While a balance is needed to ensure a winning program, many times special emphasis and key resources are invested in one or the other. The same can be said for how nonqualified deferred compensation (NQDC) plans can fit into your business model.
I’ve heard all the excuses from financial professionals. Maybe you’ve even said them yourself. “Selling NQDC plans as part of my practice? No, I….”
- ….am too busy and don’t have time.”
- ….don‘t really understand it.”
- ….am not an expert in it.”
- ….only focus on assets under management.”
- ….only deal with qualified plans.”
Some might think the logical question to ask is, “Should I make NQDC part of my practice?” But I think that is the wrong question. The better and more important question is, “What’s the risk for my practice if I don’t add NQDC?”
SET, HUT, HUT - Take an offensive position.
For those who don’t offer NQDC as part of their current practice, why not? Today many of the NQ provider firms have experts that will go to market with you to assist in the discussion and sale. Think of what you’re missing. Think of the opportunity cost, or lost revenue, resulting from new clients not gained through NQDC sales. There are three potential sources of revenue that can be missed:
- Employee benefits business you never pursue – The advisor competing with you for a prospective client already knows NQDC. That advisor will position NQDC as a way to help organizations recruit, reward and retain the key employees needed to support future results. And at the same time, it provides this unique audience a retirement savings option that qualified plans alone can’t adequately address.
- Ancillary sales you never have a chance at – Advisors that incorporate individual financial/wealth planning as part of their practice recognize the additive role of NQDC plans. It allows an advisor to interact directly with an organization’s influential and highly compensated employees about the benefit. This offers the opportunity to consult on integrating NQDC benefits with overall financial and wealth planning needs.
- Missed opportunity for diversifying your client base – NQDC is a well-established employee benefit among larger employers. Over the last ten years, it has also become a more mainstream offering among medium and even upper-end small employers. Additionally, it is used by public and private entities, as well as for-profit and tax-exempt organizations. There is tremendous potential in using NQDC plans to expand an advisor’s potential client base.
BLUE 42 - What's the best offense... a good defense.
Regularly we see NQ advisors who’ve used the NQ business as an entrée to other business as well. The risk here is placing existing revenue from your client block in jeopardy. Total retirement plan outsourcing is a game-changer in today’s market. If you haven’t spoken to your existing employer clients about NQDC, the advisor that comes after them may not only gain the nonqualified plan sale but also put your qualified plan or other benefit programs at risk.
Employers now view their retirement programs much more holistically. This model uses NQDC benefits to offer retirement savings opportunities appropriate for the needs of select management and other key employees. When both qualified and nonqualified plans are offered as part of an integrated service platform – featuring single sign-on access to all account information, combined statements and integrated customer service – the opportunity to assume the direction of an existing qualified plan becomes a greater possibility, not to mention personal business as well.
Get in the Game - NQDC Strategies to Consider.Regardless of whether you view it as an offensive (expand potential revenue) or defensive (minimize the risk of losing existing business) strategy, adding NQDC solutions can make a meaningful difference to most practices. Whether you target the business market, focus on qualified retirement plans or specialize in wealth management, NQDC plans allow you to differentiate your offerings and protect your existing revenue streams.
In the table below, I’ve tried to summarize both strategies – offense and defense – as well as different ideas for building each into your practice. In several instances, there are similar benefits regardless of which strategy fits your particular situation.
It’s important to understand the risks of not considering nonqualified deferred compensation sales. There is a range of ways to make NQDC plans represent a little, somewhat or a lot of your ongoing practice. The playbook is yours to design. All that’s needed is some planning, practice and the right resources to deliver a winning combination for you and your clients.
John Baergen is a football fan deep in the heart of Texas – and a Vice President of Executive Benefits Consulting at the Principal Financial Group®
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. Clients should consult with appropriate counsel or other advisers on all matters pertaining to legal, tax, or accounting obligations and requirements.
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