Registered Rep magazine about serving small business clients Article
Thinking Small (In a Good Way)
By Anne Field
1 August 2004
Harlan Kappel isn't a typical financial planner.
For starters, Kappel, with American Express Financial Advisors in Dallas,
declines to advise clients on asset allocation, portfolio diversification,
mutual fund investments and the like. Indeed, he hardly deals with investments
at all. Further, Kappel usually keeps his thoughts small — as in small business.
Kappel is part of a growing number of advisors who focus their practices
squarely on business owners. As such, most of his time is spent helping clients
in developing their employees' management skills, structuring their business
operations and allocating shares of the company to family members. His partner,
Sean Brown, takes care of clients' more traditional financial needs.
The divide-and-conquer system is one Kappel and Brown developed about three
years ago to better serve the needs of the 40 or so small companies they work
with — and it has worked well.
Since introducing the team approach, Kappel says many of his clients' businesses
have mushroomed in size. One, for example, went from $30 million in sales to $60
million in two years and recently had a public offering. Another increased
revenues from $860,000 to $5.6 million in the three years before the owner sold
it “with enough to retire on, says Kappel, who also won the accounts of the
company's top three executives.
“I haven't found any financial advisor working with small business who can do it
all, he says.
Small, Not Insignificant
With about five million small businesses (fewer than 500 employees) operating in
the U.S., there's plenty of room in the market for willing reps.
The initial opportunity, of course, lies in selling retirement plans, insurance
and the like to the company itself. But savvy reps, like Kappel, turn a double
play by getting the personal business of the company's owners and employees as
Caveat emptor: Small-business owners are not the usual client. They tend to be
highly protective of their companies and slow to trust advisors. These
characteristics make them a long sell. Plus, as Kappel discovered, they often
require unconventional techniques.
The trust factor is probably the thorniest issue.
“The company is their baby, says Bill Amos of Amos Financial Services in Santa
Rosa, Calif. “They tend to be very cautious.“
The surest route to winning trust is by building up a referral network —
lawyers, accountants and assorted other professionals who can help you get past
a business' gatekeepers.
“I want to be referred by an influential advisor, says Irving Katz, whose Katz
Insurance Service and Katz Retirement Service in Irvine, Calif., serves
“hundreds of small-business clients.
A favored Katz tactic is to direct business toward likely referral sources,
thereby putting pressure on them to return the favor. In addition, he gives
monthly financial planning seminars at meetings of CPA organizations and other
Another successful tactic is to communicate that the success of the business is
a primary concern. John Reddish, a Philadelphia-based small-business consultant,
suggests that advisors bring up four or five topics unrelated to their own
business (the role of the owner's children in the company, for example, or plans
for growth) for every one topic near and dear to their own wallet.
Another approach is to start small, perhaps by selling the company a 401(k) plan
and then building from there. The building process is one that Amos knows
something about. He has been able to parlay many of his business-only accounts
into relationships with the companies' top executives. To that end, he holds
frequent get-togethers: an enrollment meeting once a year, in addition to
twice-a-year meetings to address questions. Plus, he makes sure employees are
aware they can contact him with questions at any other times of the year.
One of the most important things to remember in pitching a small-business owner
is this: Keep it short. They have notoriously short attention spans — an
outgrowth of having to constantly juggle many things at once.
“They're usually being pulled in all sorts of directions at once, says Bruce
Fenton, an advisor with Atlantic Financial in Westborough, Mass.
This means that preparation is key, and making an airtight presentation with
bullet points and lots of numbers greatly aids the cause. Because they are so
focused on the day-to-day aspects of their businesses, owners often don't
understand investing basics the way most high-net-worth executives do. As a
result, a lot more education is usually necessary to land the account.
Indeed, education could well prove the most time-consuming task, but it's also
an effort that can forge strong ties between the advisor and the business owner.
Katz devotes the first two to three meetings with small-business owners
imparting financial lessons.
After the first meeting, he usually sends the client off with a packet of
information on investing and other financial topics. When they meet again, he
quizzes them on what they've absorbed. If he's not satisfied with their answers,
he'll go over it all again, and if that's not enough, he'll bring in the
client's CPA for reinforcements.
If it sounds like a lot of effort, Katz maintains it's worth it.
“I want them to be educated enough so they understand the value I'm bringing to
them, says Katz.
As important as choosing the right company to approach is finding the right
executive within the company to pitch. Of course, you need to target decision
makers, but these are not always the occupants of the most obvious posts, even
in a small company. In some cases, a secretary could play a significant role in
the sales process.
“Don't assume certain employees don't have power, says Fenton. “I've had
situations where we closed without ever even meeting the owner.
The Holistic Enchilada
For many advisors, the ultimate key to winning small-business clients is, as
Kappel says, “to take a holistic approach.
That means becoming a lot more than a financial planner, and turning yourself
into a sort of business advisor as well. The bad news is that this takes a lot
of work, especially in the beginning.
“Small-business owners don't really perceive themselves as being separate from
their business, says Scott Reynolds, who runs Lincoln Financial
Advisors/Reynolds Financial Group in Joliet, Ill. “You have to spend a lot of
time uncovering the things that keep them up at night. Once we know those, we
can deal with more traditional areas of finance.
Reynolds notes that when he first met the four siblings who ran a client company
of his, he discovered they had been wrestling with a tricky problem for several
years, but had been unable to find a way out. One of the siblings wanted to
retire, and they couldn't figure out a method for structuring his departure in a
way that gave a fair deal to all involved.
Reynolds decided to talk to each family member to determine each person's goals.
Then he met with the group and developed a plan that would give the retiring
sibling enough to live on and leave the business enough cash flow to continue to
“By starting with the personal and moving back from there, we made the process
work, he says.
Those advisors who embrace the comprehensive tact have to deal with all sorts of
business issues specific to small companies. The biggest is probably the matter
of business continuity — what happens if the owner retires, dies or becomes
disabled. This affects everything from setting up a buy-sell agreement with
father and son to determining how much control to give various children to how
to institute compensation plans that will retain key employees during the regime
Katz recently set up a deferred compensation plan for two crucial employees at a
general contracting company. The key feature was a 10-year vesting period that
could keep them in the business until the owner's son takes over, plus a stake
in the company.
There is one huge downside to the small-business market: its high rate of
business failure. The majority of companies don't make it past their fifth year,
which means advisors must vet potential clients well.
“You can't open your doors to everyone, says Greg Large, a managing partner with
Lenox Advisors in New York, which, in addition to financial planning, provides
retirement services and benefits consulting.
Large protects himself by focusing on a few industries — commercial real estate,
law, investment banking, hedge funds and venture capital — and requiring a
minimum of $1 million in investable assets for individual accounts. Furthermore,
if a company is below 10 employees, he requires a fee of $2,500.
It's a strategy that's paid off so far. The firm now has about 40 employees, up
from six eight years ago, and 80 percent of its business is from small
It just goes to show you: The small-business market can be a big one for many
reps — just make sure you understand the terrain.
Volume 28; Number 8; ISSN Number 01931865
(c) 2004 by PRIMEDIA Business Magazines & Media Inc. All rights reserved.