4 Steps to Grow Your Advisory Business With Secure 2.0

I am a goal-setting nerd. And that means that this time of year, I get giddy about the opportunity to reflect and set intentions for the year ahead.

As an advisor, you are likely thinking about business goals and how you might improve client retention while also looking to build new revenue streams. As the head of Offer Strategy at Axos Advisor Services, one of my chief responsibilities is creating opportunities to help advisors achieve their goals.

And as my team and I continue to review the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act, it is clear that RIAs are positioned to deepen existing client relationships with small-business owners. By leaning into your non-competitive partners, you can easily and affordably add employer-sponsored retirement plans simply by taking advantage of various provisions in the Secure 2.0 Act.

Roughly half of all Americans work in a business with fewer than 100 employees. While retirement plans are an important part of employee benefits, only around 30% of small businesses currently provide one to their employees, with most business owners that saying such plans are not financially feasible. Thus, there has never been a better time to start supporting your small-business clients with retirement plan services.

With the passing of the Secure Act in 2019 and the Secure 2.0 Act in 2022, several measures, such as lowering the cost of setting up a plan and paths to increase participation, have been taken to incentivize small business owners to establish retirement plans.

These include:

Startup Tax Credits

Under Secure 2.0, small-business owners with 100 or fewer employees who start a retirement plan may be eligible for tax credits that cover the majority of eligible startup costs. These tax credits are available for the first three years the plan is maintained, up to $5,000 per year — funding that will go directly to the advisor, recordkeeper and third-party administrator.

To qualify, the company must not have maintained a qualified plan in the three taxable years before the year of plan adoption, have at least one non-highly compensated employee and have no more than 100 employees making $5,000 or more in the prior year.

Employer Contribution Tax Credits

Secure 2.0 also introduces tax credits for employer-matching and profit-sharing contributions for small businesses with 100 or fewer employees for the first five tax years beginning when the plan is established. The tax credits can offset a significant amount of the initial cost burdens, allowing small businesses to make meaningful contributions to retirement plans that will continue to grow over time.

Auto-Enrollment Tax Credits

An additional tax credit of $500 is available for up to three years for small businesses with 100 or fewer employees that add an eligible automatic contribution arrangement to their plan. Not only does the tax credit further lower the costs of starting a plan, but 401(k) plans with an auto-enrollment feature have been shown to increase plan participation rates from 28% to 91%. This allows you to grow your book of business and assets under management with less effort on your part. Secure 2.0 requires all new qualified plans to add the contribution agreement by the 2025 plan year.

If you're new to employer-sponsored retirement plans, you don't have to become an expert overnight, add to your payroll or assume outsize risk. Here are four steps to get started:

1. Encourage Investment in a Better Retirement Vehicle

Separate from Secure 2.0, 18 states have passed laws mandating that employers offer IRAs or other retirement solutions, and most states are considering similar legislation. However, non-qualified plans will be ineligible for tax credits under Secure 2.0 and won't provide the same benefits.

Even if businesses have already started a state-mandated IRA, they can open a 401(k) and qualify for federal tax credits. Financial advisors with business-owner clients in these states should share the benefits of opening a qualified 401(k) plan, which, in addition to tax credits, offers more attractive features, such as allowing businesses to provide employer-match or profit-sharing contributions.

2. Lean on Non-Competitive Partners

Some advisors have avoided offering retirement plans due to perceived complexities, unknown costs and lack of bandwidth. But startup tax credits can reduce some of the growing pains. As advisors build their retirement business, they should actively consult with their custodian, who can direct them to recordkeepers and third-party administrators to help navigate the onboarding process.

These partners can handle everything from plan compliance to administration, technology, and sales and marketing support. Just ensure that whomever you partner with isn't directly competing with you and actively targeting the same clients that you are.

3. Tap Your Compliance Team

Involve your compliance team in all discussions around the fee structure, fiduciary status and investment selection process. It is important to understand your fiduciary status and how it might affect your business.

4. Stay Closely Aligned With Your Partners

In the coming years, several important features of Secure 2.0 are becoming available. These include mandatory automatic enrollment for new plans, expanded distribution options, Roth employer contributions, and the addition of Roth SEP and Roth Simple IRAs. The IRS recently issued guidance around many of these new features, and the industry awaits additional clarification around Roth SEP and Roth Simple IRAs.

Amid these ongoing developments, advisors should continue communicating these changes to prospective and current retirement plan clients to ensure that they are taking advantage of all available options. A good partner will keep you informed as new information is released.

Conclusion

Secure 2.0 offers financial advisors an opportunity to offset expenses associated with building a new revenue channel while also strengthening client relationships. Do you want to leave the ball in a competitor's court?

Small businesses are under pressure to offer retirement plans; if you can't meet their needs, you are opening yourself up to the risk that someone else could come in and take that entire relationship. Proactively help your client solve a problem — one that the client might not even be aware of — and create stickiness in the relationship, making it more likely that you'll work together for years to come.

Amy Morris is senior vice president and head of Offer Strategy & Enablement at Axos Advisor Services, an RIA custodian.