Be The Trusted Advisor Of Small Business Owners

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While the small business market is huge in this country–LIMRA estimates there could be as many as 6.4 million businesses with fewer than 500 employees–many producers still haven’t learned what it takes to crack the market.

Agents who have become successful in this market have done so, experts say, by listening to small business owners, understanding their needs, and developing customized plans to help them achieve their goals.

Lisa O’Day, vice president of business planning at Jefferson-Pilot Financial, Greensboro, N.C., says agents who are not actively working with small business owners can get started in a couple different ways.

“Business owners are the high net worth crowd in this country, and they are not typically the visible crowd,” she says.

Finding small business owners may not involve looking for individuals with big houses and expensive cars, says O’Day. “I think we are such a consumer-driven society, we equate high consumption with high wealth. I think there are a lot of people who look like middle Americans who are in fact well-to-do business owners,” she says.

“There are so many small business owners,” she continues, “that if agents go back and review their client base, they will find that someone they met through a different avenue is a small business owner.

“Cross checking your client base and mining your client base for further referrals,” O’Day says, “is one way to get into the small business market.”

Yet, even agents who have small business owners as clients may be overlooking other potentially lucrative areas in that market.

Mark Teitelbaum, second vice president of advanced marketing at Phoenix Life, Hartford, Conn., feels that many agents tend to be too focused on one aspect of planning, and as a result they often miss opportunities to plan for an existing client’s business.

“Were aware of many agents who have been very estate planning focused, and yet they’ve dealt with small business owner clients and never once broached the issue of business continuation planning or even benefit planning,” he says.

“There are many agents who, just because of their focus, end up leaving business on the table,” he says.

Teitelbaum explains that these “specialists” may find success in the small business owner market by taking the team approach to planning. “In terms of better serving the market, look at either providing more full service to the client or partnering with someone who can provide those ancillary services.”

Teitelbaum says that by working with a group of advisors, agents can provide business owners with a complete financial plan including the business continuation plan, the employee benefit plan, and the estate plan.

O’Day says agents should get better acquainted with businesses in their local markets. This can help a producer better understand the business owner. “If you understand those people [business owners] and talk to them credibly about their business, and show them you understand their concerns, they will gravitate to you as an advisor and someone they come to for information and advice,” she says.

O’Day says agents can get a better idea of their local market by “staying in touch with their chamber of commerce, and reading all the local financial journals to find out what’s going on.”

Finding business owners is one step in getting more acquainted with this specialized market. But experts warn that agents need to take special care in marketing to this group.

“The one thing I caution agents against doing is going in with a product focus,” says Teitelbaum.

“You’re going to have some level of success if you walk in with a hot idea,” says O’Day. “But quite frankly you’re going to be far more successful if you walk in and listen to your client and give him some options based on what you’ve heard from him.”

Teitelbaum says that when agents go into an interview with business owners and employees, they should try taking a planning approach. “A benefit plan, a business continuation plan, and a product sale will reveal itself,” he says.

“The biggest mistake I see is someone coming into a business already knowing what they want to sell,” he says. “What I recommend to producers is to come in with a couple of solutions, and give the employer the choice.”

O’Day says, “The really good producers are so people focused and focused on truly helping as much as they can with every aspect of their client’s life.”

She notes that many producers are often sought out by clients for all types of financial information, ranging from section 529 plans to IRA distributions, and some even seek advice on buying or leasing a car.

“You take a producer who is committed to understanding the financial marketplace, and their clients come to them almost more than they go to their family doctor,” she says.

This year’s changes in the tax law have opened more doors for agents to talk with small business owners. “I think that first and foremost, changes in the tax code as a whole are a great opportunity to talk with your clients,” says O’Day.

“The issue with this tax law is that many of the ‘changes’ are not changes now and we’re not really sure if the changes will ultimately come to pass,” she says.

“One of the things you can do as an advisor if you’ve got clients who have buy-sell arrangements,” she continues, “is to talk to them about the fact that they need to be monitored in conjunction with the estate tax laws as we approach 2010.

“Particularly if clients have cross-purchase buy-sell arrangements–if the estate tax is repealed and we’re compelling the sale of a business after death, we’re in fact going to trigger an income tax,” she says.

In addition to the changes in estate taxes, the new tax law has provided several opportunities for small business owners in the employee benefits area.

“Qualified plans is one of the key areas,” says Teitelbaum. “The ability to sock away large amounts of money into these qualified plans has always been a door opener.”

But these qualified plans, while beneficial to employees, may not be enough for owners to plan their own retirement, says Thomas Monti, vice president distribution services, Mass Mutual Financial Group, in Hartford, Conn.

“I think, in general, with the new tax law, we have some significant enhancements available to the general public, but I believe the affluent individuals still need to do things well beyond what’s available in a qualified plan,” says Monti.

Teitelbaum agrees, “Even though limits went up, there are still limits.”

Experts agree that one of the biggest issues a business owner faces is the need to defer income for later years. The needed income deferral is generally much more than the established limitations found in traditional qualified plans.

“I think executive compensation is an issue,” says O’Day. “Weve got a lot of highly paid people around here who really need to do a financial plan and see how much they can defer. The executive benefit arena for deferral plans is a big one.”

“Hand in hand with a qualified plan, for those key executives an employer wants to retain, a non-qualified benefit program layered on top is attractive,” says Teitelbaum.

Monti feels that deferred compensation and key person planning all tie into the overall business succession plan. He asks, “Whats the exit strategy of the business owner? How does the business continue? How does the business owner get his or her equity out of the business? Can you keep them [key executives] productive by promising them a piece of the business?”

Monti feels that over the years, planning for the small business owner has become increasingly complex.

“The old-fashioned way of talking to business owners and convincing them they need a buy-sell agreement and that it needs to be funded with life insurance is only the surface,” he says. “There are family issues, tax issues, legal issues, funding issues, and economic issues.

“It clearly goes beyond taking a company and figuring out who’s going to get its stock,” says Monti. “We have to figure what all the equity interests in the company should look like. What kinds of stock? Should there be subsidiary companies? Should there be unaffiliated C-corporations?”

“The successful producer really needs to be a valued business advisor,” says Monti.

Producers in this market need to “expand the definition of the classic life insurance agent,” he says. “I think the producer needs to recognize the high level of support the small business owner needs.”

These agents need superior support and they must obtain the education required to gain that level of expertise, says Monti.

From a support perspective, he says, the first step is to “help the producer educate himself or herself on all the various concepts that they need.

“They’re going to need to somehow get the proper backup and support from some organization so they can effectively work in this area,” he says.

Monti notes that this level of support may be found in an agency, but is more commonly found in a company’s home office.

“I would say in some scenarios where the home office did not provide the support that the more sophisticated producers needed,” says Monti, “that really led to those producers banding together with non-traditional organizations, like producer groups.

“I think the more successful companies have recognized and will continue to recognize the level of support their producers need and will allow them access to that support,” says Monti.

“I’m not suggesting the producer needs to go to law school or be a CPA, but they better have access to a smart group of people and support that can help them really bring leading edge services and ideas to their clients,” concludes Monti.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 15, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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