How Allianz Can Help Financial Professionals Understand and Better Serve the Business-Owner Community

To enable financial professionals in providing much-needed strategies for small-business owner clients, Allianz Life Insurance Company of North America (Allianz) Advanced Markets commissioned a survey* of small-business owners to uncover the unique challenges they face.

The survey revealed concerns in three areas: key employee compensation strategies, business succession planning strategies, and estate planning strategies.

The need for this information was recognized in response to last year’s interview with David R. Foster, JD, AEP, CLU, ChFC, CAP, FLMI, Advanced Markets attorney and senior director of Advanced Markets at Allianz. In that interview, he expressed the importance of understanding the challenges of small-business owners across a variety of industries in order for financial professionals to bring new strategies to the table to generate new opportunities.

In this year’s interview, you’ll hear about key findings of the survey and how you can apply them in your financial practice.

INN: Dave, can you share what inspired the small-business owner survey?

DF: To help business owner clients achieve their goals, you have to understand their world. What are their biggest concerns? What are they currently doing to address those concerns? What are their financial and nonfinancial goals?

This survey was developed to gather this information about small-business owners and then pass it on to financial professionals.

INN: What were some of the top concerns expressed?

DF: Top concerns fell into two categories — economic and market conditions or concerns related to the business itself. Of small-business owners surveyed, 85% were concerned about recession and 81% were concerned about both supply chain delays and increasing interest rates.

Related to the business itself, 77% were concerned about recruiting and losing key employees. And 76% were concerned about successfully transferring their business to the next generation. Based on those findings, key employee compensation and business succession planning strategies are relevant areas of planning they’re seeking assistance with in 2022.

INN: What else did you find regarding attracting and retaining key employees?

DF: A particularly interesting finding was 39% of small-to-midsize businesses said they were utilizing grants of stock or nonqualified stock options or a similar plan to help retain key employees, which is high for small businesses. When a small-business owner gives away stock, they’re giving away ownership rights. That brings a host of additional legal responsibilities, and it provides minority shareholders with many additional rights — something not all business owners understand. It has the potential to cause more problems than benefits.

INN: What did the survey reveal regarding succession planning for small-business owners?

DF: One interesting finding was that 93% of business owners who plan to sell their business were concerned about finding a buyer for the business upon retirement, which means they own an asset they can’t liquidate for the amount they need or when they need it. That presents a huge problem for retirement. In fact, another statistic we found was that over three-quarters of all small-business owners, not just the ones expecting to sell to a third party, expressed concern that most of their wealth was tied up in the business.

Also, 75% of small-business owners said their business succession strategies were impacted by the pandemic. Of those impacted, whether they delayed or accelerated their plan to transfer ownership varied by industry. Financial professionals working with small-business owners need to check in to see how plans have changed and what impact that may have on a client’s overall financial strategy.

INN: In this survey, participants were also asked about estate planning. What did responses on that topic reveal?

DF: The majority (58%) of small-business owners expect to pass on their business to family members. In my experience, the larger the business gets in size, the less likely that is. Of those planning to pass their business on to a family member, 77% expressed concern about doing so while retaining family harmony.

Whenever you pass a business on to a spouse or children, there’s the potential for family discord. What’s encouraging is that this is a top-of-mind concern and something business owners want assistance with. It also reinforces that estate planning strategies are more than saving on taxes, it’s about the emotional and relational aspects of passing on a business to family.

Surprisingly, 79% of the respondents had a concern about federal or state taxes levied at death.

This is surprising because with a little planning, a married couple can pass on just over $24 million free of any federal and state taxes in 2022. It’s possible these concerns stem from federal and state exemptions scheduled to be cut in half in 2026. This is clearly something financial professionals need to be addressing with their business owner clients.

INN: What are the solutions Allianz offers that uniquely meet business owner client needs?

DF: With this survey, we wanted to know business owner concerns, trends, and goals so we could come up with not just products but also strategies — that’s our focus in advanced markets.
For example, on the succession planning side, that could include grantor retained annuity trusts, Intentionally Defective Grantor Trusts, buy-sell agreements, etc.

When transferring ownership of a business, family conflict goes up substantially if all children receive equal ownership in the family business, especially when some are active in the business and others aren’t. To prevent clashes over business decisions, one potential solution is to pass the business on to active family members and equalize the others with life insurance.

As for the expressed desire to recruit key employees, business owners may want to consider strategies such as key employee bonus plans or split dollar plans, nonqualified deferred compensation plans, or phantom stock and stock appreciation rights plans, all funded with an employer-owed fixed indexed universal life (FIUL) policy.

These are a few ways the product and plan combined can accomplish some of their goals.

INN: From a carrier’s perspective, what were some of your key takeaways? Did what you find change Allianz’s approach at all?

DF: In a lot of ways, we’re on the right path, but there’s always room to grow. When you look at the combination of concerns around wealth being concentrated in one asset (their business) as well as concerns about a downturn in the economy, indexed annuity and life insurance products meet the needs revealed.

Also important to note is that 41% of small-business owners plan to transfer their business within the next nine years. From a carrier perspective, we understand that a successful transition of a business requires planning. Therefore, we need to be prepared to assist financial professionals in this area. That preparation could come in the form of product development or advanced markets solutions.

Finally, the pandemic changed what key employees expect from their employer. We can help address that need by building appropriate products and providing key employee compensation strategies to the employer community.

INN: How would financial professionals approach their business owner clients based on the survey findings?

DF: Business owner clients are unique, so the same tried-and-true solutions may not be the answer. Instead, listen twice as much as you talk when working with a business owner. They are passionate about their businesses. They also appreciate working with teams. Find a local network and build a team rather than trying to do it all yourself.

Financial professionals also need to be aware of the variances between industries in order to serve the small-business owner community well. Our survey found substantial differences in terms of what they’re concerned about and what their goals are. Financial professionals who understand the unique trends, issues and goals in the various industries (e.g., construction, technology, manufacturing, agriculture, etc.) will have a competitive advantage over those that do not.

INN: What’s the next step for financial professionals who work with business owner clients?

DF: The survey has a tremendous amount of data points we didn’t cover here. So it’s important to get the fact sheet we created, so they are armed with more insights.

Over the coming months, we plan to communicate even more specific data points through articles, etc., that will be available on our site. And stay tuned for future surveys.

Beyond available tools, like the survey, financial professionals can get access to marketing pieces related to the topics we’ve discussed. Plus, we have a team prepared to walk through cases. The first place to start is collecting data and listening for goals. From there, if someone is new to the business owner world, we can guide them through strategies that work but also let them know what might have been missed.

INN: This has all been very enlightening. Thank you for sharing these findings, Dave. What else would you like to tell our readers about working with small-business owner clients?

DF: Small-business owners, and their families, rely heavily on their businesses to provide financial security both before and after retirement. Prudent financial professionals realize the importance in helping them plan accordingly. But they must also be aware of the variances between industries, so they can provide the right solutions to meet the specific needs of their clients. By understanding the challenges revealed in the survey, financial professionals can better equip themselves to serve this community well.

To get access to the key findings from the 2022 Business Owners Survey, visit AllianzAdvancedMarkets.com or call the Advanced Sales and Practice Platform Team at 888.900.1530.

*Allianz Life conducted an online survey, the 2022 Business Owners Survey April 20-May 9, 2022, with 516 small-to-midsize business owners. Respondents must have owned a business where they were actively engaged in day-to-day operations, employed at least five people, and had revenue of $500K+ over the prior 12 months.

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Allianz Life Insurance Company of North America does not provide financial planning services.

Producers should encourage their clients to work with qualified tax advisors or attorneys when considering the various planning strategies.

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