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Working with small businesses on retirement plans

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As financial advisors we deal with various client situations ranging from providing personal finance advice, long and short term planning and even business initiatives. One such service that we offer requires a unique approach: working with small business owners. 

It is necessary to focus on all aspects of their businesses including navigating the waters of retirement plan options to find a solution that works for the business owner, company and employees.  Developing such a plan requires finesse in that there are more parties to consider and each must be handled with care. 

Regulations constantly change and those advisors not actively managing retirement plans for small businesses may miss out on providing important information to small business clients looking to implement or improve retirement plans. Thus, it’s critical to create and maintain a systematic plan to review retirement plan options.  In the end, this will help you, the financial advisor, and the business owner take better account of the dynamics within the company itself, including size, revenue, capitalization, ownership, etc. among other factors. 

Educating the “Plan Sponsor”

When a small business owner approaches you for help in creating a plan for their company, be sure to explain their role as a “plan sponsor.” The duties of the plan sponsor include deciding on the type of plan, investment choices, and determining the company’s participation or contributions.

Ideally, sponsors should have specific goals in mind before they come to us, but it’s our job to help them focus on their goals because what worked for one company may not work for them. While common goals include the lowering of costs, increased participation, improving returns and protecting fiduciary responsibilities, smaller companies may focus on increasing the benefits for the owners and/or key employees. 

Generalist vs. Specialist

Retirement plans have always been a specialized area, and despite the fact that we as financial advisors represent ourselves as knowledgeable with retirement plans, the fact remains that we — along with planners, registered reps and insurance professionals — are all very different.  Within each group, our expertise varies greatly. 

Generally there are two types of financial advisors: generalists and specialists.  My experience is that the vast majority of financial advisors fall into the generalist category.

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To be considered a specialist, or what many view to be an expert, there is no specific designation, license, or degree; rather, it is an ongoing educational experience the advisor maintains as part of their commitment to this area of competence. The single most important decision of a plan sponsor may be the choosing of an advisor, so we must highlight and present our expertise with great care to ensure that the small business owner both knows what we can do for them and trusts us. 

Thus, when reviewing and evaluating a retirement plan, many small business owners want to review and evaluate the financial advisor as well.   The owners tend to evaluate the advisor’s qualifications, including the “reasonableness” of the associated fees, so consider these aspects during the process.

Plan sponsors may find maintaining existing relationships a simple solution, but those of us who are generalists may not provide fiduciary support needed to create thorough plans.  Therefore, during conversations with potential clients it’s our job to elaborate about the ways our specific expertise can serve their needs.

Credentials, designations and licenses are good things, but they do not qualify an advisor to facilitate the workings of retirement plans. Be sure to provide concrete examples of the work you’ve done to showcase your ability to develop a customized plan for the client, putting them at ease knowing they are in good hands as you have much experience in this area.

Final Thoughts

Today, a small business owner has numerous choices.  Whether the retirement plan of choice is a SIMPLE IRA, SEP, 401(k), profit-sharing, defined benefit or a combination of plans, taking the steps to evaluate retirement plan options for small business clients remains the only way to plan a proper fit for their business.  As financial advisors, we must take the time to evaluate the objectives and limitations specific to each client.

To best suit the client we must also remain aware that they can (and should) take the time to evaluate us, too.  The plan sponsor may not be the most knowledgeable person involved in the decision and/or evaluation of a plan; therefore, offering a well thought-out plan for a small business owner looking for a retirement package could be the most critical aspect of the evaluation.



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