By Cyril Tuohy
When it comes to their financial advisor, small business owners seem to be of two minds. They say that over the next two years they are going to need every bit of help they can get from their advisors. But for the moment, they also aren’t all that impressed with the help they can get or the cost of it.
Still, it’s a huge opportunity for advisors. Advisors can opt to chase new small business accounts, or they can deepen their relationships with their existing small accounts by doing a better job of buffing their image in the eyes of clients.
Mary Boyce, associate analyst with LIMRA, said findings of a new survey released by the organization present “a huge opportunity for advisors to demonstrate their value.”
Health care reform has helped spur demand for advice as business owners seek guidance in a new world where penalties may apply. "Helping both employers and employees understand the options available within and outside the exchanges will be a new way for advisors to grow their business," Boyce said in a news release.
As many as 94 percent of small business owners believe the need for an outside advisor will either remain the same or increase over the next two years, the survey found. This means that for advisors who want to knock on new doors, there’s plenty of opportunity.
“The complexity of the Affordable Care Act and other laws and regulations affecting employee benefits have made running a small business more challenging than ever,” said John Nichols, president of the National Association of Insurance and Financial Advisors (NAIFA), in an email to InsuranceNewsNet. “Surveys of NAIFA members indicate that most feel their job has only just begun once they make a product sale.”
While the vast majority of business owners say the need for an outside advisor will increase, only 50 percent of businesses with fewer than 100 employees use an advisor for business or personal needs regardless of whether they offer employees benefits, Boyce said.
In addition, only half the employers who use an advisor said they were satisfied with their advisor, the survey found. As many as 40 percent of small business owners said they were “neutral” with regard to their financial advisor – hardly a ringing endorsement.
“Generally speaking, employers believe the advisor’s role is transactional rather than as an advisor,” said Boyce. The primary reason small employers gave for firing or dropping their advisor was because they cost too much, the survey found.
The top five services advisors perform for small business clients is to review benefit plans, ensure renewal rates are competitive, help to choose an insurance carrier, keep abreast of regulation and help control costs, the survey found.
The small business market, which generally consists of employers with fewer than 100 workers, employs about 40 million workers nationwide, the equivalent of 35 percent of the U.S. workforce, according to the U.S. Census Bureau. But because the segment is deeply fractured, it’s difficult for financial advisors to serve small companies efficiently and profitably.
Economies of scale make it easier for advisors to pursue midsize and large companies. But those larger benefits segments also are more crowded as advisors at bigger firms with more resources compete to serve larger clients.
Fledgling businesses with between 10 and 24 employees and small firms in expansion mode are most likely to see a need for a financial advisor over the next two years, the LIMRA survey also found.
While health reform is top of mind for many business owners at the moment, retirement planning also looms large. House lawmakers earlier this month held hearings on ways to motivate owners to sponsor retirement plans and spur savings.
Complexity of administering retirement plans remains a major sticking point — but an opportunity as well for advisors.
“Administering these plans is extremely complicated,” said Ray Rucksdashel, chief financial officer for Quest-Tec Solutions, a Houston engineering contractor to the oil and gas industry. Even with 40 years’ experience in small company finance, “there is no way I have the time or expertise to understand all the rules governing the operation of a 401(k),” Rucksdashel told members of the House Small Business Committee on Oct. 2.
Lobbyists for small businesses urged lawmakers to change tax incentives so that business owners are more inclined to create retirement plans.
Paula A. Calimafde, chairwoman of the Small Business Council of America, called for the rejection of proposals to eliminate tax deductions and other benefits that “motivate small business to sponsor plans.”
Barring any changes to the law, governing what benefits small businesses can offer employees, and at what price, will remain complex and abstruse. This may require many businesses to seek advice from a financial professional.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.
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