Competition for business owners and executives is intense. To prepare yourself to work in this market, you network, stay current on advanced market concepts and access high quality insurance and investment products. But you may still be missing half of the equation needed to provide a complete solution.
Business owners and executives require special attention from financial professionals. This attention is expected throughout the sale and, more importantly, for years later as their business and personal needs evolve. Because of this, you need to ensure the platform upon which the solution is based is efficient, reliable, and provides top-tier service–to both you and your business clients.
Market factors create a service expectation
The service expectations of business owners and key employees are influenced by several factors. The first is the number of small-to-medium sized businesses. Companies with fewer than 1,000 employees represent 99% of all firms in the United States, and encompass 55% of the working population, according to the U.S. Small Business Administration.
In addition, approximately 9.5 million Americans own small businesses. It is estimated that 40% of businesses will change hands over the next 5 years. And 70% of family-owned businesses fail to successfully transfer to the next generation.
Another factor to consider is the connection between business ownership and affluence. According to the LIMRA Finances of the Affluent 2004 report, the percentage of the affluent who own businesses increases from nearly 26% with those having a net worth of $500,000-$999,999 to nearly 70% for those having a net worth greater than $5 million.
Financial professionals can capitalize on the opportunity to help design, implement, and administer solutions and services for business owners and their key employees. It is critical that you convey to business owners the importance of covering the 6 primary areas of financial need: retirement income, exit planning, wealth transfer, survivor income, income protection and business protection. Financial professionals should consider how best to provide objective and qualified support–both during and after the sale, when the resulting plan is implemented and administered–to help prioritize and address these challenges.
Expertise during the sales process has traditionally come from the financial professional and from the carrier’s advanced sales units. Administrative support after the sale has often come from the financial professional or third party administrators. At times, this administrative support is treated as an after-thought, done by individuals and organizations that lack the skills, systems or volume to proactively meet the clients changing needs over time.
Consider a specialized service platform
What is not common, though increasingly important to the customer, is the coordination of the advanced sales unit with specialized business administration resources at the issuing insurance company. Having a team of professionals dedicated to servicing business cases and familiar with the tax and legal issues involved with the ongoing maintenance of the plans, as well as the policy-level specifics, can be critical to the long-term success of the plan. The key is the interaction between two sets of resources that have historically worked separately.
Additionally, the ability to administer the policies at a “plan” level and generate consolidated, plan level reports for the business provides financial professionals and their clients with a customized service to help ensure the plans continue to operate as they were originally sold. The business administrator helps with everything from ensuring that owner and beneficiary designations are appropriate before the contract is issued, to running existing illustrations during the life of the case. While providing day-to-day consultation on cases, administration services have been expanded in recent years to help producers understand and deal with the numerous legislative and regulatory changes that impact the business market.
These changes in the laws are complex, and if not followed, can have negative consequences to the business owners or key executives covered under a specific plan. The ability to keep track of cases at a plan level allows a carrier to quickly respond to these changes and proactively communicate with financial professionals to address necessary issues.
An example of such activity has occurred within the split-dollar market. By working closely with the advanced sales unit, we developed a “split-dollar rescue” package that includes the necessary information to explain to financial professionals the changes resulting from new legislation affecting split-dollar life insurance plans and the potential impact to their clients.
Our business administration unit teamed with the advanced sales unit to review documents and policies, conduct conference calls with advisors to help answer questions and provide options for the client. In response to the legislation, we developed a package to support the split-dollar loan regime approach, including the ability to impute interest calculations to employers.
Another example of a recent legislative change involved COLI best practices provisions of the Pension Protection Act of 2006. Congress passed this legislation in response to perceived abuses related to “Janitor Insurance.” However, the act directly affects many traditional uses of employer-owned life insurance, among them entity purchase buy-sell agreements, key person coverage and deferred compensation plans.
Though the act technically does not require any action on the part of an insurance company, many carriers feel compelled to implement procedures to ensure a “best practice” approach. Requiring the notice and consent be signed and submitted before the policy is issued is one way a carrier can help employers comply with the law.
In addition, providing employers with consolidated plan-level reports listing all insured and policy-level information can aid with reporting and recordkeeping requirements of the new law. The larger the case, the more work required to comply with the respective rules and laws.
In today’s complex and changing business market, it’s important to consider how such a specialized service platform can differentiate you from your peers. Consider how to develop or align with a team that provides dedicated support both on the front end through the advanced sales unit, then continuing for the life of the case, serviced on an experienced business market administration platform. This approach can provide you with the powerful resources necessary to provide top-tier service to your business clients.