Feb 11, 2011
--- Small-business owners are slowly starting to realize that they can’t handle retirement planning on their own, according toE. Thomas Foster Jr., Vice President and National Spokesperson of The Hartford's Retirement Plans Group. ---
Speaking at the Virtual PLANADVISER National Conference, Foster said small businesses can be a great market for financial advisers. They need a lot of help; taxes are a major concern for them, as is healthcare. And while many do have plans, it is far from a saturated market.
One topic that is elusive to many small-business owners, said Foster, is the benefit of Roth conversions. Many sponsors and participants were scrambling to make the conversion before 2010 was out, but the conversion is still possible since the tax rate won’t change in 2011 or 2012. It’s a matter of education, he said–once small-business owners understand the benefits, they will be more likely to take action.
Plan design is where advisers can make the most difference for small-business owners, suggested Foster. Many may be under the impression that the only type of retirement plan available to them is a 401(k). Advisers need to broach the idea of profit-sharing or cash-balance plans. Foster gave the example of a 63-year-old doctor he had recently spoken with. This doctor had chosen to take care of his own 401(k) for years–but after the recession, he told Foster it looked more like a “201(k)” than a 401(k). He realized that since time was no longer on his side, he needed a professional to help get him back on track.
Foster said the “beauty” of a profit-sharing plan is that you’re not locked into anything, which is a strong selling point. If the demographics of the business change, the adviser can sit down with the third-party administrator (TPA) and reassess the asset allocation. Suggesting an option other than a 401(k) plan will also prove to a small-business owner your creativity, Foster asserted.