You Gotta Have a Plan

The late Senator Everett Dirksen is credited with the line, “A billion here, a billion there, and soon you’re talking about real money.” Financial planners might substitute “million” for “billion” to get an insight into the market for small group retirement plans.

By itself, a retirement plan sponsored by a small business or a professional practice might be modest, with $1 million or less in assets. By pursuing several plans, though, advisors may discover that “real money” is attainable.

According to tables published this year by the U.S. Department of Labor, assets of pension plans with fewer than 100 participants rose from $32 billion in 1975 to $526 billion in 2005, a 15-fold increase. Defined contribution plans (including profit-sharing and 401(k) plans) went from under $25 million to roughly $500 billion.

“Most small companies don’t have retirement plans,” says Dan Maul, president of Retirement Planning Associates in Kirkland, Wash. “Many of them will install plans in the future, so this could be a huge potential market for planners. Generally, large providers of retirement plans have not been active in this area.”

Small group plans can be indirectly profitable, too, if they provide leads to individual clients. Planners may find intangible rewards as well, as their staffers’ morale improves through helping people who might not be their typical clients.

Tracking Targets

Just as financial planning clients may be asked about their goals, so planners might start their pursuit of the small plan market by setting objectives. Is the small plan market attractive on its own, or is it a necessary adjunct to planning for certain clients?

“We work with small company plans as a service to clients who are business owners,” says Kathy Stepp of Stepp & Rothwell, a financial planning and investment advisory firm in Overland Park, Kan. “Our clients pay us an annual retainer for comprehensive planning. If they own a business, we will recommend types of retirement plans for their companies and the investments that might be offered. That’s part of our value-added service.” The plan itself is not a client, though.

Other advisors target small company plans as clients. They may set their sights on particular types of small companies.

“Last year, we began marketing our services to professional practices in our area,” says Cheryl Holland, president of Abacus Planning Group in Columbia, S.C. “So far, we have added six firms. We contacted these practices through people we know, but the principals of the firms have not been existing clients of ours.” Holland says her targets have been professional practices with existing retirement plans with at least $3 million in assets.

Chris Long, a financial planner in Chicago, focuses on another type of small plan: those of nonprofit organizations, especially social services agencies. “One of my clients is the executive director of such an agency,” he says, “and I helped her set up a plan for her organization. I liked working with this group and I realized the need was huge, so I’m starting to market in that area.” Long says he prefers to work with 中移動上台優惠 nonprofits, where a designated person (not the executive director) is in charge of finance and administration; generally, organizations with 25 or more employees will have such a specialist.

Making Connections

Long’s experience with a nonprofit’s executive director may be a typical example of how a planner can get started in the small plan market. A client who needs financial planning advice also desires help with setting up, reviewing or improving a company retirement plan.

A similar story is related by Dan Galli, a planner in Norwell, Mass. “I was a teacher before I went into financial planning,” he says, “so I started working with teachers. One teacher was married to a business owner, so I helped create a retirement plan for his company.”

Galli then went a step further: He signed up to teach courses about retirement planning, employee benefits and other subjects for the CFP program at Northeastern University and now teaches them for the Kaplan/Bisys/Boston University review for the CFP comprehensive examination. “In order to teach the courses, I had to study about the various types of retirement plans,” he says. “Teaching has given me credibility in this area. Now, I get referrals from CPAs, attorneys and insurance agents.”

Planners interested in the small plan market may get prospects by referrals, marketing or tapping their existing client base. Faced with these prospects, planners should have an idea of just how much of a role they want to play in small company retirement plans. Typically, doing it all is impractical.

“Planners eyeing this market should make good friends with a TPA,” Maul says, referring to third-party administrators. Such firms, or another retirement plan provider, can handle recordkeeping and help see that plans comply with regulatory requirements, which have become more onerous since the Pension Protection Act of 2006 (PPA), Maul notes. He says that planners may need at least one TPA to handle 401(k)s, plus another TPA for other types of plans, such as simplified employee pension (SEP) and savings incentive match plan for employees (SIMPLE) plans. Long points out that a TPA might supply a platform for choosing funds, handling recordkeeping, offering a website to participants, and performing tracking for nondiscrimination testing, an IRS provision that requires plans to offer substantive benefits for rank-and-file employees in order for the company to reap 401(k) tax benefits.

Ed Fulbright, a CPA and financial planner in Durham, N.C., says that he recently began seeking small plan business by working with The Online 401(k), a San Francisco-based company that provides web-based retirement plans for small companies. “The services are comprehensive and the fees are competitive,” he says. “We’re using The Online 401(k) for our own firm’s retirement plan. The next step is to focus on our current client base, including accounting clients, to see who would be interested.”

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