January 2011 may have been one of the worst times to open a new benefits brokerage catering to small business clients. For sure, it was one of the most uncertain. The ultimately futile effort in Congress by a newly elected Republican majority to “repeal and replace” the Affordable Care Act was in full swing. At the same time, the economy was struggling to recover from the Great Recession, as many a soothsayer predicted the demise of the independent brokerage.

Still, John Seltzer was confident. With nearly a quarter century in the business under his belt, he knew it wasn’t time to abandon ship. So, having left a financial services firm where he started a benefits practice in 1987, Seltzer set out on his own and founded J. Seltzer Associates.

“I said, if everybody’s abandoning the small-group market, even if we have these health care exchanges and people are buying their insurance in a different place than they have traditionally bought it before, they’re still going to need help and they’re still going to need advice,” recalls Seltzer. “I really convinced myself that there was a great future for the type of work that I had historically done. If I was a traditional broker — you sell a product, you move on, you sell another product — I’m not sure there would have been a future. But I really believe that people are struggling and looking for advice, and that our industry had really abandoned that [small-group] marketplace. So as more and more people leave the market, I just take the position that that’s more opportunity for us.”

So, with J. Seltzer Associates up and running, all Seltzer needed was the associate. He looked to his eldest son, Jason, who after nearly a decade in the industry himself, was wondering if there truly was a future in the business.

“The death of the insurance brokerage and consulting community was being discussed heavily and I thought, do I really want to get myself into an industry that may not exist 20 years from now?” Jason asked himself.

It took about six months to work through that question before Jason joined his father that summer. “I realized, I can build what I want right here and I don’t have to go looking for it somewhere else. I was willing to make sacrifices to make that happen,” he says.

“Surprisingly enough to me, all of our expectations were exceeded far sooner than we ever thought that they would be. We’re back to where we both were income-wise prior to the creation of the business.”

In fact, in the past 24 months, business has grown by 400%. Jason credits the success in part to his father’s intuition on industry developments. “My dad always says, ‘I’ve been around a long time, and I see where the industry is going. I might be wrong, but I think I know what’s happening. If I’m right, there’s a place for us and what we do.’”

Surrounded by the consolidation and sales of brokerages that catered to small- and mid-market businesses running rampant in the last couple of years, the Seltzers had an advantage over other firms trying to stay afloat in this new reality. Most of the market adjustments, such as a move to fee-based consulting and increased reliance on voluntary benefits, were already common practice for them. “We had always taken a rather different approach,” says Seltzer. “We took a more consulting approach to the market. We were able to deliver a lot of the consulting and service that the big national firms were giving to the large clients to the small clientele.”

Unfazed by the possibility of the ACA putting an end to commissions, Seltzer has been charging fees for his work for years, or at least including a compensation disclosure statement in contracts that says if commissions were to go away as a result of health care legislation that clients would be charged a fee equivalent to those commissions. “I’ve never ever gotten any backlash from that,” says Seltzer.

Based in Pittsburgh, the majority of J. Seltzer Associates’ clients are non-profits and professionals in Eastern Ohio and Western Pennsylvania, though some are national firms. One hundred percent of their business comes from referrals.

With a background that started in non-medical insurance and migrated into health coverage, Seltzer stands out from the majority of brokers, in that his focus has always been more on the life and disability side of benefits over medical. “The reason I went into the benefits side of the business was I saw it as an opportunity to get in front of business owners to sell more individual products — but to get in front of them on a less threatening basis,” he says. “And I think one of the reasons we’ve been successful in the small- to mid-size marketplace is because we do have a much broader product line that we can bring to a client than the typical benefits agent or benefits consultant. To me, they’re group guys and that’s all they know or understand. We span both sides of the business and we can bring a whole range of products and services to the table.”

Such flexibility makes small clients “a much more profitable client for us,” he adds. “We can generate $20-$30 thousand a year out of a 15 or 20 life case if we’re successful in getting all of their business, including their retirement plans.”

Streamlined approach
Although both John and Jason have had their securities licenses in the past, the pair made a strategic business decision to focus strictly on health benefits and partner with outside firms that specialize in retirement and property and casualty. “The way we present it is, rather than trying to do everything ourselves, we’ve brought you the best minds in each of those areas,” says Seltzer. “Then the client looks at us as the quarterback, if you will.”

J. Seltzer Associates is, and will remain for the foreseeable future, just the father-son team. “We did that intentionally,” says Seltzer, who does use the services of a general agency when needed. “We’ve just found over the years that to deliver the kind of attention to clients that we give and the kind of service that we give there’s nobody that can do that for you. Nobody’s going to care as much about your client as we are.”

The Seltzers meet with clients together typically two to three days a week, with the rest of their time being spent on office work. But thanks to an infrastructure set up by Jason, that “office” can be anywhere with Wi-Fi. “Our technology is the backbone of our business and our technology costs are less than $1,000 a year,” says Jason, who spent his first few months with the company setting up the technology foundation. “That replaces easily a full-time staff person.

“That was my big thing when we started this. I said, I want to run this like a lean tech start-up. I want to do what we do well, and I want to outsource the rest.”
Client Jaime Bails, president of Bails & Associates, LLC, in Eighty Four, Penn., has worked with Seltzer for more than a decade. The transition when he founded his own company “was seamless,” she says.

The 23-employee group is unique in that employees are already highly knowledgeable about benefits, being that the company is a benefits software consulting firm. “Our employees are extremely sophisticated benefits users. They have very high expectations. They ask extremely detailed questions. They understand everything about Section 125. They are extremely well-educated, so they are pretty demanding. John is under a lot of scrutiny,” Bails says with a laugh, “and he does very well under that pressure.”
Those educated questions are almost always answered within the hour. “It’s a world of difference when you can get that responsiveness. He never hesitates to have direct contact with our employees when they have questions,” she adds. “He really gets personally involved and helps them through. There’s just a lot of comfort there. We’re never anywhere on hold and there’s never a big gap in time before we get our answers. It’s very personal.”

Cultivating relationships
That is Bails’ biggest advice to other brokers and advisers looking to repeat the Seltzers’ success: “Keep it personal,” she says. “Everybody says it’s just business, but keep it personal. By keeping it personal there’s been that loyalty, and we’ll follow him wherever he goes.”

A close-knit family, Seltzer, 59, and wife Marie are parents to Jason, 33, and Julian, 23. The family will be expanding this spring when Jason’s wife Stacy welcomes the couple’s first child.

Having recently graduated from college, Julian is undecided if he will follow in the family business, but Seltzer insists, “He needs to figure out what he wants on his own. I don’t want to push him into the insurance business.”

As for working with Jason, “I can’t think of anything more enjoyable than working with my kid,” he says. “We get along incredibly well. He’s learned a lot from me, I’ve learned a lot from him. It’s an equal partnership though. It’s not me telling him what to do — because a lot of times he’s telling me what to do.

“Having worked with others for so many years, there’s an implicit trust when you’re working with your own kids. I can’t think of anything I would enjoy doing more.”
Adds Jason, “It sounds cliché, I know how cliché this sounds, but we really do make a great team. … Are there things that we disagree on? Absolutely. Once a month or once every other month he will have a firm belief that something should be done a particular way and I will have a very firm belief that it should be done the exact opposite way. Usually I end up caving because I give his wisdom the edge when it comes to those sorts of things.”

Planning for the future
One of the benefits of attending client meetings together is the Seltzers will often complete each other’s thoughts, or be sure nothing is left out if one partner forgets to mention a particular issue. For the elder Seltzer, it’s also about making sure clients have a lot of face time with Jason — particularly those clients he’s had for a long period of time — so that they know the younger Seltzer plays an equal role in the company. “Eventually, he’s going to be running this company,” John says of Jason, “and I want to, as much as possible, ensure the continuity of clients.”

Jason is also bringing in his own new clients — a positive step for any brokerage that hopes to have some sort of succession plan in place, says Brian Heckert, second vice president of the Executive Committee at Million Dollar Round Table, and a noted expert on succession planning.

Making sure your clients are transferrable is the biggest thing, says Heckert, president of Financial Solutions Midwest LLC, in Nashville, Ill. For someone looking to sell their business in the next five to 10 years, “a more intimate relationship is harder to sell to a bigger firm because your clients want you, not your process, so if you’re gone they’ll choose to find that somewhere else and not stick with the purchaser,” he adds.

Consequently, not only building a revenue stream but also making sure to build a process that is bigger than the individual is key, says Heckert. “Bringing in young advisers during that last 10-year period becomes critical,” he says.

As for the Seltzers, there’s no formal plan in place, but “it was always my thought process that the reason that I was doing this was for my kids,” says Seltzer. “If they wanted it, it was there.”

Depending on his health, Seltzer predicts he’s got another decade of full-time work in him before easing into semi-retirement. For someone in that position, it’s necessary to focus on recurring revenue, says Heckert. “What our industry has moved toward as the biggest value proposition is recurring revenue,” he says. “So if I was an adviser I would start taking a look at the compensation structures that I have in place and make sure that there’s a recurring revenue element to all of it. That would be the first thing I would do to prep my practice.”

One of the biggest mistakes advisers make in the succession planning process is to wait too long to begin, Heckert adds. Clients can tell as long as a decade before an adviser actually exits the business that they’re gearing up toward that goal, because they will typically lose interest in investing in the company. Loyal clients will keep their business with an adviser they’ve had a long-term relationship with, but will not refer others to that adviser, he says.

Telltale signs of such a poorly planned exit, according to Heckert, include a lack of investment in technology and new processes and not investing in new employees. “They’ve had the same staff person for 20, 30 years and the staff person knows they’re going to retire when this person retires. Well, what is there to buy? You’re basically getting a list of names that have a company relationship,” says Heckert, “and that’s not nearly as strong as it used to be.”

Heckert recommends expanding the net of potential partners or successors to a larger geographical area. With a long career ahead of him, plans for the business after his father’s retirement are on Jason Seltzer’s mind, and he is not afraid to look around “for the next thing, whatever that may be,” he says, which includes acquiring another firm’s book of business, or possibly being acquired or forming a strategic partnership.
“You don’t just replace almost 30 years of experience easily. If anything were to happen to my dad, there’s no way that I could continue to do everything without him forever,” says Jason.

While not a top-of-mind concern, Jason is keeping an eye open for a potential alliance in the future. And in the process, he’s come to realize what he and his dad have is rather unique. In talking with a company recently that wasn’t sure they’d be able to make a 125-life group profitable, “we’re sitting here thinking we can make a five-life group profitable — and provide a high level of consultative advice to that group,” he says.
“What we’ve come to realize is that we’re really unique when it comes to that. It’s our biggest strength, but it could also be a challenge to us in the long run, because we’re not a traditional bloated brokerage with a lot of staff and a lot of overhead and a lot of fixed costs that we can’t afford to take on 100, 200, 300 life groups.”

In order to take on a partner, Jason says, “We would need to find someone that understands it’s not just about going in and selling health insurance. It’s about looking at the whole thing and finding out … what’s best for the client instead of doing just a one-size-fits-all approach.”

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