Construction companies in Canada’s booming Western provinces are competing fiercely for good talent these days.
“The employees call the shots,” says Linda Campbell, an advisor who runs a group-benefits practice with Sun Life Financial Inc. in Victoria.
This shortage of skilled employees in all sectors in British Columbia and Alberta has companies looking for ways to attract and retain talent. And they are going beyond offering fat salaries. For employers, a good benefits plan is “the next incentive” when it comes to recruitment and retention of employees.
“Employers have to find different ways to keep employees,” says Campbell, who has a background in human resources management. “One of the things that employees are demanding is a group RRSP.”
Group pension and insurance benefits represent a growing — and lucrative — market for financial advisors. While large employers are well served by the big group-benefits manufacturers, many advisors have found success serving the group-benefits needs of small and medium-sized businesses — those with 20 employees or fewer.
A POPULAR OPTION
Group RRSPs are a popular option for small to medium-sized businesses, Campbell says. And group insurance is almost always part of the plan.
Full pension plans are costly, and smaller businesses can’t count on year-to-year profitability to fund them. Group RRSPs, on the other hand, enable employers to offer their staff a low-cost option. Each employee gets an individual account with access to a variety of platforms, including proprietary funds, third-party funds and even a discount brokerage account, depending on the plan provider and the options the employer chooses. Employees often have online access to their accounts, along with a variety of financial planning tools.
RBC Group Financial Services, a unit of RBC Asset Management Inc., Fidelity Investments Canada ULC, CI Financial Income Fundand Mackenzie Financial Corp., all of Toronto, are among the leading providers of group RRSPs. They compete to administer the group plans for employers.
The employers usually offer some sort of incentive for employee participation, such as a top-up contribution to the accounts, sometimes in the form of a year-end bonus. “That’s just so that they keep the employee there,” says Campbell.
Along the same line, employers that offer group RRSPs can also set up deferred profit-sharing plans, which allow the business to share profits with key personnel in separate accounts. Employers declare the profit and pay taxes on it before depositing it into the DPSP account. Employees keep the proceeds, tax-free, until they withdraw it from the account.
Group life and health benefits usually start with life insurance, along with accidental death and dismemberment, dental and disability insurance. Extended health-care benefits include drug plans, out-of-province and out-of-country emergency health coverage and some paramedical services, such as chiropractic or massage therapy. With a few exceptions, these benefits are provided tax-free to employees, and that’s the main benefit to them.
Plans vary by industry. For example, packages in the construction industry almost always include extended disability coverage, while a plan for a retail clothing store in a major city, where employee risks are different, might include extended coverage for paramedical services.
“It depends on the norms in the industry,” says Karen Mason, senior vice president for group business at Equitable Life Insurance Co. of Canada, a carrier that focuses on medium-sized businesses. “It also depends on other things, such as how much the employer can afford. A law firm might offer a different base than a media company.”
Health-care spending accounts and critical illness insurance are becoming more common options on group plans.
Sun Life and Manulife Financial Inc., both of Toronto, and Winnipeg-based Great-West Life Assurance Co. are among other major players in the group insurance business.
For most advisors, the small-business market segment presents an opportunity, says Campbell, who focuses her group-benefits business on sales to trade unions. She maintains 12 group business plans of five to 15 tradespeople each. Several of these plans include group RRSPs. Anything more, adds Campbell, and an advisor would need full-time staff and business partners.
Administering these plans and keeping on top of regulations is an industry all its own. Massive global consultants dominate the scene for businesses with hundreds of employees. Mercer Canada (a division of New York-based Mercer LLC), AON Canada (a division of Chicago-based AON Corp.) and Stamford, Conn.-based Towers Perrin serve employers by helping them to source defined-benefits plans. Increasingly, such consultants help their clients set up defined-contribution plans from various insurance companies and institutional asset managers. Often this includes human resources consulting.
@page_break@That still leaves a growing market of small and medium-sized businesses that are looking for employee benefits such as group RRSPs and insurance plans. And less than 5% of advisors make the move into that business — so the opportunity is there.
Despite significant turnover (business start-ups that don’t survive the first year) about 250 enduring small to medium-sized businesses are created in Canada each year, according to Statistics Canada.
A recent StatsCan study found that businesses of less than 100 employees added 185,000 jobs to the economy in 2006. Those jobs were evenly split between businesses with 20 to 99 employees and those with fewer than 20. Of particular note to advisors in Western Canada: businesses of fewer than 20 employees in the construction sector, including consulting services, accounted for about 30,000 of those new employees.
No matter the size of the business, advi-sors who offer group benefits are always presenting a variation on the same theme: a method for business-owner clients to attract and retain top-calibre employees. It is part of growing and maintaining a business, and it’s often tied closely to the interests of your clients. And, in turn, it is tied to the interests of the people on your clients’ payrolls.
“Employees are often looking to protect their families,” says Ralf Soeder, a managing partner with WSC Insurance Group Ltd. in Oakville, Ont. Even if a small business can offer a more interesting career opportunity than a cubicle in a bureaucratic firm, top-calibre employees may still crave the stability that a larger firm offers. An attractive benefits plan can tip the balance toward the small employer.
Soeder has taken the “next step” in providing group benefits. He has partnered with two advisors and hired a full-time benefits consultant to administer 42 group life and health plans, 12 of which include group RRSPs. Together, the three partners also serve 1,500 individuals across the Greater Toronto Area with both investments and insurance.
One advantage advisors have, says Soeder: they can tailor plans according to the business owner’s needs. He describes a custom-designed plan for the owners of a medium-sized manufacturer in southern Ontario. The owners are high-income earners who had what he calls “insurability issues.”
These business owners, however, could be insured inside a group plan without the same degree of evidence that’s required at the individual insurance level. Soeder also set up the owners with separate individual disability insurance that was convertible. “When they planned to sell the business, they could keep the long-term disability insurance, so portability wasn’t an issue,” he says. “It was a unique solution, and the owners appreciated that.”
BENEFITS TO ADVISORS
Group sales provide myriad benefits to advisors, starting with a more manageable schedule, says Gil McGowan, a former group insurance advisor who is now regional vice president for group retirement sales and services at Desjardins Financial Security Investments Inc. in Toronto. McGowan started selling individual insurance in 1979, but within a few years, the pressures of dealing with individual clients was wearing him down. He was considering getting out of the business altogether when his branch manager told him to try group business.
“I was now working nine to five instead of evenings until 10,” says McGowan. “To me, that was the biggest attraction.”
Once McGowan closed a few deals, he appreciated the steadiness in income. Within five years, he had slightly less than 100 group plans in place. On top of that, it was a great way to prospect for individual business. Every group plan of 50 employees represented 50 potential individual clients.
“I documented that for every dollar of commissions from the group side, I could generate another $3 to $5 in commissions,” says McGowan, “because I could sell those people additional insurance or savings vehicles. That’s the benefit of getting involved — and being slow and just being patient.”
From a business-building point of view, McGowan says, advisors can’t afford to pass up group business. If they’re not asking clients if they own businesses or if they participate in group plans at work, they’re giving away clients, he says: “It’s called building fences.”
But as you wade into this new business, you can expect to face new challenges.
Campbell notes that it can occasionally take up to a year to start up a group plan. Advisors may wait for business owners to get comfortable with their workforce before the owners commit to offering group benefits. Or business owners might lose employees and concentrate instead on hiring.
“I spoke to a client today, and [its group plan] will probably be in place for the end of this month, but that’s a conversation I have been having since November,” Campbell says. “Things happen in the workplace that you can’t control.”
Understanding the product provider’s pricing scheme for new business and renewals each year can also take time and patience. Underwriting can get complex and each case is different. Insurance companies have different pricing methodology to begin with, and they interpret the client’s input numbers and experience (the number of claims) differently.
“It’s difficult to tell how an insurer will respond to a request for a quote until you see the response,” says Mason.
Similarly, for renewals, the underwriter will look at the claims experience and make judgments based on what he or she sees.
Occasionally, renewal premium pricing may rise sharply from introductory rates. You may have to start again with new product providers, leaving you vulnerable to losing clients disenchanted with the process.
“You may have to go to market after two or three years and check the market out, and do some work with your clients,” McGowan says. “Not many advisors are prepared to put up with that.”
For advisors who are intimidated, support comes in many forms. At Desjardins, for example, McGowan is developing a group retirement training program for advisors. Similarly, about 50 Great-West Life wholesalers nationally aim to help individual advisors sell group plans. Product manufacturers prefer to support their own products, and they offer help to the extent that they can close the deal.
Many dealers offer their advisors in-house help. DundeeWealth Inc., for example, has a relationship with B Comm Financial Benefits Consulting Inc. in Richmond Hill, Ont., which offers DundeeWealth advisors support for group business. Senior advi-sors are happy to share in the commission; managing general agencies want to specialize in group business, too. So, they are likely to help.
For wealthier clients with complex business issues, Toronto-based MGA PPI Financial Group Inc. also offers assistance to advisors.
“I know of several group advisors who have developed relationships with individual life brokers, property and casualty brokers, and investment advi-sors,” says Mason. “It’s a commission-sharing arrangement. The advisor might continue to be the primary relationship manager, but the group advisor provides the technical support and expertise.”
Finally, it’s no surprise that another layer of regulators presides over the pension and group-benefits industry. Most recently, the Joint Forum of Market Regulators established Capital Accumulation Plan Guidelines (CAP Guidelines) with which all group plans must be compliant.
“It’s a different business,” says Soeder. “You need to understand the provincial Labour Act and the Health Act. And every time there’s a provincial or federal budget, it affects benefits and taxation.”
CHANGE OF SCENERY
If you are ready for a complete change of scenery, you can obtain the certified employee benefits designation, available through courses at a number of universities and colleges, and delve into the pension world headlong. That’s the only dedicated education in this industry — besides experience.
Soeder recommends doing it his way. He started in the group business 13 years ago by sharing the business with a senior advisor.
“Make the judgment about whether to specialize. If not, farm out the expertise and maintain the relationship,” he says. “Don’t lose the client.” IE
Construction companies in Canada’s booming Western provinces are competing fiercely for good talent these days.