The SBA and Nationwide Financial say advisors can help.

Small business owners are alarmingly unclear when it comes to understanding their retirement plan responsibilities and options, according to the findings of new research from the Small Business Administration and Nationwide Financial. To help owners figure out their requirements and options, the organizations have just published a new primer on retirement plans that also gives a major plug to the kind of assistance investment advisors can provide.

The primer is part of a national education campaign the SBA and Nationwide are spearheading to address the shortfalls in retirement plan knowledge that their research shows plague small business owners. "Many small business owners are unaware of their legal responsibilities and are at risk both personally and professionally," W.G. Jurgensen, CEO of Nationwide Financial in Columbus, Ohio, told reporters at a joint SBA-Nationwide lunch held in Washington, D.C., in December. Executives from both organizations used the event to unveil their new "Guide to Retirement Plan Management," which highlights retirement plan basics, including plan options and owners' fiduciary responsibilities.

The new guide (available at www.sba.gov) also gives pointers for choosing a qualified professional who owners can use to help them navigate the regulatory landscape and to ensure they are meeting their responsibilities and making educated plan choices.

"You know the old saying, 'Knowledge is power?"' SBA Administrator Hector Barreto told Financial Advisor. "What we want this guide to do is turn the light bulb on for small business owners so they can say, 'I didn't know I could ask for help, or what a professional's experience is or how he or she is compensated.'"

Barreto knows small business owners' concerns firsthand as the former owner of an employee benefits firm specializing in small business needs. He says that owners often want to offer a plan, but are so busy running their businesses that they don't have time to find out basic information about plan options and opportunities. Furnishing them with that knowledge is becoming more vital, considering the "pension gap" at small businesses, where only 28% of employees participate in an employment-based retirement plan, compared with 58% of employees at mid- and large-sized firms. That's according to the Employee Benefit Research Institute, a nonprofit public policy research organization in Washington, D.C. Here's a possible bellwether of things to come: Just 7% of small businesses say they want to start a plan soon, down from 17% just two years ago.

"I think what stops owners is that sometimes they are fearful and think they have to be experts in everything. Our goal is to demystify the process," Barreto says. That's an important goal, considering the findings of the SBA/Nationwide research, which confirm the worst fears officials and advisors have about small business owners' understanding of their plan responsibilities.

Barreto says the findings are not surprising. "Many owners truly don't know what they don't know, and that's what we're trying to change," the SBA official says.

How confused are small business owners? When asked who their plans' primary fiduciary is, more than 40% of owners surveyed answered incorrectly. Instead of naming themselves, owners named investment providers, financial professionals or even employees. Ironically, four out of five owners claim they feel comfortable that their retirement plan's legal and fiduciary responsibilities are being met.

When it comes to instituting a regulatory and risk management plan of any kind, small business owners also leave themselves out to dry. More than 40% do not have investment policy statements in place, and even fewer reported having a formal process to evaluate investment selections on a regular basis.

Looking closely at how employers view or maybe even ignore these concepts can provide a window of opportunity for advisors, says Christopher Van Slyke, a CFP certificant and the principal of Capital Financial Advisors Inc. in Los Angeles. Van Slyke manages the assets of about 75 small business retirement plans and says he gets about a third of his new clients from talking to small business owners about missed retirement plan opportunities. "It's interesting what you see in their investment accounts. They typically open a brokerage account and put it on autopilot and think someone else is managing it. When you start explaining their responsibilities to them and they think in terms of their own money being run in this random fashion, it begins to make sense to them to have someone else manage it for them."

Van Slyke serves as his small business clients' investment expert, manages investments for them and develops an investment policy that clearly lays out responsibilities for the plan and in what it will and won't invest. "Owners can't totally delegate the responsibility for a plan, but they can share it with an investment expert. The upshot is they're not going to get into trouble for losing money when investments go down, but they have to have an identifiable process that is always followed," he says. Currently, Van Slyke favors the funds of Los Angeles-based Dimensional Fund Advisors (DFA) as his no-load investments for plans.

When it comes to business owners unknowingly shirking their de facto fiduciary duty, "I'm surprised the numbers aren't higher than 40%," says Dan Maul, president of Kirkland, Wash.-based Retirement Planning Associates, which manages about 175 retirement plans for small business clients. Maul, a CFP certificant who has targeted the small business plan market for more than 15 years, says pointing out missed opportunities can be a marketing boon for advisors interested in prospecting small business owners. Research bears him out. More than 70% of small business owners report being unaware of tax changes that would give them a tax credit of up to 50% for three years of retirement plan start-up costs , according to EBRI.

This fact, along with information on the tax advantages that plans can be designed to provide to owners and key employees "can be a great prospecting tool for advisors interested in getting in front of business owners," says Maul. Of course, advisors have to have some interest and competency in retirement plans, but Maul says they can get the latter by teaming up with a third-party administrator or a fund family that specializes in plans for small businesses. For investments and custody, Maul currently uses no-load families T. Rowe Price and American Century, which he says cater to the small business market.

Advisors can also use business owners' misinformation about plan types and how to reduce administration and costs as effective marketing tools. More than 50% of business owners don't know what types of plans are available to them and their employees. More than 30% are mistaken about the administrative burden of plans, and don't realize that there are no administrative costs associated with Simple and SEP (simplified employee pension) plans.

"Heavy administrative cost is a misconception that business owners and to some extent advisors share," says Maul. Employers can set up an employee contribution plan (a Simple) or a profit-sharing-based plan (a SEP) with no administrative burden or fees. But even 401(k)s can be set up for an annual administrative fee of $800 to $1,200, plus $15 to $40 per employee, for plans with 100 or fewer employees. "Employers are almost always amazed at how little a plan will cost them," he adds.

The Lowdown On AdviceThe Lowdown On Advice

As the SBA launches its national push to educate small business owners about retirement plans options, the agency's new "Guide to Retirement Plan Management" (available at www.sba.gov), tells business owners they don't have to go it alone. They can ask for advice from qualified professionals such as investment advisors.

"Fiduciary responsibilities can be complicated, but can seem much less so with the help of a qualified professional who can ... help you make educated choices for employees," the guide states.

The guide suggests owners arm themselves with an arsenal of questions to ask professionals, such as: What is your record of success? Do you have experience with a broad range of investment choices? How do you get paid? What relevant experience or professional certification do you have?

"Qualified professionals deserve to be compensated for the work they do for you and the plan. They should be willing to explain how-and how much-they will be paid. Some may be fee-based and others are commission-based," the guide says.

As for qualifications, the guide tells owners that some professionals will hold certifications such as Certified Financial Planner (CFP), Certified Pension Consultant (CPC), Certified Public Accountant (CPA), Chartered Financial Planner (ChFP) or attorney at law. The guide also directs owners to ask for advisors' experience, references and specific examples of how they've helped similar businesses.

Advisor behavior to watch for, according to the guide? Vague plan ideas, a reluctance to discuss their compensation and undue promotion of certain funds. On the fund selection front, advisors "should address the selection and monitoring process rather than promote funds with impressive recent track records," the guide says.