In the credit union and banking investment environment, an often-overlooked source of investment program potential is small businesses. Why would you want to learn about serving the needs of business owners? One, business owners are the movers and shakers of our country. They create jobs; they create wealth; they create products and ideas! They are bright. They are not afraid of risk. They can conceptualize what you are trying to tell them. If you have an idea that can solve their problems, they are quick on the uptake, and you’re likely to have a great client for life.

Two, working on ideas to help business owners lifts you out of the commoditized areas of our industry. Every rep on the street can compete with you on the same mutual fund sales or equities trades. When you work with business owners, you step into the rarefied role of expert problem solver, consultative advisor. You want to be in a place where a business owner can come to you with real life problems, and you’re the one with great solutions. How do I retain my top people? What happens if I suddenly lose my best scientist or sales person? How can I pass my business on when I retire? These are the questions that keep business owners up at night. If you can solve these problems, you may get to be the guru for all of that business owner’s personal investing needs as well.

Three, these can be big ticket sales. Business solutions are typically funded by life insurance, and mitigate huge risk to the business owners for pennies on the dollar, while putting significant GDC in your pocket. There is considerable lead time to completing a business case; however, if you put together a buy/sell agreement for 2 or 3 business owners and fund it with life insurance, you’re looking at a potential $30,000 to $60,000 payday when the transaction is closed.

Common Problems Business Owners Face

Let’s look at some of these areas where you might become a trusted advisor to businesses. Think about the problems business owners face.

“What if someone steals my best employees?”

Retention is a big area of concern for all successful businesses. Once a business has an employee trained and online producing well, they do not want to lose him or her to a competitor. Hiring and training are expensive, and it takes time for employees to achieve mastery in their job. Employers create great benefit packages to retain talent, including healthcare, vacation pay, disability coverage, and more.

You can suggest adding a deferred compensation plan for a few top employees that would make them think twice about leaving. Typically, it is a special benefit package for a top executive or a key employee. The executive agrees to stay with the firm for a period of time, say 5 years, or to meet some other goal. If he/she does so, the company agrees to pay a certain sum at the end of that time. Deferred comp is sometimes called “Golden Handcuffs”. If the goal is not met, the benefit is not paid. Legal agreements are drawn up, and often deferred compensation plans are funded by life insurance. The life insurance build-up provides the cash to pay the executive at the end of his contract. If he dies prematurely, the death benefit provides liquidity for the employer to do something for his family. 

“What if my top sales person dies unexpectedly?”

Losing a key employee to death is often devastating for a business. It may take 2, 3 or more new employees to do the job that the one key person was handling before his untimely death. Businesses often buy key person insurance on the lives of key employees to provide liquidity if they suddenly have to go out and hire replacement employees quickly to do the work of the lost employee. 

“How will I ever buy out the business if something happens to my partner?” 

Business continuity is vital after the death of an owner. Most business owners know this, but many put off planning a strategy for how to handle such an event. A buy/sell agreement needs to be drafted by their attorney. A method of valuing the business annually needs to be a part of the agreement. To prevent remaining owners from suddenly being in business with their deceased partner’s spouse, there needs to be a compulsion to sell and a compulsion to buy in the agreement. Often the problem then comes down to where to get the cash to buy the business from the spouse. Life insurance is frequently used to fund buy/sell agreements to provide that liquidity, and can be funded over time. 

Because business owners are movers and shakers they’re generally spending 60 hours or more per week building their businesses. In many cases, they find little time to do the planning necessary to cover the types of risks we have identified. You can become the impetus for your business owner client to actually put some of these strategies in place. By using some business fact finders, you can uncover business needs they haven’t addressed. 

Employer Retirement Plans

Here’s another area of concern to business owners: the corporate retirement plan. You’ll hear concerns like this:

“My 401k Plan costs a fortune; hardly anyone participates; and now I can’t even contribute what I want for myself! How can I put enough away for myself for retirement, and encourage my employees to save for retirement as well?”

Retirement plans are a constant source of mystery and frustration to business owners. If we walked into 100 businesses in your town, we’d find 80 of them have problems with their retirement plans, or worse still, the plans themselves are out of compliance. If you have the expertise to make the retirement plan a profit center rather than a cost center to the company, to insure that it is designed properly to meet the goals of the company, and operating in compliance with all rules, that’s a great start to being the trusted advisor whom the owner will ask all of his other burning business financial questions. 

If you can also provide excellent education about the plan to employees, give them investment choices that they embrace and understand along with up-to-date online tools that they can use to self-direct, now you have everybody in that business as a potential client. Even better, your assets under management increase every pay period as employees make payroll contributions to their plan. Retirement plans are not always huge ticket items for you, but solving problems with the plan for the business owner often opens the door for him/her to bring you other business needs.

What do you need to get started in these areas? It’s great if you have resources in your broker dealer’s back office to guide you, specifically, a retirement services desk to help you design plans for employers and direct you to third party administrators. An insurance desk with advanced design capabilities can help get illustrations for business insurance of all kinds and direct you to insurance companies with products to meet the needs of business clients. 

If you don’t have these resources at your broker dealer, one way to start is to explore with your favorite product providers what types of business products they offer and whether they have advanced design departments of their own. Many mutual fund companies and insurance companies offer retirement plans, for example, and will provide wholesaling assistance to sell them. Insurance companies that offer business policies often have advanced sales departments filled with lawyers and design experts to provide illustrations, case support, and educational tools for you to learn the business. If you chose an area to work in, you can learn as you begin to do cases, and soon you’ll be able to speak confidently with business owners about their needs.

Competitive Advantages

It’s well worth learning to meet the needs of business owners. It sets you apart in the marketplace as an expert. It gets you in front of the decision makers in the community. Once you solve a business problem for an executive, he’s very likely to come to you with all his financial needs. 

You also become an even more valuable asset to your financial institution. Banks and credit unions work with businesses in the community. They offer checking and lending to businesses. Your expertise in meeting the other financial needs of business owners builds the banking relationship into a full service, one-stop-shop type of alliance, and creates real barriers to exit for the client. Why would he go down the street for a slightly higher CD rate, when he has a trusted advisor here at the financial institution taking care of all his business needs? 

Think about the comfort level for the financial institution as well. Wouldn’t your lending officer, who just made a large commercial loan to a business owner, feel much more comfortable knowing that this business has a fully funded buy/sell agreement in place between the owners, so that there is business continuity in place if something happens to the senior partner? Wouldn’t that same lending officer be more comfortable to give a successful realtor a loan to build more branch offices knowing that the realtor had deferred compensation programs in place to keep top realtors from leaving for a competitor? Once your bank or credit union knows you have these skills, you will receive referrals from other departments. Both you and your financial institution stand to gain if you invest time to learn about meeting the needs of business owners. 

By Dave McClary
Retirement Services Manager, CFS and SPF