“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.
Mercer: Boards increase scrutiny of execs’ exit plans
COLI remains key vehicle in executive comp plans
CEO pay vs. agent commissions: Comparing the numbers
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.