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Qualified Plans to Recession-Proof Your Business

Small-business 401(k)s can provide a consistent stream of revenue.

By Michael Butler, CPA

Employers, personal financial advisors, our peers, our mothers—they all extol the virtues of 401(k) plans. Why? First, they’re an automatic, no-fuss mechanism to get a retirement nest egg growing through some basic investment decisions and the time-value of money concept. Investment wizards and Finance 101 dropouts can all see the value of this type of investment vehicle.

Second, payroll deduction creates a predictable investment stream that works toward building total assets at the plan level. When your compensation is pegged to total assets, maximizing the number of participants and keeping them actively investing are key. Compare payroll deduction 401(k) investments to some other types, and you’ll find they tend to be recurring, no matter what the economy. According to a 2002 Hewitt Associates survey, 80.5 percent of 401(k) participants did not make changes to their investment allocations in the previous year. Reading between the lines, participants didn’t only stick with their investment allocations; they also stayed with their investment plans despite the erratic market.

Still an untapped market
There are two ways to think about the potential of 401(k) plans in the small to medium-sized business marketplace. First, consider companies that currently have no defined contribution plan in place. The good news here is there’s no incumbent to fend off. The challenge is to educate the company about the benefits a qualified plan offers and help them determine if it suits its needs.

Also think about companies that already have a plan but are looking for a new provider. Surprisingly, this is where the majority of the 401(k) action is expected to be this year. According to a study from RG Wuelfing & Associates, small businesses with established plans looking to switch to a new provider will outpace establishment of brand new plans by four to one. Here are RG Wuelfing's complete numbers:

Plan size Number of companies looking to add
a new plan
Number of companies looking to
change providers
Total assets
Small plans
(50 – 249 participants)
1,300 5,300 $ 8.6 billion
Micro plans
(5 – 49 participants)
10,800 15,500 $15.2 billion

Perceived lack of fund performance and dissatisfaction with the overall administrative capabilities of the provider are just two of the reasons small businesses seek new providers. Whether you choose to focus on new or transition business, be sure you’ve got the backing of a provider that can deliver what you and your clients expect in terms of investment choice, technological know-how and a commitment to ongoing, topnotch customer support.

Qualified plan myth–busting
Because even the most enlightened investment advisors have doubts about the wisdom of selling qualified plans, let's dispel some of the more common myths on the subject:

Myth #1: “Qualified plans are too complex and confusing.”
Providers should step up to support you in the sales process and ensure that you have the resources you need to get the job done after the sale. A good partner will not only help your prospect analyze the company’s retirement plan, it will also stand shoulder to shoulder with you at the sales presentation and beyond. Don’t settle for “just do it” answers from your providers. Find one that is willing to help you every step of the way.

Myth #2: “Qualified plans take too much work.”
Finding a local partner that specializes in retirement planning is the answer. Whether your practice is built around the sale of qualified plans or if they seldom come your way, find a provider partner you can trust to help with your customer before, during and after the sale. That partner will help you use your time most efficiently, make the right product recommendations and service the relationship once the sale is made. It can do the heavy lifting, leaving you more time to devote to prospecting and client support.

Participants didn’t only stick with their investment allocations, they also stayed with their investment plans despite the erratic market.

Myth #3: “Qualified plans don’t pay enough.”
A single plan with 20 participants may seem more like a burden than a solid revenue stream for you, but take a look beyond the initial setup. Commissions are paid on all funds, so as periodic deposits are made—by both the participants and any company match—your commission base increases. And don’t forget to factor in current plan dollars from an existing plan that you take over.

Perhaps even more important is the referral network that comes with each plan. You not only have access to the company’s financial decision makers, you can also parlay this relationship into a means of offering executive financial planning, nonqualified plans at the company level and a variety of financial solutions for participants.

Start at the beginning
If you’re already doing personal financial work for key executives of a company, ask about the company’s retirement plan. If the company already has one, ask to see a statement from its current provider. This will give you an overview of how the company plan works and open the door to a retirement-planning discussion where you can be included as the company’s partner.

Qualified plans represent a tremendous opportunity to build and diversify your business. Best of all, their propensity to grow through continued, regular deposits make them a great addition to your client base and can help to soften the effects of a volatile market on your book of business.

(Investing involves market risk, including possible loss of principal. Neither Nationwide Financial nor any of its representatives provide tax or legal advice. Federal tax laws are complex and subject to change. Please consult your tax or legal advisor for answers to your specific questions.)

Michael Butler, CPA, is senior vice president of retirement plan sales for NFS Distributors, Inc., Nationwide Financial’s distribution arm, and a registered representative of Nationwide Investment Services Corporation. You can reach him at

© 2003, Nationwide Financial Services, Inc.


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