Although times are tough for many in the industry, there is always opportunity just around the corner—if you look hard enough.
Often overlooked are retirement plan reviews (RPRs), which can be a source from which to generate substantial current and residual income. In order to fully understand the potential of RPRs, we must first look at life policy reviews, which many advisors offer as part of their service to clients. Why?
First and foremost, life policy reviews are good for your clients. In many instances, premiums can be reduced or coverage can be increased for the same amount of premiums your client is currently paying.
Second, existing clients have a level of trust and confidence because they have worked with you. This makes the sales process much easier because they already have confidence in your knowledge of products.
Third, life policy reviews encourage referrals.
Fourth, offering a review leads to additional sales opportunities such as buy/sell and business succession planning.
Last, life policy reviews are a valuable source of revenue.
Offering life policy reviews as part of your practice just makes good business sense—whether you are a retail advisor or a brokerage general agency.
If you are offering life policy reviews as part of your practice, you owe it to yourself and your clients to offer retirement plan reviews as well!
What Is a Retirement Plan Review?
With RPRs you use the identical approach as with life policy reviews except you are reviewing qualified retirement plans (401(k)s and defined benefit plans) instead of life policies.
If your client has a 401(k) or defined benefit plan, you should offer a review to make sure your client has the optimal plan available. It may be costing your client money if he doesn’t have the proper plan design.
Enactment of the Pension Protection Act has enabled many small business owners to receive as much as 85 percent (or more) of their total annual profit sharing deposit for their own benefit. A comparison of the profit sharing allocations in Table 1 illustrates the power of the new law changes. (The business owner can receive almost $20,000 more into his account each year at no additional cost to the business!)
Profit Sharing Allocation Comparison
Before of Salary After of Salary
Owner $29,400 15% $49,000 25%
Employee 6,900 15 2,300 5
Employee 7,050 15 2,350 5
Employee 5,850 15 1,950 5
Employee 5,250 15 1,750 5
Employee 4,350 15 1,450 5
Owner’s share: 50% 83%
How Big Is the Market?
There are more than 27 million businesses in the United States with fewer than 20 employees (this comprises 98 percent of all businesses in the United States). There is $68 billion in existing 401(k) plans with firms of 25 or fewer employees. Ninety-one percent of Americans indicated they have not yet achieved their financial goals for a comfortable retirement. Plus, there are 70 million baby boomers desperately needing to accelerate their savings if they are to retire comfortably.1,2
Networking opportunities abound with RPRs: Property and casualty agencies with commercial accounts would benefit from this service. Employee benefit firms are a natural source of referrals. Health producers have access to business owners. Most estate planning clients are owners of small businesses and know other small business owners.
Do you need to be an expert in qualified retirement plans? Absolutely not! When you entered the insurance business, were you an expert in estate planning, business succession planning, non-qualified deferred compensation plans or employee benefits? The lack of expertise did not stop you from becoming successful.
So how did you become an expert? You asked your clients for the business and then you had a mentor or expert assist you in developing the appropriate solution for your client. Insurance companies in the qualified plan market have experienced professionals on staff to analyze your client’s existing plan, walk you through the process, and conference call with you and your client to help ensure you make the sale. Rely on the insurance companies’ pension experts to be your “mentors” when entering this lucrative market.
Start with your existing small business clients who have 25 or fewer employees. After working with existing client plans, transition to existing clients without a plan, then to prospects with plans, and eventually to prospects without plans. This approach increases your knowledge and confidence at every level. In addition to generating sales from RPRs, you will gain access to top executives of these businesses for estate planning, business continuation and personal planning opportunities.
How Do You Get Started?
Determine which of your existing clients have a plan in place. Ask your client: “When was the last time you had your 401(k) reviewed?” The vast majority of your clients will state they have never had their plan reviewed and were not aware a review was needed.
Your response should be: “The enactment of the Pension Protection Act dramatically increased the benefits available to owners and top executives like you. If your plan has not been reviewed recently, you owe it to yourself to have this done. There is no cost for the review. If we find that your current plan is the best available, at least you have the peace of mind knowing this fact.”
At this point, request a copy of your client’s plan documents; the most recent Form 5500, which is filed every year; and a copy of the employee census. Submit these documents to your company’s pension department for an analysis of the existing plan. It is truly that simple.
Is a special license required? For years, many insurance companies have offered non-registered group variable annuities as funding vehicles for pension plans. The vast majority of the states require only a regular life insurance license to offer this product. For complete information, contact your insurance company representative to determine any state exceptions.
A standard non-registered, group variable annuity allows clients access to numerous funds from multiple fund families. If you are securities licensed, selling agreements should be in place with your broker/dealer prior to initiating the review process.
Why should you offer RPRs? They are a valuable service to existing clients, they will generate referrals and open doors to new clients, they will increase ancillary sales such as estate and business planning, plus they are a valuable source of income.
What Does the Future Hold?
Once you become comfortable with the various plans and the process to install them, the real opportunity lies in the fact that 85 percent of small businesses do not have a retirement in place!
1. Statistics of U.S. Businesses, U.S. Census Bureau, 2007.
2. LIMRA Study: Is There Magic in the Middle Market, 2008.