One possible solution is for advisors to spruce up their offerings by partnering with retirement plan specialists, specifically defined benefit plan providers.
How and why is this effective in retaining clients?
- Tax Savings: It adds another layer to your service offerings. If your clients invested after-tax money, you can now provide a pre-tax solution that lets clients contribute as much as $100,000 to $250,000 each year. The client saves taxes on this amount and there could be significant savings at higher tax rates. It is also a great selling point to close the deal.
- Actuary certification: All defined benefit plans require the certification of an actuary. When you partner with an actuarial firm, the client becomes a mutual client for both. An actuarial firm like ours will offer services to mutual clients as long as the advisory assets remain with you. If the client explores the idea of moving the assets to a Robo advisor, it will mean looking for a new actuarial firm. This is not as easy as migrating to a new investment platform and adds a certain amount of overhead for the clients which will prevent them from jumping ship. Partnering with retirement plan specialists will make your clients stick with you for the long term for administrative reasons.
If you conceptually agree with us till now, let’s elaborate further
What is the ideal client profile?
What is the amount of investments possible?
The IRS limits the investments in a 401(k) plan for $18,000 and in a profit sharing plan to $54,000. An individual above the age of 50 can contribute an additional $6,000 as a catch up.
Contributions in a defined benefit plan are significantly higher and are dependent on the age and the compensation of the individual. These amounts typically range between $100,000–$250,000 and higher in exceptional cases.
This strategy also helps financial advisors garner assets from the same clients year after year as the clients are looking for larger tax deductions for such plans.
Example:
Let’s assume we have a self-employed individual who has been making $150,000–$250,000 as Schedule C income. We can design a defined benefit plan based on what the highest compensation was in the previous years.
The contribution level will be based on the age of the person, however, the exact amount can be increased or decreased each year depending on how much the client wants to contribute.
What happens if the business has a few employees?
Won’t my burden as a financial advisor increase significantly because of the retirement plan?
One size doesn’t fit all, get the plan that’s right for your Client and Business. Contact us now.
