Practice Progress: SEPs, SIMPLEs and More: Growing a Practice With Smaller Clients

Many 401(k), 403(b) and defined benefit (DB) pension plans are suitable for midsize and large employers, but can be difficult for small businesses to implement. To help advisers understand what works for these clients, a “Practice Progress” webinar hosted by PLANADVISER discussed how advisers can profitably and efficiently serve small business clients and sole proprietorships.

Josh Sailar, partner at Blue Zone Wealth Advisors, began the discussion by noting the differences between working with a large organization versus a smaller one. When working with a small company on a defined contribution (DC) Employee Retirement Income Security Act (ERISA) plan, such as a 401(k), the plan’s design can be challenging, he said.

“When you’re dealing with an ERISA plan, there really is no room to mess around in terms of compliance and nondiscrimination testing,” he noted. “There is quite a bit of value-add that goes into structuring a plan efficiently for the type of company you’re working with.”

David Flores Wilson, a managing partner for Sincerus Advisory and a writer/editor for Planning to Wealth, agreed, saying that, in many cases, it’s difficult to tailor plans for smaller companies.

“The owner can come to you with a solution in mind, just not knowing the trade-offs or the effects that can pour over into other aspects of the business,” he said. “There’s value in assessing one way to look at it and the domino effect there.”

When it comes to retirement plans, both panelists said SEP [simplified employee pensions], SIMPLE [savings incentive match plans for employees] and solo 401(k) plans are effective plan designs that take little preparation for smaller clients. For example, a business owner might not be able to open a 401(k) by the end of the year, but he can open a SEP plan with less time and effort, Wilson said.

Sailar agreed, adding that small employers can use a SEP as a hybrid plan until they choose to offer a more complex option, such as a 401(k). “A SEP is the go-to in terms of the benchmark,” he said. “There’s no need to take on that additional cost complexity.”

Sailar said no matter what type of plan an adviser recommends, it’s important to have a well-thought-out investment platform that can drive out year-over-year returns for participants. “It’s about optimizing the plan, not getting home runs year over year,” he said. 

When working with smaller clients, both Sailar and Wilson agreed on the importance of collaborating with multiple parties, rather than an all-in-one business. Bringing in varied perspectives means business owners are more likely to reach any plan goals they want to achieve, Wilson said.

At Blue Zone Wealth Advisors, for example, Sailar said he and his team work with tax advisers and accountants, even though Sailar has had some experience working with personal and business tax returns. “This isn’t to say that I have nearly the amount of experience with the tax code that others have, and that shows why they are extraordinarily valuable. It is nice to know how to plan so that there are no bad surprises in terms of tax management and exposure,” he said.