Is DB Plans Can Be a Profitable Addition to Your Advisory Business?

You are not the only one offering investment advisory services for 401(k), but not Defined Benefit (DB), or Cash Balance plans. Investment advisors often avoid the DB market due to the smaller pool of potential candidates and benefits. Employers may not be able to understand the benefits of a DB program if they don’t have a trusted TPA or actuary.

The reality is that Defined Benefit Plan advisory business can be very profitable due to two main reasons.

First, a DB Plan is not an individual account plan. Employees don’t have to – or can’t – direct their investments. Advisors also don’t need to spend time outside the office helping employees with enrollment and education. Instead, assets are kept in a pooled account managed by the investment advisor.

Second, DB plans are more flexible than 401 (k) plans in terms of individual funding and grow faster than their 401 (k) counterparts. The annual individual contribution limit in a 401 (k) plan is $54,000 for employees and employer contributions, and $60,000 for those 50+. Business owners in their 50s or 60s can usually contribute more than $200,000 in tax-deductible contributions each year to a Defined Benefit Plan. This is in addition to a very low contribution cost for their employees.

This is where Cash Balance plans step it up. A Cash Balance plan is often paired with a traditional 401(k). This type of Defined benefit plan is simpler for business owners because the accrued benefit expressed in an annual account balance instead of a monthly benefit at retirement. The ideal combination of a 401(k), Cash Balance plan and a 401(k), allows business owners to save up to $250,000 per year in tax-deductible contributions. These contributions are often more than the annual plan administration cost plus employer contribution expense for employees.

These plans, whether a traditional DB or hybrid Cash Balance plan with or without a 401k combo, can result in significantly higher contributions for business owners as well as key executives. You’re a hero if you introduce a plan that allows for significantly higher contributions and tax deductions, while simultaneously allowing rapid AUM growth.

We encourage you to review the FAQ page for Defined Benefit and Cash Balance plans on our website to learn more about these plans.

If you are interested in selling or servicing Cash Balance and Defined Benefit plans, contact Kyle Brown, our Defined Benefit Manager at 615-515 4459, or email him. Kyle Brown is located in Ashville NC and would be happy to talk with you and your clients about whether a Cash Balance or DB plan might work for them. Kyle and his team will assist you in crafting and presenting a proposal, and they will also help you win the business.