Asking questions and understanding a prospect’s business needs instead of trying to sell a product are key to finding success in the nonqualified deferred compensation plan market, according to a Sept. 23 panel discussion at NAPA’s inaugural Nonqualified Plan Advisor Conference in Chicago.
Moderating a panel on “Marketing, Approach, and Discovery,” NAPA President-elect Jania Stout, Managing Director and co-founder of Fiduciary Plan Advisors, explained that working in the NQ market is different than the 401(k) plan space, such that the focus is more on overseeing a process, from discovery all the way through implementation. Once you get a prospect, the process you undertake is key and it’s important to get everyone on board from the start, otherwise “you can spin your wheels the wrong way for many, many years” if you don’t, Stout noted.
“After I started to lean on partners — whether it was one of the providers or one of the advisors — it really taught me about how to run a process rather than selling a product,” Stout explained.
The panel explored a number of questions that advisors should consider in expanding into the NQ market, such as how to craft and communicate a unique value proposition that sparks interest and conversation; what questions to ask to identify actionable NQ hot buttons; and what information they will need to develop a client solution.
Prospect Identification
A good starting point to identify prospects, according to Corby Dall with 401(k) Advisors Intermountain, is to review whether a plan has a lot of highly compensated employees (HCEs) who have maxed out their 401(k) contributions. If there are a number of those, then that’s a good starting point to identify an ideal prospect.
Dall noted that he also had a lot of “swings and misses for many years with no success,” but as he learned to partner with those who specialized in this area, he started to make headway with landing NQ clients.
Companies that are engaged in “talent wars” are also a good starting place, such as the tech companies that are fighting for the best talent. Bringing these companies a solution with respect to NQ plans that they were previously unaware of can bring “magic” to them, Dall noted. “A lot of these decisionmakers don’t know what they’re missing,” and if you frame it the right way so that they ask questions, that’s when you can sell them on the customized benefit, he explained.
Randy O’Brien, founder, CEO and managing partner of Corporate & Endowment Solutions, echoed that assessment, further noting that it’s key to ask probing questions of the prospect first, which could include questions about their 401(k) plan funding and contingency capital, with the goal of creating opportunities.
Dall noted that one benefit from venturing into the NQ business is that it has opened the door to establishing relationships with the C-suite, instead of only the HR staff. He noted that it has created a connection where they have come to rely on us and has “cemented our value” as a consultant, rather than just advising on the 401(k) plan, and that, in turn, has spilled into the wealth management sector.
Micro Versus Mega Markets
As to marketing to small and large plans, there are a number of key differences in how you approach and work with clients, based on the size of the company and number of employees, according to the panelists.
Phil Currie, Managing Director with Fulcrum Partners, suggests that there are four different measurements that you could look at when sizing up prospects:
- number of employees;
- number of HCEs;
- revenue of the company; and
- amount of deferrals going into the plan.
He noted that for plan advisors, it probably makes sense to look at the number of HCEs because “that’s a value that you could easily capture in your book of business.”
If a client decides they want to purchase an NQDC plan, there really is no product; it’s more about a process, Currie advises. He explains that the first thing to figure out is their objectives, such as what are they trying to accomplish with this plan, who’s eligible, and should it be voluntary deferrals or company contributions. Once you have the objectives, you then come up with a preliminary plan design and then begin discussions about benefit funding and security, and gradually work your way to TPA selection, plan implementation and ongoing administration.
O’Brien adds that working in the small market, defined in this case as up to 30 lives, tends to be more customized to the personnel versus the customization of the tool. He explained that his work in the micro-to-small market lends itself to the creation of different “cottage approaches” that may not work so well in the larger market.
In working with smaller plans, his firm almost always deals with the owners and their comptrollers, CFOs and CPAs. If you’re working in the larger market, on the other hand, he notes that you likely would be relegated to working with the HR executives and would have very little interaction with the participants themselves.
One thing in working with a smaller firm, O’Brien cautions, is that the HCEs put more pressure on the owners to give up true equity ownership, and you have “to settle them down to get comfortable with synthetic equity” and work with the owners to build contingency capital.
At the other end of the spectrum with large plans, according to Currie, is navigating the Legal, Finance and Compliance issues from the various departments within the company and ironing out any conflicting corporate objectives. “You need to have those conversations with each side of the house. We recommend putting together a study group of people who would be working on the project from start to finish—somebody from HR, somebody from Finance and somebody from Legal. And you want those people in room talking to each other and working out the plan design issues,” Currie suggests.
Benchmarking can also be an important factor in helping advisors sell the benefits of an NQ plan, particularly with larger plans. “It’s a really good tool, because typically the one faction that you do get to spend time with is HR,” notes Dall. “They’re really interested in what you can do to help them and that benchmarking tool is great for them, particularly because they can take it to the comp committee. They can be your helper in getting it in front of the right audience and they’ll be the ones to sell it upstream.”
