Absolute Capital: How Wealth Managers Can Leverage Retirement Trends

(Absolute Capital Management) There are over 100,000 corporate retirement plans in the United States eligible to be managed by a financial advisor.  These plans encompass millions of total participants who may benefit from the help of a financial professional.  Not every participant has the want, will, skill or time to manage their own retirement account.  And these accounts are often one of the individual’s largest assets1.  Fidelity (a major provider in the retirement plan space) stated that they have over 500,000 401(k)/403(b) accounts with over $1,000,000 in assets2; not an insignificant number of accounts – and this is just one retirement plan provider.

Advisory firms should not ignore the need for financial guidance that exists for these working Americans around the country.  Remember, the average American spends roughly 20 years in retirement.

Industry data tells us, and our own experience confirms, that advisors predominantly overlook these accounts.  But could the client be better served?

In addition to pre-rollover asset management helping provide peace of mind, increased investment options, and aiding with emotional decision making in times of uncertainty, the wealth management industry must also consider societal trends. 

Let’s take a look at the future of wealth management, the Millennials.  Millennials were the largest generation group in the U.S. in 2019, with an estimated population of 72.1 million3.  They now surpass Baby Boomers.  They have a higher utilization of defined contribution plans than earlier generations, are expected to live longer, and potentially stand to see a diminished Social Security system.

Aiding with their 401(k), 403(b) and 457 accounts may be a significant way to carry them through their retirement years.  As employers have shifted from defined benefit plans (pensions) to defined compensation plans, the investment risk has also shifted from employers to employees.  Advisors are in a great position to help the Millennials plan for this burden of increased investment risk and accumulation planning.

Next let’s breakdown Millennial characteristics. 

First, we should note that compared to prior generations, Millennials start with an educational advantage: Over 60 percent of adult millennials have attended at least some college, compared to 46 percent of the baby-boomer generation when they were the same age.4 The increased percentage of women attending college is a significant contributor to this. As the below chart illustrates, education does matter when it comes to net worth.

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Average Net Worth by Education Level Forbes 4/21

Second, we see in the next chart that from 1989-2016 the percentage of average net worth of those 25-35 years of age.  Notably, the top 10% of individuals net worth skyrocketed.  While this is similar across the generations, it is important to be aware of the significance of the total wealth being accumulated by the Millennials.  Ignoring this concentration of wealth today is a business planning oversight for any financial advisor.

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Lastly, as of 1Q22 the ratio of national debt to GDP was 124%.  Under current policy assumptions, the ratio of public debt to GDP will exceed 200 percent by 20485.  As such, the likelihood of increased taxes and lower annualized rates of return in the year ahead have a very reasonable chance of becoming a reality. 

The wealth management sector has a tremendous opportunity to aid the next generation’s wealth with their savings, and specifically with their corporate retirement plan.  As Baby Boomer wealth is transferred and Millennial wealth is amassed, it may prove critical that advisors are effectively marketing and developing a successful asset acquisition strategy for Millennials.

Opportunity Summary

At Absolute Capital we believe that both now, and in the decades to come,  incorporating workplace retirement accounts will be critical to AUM growth for wealth management firms. Advisors can play a more substantive role in helping clients both build workplace retirement assets as well as distribute them efficiently. 

If an advisor has previously looked at this space, they may find that Absolute Capital’s Workplace Investment Navigator (WIN) platform has comparatively lowered costs and increased investment options.  If they are just learning of the opportunity, we believe they will be excited about the possibilities.

Find out how to make pre-rollover asset management part of your Firm’s success.  Email us at info@abscap.com or call 888-388-8303.

Alex Barned – National Sales Director – Absolute Capital Management

As National Sales Director, Alex heads the national sales channel including TAMP distribution, marketing, advisor relations and sales strategy. In his twenty years of financial services experience, Alex has held executive level roles with firms including Smith Barney, UBS and Allianz focused on asset management, third party money managers, and TPAM sales, logistics and technology.  Alex holds a B.A. and M.A. from The George Washington University.

1 13 percent of Households had ownership in business equity (2019, US Federal Reserve Changes in US Family Finances from 2016-2019; with the median value being $89,000 and the mean more than $1.2mm.  Ownership of non-residential equity was 6.7% in 2019. Homeownership 64.9% in 2019 - high was 69.1 in 2004

2 Fidelity 4Q21

3 Statista

4Council of Economic Advisors

5 Brookings institute, 3/19, How Will Retirement Savings Change by 2050

This was prepared for informational and discussion purposes only and should not be construed as legal, tax, investment, or other advice.  Clients should consult with their financial planners, accountants or attorney in regard to such topics.  The information contained herein does not purport to be complete, is subject to change.

Clients should carefully consider their investment objectives, risk tolerance, and time horizon; as well as the fees and expenses associated with utilizing a self-directed brokerage window and services of a professional third-party money manager.  Asset allocation and diversification do not guarantee a profit or protect against a loss.  For more information regarding your retirement plan and available investment options, contact your employer or read your plan’s summary documentation. 

Absolute Capital Management, LLC is an SEC registered investment adviser.   For a detailed discussion description of Absolute Capital, its products, and fees, please refer to the Firm’s Form ADV on file with the SEC, www.adviserinfo.sec.gov. The Firm’s CRD number is 121484. You may also contact us at 888-388-8303 or visit our website at www.abscap.com. 5001-238

 

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