Defined contribution advisory fees are declining because basic plan-level services like handling fees, selecting and monitoring investment fund options and fiduciary duties have been commoditized. Less-experienced advisors can utilize third-party tools to provide investment analysis and outsource fiduciary duties, allowing them to charge lower fees. However, focusing too much on provider fees can backfire and open the door to even more cost competition.

So, how can advisors set themselves apart in a marketplace full of similar offerings?

Along with providing financial education to employees, which 401(k) and 403(b) plan sponsors want, advisors have ways to differentiate themselves that do not require a lot of heavy lifting, in part due to new laws like SECURE 1.0 and 2.0.

Employees who cannot afford to contribute to their defined contribution (DC) plan because they need to pay their student loans may be able to receive an employer matching contribution based on the student loan payments; for example, if a 6% contribution to the plan results in a 3% match, the same student loan payment can be eligible for the same match.

Many employees do not have enough money to pay even minimal emergency expenses, or repay burdensome loans from their 401(k) plan, which can lead to a fear of making contributions to the plan. SECURE 2.0 allows plans to create plan-level emergency savings accounts (PLESAs), which, though after-tax, may provide support for participants when they most need it. This can help participants who fear they may need the money start to make contributions and facilitate taking out loans by those who do contribute.

Health savings accounts (HSAs) can be an attractive tax strategy for employees in high-deductible healthcare plans. HSAs offer triple tax benefits: contributions are pre-tax, the money grows tax-free and can be withdrawn without tax payment. Participants who pay medical-related expenses out of pocket can allow the HSA to continue to grow tax-free, withdrawing it later when they retire.

For highly compensated employees who want to contribute more than the limits in DC plans, it might make sense to offer non-qualified or deferred contribution plans. Additionally, even though defined benefit (DB) plans are waning, a defined benefit type of alternative for some organizations is a cash balance plan. Cash balance plans are popular with small businesses since they do not come with the same liability burden of traditional DB plans.

Personalization is rapidly growing in popularity and advisors can deliver it through managed accounts. Though participant engagement is required or at least preferred, it may be a good alternative to full financial planning and can lead to other engagement opportunities.

Smaller employers struggle with the resources, time and responsibility of administrating DC plans, as well as the cost. Pooled plans like PEPs or MEPs allow organizations to outsource the fiduciary responsibility and administration to a more qualified entity, called a pooled plan provider; we believe that PEPs and MEPs should eventually be less costly as they grow and achieve scale.

Finally, people are getting more comfortable receiving financial advice online. Though they prefer speaking to an advisor, certain services can help provide advice and financial planning at scale through a combination of access to plan data and information garnered by the advisor.

Opportunities can also come with challenges. Only a small number of firms can provide these services, and most of them will leverage third parties. Advisors at these firms should leverage the resources provided by their firm’s home office. For advisors at firms that do not have these resources or advisors that are not part of a larger organization, they can leverage their record keeper, third-party administrator (TPA) and Defined Contribution Investment Only (DCIO) partners, many of whom have either created these services or engaged with third parties to provide them.

Though advisors may not make additional revenue from many of these services, like student loans and PLESAs, helping plan sponsors and their participants understand what is available can help strengthen the relationship with the plan sponsor, as well as justify their fee structure and provide opportunities for greater engagement with participants.