With all the administrative and compliance drudgery various qualified plans involve in this fiduciary environment, it’s enough to drive some producers away from their chosen profession. But for retirement plan advisers who focus on 401(k) plans, there are other meaningful opportunities to meet a client’s strategic needs, add revenue and burnish relationships.
In a nutshell: nonqualified benefits that can land brokers and advisers “in the middle of the C-suite,” according to Joe Carpenter, president of the executive benefits division at NFP, a leading insurance broker and consultant that provides employee benefits. If anyone knows the value of this area, it’s Carpenter. He’s been focused on the executive benefits space for about 38 years.
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By turning the conversation to nonqualified benefits, he says producers specializing in the 401(k) area will have a rare chance to engage with an employer client’s CEO, CFO or COO. And as such, they can have a strategic chat about recruiting and retaining top talent without having to apply cumbersome fiduciary standards, ERISA checklists, safe harbors or nondiscriminatory testing associated with qualified plans.
Carpenter says brokers and advisers can accelerate that process if they simply ask whether executives, as well as leading sales staffers or other key players, would like to salt away more of their compensation than a 401(k) plan allows. Another ice-breaker involves whether the company is concerned about turnover at the leadership level.
This line of questioning can be refreshing considering the extent to which every piece of new legislation or regulation usually involves restrictions that can complicate a producer’s mission, according to Carpenter. With nonqualified plans, he notes that the focus is simply on the consequences of living too long and not having enough money, dying too soon and failing to fulfill whatever legacy was envisioned as a high income earner because of an illness or injury.
“Whether the executive benefits take the form of stock appreciation rights, stock options, phantom stock or supplemental executive retirement plans,” he explains, “all you’re trying to do is take time spent and translating that into income that can be used in the future.”
Income on the table
The danger of focusing solely on qualified plans for highly compensated employees earning anywhere from $250,000 to $1 million or more a year could place 30% to 40% of their income at risk, Carpenter cautions. “If you’re only focused on 15% of their income, you’re leaving the vast majority of the income off the table,” he says, referencing the cap on 401(k) contributions.
When it comes to managing employees correctly or driving earnings, he says it’s critical that the people behind these strategic tasks are recognized, rewarded and retained for a job well done. “They’re very valuable employees,” Carpenter notes. “They’re not commodities.”
The focus on nonqualified benefits should not be confused with compensation consulting, which he says is involves identifying how competitors are paying their top employees. “It’s creating widgets for the company to use that will accomplish what they want to accomplish with their most senior people,” he explains, noting that no two plans are ever the same because each company has its own personality and its own culture.
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Rather than develop an expertise in nonqualified benefits, he says all advisers need to do is identify opportunities and find a capable strategic partner with whom they might share referrals and revenue.
Carpenter’s firm, NFP, enters into revenue-sharing arrangements with advisers who connect their employer clients to these nonqualified plans for executives and other key personnel. “The most valuable thing the adviser brings to the table is their relationship,” he adds, noting the importance of a partnership approach. “We recognize the value of that trust the employer or plan sponsor is putting in that adviser.”
