micro scope | PLANADVISER November/December 2016

Working With Professional Services Firms

By Lee Barney | November/December 2016

McIlhenny also recommends that professionals buy insurance. “There are many different insurance-based programs that you can utilize inside of the corporate space, such as a split-dollar plan where you split the benefits of the insurance contract between the employer and the employees.

Depending on how you structure it, there is a win for each party,” he says. “Then there are bonus programs where you leverage the tax-deferred structure of the policy’s distribution mechanisms. Many times, you can have a policy that beneficial to very high-income individuals by maximizing the amount of dollars put inside the insurance contract. Life insurance policies also work well when you tie them into a buy/sell agreement, thereby creating a succession plan.”

Along the lines of insurance, Russell Warye, professional plan consultant with Benefit Partners Financial Group in Libertyville, Illinois, recommends that HCEs take out disability insurance, to protect their income in the event of an accident.

Wayne adds that highly educated doctors and lawyers typically want self-directed brokerage accounts because they think they have the acumen to select individual stocks or exchange-traded funds (ETFs).

Kasten believes self-directed brokerage accounts are a mistake. “I have collected data on self-directed brokerage windows for 25 years, and people who invest in these do worse than those invested in the plan’s diversified offerings 70% of the time, by 4% or more,” he says. “Once we show them their underperformance against the plan, they finally see that they would do better.”

As for nonqualified deferred compensation plans (NQDC), which are popular among HCEs, Barrett says that their tax benefits only work with C-registered corporations, and most professional firms are S-corporations or LLCs.

In sum, there are many retirement plan options available to professional services firms, and as such, advisers need to customize each organization’s plan design with the outcome for both HCEs and non-HCEs in mind.


  • Unlike typical retirement plans, those geared for professional services are typically driven by the partners’ objectives.
  • While doctors and lawyers’ inclination is to share profits among themselves, a retirement plan paired with an auxiliary plan can be more tax advantageous for them.
  • Advisers can recommend safe harbor 401(k) plans paired with cross-testing, cash balance plans, Roth options and insurance investments.