Can RPAs, wealth advisors and providers adapt?
A recent report by Gusto senior economist Nich Tremper analyzing administrative payroll data indicates a a 64% increase from 2019 to 2026 in retirement plans by small businesses defined as organizations with 2-99 employees. Cerulli reports that 92% of defined contribution plans will be in the micro market by 2029, and total plans will surpass one million by 2030. Currently, 42 million people participate in the gig economy, with one in ten relying on it as their primary source of income.
While the convergence of wealth and retirement at the workplace and eventually all benefits is reshaping the DC industry, the growth of retirement plans by these smaller businesses, many employing hourly workers, will also be a major factor in redefining how advisors and providers approach retirement plans at work.
The numbers are startling. Just 19% of small businesses, which include 40 million organizations according to Gusto, offered a retirement plan in 2019, which increased to 31% in 2026. Though participation rates for hourly workers are now at 38%, up from 22% seven years ago, they lag behind salaried employees at 73%. Tremper claims the growth is not due entirely to government mandates, but those with them saw a dramatic increase in plan growth. Imagine if there is a federal mandate.
Who will sell and serve the potential tsunami of small retirement plans?
Doubtful that the current group of just over 10,000 retirement plan advisors will be interested, as fees are low and work as well as liability are high. Perhaps some will deploy pooled employer plans, each of which must be sold separately. The cross-selling results by RPA firms owned by benefit brokers whose clients are generally smaller have been mixed.
More of the 275,000 wealth advisors are interested in DC plans, mainly to gain new financial planning and wealth clients and to leverage relationships with existing clients, as are some broker-dealers eager to get their reps interested in the 401(k) market. But fees and profit margins are higher for wealth services, and with the aging of financial advisors, with over 35% expected to retire over the next 10 years, many are not interested in learning and developing a new line of business.
Larger asset managers have outsized wealth-wholesaling forces, but none have figured out how to incentivize them to include DC plans in their pitches to wealth advisors. Because of data issues, it is hard to pay them, while some firms have decided not to - these wholesalers carry many services and products, so fitting in DC plans can be a challenge
Doubtful that benefit or P&C brokers, insurance reps at independent marketing organizations or CPAs will have a meaningful impact on this market for various reasons.
So far, payroll providers like ADP, Paychex and Gusto, which mostly cross-sell and fintechs like Vestwell, Human Interest, Betterment and 401Go, many of which partner with payroll companies, have benefited from the surge in new plans by smaller businesses. While Human Interest is reported to be significantly increasing its sales force, the fintechs rely on third parties that already have relationships with small businesses for distribution.
Ted Benna claims the current 401(k) structure is too complicated, touting a much different approach while record keeping technology has hindered efficiencies though FIS has recently launched cloud-based versions of Relius and Omni to address these issues incorporating over 100 third party applications. Current big-name record keepers still struggle to profitably sell and service start-up and small plans
Maslov said that when the only tool you have is a hammer, the whole world looks like a nail.
It’s clear that more small businesses are and will be offering retirement plans, while gig workers will be interested through firms like Uber and DoorDash. There is a huge opportunity, but as currently constructed, most advisors, providers and asset managers are not properly aligned. Those that can leverage current client relationships and the workplace to offer financial planning and employee benefits, and uncover hidden wealth with retirement plans as the Trojan horse, will thrive. But changing business models that are successful for incumbents is hard, as Harvard professor Clayton Christensen explained in his seminal book, The Innovator's Dilemma.
Facts Only
* A 64% increase in retirement plans by small businesses was observed from 2019 to 2026.
* 92% of defined contribution plans are projected to be in the micro market by 2029.
* Total DC plans are projected to surpass one million by 2030.
* 42 million people currently participate in the gig economy, with one in ten relying on it as primary income.
* 19% of small businesses offered a retirement plan in 2019, increasing to 31% in 2026.
* Participation rates for hourly workers are at 38%, up from 22% seven years prior.
* Participation rates for salaried employees are at 73%.
* Payroll providers like ADP, Paychex, and Gusto have benefited from the surge in new plans by smaller businesses.
* Fintechs such as Vestwell, Human Interest, Betterment, and 401Go partner with payroll companies for distribution.
* Record keepers still struggle to profitably sell and service start-up and small plans.
Executive Summary
The growth of retirement plans by small businesses and the participation of gig workers are reshaping the structure of the Defined Contribution (DC) industry. Data indicates a significant increase in retirement plan offerings by small businesses, with 19% offering a plan in 2019 rising to 31% by 2026. While participation among hourly workers is increasing to 38%, it lags behind salaried employees at 73%. The potential for these smaller entities to define the future of retirement savings is substantial, especially given that many hourly workers rely on gig economy income.
The market faces challenges in how advisors and providers are positioned. Existing providers face hurdles regarding sales channels, as established players like wealth advisors, benefit or P&C brokers, and asset managers have not effectively integrated DC plans into their offerings due to complex structures and profit margin concerns. While payroll providers and fintechs have benefited from the surge, the current structure does not align the interests of key industry players.
The opportunity lies in those who can leverage existing client relationships within small businesses and the gig economy to integrate financial planning and retirement savings through DC plans. However, this shift is constrained by established business models, creating a need for new approaches to distribution and service delivery among advisors, providers, and asset managers.
Full Take
The narrative presents a structural misalignment between the rapid growth of retirement plan offerings driven by small businesses and gig workers, and the current engagement models of established financial service providers. The core tension lies in realizing the potential defined by this growth while navigating incumbent inertia, which is explained by the Innovator's Dilemma. The observed gap suggests that the value proposition for traditional advisors, brokers, and asset managers remains misaligned with the actual distribution landscape created by small employers and contingent workers.
The reliance on external distributors like fintechs to capture market share highlights a failure of incumbents to effectively translate complexity into accessible, profitable service lines, particularly concerning smaller plans. The suggestion that cross-selling opportunities exist through integrating retirement planning as a mechanism to uncover wealth—the "Trojan horse" concept—is a strategy that directly challenges existing business models but is constrained by the difficulty in changing successful organizational structures.
The key implication for agency involves recognizing where leverage points exist. Success hinges not just on offering plans, but on adapting delivery mechanisms and incentivizing participants across the spectrum—from small employers to gig workers. The failure of larger entities to adapt suggests a systemic resistance to disruptive change, implying that true innovation will emerge from those who can operate outside the established profit-margin constraints of the current system. What incentives are necessary to overcome the structural inertia described by Christensen, and how can relational capital be translated into scalable product integration rather than remaining siloed service offerings?
Sentinel — Human
The text effectively synthesizes economic data regarding retirement plan growth among small businesses and gig workers, positioning these trends as an opportunity for adaptation within the financial services industry.