Advisers can use reform to reach out to clients who own small businesses

A number of financial advisers are using the health care reform legislation passed last week as an opportunity to reach out to clients and review their investment portfolios.

In particular, there is an opportunity for advisers to work closely with small-business-owner clients — and even more so with clients who run their own medical practices, advisers said.

“I have received many calls from small-business owners concerned about the legislation,” said Dr. Brian Knabe, a financial adviser with Savant Capital Management Inc., who also has been a primary-care physician for the past 14 years. “But particularly, I think there is a huge opportunity for advisers to work with physicians who are worried about their salaries’ decreasing and their taxes’ increasing.”

A 2006 survey by NERA Economic Consulting found that the average salary of a U.S. physician was $265,000, while it was $127,000 in the U.K. and $116,000 in France.

“If you look at countries that have more of a socialized health care system, you can see how it will affect physician salaries here,” Dr. Knabe said.

At the same time, taxes are expected to increase over the next few years. To address this issue, Savant, which has $1.6 billion under management, has started reaching out to its physician clients about how they can set up 401(k) plans and other types of retirement plans to save money on a tax-free basis, Dr. Knabe said.

“More and more physicians are coming to Savant for advice about how they can retire at the same standard of living for their families,” he said.

Clients who own small businesses are also particularly concerned about the new legislation because if they have more than 50 employees, they will be required to offer health insurance or pay fines for not doing so. Alternately, firms with less than 50 employees will be offered tax incentives to offer insurance.

Randy Brown, founder and chief wealth strategist of BriteLine Wealth Management Group, which has $70 million under management, is advising those small-business clients that already offer health care to continue to do so even if the fines they would pay for not offering coverage would be cheaper than the premiums they are paying.

“Good benefits are always a way to attract and retain employees,” he said. “Employers have to evaluate that.”

Many advisers are making sure their individual-investor clients understand that the ratification of the health care reform bill doesn’t mean that health care costs are going to go down.

Mark Singer, president of Safe Harbor Retirement Planning Inc., usually tells near-retiree clients that health care costs will be double whatever the inflation rate is in a given year.

In addition, the health care legislation will be increasing taxes for his clients. It will place a 3.8% tax on investment income and an additional 0.9% tax on earned income exceeding $200,000 for individuals and $250,000 for families.

“We know whatever happens, this is going to increase the costs for our clients,” he said.

Celia Brugge, a financial planner with Dogwood Financial Planning, said she too is struggling with retirement income projections for clients in light of the health care reform legislation.

“I used to project that most people’s health care expenses would go up 6% a year, but now I really don’t know what to predict,” she said.

If anything, the increased uncertainty about health care costs and taxes can help advisers convince clients to come in annually and review their portfolios, Mr. Singer said.

“As the details continue to come out and we understand all the tax implications as they are phased in, it will be more important to do ongoing reviews of our clients’ plans,” he said.

E-mail Jessica Toonkel Marquez at [email protected].