Small Retirement Plans, Big Opportunities

For many retirement plan advisers, micro plans have long posed a difficult question: Are plans with just a handful of participants worth the time, effort and resources required to serve them?

There are no set thresholds for micro plans. Several advisers told PLANADVISER these plans have less than $1 million in assets; others put the upper boundary at $5 million. While micro plans often generate less revenue than do larger retirement plans, some advisers say they provide valuable opportunities to develop future clients, educate younger advisers, expand referral networks and address a segment of the market that remains significantly underserved.

Basic Training

Nate Moody, a partner in and senior adviser at Lebel & Harriman Retirement Advisors, says micro plans are useful far beyond immediate profitability. Moody, whose median plan size is $5.6 million in assets, says the plans can serve “as a guinea pig” for professionals entering the retirement industry.

“There’s no better way to learn than by doing,” Moody says. “Having younger, more inexperienced advisers working on lower-stakes retirement plans not only brings the cost, from a firm perspective, down, thus making those relationships potentially more profitable, but then also serves as [education].”

Lebel & Harriman formally created a small-business team focused on startup plans, SIMPLE [Savings Incentive Match Plans for Employees] individual retirement accounts and micro plans, allowing younger professionals to develop client-facing experience before moving into larger and more complex plans.

Kelli Davis, an executive vice president at Hub International and whose median plan size is $16.6 million in assets, agrees that micro plans are good preparation for newer advisers.

“We always want to make sure they’re involved in those conversations so they can really see, ‘How do I set this up and continue to work with them on an ongoing basis?’” she says.

Watching a Plan Grow

Davis also points to the long-term growth potential of micro plans, saying some of her firm’s largest clients began as tiny startup plans.

“Even if you look at a Google, all the billions of dollars that are in there, it started with just a couple of people,” Davis says. “We have one plan in our office that we’ve had since the early ’80s. It started with four brothers, and they wanted to start saving for retirement. Then they just kept acquiring and building, and it [became] 1,200 people.”

Chris Connolly, a retirement team partner in Capital Analysts of New England, has had similar experience. While his median plan size is $4.5 million in assets, some of his clients have grown much larger.

“I can point to some of my largest plans that were formerly startup plans, but that’s not the outlook going into it, per se,” he says. “I was going after a startup plan; it was a tech company, and [it] had nothing. I got referred in there, and I [thought] ‘It could be interesting.’ [The plan] shot up to $10 million in a heartbeat.”

Standardized Pricing, Service Models

For many advisers, however, growth potential alone is not enough. Successful micro-plan practices require disciplined service models and operational efficiency. Chris DeAndrea, director of retirement plan consulting at MPW Retirement, whose median plan size at his previous firm was $6.8 million in assets, says profitability depends on standardization.

“From a profitability perspective, we’ll go in there, and it’s a very standardized service model for this space,” DeAndrea says. “You have to be efficient with what you’re offering and setting the expectations with them up front.”

His firm relies heavily on outsourced fiduciary services, technology integrations and virtual education programs to keep costs manageable. Its startup plans and plans under $1 million pay a flat annual fee of $5,000 and receive an annual virtual plan review and virtual education session. The plans switch to asset-based fees as they grow.

Moody says his firm settled on an annual $5,000 base fee generally paid by the plan sponsor plus a 0.5% asset-based fee paid from plan assets.

Davis’ firm charges a minimum annual fee of $6,000 on all plans and uses basis-point pricing for plans with less than $10 million in assets. Both firms offer annual plan reviews and education sessions for micro plans, but larger plans often receive semiannual or quarterly reviews.

Technology is also changing advisers’ ability to serve smaller clients efficiently. Christine Sivak, a financial adviser at Signature Estate and Investment Advisors LLC, says automation allows advisers to spend more time on areas requiring judgment and expertise.

“Technology will handle some of the blocking and tackling, but you still need experience and intuition to anticipate what could go wrong,” she says.

Likewise, Connolly describes technology, including artificial intelligence tools, as transformative in servicing micro plans. Virtual meetings and AI-generated summaries now allow him to support clients located hours away from his immediate geographic area.

“An architect of mine moved out to the Berkshires [in Massachusetts], … and he was working at a place [without] a 401(k) plan,” Connolly says. “I said, ‘I can give you one if you want it.’ I would never have done that before, because I’m not going out there—that’s a solid three-hour drive for me.”

‘Help Everybody Save’

Many advisers working with micro plans point to their efforts to help close an access gap to workplace retirement coverage.

“If our objective as practitioners is to help everybody save, then that means everybody, including those one-person plans that are tiny,” Davis says.

Sivak, whose median plan size is $2.2 million in assets, says smaller employers often need advisers more than larger organizations do.

“A $1 million plan typically doesn’t have a benefits department, investment committee or someone whose full-time job it is to understand [the Employee Retirement Income Security Act],” Sivak says. “I believe the smaller the employer, the more valuable a specialist can be, because there may not be anyone else in the organization as focused on the plan as their financial adviser.”

Sivak adds that micro plans “don’t necessarily require less advice or service—quite the opposite—but they require a different delivery model.”

She takes time with new clients to clarify plan benefits and help administrators fulfill fiduciary duties. While Sivak offers annual plan and investment reviews to micro plans and two to four reviews per year to larger plans, she says they all receive the same investment monitoring, accessibility and fiduciary attention.

“I’m acting as a steward for their own plan,” Sivak says. “Then, when they feel good about their plan, they’re going to go on to champion it to their employees.”

Many advisers say referrals remain the primary source of new micro-plan business. Certified public accountants, ERISA attorneys, benefit consultants and existing clients often introduce small employers who are looking to establish their first retirement plan. Those relationships can generate future retirement plan opportunities, wealth management relationships and broader business planning engagements.

By serving such small businesses and communities, Moody sees the impact extend well beyond the retirement plan itself.

“I do think, from a marketing perspective, there’s a lot of goodwill and benefit that can lead to indirect revenue opportunities as a result of working with those small businesses,” Moody says.