Small Business Owners More Likely to Phone a Friend, Not an Adviser

Only 15% of small business owners say they would seek advice from a financial adviser on how to set up a retirement plan for employees, despite state mandates and government incentives pushing them to offer plans, according to new research from Capital Group.

For information on setting up a plan, small business owners running firms with between $250,000 and $1 million in revenue were more likely to choose family (31%), friends (31%) and social media (24%) for guidance. Just 23% of business owners would seek advice from an accountant, which still trumped financial adviser, at 15% of respondents who do not yet have a plan.

“Offering a retirement plan to one’s employees can be a critical asset for a business owner who wants to retain and attract new talent, but concerns about cost and a lack of sufficient guidance are holding many of them back,” said Renee Grimm, senior vice president of retirement plans at Capital Group, in a statement. “With the passing of the Secure 2.0 Act earlier this year, now may be a great time for small business owners to set up a retirement plan.”

According to Capital Group’s survey, which was taken at the end of 2022, only 39% of business owners without a plan said they had a financial adviser to explain the process, including potential benefits and the new tax credits available through the SECURE 2.0 Act of 2022. Advisory firms have historically focused on larger businesses when it comes to retirement plans, but the evolution of options such as pooled employer plans, SECURE 2.0 small plan incentives and state mandates all point toward opportunity for advisers to connect with smaller employers.

“A financial adviser can guide business owners on how to maximize the full benefits of offering a plan, including important tax credits for themselves,” Grimm said.

Among small business owners who do not currently offer a plan, 94% said they would be likely to open one if offered tax incentives or credits. While 73% said they were “highly likely” to offer a plan in the next two years, only 49% have taken action to do so. Plan expense was a key reason why small business owners did not offer a plan, a concern shared by 34% of respondents.

As for those small businesses already offering a plan, 73% emphasized helping their employees save for the future as motivation. About half of respondents, 49%, said a motivator was retaining current employees, and 23% said decreasing their company tax liability was important.

Not surprisingly, the most popular retirement plan, offered by 88% of small business owners, is a 401(k) plan. Only 30% of employers provided a SIMPLE IRA, an option that may not be known as a potentially cost-effective option, Capital Group suggests.

“While 12 states have enacted legislation requiring small businesses to offer retirement plans, there appears to still be low awareness of the range of affordable solutions available, including SEP and SIMPLE IRAs,” said Ralph Haberli, head of institutional retirement at Capital Group, in a statement. “A financial advisor can be a valuable partner to guide business owners through the steps and implications of setting up the plan that is right for them.”