For advisors looking to add to their existing DC plan practices, expanding into nonqualified deferred compensation plans can be an effective way to boost their practice, according to an Oct. 29 workshop session at the 2020 NAPA Non-qualified Plan Advisor Virtual Conference.
NAPA’s conference this year wrapped up with a panel discussion among emerging advisors who have successfully used nonqualified plans to accelerate the growth of both their client bases and revenues, alongside established advisors who have successfully incorporated nonqualified plan services into their practices.
Among the topics the panelists addressed are why they started advising or servicing nonqualified plans, how they prospect for business and how nonqualified plans fit into their broader marketing efforts. Moderated by Jeff Acheson, CEO of the Advanced Strategies Group, the panelists included:
- Jania Stout, Practice Leader and Co-Founder of Fiduciary Plan Advisors;
- Carrie Hall, Founder, Principal and Financial Adviser with Carrie Hall & Associates;
- Darrell Alford, President of Retirement Benefits Group;
- Erin Hall, Managing Director of Strategic Retirement Partners of Los Angeles;
- Kameron Jones, Assistant Vice President of NFP; and
- Steve Faggiolly, Managing Director of Strategic Retirement Partners.
For Darrell Alford, advising on NQDC plans was quite simple, as there weren’t as many competitors in this marketplace. “Inside your own firm or inside the industry, you get to be known as somebody that knows that the ‘non-qual space’ that can lead to a number of different opportunities and referrals to you, which helps build your practice,” he explained.
Alford also notes that engaging in the NQDC space has led to increased retention with his 401(k) business. “I would venture to say about half or more of our wealth management comes from non-qual when I’m doing my annual enrollment meetings, where I have 10 to 15 minutes to do a refresh with each executive and go over their plan. You really build an incredible rapport and a relationship with them and it just seems to dovetail right into helping them, whether it’s on their other assets or when they retire.” Moreover, he notes that working in the NQDC space allows him to work with the top people in firms, and when they go to other firms, it leads to other clients as they land new opportunities.
Partnering with the service providers is also critical. Alford emphasizes the importance of teaming up with somebody who specializes in administering plans, including making sure they have the administration support you need, and the attorneys, accountants and advanced market specialists.
For Jania Stout, she had various clients who were always asking whether there was a better plan design that would allow them to maximize their savings and NQDC kept coming up in discussions. “I want to help my clients, so I would go out to conferences or to my peers and ask them questions and nonqualified kept popping up, so I started to align myself, learn more about it and I finally just did it,” Stout explains.
She notes that one of the first things they did for prospecting was to look at their client base and highly compensated employees and then started talking to them about NQDC plans. “My clients are so used to rules around the 401(k), such as non-discrimination testing, and it literally is almost like a blank slate; you can build it the way you want to build it and you have tons of flexibility.” Stout also emphasizes the importance of aligning yourself with providers and how they can be a great resource.
Steve Faggiolly explained how his firm focuses on DC plans, but being that his firm is in Silicon Valley where you have potential big tech companies of the future, NQDC really comes into play as a value-add.
Faggiolly also notes that they were not experts right off the bat and leveraged the intelligence and experience of their value-add partners. “One thing that I would tell my younger self is to not be afraid to go in and have those conversations and just see if it’s a topic of interest, because what you’ll find is that, depending on the income levels, for these decisionmakers or managers, nonqualified plans really brings a lot of opportunities to them to save more relative to the amount of income that they're generating.”
One thing he wishes they had done differently earlier on was making sure they were asking the right questions, and that’s where a lot of their partners help with in uncovering the opportunities. “At the end of the day, if you take a look at a holistic approach to consulting on retirement preparation, whether it’s nonqualified plans, deferred comp or health tips, it all goes hand-in-hand with a 401(k) or a 403(b) plan, so if you're not well versed there, I think you’re missing an opportunity,” he suggests.
For Carrie Hall, her clients were looking for a way to provide incentives for their key people and to tie those people to the company so that it would continue to be successful. “Through that work, I was referred to other major companies where we provide nonqualified plan support, and I think it’s a natural progression if you’re working in the 401(k) or profit-sharing or defined benefit area to consult with clients in this area,” she notes.
Hall also finds that many times, there is a disconnect between the Human Resources department that may be working with the qualified plan area and the board or executive team. “So what we like to do is work with the management team, and very often the boards of these companies to try to understand what they’re trying to accomplish in the areas of recruiting and retention, and then keeping that key talent affiliated with the company through nonqualified plans,” she explains.
Hall also stresses the importance of forming relationships with accounting and law firms that specialize in this area so that you can help the existing clients that you may be helping on the 401(k) side.
Kameron Jones got started in the nonqualified space because his firm had clients coming to them for various reasons, such as failed nondiscrimination testing, wanting to save more than a 401(k) plan offers or they wanted to recruit from larger Fortune 500 companies that already have these plans.
Jones also stresses the importance of partnering with an industry service provider. “Bringing someone who can handle the objections, clearly articulate the potential benefits and help your clients avoid common obstacles with these plans is so important,” he stresses.
As to prospecting, Jones explains that they first look to existing clients or with prospective clients and things like failed testing or companies with high-income earners, competitive talent industries or inefficient plan designs. “We can then run a viability study with that industry partner to quantify the risk of not putting one of these plans in place,” he notes. “If I can figure out what that specific client pain point is, whether they lost a key employee or they’re getting a refund, I can tie in my industry partner for a much more successful medium that’s going to help them solve their specific problems,” Jones further notes.
For Erin Hall, incorporating NQDC into her firm’s practice has been vital, but she also stresses the importance of partnering, because there are many intricacies and nuances, and it’s tough to be an expert, at least initially.
“You don’t need to know everything. You just need to know who to call. So we build that expectation into our conversation with our clients that when the time is right, and it seems like nonqualified might be a fit, we’ll bring in a partner who specializes on the technical side with the plan design, the implementation and product options,” she explained.
As for prospecting, Hall notes that their current client base has been the fertile ground. “We start our conversations with clients, asking them about their biggest business challenges. What are they struggling with? And pre-COVID, the answer pretty consistently was recruiting and retaining top talent, and that’s an open door for nonqualified.”
What’s more, Hall notes that NQDC gives you something else to talk about in addition to plan metrics and investments in your regular plan, which can position you as a valued resource. “It provides an opportunity for a new revenue stream from your current client base without a separate marketing or sales effort and really deepens your relationships with your client,” she emphasizes.
