 20% noting investment recommendations and management. Only 16% said their best offering was fiduciary oversight.

Vestwell conducted its survey over the summer and fall of 2022 and, along with advisers, polled 250 small business owners and 1,300 employees.