“In order to succeed, your desire for success should be greater than your fear of failure.” — Bill Cosby, entertainer
What do a classic television show and nonqualified deferred compensation (NQDC) plans have in common? Let me start by recalling the highly ranked television series, The Cosby Show, aired in the 1980s and 1990s.
I remember watching it at that time and thinking how Bill Cosby’s character always had an answer for everything. In fact, the above quote from that show comes to mind when I’m asked by advisors about the value that nonqualified deferred compensation plans represents to their business model.
As an advisor, you’re already experienced at calculating “worth” in the retirement market, even if you aren’t aware of it. You’ve honed your skills to show clients the best plans, the best designs, the best funds, the best fill-in-the-blank. Finding the “worth” in offering NQDC plans is one more piece to consider as part of a modern retirement sales practice.
So if retirement advisors know their craft…the question is why some are apprehensive about branching out into a very complementary retirement solution? NQDC plans are benefits designed to help an employer retain its top talent and help plan participants save for retirement on a tax-deferred basis. Why should a retirement advisor fight the possibility of adding nonqualified deferred compensation plans (NQDC) to their portfolio of solutions?
This is a more understandable topic than you think. After the 2008 recession, many retirement advisors and fee-based planners have focused almost exclusively on their strengths. That is, knowing the qualified retirement plan market inside and out. Understanding the regulations, improving their sales pipeline and staying attuned to their clients’ qualified plan needs: investments, service, improving their retirement readiness.
The question is whether clients, while viewing advisors as having expertise in qualified plans, will continue to have higher expectations on other retirement benefits. Essentially a “What have you done for me lately?” approach. We all recognize how competitive the qualified plan market is, and there’s always the other advisor following behind you.
I believe that NQDC plans are actually an expansion of your existing practice, not a new part of your practice. It’s about recommending the appropriate set of retirement solutions for all employees at your clients — those leaders and senior management as well as all other employees. It’s often worth raising the issue.
But for those advisors who say their clients just won’t buy into a NQDC, let’s say you’re right. I will champion your reasons why an employer certainly wouldn’t purchase an NQDC plan from you. But based upon my experience in working with employers and advisors on these solutions, I’ll also make some observations on why they will purchase a plan from an advisor with the vision to add NQDC plans to his/her practice.
Reason #1: “I sell retirement plans to employers. What does that have to do with nonqualified deferred compensation plans?”
Well….a lot. All employees want to accumulate savings for retirement. But key employees experience a “retirement gap” in which qualified plan limitations and Social Security benefit limits aren’t aligned with their retirement goals. Employers want to retain their key people. While these people are often more highly paid in the organization, they may not be getting enough worth from their employer’s retirement benefits package. Discussing NQDC plans allows the other advisor to provide more complete retirement benefits for all employees, including key employees.
Reason #2: “I don’t sell insurance, so what does NQDC have to do with me?”
There are two separate components to a NQDC plan: (1) Designing the plan to meet the organizational needs — attract, retain, reward or retire key employees; (2) Evaluating if and how to finance the NQDC plan — consulting on a variety of different financing vehicles available for the employer. The options can include taxable investments like mutual funds, bonds, stocks, or institutionally priced insurance products like employer-owned life insurance. All are appropriate options depending on the type of organization and its specific needs. And if you don’t consider all the options, the other advisor will do it for your employer.
Reason #3: “Assets under management is the focus of my business.”
If you’re focused on AUM, working with an organization’s NQDC plan exposes you to a more influential set of contacts in the organization. The value and design of these plans involve discussions with senior management, senior financial leaders and compensation committees. By demonstrating the value you bring to the organization’s top leaders, you can open the door to discussing total retirement benefits from a single provider via the qualified plan and providing the same level of expertise to all employees. Reason #4: “Today you have to be an expert in all phases…and I don’t have the time/skill/patience to learn this stuff.”
All advisors have their areas of expertise. As your experience with NQDC grows, you may become more comfortable and knowledgeable with the steps in the sales process. Or, you may partner with providers that offer you the point of sales support, plan design and consulting resources and administrative services to help you and your clients. Whichever model you want to consider in your practice is up to you, but remember, the other advisor will have figured this out too.
Reason #5: “I’m afraid to bring it up for fear of looking foolish because I may not have all the answers.”
I understand – no one wants to look foolish in front of a client. But if the client has the need, your ability to open up the discussion will be a benefit. And you’ll remain in control by recommending outside experts brought in to assist. That way you’re not dealing with the employer bringing in the other advisor who may or may not add to the relationship you’ve spent time and energy developing.
Reason #6: “I like the base of clients I have today…why change?”
Think back to an earlier quote by Bill Cosby: Change is not necessarily about the fear of failure. Rather, it’s about having a good defense for your client relationship. Are you really taking good care of your clients if you don’t show them something they need, what happens when the other advisor does?
Adding NQDC allows you or the other advisor the opportunity to diversify the business model. It offers differentiation on more than just fees and investment lineup. It provides the opportunity to work with different organizations that are trying to attract and retain their top talent.
I have worked with many retirement advisors who once swore off NQDC plans and are now advocates of these benefits. These advisors have developed relationships with C-suite decision makers as a result of NQDC plans, something that 401(k) plans alone wouldn’t have provided access. In the process, these retirement advisors have generated significant AUM through all sizes of clients because NQDC plans allowed them to set themselves apart from other retirement specialists.
If fear of the unknown or fear of not understanding the benefits is preventing you from adding NQDC plans to your practice, now is the time to face the challenge head on. There are a number of trends in today’s market that make NQDC an even more accessible and logical addition for most retirement advisors.
And if by the time you finish reading this article, I’m still not able to convince you to consider it, what will happen to your client when the other advisor comes calling?