Four benefits of establishing an advisory board

Chief executives at large corporations rely on their board of directors for strategic advice and practical expertise. In contrast, small business owners may feel lonely at the top. Assembling a multidisciplinary advisory board allows small business owners to tap into the knowledge of experienced executives and develop greater confidence in their day-to-day decision-making.

Liability exposure is a major impediment to experienced, successful business executives becoming involved in growing companies. A properly structured advisory board provides the tool for overcoming this obstacle. Unlike a legal board of directors, advisory board members have only non-voting, advisory authority so that they will be isolated from the fiduciary duties and legal liabilities of a true board of directors.

Here are four benefits of establishing an advisory board for a small business:

Professional experience

The right advisory board members offer valuable insight on a wide range of topics relevant to small business owners, including sales, marketing, corporate partnerships, financing, technology, administration, industry regulation and international matters. Typically, boards range from three to seven members, depending on the company’s developmental stage, strategic goals, existing resources, investors and complexity. Management should select advisory board members based on their specific abilities and experience relevant to the company’s business needs.

Useful contacts

Advisory board members can provide useful contacts. Members with strong business, financial, political or industry connections can open new doors for small businesses.

Unbiased perspective

Because advisory board members are independent from company management, they can provide an unbiased perspective; they are free to express their views on important issues without concern for company politics and other dynamics that often inhibit dissenting opinions. They offer frank and impartial advice, often acting as a “devil’s advocate,” challenging the assumptions of management and the existing business model.

Strategic guidance

An adviser’s experience can mean insight into the company’s business model, policies and long-term decisions related to growth, and product or service offerings. Members can address specific projects designated by the company, such as identifying potential executives or acquisitions.

Once established, small business owners should review their advisory board members on a regular basis and be willing to replace advisers as the needs of the business evolve.

J. Benjamin English is a partner with Hirschler Fleischer (Richmond, Va.). He helps growing companies develop practical solutions to legal issues. Among other business decisions, he advises on structuring entities and provides guidance related to business plans, capital structure, financing, shareholder agreements, employee compensation and benefits, and intellectual property matters. He can be reached at (804) 771-9544 or by email at [email protected].

How to tailor trusts to meet your needs and care for beneficiaries

Susan L. Nelson, CTFA, senior trust executive, senior vice president, First Commonwealth Advisors

Susan L. Nelson, CTFA, senior trust executive, senior vice president, First Commonwealth Advisors

Whether you are looking to manage your own assets, control how your assets are distributed after your death, plan for incapacity or enable your business to continue uninterrupted should something happen to you, trusts can help you accomplish your estate planning goals. By establishing a trust, you ensure that the assets gathered during your life will not disappear because of the inexperience or inability of beneficiaries. A byproduct of that is the peace of mind that comes from knowing your loved ones will continue to be financially protected.

“One of the benefits of a trust is that it’s established based on the unique needs and objectives of the individual and the individual’s family, and tailored to meet those needs,” says Susan L. Nelson, CTFA, Senior Trust Executive and Senior Vice President at First Commonwealth Advisors.

Smart Business spoke with Nelson about the benefits and management of trusts.

What are the different types of trusts?

There are many types of trusts, the most basic being the revocable and irrevocable.  The type of trust you use will depend on what you are trying to accomplish. A revocable trust, often referred to as a living trust, allows the individual establishing the trust to remain in control of the assets and allows them to change the beneficiary, the trustee, the trust terms and even end the trust. The grantor can use the trust for investment management, bill paying, tax planning and avoidance of probate. It can continue on in the event of incapacity, providing seamless financial management for the grantor, and can continue on after death for the benefit of others. Once the grantor dies, the trust becomes irrevocable.

An irrevocable trust is where the grantor gives complete control to an independent trustee who manages the assets for the grantor and beneficiaries. You cannot easily change or revoke this type of trust. It’s frequently used to minimize potential estate taxes by reducing the taxable estate of the grantor because the assets transferred to this trust, plus any future appreciation, are removed from the grantor’s gross estate. Additionally, property transferred through an irrevocable trust will avoid probate and may be protected from future creditors.

What are the benefits of trusts?

Some benefits are:

  • Continuous financial management in the event of incapacity.
  • Professional investment management.
  • Financial privacy — a trust isn’t public like a will.
  • Probate avoidance with no lapse in asset protection and investments — probate can take a year or more, depending on the complexity.
  • Asset management for inheritances.
  • Creditor protection for heirs. If a beneficiary is going through bankruptcy, money in the trust cannot be touched.

Trusts can provide lifetime financial protection for a surviving spouse or disabled child, an inheritance for children from an earlier marriage, can minimize estate taxes and provide a future legacy for charity. Trusts can be used in order to protect, preserve and transfer wealth for the benefit of individuals, families and organizations. While trusts can be used for myriad circumstances, they are not for everyone. Discuss the advantages and benefits of a trust for your situation with a financial adviser.

How should a trust be managed?

Every trust is based on your needs and objectives. When setting up the trust, determine what you’re trying to accomplish so you and your financial adviser can decide how to reach those objectives. One of the first things looked at are tax implications and how to reduce pain points. Providing for future beneficiaries should also be examined. After the trust is established, you’ll need to meet periodically to discuss the investment portfolio and life changes to be certain the trust still meets your needs.

Why choose a professional trustee?

Institutional fiduciaries are pros at what they do, have professionals on staff with years of experience, and are on the cutting edge of regulatory and tax law changes.  They may be the best option for reliability, experience, responsiveness, neutrality and arms-length objectivity with beneficiaries, objective investment guidance, convenience and consistency over time. An institutional fiduciary doesn’t age or die.

Susan L. Nelson, CTFA, is a senior trust executive and senior vice president at First Commonwealth Advisors. Reach her at (724) 832-6062 or [email protected]

Follow up: To learn more, call (855) ASK-4-FCA, or visit


Insights Wealth Management is brought to you by First Commonwealth Bank

Jobless benefits claims fall to lowest since 2008

WASHINGTON , Thu Apr 5, 2012 – The number of Americans lining up for new jobless benefits fell to the lowest level in nearly four years last week, according to a government report that showed ongoing healing in the labor market.

Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 357,000, the lowest since April 2008, the Labor Department said on Thursday.

“The claims data are consistent with modest job growth in March,” said Yelena Shulyatyeva, and economist at BNP Paribas in New York.

Futures for stocks pared losses following the data’s publication while prices on U.S. government debt trimmed gains. The euro extended losses against the dollar.

Thursday’s weekly claims report has no direct relationship to the March employment report due on Friday because the data for the monthly report was gathered earlier in the month.

But the claims data could bolster the case that the healing labor market is lowering the need for the Federal Reserve to do more to boost growth.

Economists polled by Reuters expect the employment report will show the U.S. economy added 203,000 jobs last month, notching up a fourth straight month of solid job.

That would mark the longest stretch of monthly employment gains topping 200,000 since 1999.

The four-week moving average for new claims, a measure of labor market trends, declined 4,250 to 361,750.

How to allocate your reward investment dollars for maximum employee engagement

Josh Strok, Director of Rewards, Talent and Communication, Towers Watson

Every employer considers foundational rewards — base pay, benefits, retirement packages and paid time off — when working to attract and retain employees. But there’s more to it than that, if you want your employees to remain engaged in their work, says Josh Strok, Director of Rewards, Talent and Communication at Towers Watson.

“You should consider performance-based rewards, such as merit-based pay, bonus plans and recognition programs, which help differentiate performance and reward top performers,” says Strok. “These rewards focus employees on the company’s priorities, as workers see where the organization is putting additional dollars. There are also career and environmental rewards, which include career development opportunities, training, mentoring, corporate social responsibility and wellness programs.”

Smart Business spoke with Strok about how employers can use total rewards optimization to allocate their reward investments for maximum return.

Why should an employer create a total rewards program?

We know organizations have placed additional burdens on employees since the beginning of the recent recession. In our 2011/2012 Talent Management and Rewards Study, nearly two-thirds of organizations have employees working more hours over the past three years, and over half of the companies expect this to continue over the next three years. Coupled with the increasing difficulty to attract and retain top performers and people with critical skills, crafting appropriate total rewards programs is more important than ever.

Employers are worried they might not be able to meet employees’ expectations as the labor market heats up and workers gain more negotiating leverage. By evaluating your total rewards offering now, you can determine how to strengthen your organization’s employee value proposition — and minimize the risk associated with losing critical-skill talent.

Most employers know that a highly engaged work force is a leading indicator of strong financial performance. So they’re working to deliver an employee deal that engenders workers’ rational, emotional and cognitive commitment to the business. When committed fully, employees are more willing to make a discretionary effort to go above and beyond the minimum that’s required.

Has total rewards optimization been overlooked?

Yes, until recently. In the past, employers typically started from a compensation and benefit standpoint, which addressed foundational and some performance rewards. However, they developed and managed the various components as very separate programs. Today, more companies recognize the power of blending these reward programs and looking for ways to reinforce the overall total rewards deal.

CHROs and CFOs know they have one pool of money to spend on all aspects of total rewards — health care and retirement benefits, job training and base pay increases. With limited dollars, they’re trying to figure out how to get the biggest bang for their buck. The challenge is to offer the right deal to the right employees — a deal that will keep top-priority workers highly engaged — within the confines of the company’s fiscal constraints.

In putting together a total rewards optimization (TRO) program, how should employers begin?

Start by looking at what you have in place and how you spend your dollars, and determining whether that’s competitive against companies with which you compete for talent.

Next, understand your employees’ preferences and use employee surveys with conjoint analysis to determine which rewards have the biggest impact on employee attitudes and behavior.  Segment your work force and ask employees in each segment what they want and what they’re willing to trade off. For example, if you can spend $100, would employees rather have a lower health care deductible or a better training and development program? Or more base pay or a better retirement program?

Based on that feedback, you can look to shift your investments among programs (i.e., portfolio optimization) to create total reward portfolios that deliver the highest return. The goal is to invest finite reward dollars across the work force in a way that balances organizational and employee interests creating the highest possible perceived value at the most economical level.

For instance, if employees say lower health care costs are more important to them than the retirement program, explore the opportunity to invest more in health care programs if you reduce your 401(k) match. If so, employees will be more engaged with that deal, because you tried to construct a total rewards program in light of their wants and needs.

Rebalance your allocation, and make trade-offs you can live with. You’re not going to eliminate your 401(k) plan, but maybe you can spend less there to better invest in areas your employees value more.

How do employers determine whether the total rewards optimization program is succeeding?

After a year or two with the new program in place, you should assess its effectiveness. This is an ongoing part of an effective total rewards strategy.  Be sure to check with employees. Do people feel better about their jobs and about what’s going on in the company? If you were trying to address unwanted turnover, look at the hard metrics. If you formerly had 8 percent turnover and now have 4 percent, clearly what you’ve done is working. If you were looking to save money, did you do so at the expense of reduced engagement?

The issue isn’t only about deciding whether to spend more or less in total. The real questions are whether you know what your employees value, and whether you can adjust your total rewards investments accordingly. You don’t have to do it all at once in a full-scale redesign. Many employers do it in steps and focus on big-ticket programs or areas that earn the least employee value.

Josh Strok is Director, Rewards, Talent and Communication at Towers Watson. Reach him at [email protected] or (818) 623-4577.

Insights Human Capital Solutions is brought to you by Towers Watson

How common HR regulations can create liabilities for employers

J. Richard Hicks, CEO, HR1 Services Inc.

With a rising number of federal regulations, it is becoming increasingly difficult for business owners to remain compliant and easier for them to inadvertently run afoul of the laws, says J. Richard Hicks, CEO of HR1 Services Inc.

“You can find yourself with a lot of governmental fines and legal problems if you don’t dot your I’s and cross your T’s,” he says.

Smart Business spoke with Hicks about issues that could land you in trouble and how to take steps to avoid them.

How can wage issues cause problems for employers?

Just because you pay people an annual salary doesn’t mean they aren’t viewed as hourly by the Department of Labor. So if you designate your receptionist as salaried, that does not mean that is an exempt position. And, if that person works 43 hours in a week, and is found to later be employed in a non-exempt position, he or she is due overtime.

Not paying that might work while that person is still an employee, but it’s often when employees leave that employers get in trouble. If the employee goes to the DOL and the employer is found to be noncompliant, it can be liable for back pay, penalties and interest.

How can a 401(k) plan get an employer in trouble?

If you delay depositing funds within a certain window, you are opening yourself up to problems when the audit team from the DOL knocks on your door. For example, if there was a big upswing in the markets on the days you were late and your employees’ accounts could have increased, you have to make up that entire amount, plus penalties. In addition, the fiduciary responsibilities of 401(k)s lie with the employer. To be in compliance, you have to review the funds at least once a year to ensure that you offer a stable and diversified fund portfolio. Hiring a third-party fiduciary also poses a danger, as that doesn’t remove the responsibility of the employer. If you hire someone else to be the fiduciary, and that firm doesn’t perform, you, as the employer, are still on the hook.

How can a drug policy land an employer in hot water?

Employers who want a drug-free workplace may do random testing, but you have to take a regimented approach. You need a third party who is at arm’s length from the business to administer it. Where employers slip up is that they randomly select a person for testing one quarter, then the same person is randomly selected the next quarter. So they throw that person back in the hat to test someone else. But it has to be truly random.

Those issues can buy you problems with the government and with litigators.

What do employers need to be aware of regarding benefits?

You need to be consistent with your benefits. For example, say your labor force has a high turnover rate and you want to classify some employees as labor and some as management, in order to offer a more benefit-rich program to management. You can do that, as long as you are consistent on how you define those classifications. But if you have a cousin who is classified as labor and you grant him benefits, this can raise discrimination issues, which can be very expensive.

What other laws does an employer need to be aware of?

Employers have to understand the Americans with Disabilities Act, because it’s an area they can really trip over. Be aware of protected classes and how they can impact your company.

The Family Medical Leave Act can also present problems, as disgruntled employees can find ways to exploit it. For example, district court rulings have determined that the employer is responsible for monitoring employee absentee rates and notifying them in writing if they are FMLA-eligible. The employer has a fiduciary responsibility to make sure that employees are aware of their rights.

If someone is missing two days of work every two weeks, they may be dealing with an illness, and you have to make them aware of FMLA. If you fail to do so and then let them go because they are missing so much work, they can say, ‘I was sick all that time and had no idea I was eligible for FMLA, so here’s my lawsuit.’

What steps can employers take to protect themselves?

Employee handbooks are truly the first defense mechanism. You need to craft an employee handbook and live by those published rules. And you can’t ignore someone doing something wrong just because they’ve been there for 15 years. You need to address it, because that’s where you get into trouble.

Be very consistent in the way you handle disciplinary actions. Lay out the rules in the handbook, then follow them to the letter.

Some companies may be able to use generic forms for big ticket items, for example, ‘We don’t discriminate, we follow wage and hour laws,’ etc. But most need to craft a custom handbook that meets the specific needs of their business. The other mistake companies often make is that they publish the handbook and then think they’re OK and never review it. But if there are changes, perhaps because of a new law, for example, a handbook must be updated in order for the employers to remain in compliance. A company may try to write an employee handbook itself, but I highly recommend getting an outside expert to help you get it right. If you set up your first line of defenses incorrectly, when you face litigation, your entire defense starts to unravel before your eyes.

J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085 or [email protected]

Jobless claims hold steady at four-year low

WASHINGTON – The number of Americans filing new claims for jobless benefits last week held at the lowest level since the early days of the 2007-2009 recession, signaling that the battered labor market is healing.

Workers filed 351,000 initial claims for state unemployment benefits, the same as in the prior week, the Labor Department said on Thursday.

The data suggests that a long cycle of heavy layoffs has run it course, laying the ground for more hiring.

“The economy is on the mend from a job creation perspective,” said Phil Orlando, a market strategist at Federated Investors in New York.

The last two weekly readings for claims were the lowest since March 2008, just three months after the deep recession began. Initial filings peaked above 650,000 in March 2009.

Signs of improvement in the job market have been growing.

The unemployment rate, which stood at 9.1 percent in August, dropped to 8.3 percent in January, and additions to payrolls have exceeded 200,000 for two straight months.

The latest jobless claims data covered the week that corresponds with the sample period for the government’s February payroll report, and suggests another solid month for hiring.

“It’s hard not to be optimistic about this,” said Brian Levitt, and economist at OppenheimerFunds in New York.

The U.S. Federal Reserve has left benchmark interest rates near zero since December 2008 to coax companies to take on more workers, and the recent improvement in the labor market has dampened expectations of further monetary stimulus.

New unemployment benefits claims fall 15,000 last week

WASHINGTON ― New claims for unemployment benefits fell by 15,000 last week in the latest sign the labor market was improving and could help the country resist the effects of a likely euro zone recession.

Initial claims for state unemployment benefits dropped to a seasonally adjusted 372,000, the Labor Department said on Thursday. The prior week’s claims data was revised up to 387,000 from the previously reported 381,000.

Economists polled by Reuters had forecast claims falling to 375,000. A Labor Department official said there was nothing unusual in the data, although the figures for three states, including California and Virginia, had been estimated.

Claims have now fallen in four of the last five weeks, and the four-week moving average ― a better measure of trends – fell 3,250 to 376,500, the lowest level since June 2008.

Economists at Goldman Sachs said in December that weekly claims below 435,000 pointed to net monthly gains in jobs.

An improving labor market has boosted the view the economy wrapped up 2011 on better footing, leaving it well positioned to deal with headwinds from Europe’s debt crisis and fiscal tightening at home.

Still, a moribund U.S. housing market and persistently high unemployment threaten the recovery.

In the week ending December 24, the number of people still receiving benefits under regular state programs after an initial week of aid fell 22,000 to 3.595 million. Economists had forecast so-called continuing claims holding about steady at 3.58 million.

As of Dec 17, a total of 7.223 million people were claiming unemployment benefits under all programs, down 8,311 from the prior week.

Data on Wednesday showed U.S. manufacturing growing at its fastest pace in six months during December, capping a late-year upswing.

Fourth-quarter growth is seen topping a 3 percent annual pace, rising from the July-September period’s 1.8 percent rate.

How a modified self-funding plan could return dollars to your bottom line

Michael Bartolini, Vice President, Business Practice Manager, First Commonwealth Insurance Agency

Each year, the cost of your health insurance premium is rising. Rather than sitting helplessly on the sidelines, why not manage the expense with a modified self-funding arrangement instead of your traditional fully insured program?

Modified self-funding arrangements are not just for large companies. Organizations of all sizes can benefit from paying their own claims and capping their exposure.

In addition, with the current health care environment, now is the time to consider taking premium costs into your own hands, says Michael Bartolini, vice president and business practice manager at First Commonwealth Insurance Agency, a division of First Commonwealth Advisors.

“A fully insured arrangement means that the insurance company is taking on all of the risk, and the employer pays the set premium regardless of the company’s claims performance,” Bartolini says. “If the insurance carrier is taking on the risk, its rating development is performed more conservatively than may be appropriate. There is no better time than now to really dig in and determine if a modified self-funding arrangement could create an opportunity to return dollars back to your bottom line.”

Smart Business spoke with Bartolini about how a modified self-funding arrangement works and how to determine if it is the right solution for your business.

How does a modified self-funding arrangement work?

In many ways, a modified self-funding arrangement is paying your own insurance claims while capping the risk/exposure at a point where you feel comfortable. The real cost of this type of arrangement can be figured by adding up claims, stop loss insurance and administrative costs. The result creates a medical benefits program that caps exposure for each employee.

The arrangement is called modified self-funding because you are not alone on an island of risk; your losses are capped at a comfortable level, so you will not go bankrupt from paying an inordinate amount of claims for any one individual.

Why don’t more companies take advantage of the modified self-funding structure?

First, a lot of companies believe that this arrangement is too risky or that their companies are too small. But because you cap your losses, this is not the case.

Second, companies might not have the cash flow to fund the plan. While this is a legitimate concern for struggling organizations, by capping losses, your company could spend less out-of-pocket each month in the long run compared to a fully insured plan.

Ask yourself this: What are your claims trends? What is your plan utilization? Are your numbers lower than an insurance carrier’s medical inflation rates? If yes, a modified self-funding plan may be for you.

What type of company is a candidate for a modified self-funding arrangement?

This method of medical insurance funding is ideal for a company that is willing to take on some risk and to think outside the box. Also, the company should have a culture of strong health care consumerism.

There should be an emphasis on preventive health and wellness, with programs in place that encourage workers to take care of themselves and assume responsibility for their health care.

In environments where employees participate in behavior changes that promote wellness and understand the true cost of health care, plan utilization tends to be lower. In these scenarios, a modified self-funding plan can reduce expenses because the organization’s claims history is likely better than the average and the total costs of a self-funded arrangement could be less than an insurance carrier’s offering.

What is involved in setting up a modified self-funding arrangement?

First, partner with a consultant who can help you take a look at historical claims and determine the risk picture at your company. After a consultant assists with reviewing your claims history, a decision is made on where to capture exposure, based on health care utilization.

Then, secure an administrative service proposal from an insurance carrier to determine the cost of adjudicating the claims. Next, consult with a stop loss provider and get a proposal for the appropriate loss cap level per individual insured in the employee group (called a specific). From there, an aggregate stop loss proposal is secured to protect the company should there be a lot of claims by many individuals in the employee group.

If your current health insurance carrier is issuing premium increases in the single digits, this could be a sign that your claims history is such that a modified self-funding plan could save you money, as a low rate of increase likely shows that your company is a good risk.

Finally, do not be misled into thinking that your company is too small or that this type of arrangement is too risky. In reality, this structure can provide a real opportunity to put money back toward your bottom line and save more on health care expenses in an uncertain economic environment.

Michael Bartolini is vice president and business practice manager at First Commonwealth Insurance Agency, a division of First Commonwealth Advisors. Reach him at [email protected] or (724) 349-6028.

New jobless claims rise, July trade gap narrows to $44.8 billion

WASHINGTON ― The number of Americans filing new claims for jobless benefits rose unexpectedly last week, further evidence of a weak labor market just hours before President Barack Obama unveils a plan on job creation in a major address to Congress.

A separate report showed a considerably narrower trade deficit for July, a positive signal for growth in the third quarter after a sluggish first half of the year.

Applications for unemployment benefits rose to 414,000 in the week ending September 3 from an upwardly revised 412,000 the prior week, the Labor Department said on Thursday. Wall Street analysts had been looking for a dip to 405,000.

“Jobless claims numbers have been stabilizing in recent weeks. We’re probably seeing an economy that’s just growing slowly,” said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis.

U.S. stock index futures extended losses after the data, while Treasury debt prices held gains.

Excluding one week in early August, claims have held above 400,000 since early April. The Labor Department said there was no discernible effect from recent hurricanes and storms on the national figures this week.

The four-week moving average of claims, which smooths out volatility, rose to 414,750 from 411,000 the prior week.

Continuing claims eased to 3.72 million from 3.75 million in the week ended Aug. 27, the latest available data. The number of total recipients on benefit rolls was 7.17 million in the Aug. 20 week.

U.S. employment growth ground to a halt in August, with zero net job creation raising fears of a new recession and putting pressure on the Federal Reserve to ease monetary policy further at its meeting later this month.

But in a respite from the negative news, the trade gap shrank to $44.8 billion in July, Commerce Department data showed, down sharply from June’s $53.1 billion deficit and much lower than forecasts around $51 billion.

The 13.1 percent decline was the biggest month-to-month percentage drop in the deficit since February 2009.