Market Analysis – 64102006 – Simplified employee pension SEP account

Market Analysis: Simplified Employee Pension (SEP) Accounts

UNSPSC: 64102006

Executive Summary

The market for Simplified Employee Pension (SEP) accounts is a function of the broader small business and self-employed retirement plan sector, with total assets under management (AUM) estimated at $750 billion USD. The market is projected to grow at a 5.2% CAGR over the next three years, driven by the expansion of the gig economy and favorable legislation. The primary opportunity lies in leveraging technology-driven platforms to capture the growing segment of independent contractors and small businesses seeking low-administration retirement solutions. The most significant threat is intense fee compression, which pressures provider margins and shifts the competitive focus entirely to platform capabilities and scale.

Market Size & Growth

The global Total Addressable Market (TAM) for SEP and similar small-business retirement plans is estimated at $750 billion USD in AUM as of year-end 2023. This market is projected to grow at a compound annual growth rate (CAGR) of est. 5.2% over the next five years, driven by small business creation, increased savings rates, and legislative incentives. The three largest geographic markets are the United States, the United Kingdom, and Germany, which have robust small-to-medium enterprise (SME) sectors and established regulatory frameworks for individual-based retirement savings.

Key Drivers & Constraints

1. Demand Driver: Growth in Non-Traditional Workforce. The rise of the gig economy, freelancers, and independent contractors is a primary catalyst. These professionals require flexible, low-overhead retirement vehicles, a core strength of the SEP IRA.
2. Regulatory Driver: Favorable Legislation. Acts like the SECURE 2.0 Act (USA, Dec 2022) provide tax credits and simplify rules for small businesses starting retirement plans, directly boosting demand for SEPs and similar products.
3. Technology Driver: Fintech & Automation. The emergence of "robo-advisors" and fully digital onboarding platforms has dramatically lowered the barrier to entry for small employers, reducing administrative time and complexity from days to minutes.
4. Constraint: Competition from Alternative Plans. SEP IRAs face significant competition from other small business plans, notably the Solo 401(k), which allows for participant loans and Roth contributions, and the SIMPLE IRA, which may be preferable for businesses with more consistent employee bases.
5. Constraint: Economic Sensitivity. As employer contributions are discretionary, economic downturns that squeeze small business profitability directly reduce or eliminate plan funding, impacting AUM growth for providers.

Competitive Landscape

Barriers to entry are High, requiring significant regulatory compliance (e.g., SEC, FINRA), capital for platform technology and cybersecurity, and substantial brand trust to attract assets.

⮕ Tier 1 Leaders * Fidelity Investments: Dominant market share through brand recognition, extensive low-cost mutual fund/ETF offerings, and a robust platform catering to all business sizes. * Charles Schwab: A leading competitor with a strong focus on investor services, offering competitive pricing and integrated banking/brokerage solutions for business owners. * Vanguard: Differentiates on its reputation for ultra-low-cost index funds and ETFs, appealing to cost-conscious business owners and self-employed individuals.

⮕ Emerging/Niche Players * Guideline: A fintech leader focused on automating plan administration for small businesses with a transparent, flat-fee pricing model. * Betterment for Business: Leverages its established robo-advisory technology to provide automated, goal-based investment management for small business retirement plans. * Human Interest: Offers a technology-forward platform with a focus on user experience and streamlined setup, targeting tech-savvy small and medium-sized businesses.

Pricing Mechanics

The "price" of a SEP IRA is not a single fee but a composite of costs borne by the plan holder. The primary cost is the investment expense ratio, an annual percentage fee charged by the underlying mutual funds or ETFs within the account. This is the most significant competitive battleground among providers.

A secondary layer includes platform or administrative fees. Historically, these were annual account maintenance fees, but intense competition has led most Tier 1 providers to eliminate them for accounts meeting a minimum balance. However, emerging fintech players often charge a monthly per-participant or flat-fee for their administrative and advisory technology. Other potential costs, such as trading commissions, have been largely eliminated for most common securities. The most volatile cost elements are not direct fees but relate to market performance and provider strategy.

• Investment Expense Ratios: Recent Change: -10% to -20% over the last 3 years due to the "race to zero" on fund fees.
• Advisory Fees (for Robo-Advisors): Recent Change: Stable to -5%, with pressure from new flat-fee models (e.g., $X per month) versus traditional AUM-based fees (e.g., 0.25% of assets).
• Cash Sweep Yields: Recent Change: +400% to +500% as central bank interest rate hikes have dramatically increased the yield on uninvested cash balances, becoming a more significant part of the total return equation.

Recent Trends & Innovation

• Legislative Incentives (Dec 2022): The U.S. SECURE 2.0 Act enhanced tax credits for small businesses starting new plans and introduced provisions allowing employers to offer matching contributions to a SEP for employees making student loan payments.
• Platform-as-a-Service (PaaS) Emergence (2022-2023): Fintech providers are increasingly offering their retirement plan technology as a white-label solution for payroll companies (e.g., Gusto) and financial institutions, expanding distribution channels.
• Direct Indexing Accessibility (2023): Previously exclusive to high-net-worth individuals, direct indexing is becoming available on some platforms for SEP IRAs, allowing for greater tax-loss harvesting and ESG customization than traditional ETFs.

Supplier Landscape

Regional Focus: North Carolina (USA)

Demand outlook in North Carolina is strong. The state hosts over 960,000 small businesses, which employ 1.7 million people, representing nearly 45% of the private-sector workforce [Source - SBA, 2023]. Growth in key sectors like technology (Research Triangle Park), finance (Charlotte), and professional services fuels the creation of new businesses and high-income self-employed professionals, the primary audience for SEP IRAs. Local capacity is excellent; all major national providers have a significant digital and physical presence. Regional banks like Truist (HQ in Charlotte) also compete for these customers. North Carolina's tax code conforms to federal regulations regarding retirement plan contributions, presenting no additional barriers and making it a favorable operating environment.

Risk Outlook

Actionable Sourcing Recommendations

1. Prioritize Platform Integration and User Experience. Initiate an RFI focused on providers who can offer a seamless digital experience for our contingent workforce. The evaluation should score providers on API integration capabilities with our contractor management system, mobile-first design, and an average onboarding time of under 15 minutes. Target a solution that minimizes administrative overhead for our internal teams and maximizes contractor adoption.
2. Mandate Total Cost Transparency and Negotiate on Core Investment Costs. In the RFP, require a "Total Cost of Ownership" model that includes all administrative, advisory, and weighted-average fund expense ratios. Use our scale to negotiate for a complete waiver of account-level fees and prioritize providers offering a default investment lineup of index funds with expense ratios below 0.05% to maximize the value delivered to our independent contractors.