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This thread was requested a few days ago. Although I was not specifically requested to start it; I thought I might share some experiences on this subject.
I am currently in the process of transitioning a business out of a local PEO. I am finally in the end stages of the transition.
The business had their Group Health, Supplemental, 401K, Workers Comp, and Payroll, with the PEO.
Business owners like the idea of a PEO service because it simplifies their life.
Most of the time pretty much all of their L&H/P&C/retirement plan business is with the PEO (the main exception will be Professional Liability Insurance)
If you cannot provide everything that the PEO provides, then their life becomes more complicated (something that they do not want) by having to go shop services that you cannot provide; and the chances of you gaining a client become very slim if you cannot provide the same services.
Dont get me wrong. The business can go shop whatever you dont provide... payroll solutions, 401K providers, P&C solutions, etc... but keep in mind that this makes their life more complicated, plus this means that they will be talking to your direct competitors. And what competitor would not say, "hey, why not place that business with me and consolidate your advisors"...
The best way to gain that prospects business is to show them that you can provide solutions (or at least avenues) to all of their needs currently being met by the PEO.
Most agents will not have the immediate resources to provide all of these services. The only way to do this is to form some professional relationships with others in your community.
The best argument against a PEO is control/flexibility/options/choice/ however you want to phrase it; but its about having a total benefits package that is customizable, interchangeable, and controllable.
Payroll:
There are lots of options for this.
The first option would be an online payroll solution from one of the national names such as Compupay, PayChex, ADP, etc. I have to say that Compupay has some very nice online solutions at some very competitive prices.
The other solution would be to find a local payroll service.
Talk to the owner and explain your situation and what you need from them.
If they offer competing services, he needs to know that business is off limits. I might even have them sign a referral agreement with you that states that they will not offer competing services to your clients that you refer.
In my current situation, the PEO had higher rates than the online services for payroll. They where about the same to slightly higher than most local Payroll Companies.
(This is also a good opportunity to try to set up some type of referral fee arrangement. Regulations are not as tight on Payroll companies like they are on us agents.)
Workers Comp & other P&C lines:
I will first say that I am not a P&C agent.
I built a professional relationship with an agent I knew and used their services. We have a very strong understanding of boundaries with clients that I refer.
I would suggest that L&H agents do the same with an experienced and independent P&C agent.
Fortunately all that I had to worry about was WC, but you might have to provide many different P&C lines to get them out of the PEO.
I was also able to save the owner over $100/month on their WC and the new policy has better coverage.
(This will be another valuable professional relationship that you can capitalize on)
401K:
To me, this is a key reason not to be in a PEO.
Theoretically, its a great idea; you pool your money with other companies and get lower internal fees compared to a smaller plan with less assets.
Any TPA fees are included in your service fee for payroll/etc.
Here are the catches:
- You have no control over what platform you are in, or what investment choices are available.
- You have no control over the administration of the plan.
More often than not, a TPA (Third Party Administrator) is a better option over having the actual plan provider do the admin.
(this is called an "un-bundled plan", as opposed to a "bundled plan" where the 401K provider does the Admin)
Proper 401K admin is much more than just filing a 5500 form at the end of the year and doing the top heavy testing.
401K plans/contributions can be structured in different ways, and it can effect the amounts and timing of contributions for your higher income earners (aka: owners).
If the business has or has a need for a Profit Sharing Plan (another huge benefit for high income earners), then it becomes essential to use a knowledgeable TPA.
TPA fees can vary; the cost of administering a PEO plan is not cheap because of its complexity, and that cost is passed down to the companies that make up the plan.
But the fee that a good TPA charges is well worth the money, especially when they are hire-able/fire-able by the company that they are affecting and not someone else.
- You have no control over broker compensation.
Broker comp is negotiable and there are multiple ways to reap compensation through a 401K platform:
-New contributions comp (sometimes called "front end" comp).
-Existing assets comp (back end comp).
-And even recurring fee based advisor comp from the company itself.
A good advisor will fully inform the owner of his comp and might even go so far as to explain why it benefits his employees over other methods (maybe even the existing method).
This was a key area for my current case.
The broker of record was in FL (im in SC) and was taking 150bps on the backend of the plan, and nothing on the front end.
This means that they where taking a larger percentage from the larger pool of money (existing assets) vs. the smaller pool of money (new contributions). This is an extremely lucrative comp structure; most brokers do the opposite.
(I usually take 75-100bps on the front end, and 50bps on the back end; but it will vary by plan size)
So by changing advisors/brokers, they are receiving a direct savings in their retirement account for all participants in the plan (the owner will be a main participant in any plan).
- Finally, the level of service from the advisor for the plan is usually very poor.
Its rare that they sit down the owner at the end of the year for a plan review. Or offer any planning services for executives or key employees.
Employee education is usually not the greatest from what I have found either.
If you are not registered, then find a registered rep whom you trust. Form an agreement with them that they will not compete for your business with the client.
If you are registered, but do not know the 401K world very well; work with the local wholesalers for the platform providers. They are usually very knowledgeable.
IMO, for plans between the $200K-$5mill range ...(the most common) ... MoO, Guardian, and LFG currently have the most competitive platforms.
Group Health:
I think that this area scares a lot of agents because they are afraid that they cant compete against the size of the PEO.
But thats not necessarily the case.
In my current situation, the PEO was basically providing regular group plans instead of having a true pool of employees from multiple companies.
The business was told that they would receive rates for a group of 4000 employees (it is a 4 man firm). But oddly enough they had to go through individual underwriting... which told me that they where not getting larger group rates.
I was right. I ended up quoting them the exact same rates on the exact same plan. I actually ended up getting bc/bs to do an agent of record change, which made my life considerably easier!! (after finally getting the change approved through the bureaucracy of bc/bs... lol)
I am in no way saying that you will always find this, but dont let it affect your motivation. Millions of businesses have their own group health plan, the PEO model is by far not a perfect solution to group health.
Again, you are limited in your options. Its whatever the PEO wants to offer you. So ask the owner "are you absolutely certain that this health plan is the most competitive option for you and your employees??"
Supplemental:
Supplemental shouldnt be an obstacle. You can find competitive rates for even the smallest of groups.
Emphasize employee education, enrollment/advisement, and participation that will be given by a local advisor who will sit down face to face with employees on a regular basis.
..............................................................................
Finally, to sum things up; you need to reassure the owner that not only can you provide a more competitive solution, but that the solution that you provide will be an easy & seamless transition, not a headache!
Creating a huge headache and a storm of paperwork will be your prospects biggest fear, and helping them overcome that fear will be your biggest obstacle to gaining them as a client.
Hope this helps. Good luck, and happy selling!
I am currently in the process of transitioning a business out of a local PEO. I am finally in the end stages of the transition.
The business had their Group Health, Supplemental, 401K, Workers Comp, and Payroll, with the PEO.
Business owners like the idea of a PEO service because it simplifies their life.
Most of the time pretty much all of their L&H/P&C/retirement plan business is with the PEO (the main exception will be Professional Liability Insurance)
If you cannot provide everything that the PEO provides, then their life becomes more complicated (something that they do not want) by having to go shop services that you cannot provide; and the chances of you gaining a client become very slim if you cannot provide the same services.
Dont get me wrong. The business can go shop whatever you dont provide... payroll solutions, 401K providers, P&C solutions, etc... but keep in mind that this makes their life more complicated, plus this means that they will be talking to your direct competitors. And what competitor would not say, "hey, why not place that business with me and consolidate your advisors"...
The best way to gain that prospects business is to show them that you can provide solutions (or at least avenues) to all of their needs currently being met by the PEO.
Most agents will not have the immediate resources to provide all of these services. The only way to do this is to form some professional relationships with others in your community.
The best argument against a PEO is control/flexibility/options/choice/ however you want to phrase it; but its about having a total benefits package that is customizable, interchangeable, and controllable.
Payroll:
There are lots of options for this.
The first option would be an online payroll solution from one of the national names such as Compupay, PayChex, ADP, etc. I have to say that Compupay has some very nice online solutions at some very competitive prices.
The other solution would be to find a local payroll service.
Talk to the owner and explain your situation and what you need from them.
If they offer competing services, he needs to know that business is off limits. I might even have them sign a referral agreement with you that states that they will not offer competing services to your clients that you refer.
In my current situation, the PEO had higher rates than the online services for payroll. They where about the same to slightly higher than most local Payroll Companies.
(This is also a good opportunity to try to set up some type of referral fee arrangement. Regulations are not as tight on Payroll companies like they are on us agents.)
Workers Comp & other P&C lines:
I will first say that I am not a P&C agent.
I built a professional relationship with an agent I knew and used their services. We have a very strong understanding of boundaries with clients that I refer.
I would suggest that L&H agents do the same with an experienced and independent P&C agent.
Fortunately all that I had to worry about was WC, but you might have to provide many different P&C lines to get them out of the PEO.
I was also able to save the owner over $100/month on their WC and the new policy has better coverage.
(This will be another valuable professional relationship that you can capitalize on)
401K:
To me, this is a key reason not to be in a PEO.
Theoretically, its a great idea; you pool your money with other companies and get lower internal fees compared to a smaller plan with less assets.
Any TPA fees are included in your service fee for payroll/etc.
Here are the catches:
- You have no control over what platform you are in, or what investment choices are available.
- You have no control over the administration of the plan.
More often than not, a TPA (Third Party Administrator) is a better option over having the actual plan provider do the admin.
(this is called an "un-bundled plan", as opposed to a "bundled plan" where the 401K provider does the Admin)
Proper 401K admin is much more than just filing a 5500 form at the end of the year and doing the top heavy testing.
401K plans/contributions can be structured in different ways, and it can effect the amounts and timing of contributions for your higher income earners (aka: owners).
If the business has or has a need for a Profit Sharing Plan (another huge benefit for high income earners), then it becomes essential to use a knowledgeable TPA.
TPA fees can vary; the cost of administering a PEO plan is not cheap because of its complexity, and that cost is passed down to the companies that make up the plan.
But the fee that a good TPA charges is well worth the money, especially when they are hire-able/fire-able by the company that they are affecting and not someone else.
- You have no control over broker compensation.
Broker comp is negotiable and there are multiple ways to reap compensation through a 401K platform:
-New contributions comp (sometimes called "front end" comp).
-Existing assets comp (back end comp).
-And even recurring fee based advisor comp from the company itself.
A good advisor will fully inform the owner of his comp and might even go so far as to explain why it benefits his employees over other methods (maybe even the existing method).
This was a key area for my current case.
The broker of record was in FL (im in SC) and was taking 150bps on the backend of the plan, and nothing on the front end.
This means that they where taking a larger percentage from the larger pool of money (existing assets) vs. the smaller pool of money (new contributions). This is an extremely lucrative comp structure; most brokers do the opposite.
(I usually take 75-100bps on the front end, and 50bps on the back end; but it will vary by plan size)
So by changing advisors/brokers, they are receiving a direct savings in their retirement account for all participants in the plan (the owner will be a main participant in any plan).
- Finally, the level of service from the advisor for the plan is usually very poor.
Its rare that they sit down the owner at the end of the year for a plan review. Or offer any planning services for executives or key employees.
Employee education is usually not the greatest from what I have found either.
If you are not registered, then find a registered rep whom you trust. Form an agreement with them that they will not compete for your business with the client.
If you are registered, but do not know the 401K world very well; work with the local wholesalers for the platform providers. They are usually very knowledgeable.
IMO, for plans between the $200K-$5mill range ...(the most common) ... MoO, Guardian, and LFG currently have the most competitive platforms.
Group Health:
I think that this area scares a lot of agents because they are afraid that they cant compete against the size of the PEO.
But thats not necessarily the case.
In my current situation, the PEO was basically providing regular group plans instead of having a true pool of employees from multiple companies.
The business was told that they would receive rates for a group of 4000 employees (it is a 4 man firm). But oddly enough they had to go through individual underwriting... which told me that they where not getting larger group rates.
I was right. I ended up quoting them the exact same rates on the exact same plan. I actually ended up getting bc/bs to do an agent of record change, which made my life considerably easier!! (after finally getting the change approved through the bureaucracy of bc/bs... lol)
I am in no way saying that you will always find this, but dont let it affect your motivation. Millions of businesses have their own group health plan, the PEO model is by far not a perfect solution to group health.
Again, you are limited in your options. Its whatever the PEO wants to offer you. So ask the owner "are you absolutely certain that this health plan is the most competitive option for you and your employees??"
Supplemental:
Supplemental shouldnt be an obstacle. You can find competitive rates for even the smallest of groups.
Emphasize employee education, enrollment/advisement, and participation that will be given by a local advisor who will sit down face to face with employees on a regular basis.
..............................................................................
Finally, to sum things up; you need to reassure the owner that not only can you provide a more competitive solution, but that the solution that you provide will be an easy & seamless transition, not a headache!
Creating a huge headache and a storm of paperwork will be your prospects biggest fear, and helping them overcome that fear will be your biggest obstacle to gaining them as a client.
Hope this helps. Good luck, and happy selling!
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