From the November 2004 issue of Investment Advisor • Subscribe!

Making Life Simple

The Amish may be known as "the Plain People," but their financial issues are anything but. Here's how planner Paul Nolt quietly prospers by serving this unique clientele

Amid the lush, rolling cornfields of Lancaster County, Pennsylvania, it often seems as if time has stood still for at least a hundred years. Instead of the roar of car engines, you hear the clop-clop-clop of horses and buggies clattering along quiet country lanes; instead of rumbling tractors, the fields are filled with farm equipment drawn by teams of horses and manned by men in straw hats. Roadside farm stands explode with the tempting smells of fresh-baked pies and the vivid colors of fruits and vegetables picked from the nearby fields; the young lady in the bonnet and apron who puts down her quilting to sell them to you most likely baked them or picked them herself. No electrical or phone lines are strung to the farmhouses that dot the countryside; no running water is available inside them. Even the clotheslines reveal something about the local population's disdain for modern ideas about appliances, fashion, and family size: Fluttering in the breeze on a single clothesline are enough garments for several adults and a dozen children, arranged in decreasing size from the father's long, buttonless black trousers to the tiny dress and bonnet belonging to the youngest member of this Amish family.

In many ways, time has stood still. Yet if you look closely, there are also signs that it has not. Take, for instance, the phone booths built on the corners of some Amish farms for communal use, or the Nike sneakers peeking out from beneath the dress of the Amish girl who sold you that strawberry pie at the farm stand. Consider the phone line running to a barn where an Amish father runs a woodworking shop, or the young Amish man getting into the pickup truck of a non-Amish driver for a ride to a construction job across the county. Each of these nods to modernity is part of a balancing act that the Amish people perform every day--striking a balance between the realities of the world around them (such as a decrease in available farmland, which necessitates taking up a non-farming occupation such as woodworking or carpentry, which in turn necessitates a telephone to contact customers or a means of long-distance transportation to get to construction worksites) and their belief in a simple, agrarian life centered on church and family. Thus, telephones, for instance, are still allowed only outside the home, since a phone in the home would intrude upon family life, and most Amish still refuse to drive cars because easy access to automobiles could take them away from their homes and families.

But the Amish balancing act isn't just about writing letters instead of using telephones, or traveling in buggies instead of cars. It also includes the complex world of personal finance, and it is in this arena that advisor Paul Nolt of Precision Financial Services in New Holland, Pennsylvania, has developed a specialty. Nolt, 47, who is himself a member of the Mennonite church (a denomination that shares the same roots as the Amish faith, but permits a much wider variation in the acceptance of modern culture), helps his clients strike a balance between the strictures of their religious beliefs, their desire to provide for their families, and their responsibilities as American taxpayers.

It sounds like an easy job, if you assume that all you'll have to do differently is install a few hitching posts in your parking lot for your clients' horses and buggies (which, for the record, Nolt has done). It sounds simple if you figure that all Amish people are totally cut off from the outside world, and that they manage their money by simply stashing it under the mattress. But they aren't, and they don't. Many invest in the stock market, and they have to pay most of the taxes required of every other American. They have to consider how they'll pay for their medical needs in their elder years, and as farmers and small businessmen, they face all the tax and retirement planning challenges of the self-employed. What's more, they also face a host of financial issues unique to their community. That's because everything from property/casualty insurance to investing to long-term care has a special twist if you are Amish. While you may not live or work near a large Amish community, Paul Nolt's firm illustrates the benefits of becoming an expert on your clients' unique requirements and tailoring your work style to fit their needs.

All For One and One For All

If a client arrived on your doorstep and announced that he had not one speck of property/casualty, health, life, or long-term care insurance, you'd probably leap out of your chair and drag him immediately to the nearest insurance agency. If that same client mentioned that he owned hundreds of thousands of dollars worth of livestock, farm equipment, and woodworking machinery; had 12 dependents, including nine children, a wife, and two elderly relatives; and would never receive any Social Security whatsoever, you'd probably keel over in a dead faint. Yet many Amish clients fit this description to a T, and do just fine. How can this be?

Let's start with property/casualty insurance. Take a drive around Lancaster County a few days after a major lightning storm, and you might be lucky enough to witness one of the trademark events of Amish life: a barn-raising. When an Amish farmer loses his farm in a fire or storm, an army of volunteers--his neighbors--swarms out of the woodwork to help him build a new one, pronto. The lumber comes from Amish sawmills, often at a reduced cost, and is paid for from a pool of funds called a "fire and storm damage sharing plan," which is collected in advance from the entire church congregation for this very purpose, explains Nolt. "For some of the Mennonites, contributions are on a free-will basis, but the Amish tend to be a little more sophisticated about it: There is usually an assessment of the value of each member's property and buildings, and each person pays [into the pool] on the basis of that value," he says. "The cost of helping each other in this way is very low compared to what a typical commercial insurance policy would cost." For the self-employed (including farmers and owners of small businesses), contributions to the church sharing plan related to the value of the business properties (say, a barn or a woodworking shop) can be deducted as an insurance expense, notes Nolt.

Amish churches have similar "sharing plans" to cover members' medical costs. Members pay a fixed cost per family, rather than on the basis of family size. Unfortunately, the cost savings of the church health program are not nearly as pronounced as those of the fire/storm plan, because the Amish use the same doctors and hospitals that their non-Amish neighbors do, says Nolt, and the costs for those services, as we all know, are skyrocketing. While many Amish will try home remedies before resorting to visiting a doctor, "they're not opposed to using modern medical services," says Nolt. "If they have cancer or need heart surgery, they'll go to the Hershey Medical Center or Johns Hopkins, or some of the other larger hospitals, if necessary."

Long-term care insurance, however, is unnecessary not because of a church program, but because the Amish place high importance on taking care of their own elderly. "It's not that they think there's anything wrong with nursing homes, and they will use them if they truly can't care for a person. But they try to avoid them simply because they feel that it is not taking responsibility for keeping the family together," says Nolt. Take a look at the typical Amish farmhouse, he says, and you'll often notice a series of additions on either side. These additions are built to house the grandparents or other elderly family members, and the older children will often help Grandma and Grandpa with their cleaning, gardening, or baking chores. "It's the same idea as the barn raising: that community-minded philosophy of taking care of their own," says Nolt. "And if there's an older single person without any children, the nieces and nephews are expected to step in."

As for life insurance, don't even think about it: The Amish won't even consider it. "When you get a life insurance policy, you're putting a dollar value on the life of that person, and they believe that that life is too sacred to put a price on," says Nolt. Life-insurance-related products, such as annuities, are also out of the picture. Nolt has had clients who so vehemently oppose life insurance that when he explained the details of their annuity contracts (which had been sold to them by other brokers), they were willing to pay hefty early-withdrawal fees just to get out of them immediately. "I usually tell them to go back to the agent and explain why the annuity was unsuitable, because the problem is lack of education," he says. "The agent my not have deliberately tried to get them into an investment that violated their principles, but by explaining the situation, we can keep him from doing it again."

Yes, the Amish Do Pay Taxes

While tourists to Amish country generally sigh dreamily about living a bucolic, "Little House on the Prairie" lifestyle, some people--usually locals--get a bit snippy instead, especially if they mistakenly believe that the Amish don't have to pay taxes. But the Amish do pay most of the taxes required of every other American citizen: income taxes, estate taxes, and even local and school taxes (although the latter tax is unfair, says Nolt, since their children don't attend public schools; they attend Amish-run one- and two-room schoolhouses instead). "Just imagine how many more schools Lancaster County would need to build if all the Amish sent their children to public schools," says Nolt. (Most estimates put the total Amish population in the U.S. somewhere north of 100,000; see "By the Numbers" sidebar.)

The tax they don't pay, however, is Social Security, for the simple reason that the Amish choose not to receive Social Security checks in their graying years. "They feel that [accepting Social Security checks] would be depending on the state, rather than the church and their families and God, to take care of them," says Nolt. Some Mennonite congregations also choose to exempt themselves from Social Security, but not all, he says. "It's not as if one option is clearly financially a lot better than the other," he notes. True, the upside is significant. An exempt worker takes home a greater portion of his paycheck than does his non-exempt counterpart. But the flip side is that the exempt worker must save even more assiduously for retirement. Without Social Security, there will be nothing to supplement the worker's retirement savings, and without the related programs of Medicare or Medicaid, the worker risks putting an enormous burden on the church's medical sharing plan if he can't pay at least some of his health care costs himself.

By the way, before you start scheming about how to get your clients exempt from the Social Security tax, be aware that it's not as simple as it sounds, warns Nolt. You can only become exempt on a group basis, and "the group has to have been in existence for a certain period of time; you can't just get together any new group of people and say, 'We're going to take care of our people like the Amish do, and we want to be exempt,'" he says. "If an Amish person leaves the church, their minister or bishop has to notify the Social Security office, and that person has to starting paying into the system."

Investing for the Amish Client

Advising Amish clients on their investments can also have its unique twists, says Nolt, who is a registered rep for HD Vest as well as an accountant. For one thing, the sales cycle is much, much longer, at least for the clients that Nolt doesn't see regularly. "As an accountant, I have a lot of clients who we have monthly contact with: we do monthly writeup work, bookkeeping, payroll, that sort of thing. But for those who only want periodic investment assistance, or an IRA, or want us to do their tax return once a year, it can take a lot longer," he says.

Face-to-face meetings can also be hard to arrange. Prospects within driving distance can come into Nolt's office, but "driving distance" is much shorter for a horse and buggy than it is for an automobile. If prospects are coming from farther away, they have to hire a non-Amish driver to bring them, "so the meter is ticking away as we sit here discussing investments, and that makes it an expensive proposition for them to come in," says Nolt. Many prospects lack telephones, so they can't call to set up an appointment or ask questions, and Nolt can't call them to set up a visit to their homes, either. All this means that contact often takes place by mail--and "trying to do an investment by mail can be a very unique experience!" says Nolt with a wry laugh.

Yet the biggest obstacles aren't always physical or technological. Indeed, some of Nolt's clients do have access to phones in communal phone booths or in their businesses, and some of those phones, much to Nolt's delight, have voice mail ("Voice mail has been a big breakthrough for my work," he says). The Amish culture encourages a deliberate, thoughtful lifestyle, so most Amish are simply unwilling to make major financial decisions quickly. "They generally have a cautious mentality," says Nolt. Among this cautious group, the owners of small businesses are more likely to invest in securities than their farming brethren, he says. "As their small businesses grow larger, they become a more likely investment client, but off the top of my head, I couldn't name any Amish farmer that is an investment client," he says. "[The farmers] tend to use short-term profits to improve and expand their farms."

Once an Amish client decides to invest, many invest in "the same funds anybody else would," he says, "although if you give them the option of a Christian fund, they usually choose that." Nolt often recommends the MMA Praxis funds, which are associated with the Mennonite church, and is currently researching other Christian funds. He finds that Amish clients are generally, though not always, most interested in avoiding so-called "vice stocks" (alcohol, gambling, and tobacco), rather than seeking out "socially responsible" stocks associated with issues like sweatshops, diversity, and the environment. "They don't consider themselves to be Bambi lovers or tree huggers," he says. "As farmers, they are stewards of the earth, and they respect the earth as God's creation, but they caution their people not to put the earth on too high a pedestal."

But wait a second. It makes sense that they'd want to avoid alcohol and gambling, but these are people who have been farming tobacco for hundreds of years. Doesn't it seem odd that they would eschew tobacco stocks and then spend all summer growing the stuff? Actually, says Nolt, "tobacco used to be a key cash crop, and I think 50 years ago, people were pretty innocent. But now, they do see the irony of it, so there are more and more Amish people quitting using tobacco, and they're not growing it as much, either." Part of the reason is economic--tobacco farming in Lancaster County isn't as profitable as it used to be--but as the evidence about tobacco and cancer has grown, many are also turning away from it for ethical and medical reasons. In some cases, "it's becoming a test of membership, and you're no longer able to be a member of the church if you grow tobacco," he says.

Even though you may live and work far from the clop-clop-clop of Amish buggies clattering down country lanes, Paul Nolt's small firm illustrates the rewards that come from shaping your practice and developing expertise that matches your clients' specific needs. He shares many of his clients' beliefs, if not their lifestyle, and has the pleasure of not only serving the people who live right down the road but also working amid some of Pennsylvania's most picturesque countryside. It seems that sometimes you can find a clientele in the unlikeliest of places--even in a place where time stands still.

Assistant Managing Editor Karen Hansen Weese can be reached at khansen@ia-mag.com.

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