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How to Select Your ROBS Provider

May 30, 2018

What is a ROBS Provider

A ROBS Provider is any individual or organization that promotes and transacts a ROBS Business Financing Strategy for entrepreneurs and business owners, helping them to use retirement monies (such as a 401(k), 403(b), Defined Benefit Plan) to fund a new or existing business venture penalty and tax-free. However, not all ROBS Providers are licensed or created equal.

There are some things to consider when selecting your ROBS Provider (also known as a ROBS Promoter). The ROBS business financing strategy is a complex investment, whereby retirement monies are used to purchase and invest in private stock (considered a securities transaction), and which must follow several government regulations.

Here at Leading Retirement Solutions, we often have business owners come to us after engaging in the ROBS strategy because they found themselves in violation of one or more laws or they have company and employee needs that have outgrown the service offering provided by their ROBS provider. Of course, we help these businesses get back on track and compliant again, however, the majority of violations could have been avoided and the company needs easily addressed if they had the right ROBS Provider showing them the way from the beginning.

What to Look for in a ROBS Promoter

So how do you know a good ROBS Provider from a bad one? Well, it all boils down to a few key ingredients that make up a great ROBS Provider:

Are They Licensed?

Be wary of being advised by individuals, usually sales personnel, who seem to know what they’re talking about. They may throw around an impressive collection of industry jargon but are not licensed professionals, and there is a difference.

For example, one of the foundational requirements of the ROBS business financing strategy is that the retirement monies (e.g. 401(k)) being used are prudently invested. Many ROBS Providers will tell you that they cannot and will not advise you as to the prudency of your intended investment. However, most licensed Providers should help you determine if investing your retirement monies into the business you intend to start, take over or grow, is a prudent investment.

When in doubt, just ask if they are licensed and more importantly, check their licensing history which you can usually find online (including complaint history if applicable and available), and while you’re there you can also check out any online reviews to help you make your decision.

See the 4 most common compliance issues with a ROBS transaction

How do They Manage Clients?

Is the ROBS Provider you’re interviewing solely focused on setting up the transaction or are they also discussing ongoing compliance? This could be a huge clue as to the Provider’s interests. You want to select a ROBS Provider who will ensure that your retirement plan and the ROBS transaction are kept in compliance with the IRS, Department of Labor (DOL), and other applicable regulations over time, not just for the initial transaction. If the ROBS Provider does not provide ongoing support for the corporation and/or the retirement plan, understand that you will be responsible for finding another service provider who needs to have experience supporting the ROBS strategy and understands the unique regulations that apply to the strategy.

The ROBS business financing strategy is a sophisticated business transaction that requires a significant amount of legal analysis, tax strategy, and upkeep. Most entrepreneurs who engage in it or the Providers they hire are not qualified to determine whether they have violated any laws. While some violations are obvious, others are not. We often encounter and assist companies that have committed one or more common plan violations, which generally occur from a lack of knowledge or bad advice from the Provider they hired. Therefore, a skilled licensed professional should determine whether the ROBS transaction and any subsequent activities or omissions have violated federal laws and will help you remain compliant.

If you have already engaged in the ROBS strategy, we strongly encourage you to have your ROBS transaction audited to ensure you have the opportunity to avail yourself of the “tax and penalty friendly” Internal Revenue Service (IRS) and Department of Labor (DOL) correction programs. Doing so may allow you to avoid paying heavy penalties in the future.

Beware of Slippery Sales Tactics

Some ROBS Providers will promise to provide their clients competent legal counsel, with an independent attorney, instead of the ROBS Provider not being an attorney themselves. This may sound well enough, but what they are not telling you is that independent attorneys provide a limited scope of service and tend to merely look over transactional documents instead of preparing them personally.

Why is this concerning? In almost all cases where a client has been referred to an independent attorney, the client is already knee-deep in the ROBS transaction process with their plan provider and typically has already begun to execute a business purchase on which to spend their retirement monies (step 6 in the ROBS Business Financing Strategy: The 8-Step Guide). The client has already been advised by the Provider that the ROBS transaction is sound and compliant with the law and the attorney only needs to review the transactional documents with the client to confirm the information and possibly address some minor issues. The client is, sometimes wrongly, convinced by the Provider that their transaction passes all legal muster, only to find themselves later in violation of federal law.

We have noted some Providers are even promising their clients a guarantee in the event of an IRS audit. The guarantee is nothing more than another sales tactic used to induce prospective clients to purchase their services. They use the fear of a possible IRS audit to pull clients in and then “guarantee” their safety. However, this “guarantee” does not protect the client from violating the law. Nor does the guarantee stop the imposition of excise taxes by the IRS for fiduciary and plan violations. Moreover, the guarantee does not provide adequate safeguards to prevent or predict violations of the Internal Revenue Code (IRC) and ERISA (the regulations that govern this strategy) by clients who have engaged in a ROBS transaction. This means there is a stronger chance that the client using the ROBS strategy will be investigated by the DOL and/or audited by the IRS. And the “guarantee” given by the Provider should be seen for what it is, a false sense of security.

Imprudent ROBS Transactions

It is our experience that many entrepreneurs who engage in a ROBS transaction would not have done so if their ROBS Provider had fully disclosed all the responsibilities required under federal law as well as the associated costs. Because the ROBS Providers’ failure to disclose these obligations, many of these responsibilities go unfulfilled, ultimately resulting in fiduciary violations and/or retirement plan disqualification.

We have seen ROBS Providers tell their clients that they do not have to comply with certain governing laws, e.g. they do not have to disclose the right to purchase employer securities to employees, obtain regular appraisals of the stock held by the retirement plan, and many other required fiduciary actions. We know clients rely on the ROBS Provider for advice because the ROBS Provider presents themselves as an ERISA and tax expert; unfortunately for clients, many are not. Reliance on advice provided by ROBS Providers who are not appropriately licensed will not protect you from the consequences of fiduciary violations or plan disqualification. Stated another way, the IRS nor the DOL accept the excuse “My ROBS Provider didn’t tell me that.”

Selecting a ROBS Provider can be seemingly difficult at first because there are a lot of Providers out there and a lot that are not licensed professionals. Examples of licensed professionals governed by either state or federal agencies include attorneys, such as Jewell Esposito, Frank Selden, or Mike Hughes who are highly regarded ROBS providers. However, there are also other CPAs, banks, brokers/dealers, investment advisors, investment managers, lending institutions, or other businesses that provide financial services that are also qualified ROBS Providers. Just remember our key takeaways when interviewing any ROBS provider: ask if they are licensed, see how far they are willing to go to make sure you remain compliant over time and be aware of sales tactics and false guarantees.

Choosing the Right Plan Provider

Using these tactics to avoid ROBS providers who are not licensed or do not properly handle ROBS plans is essential, however, this is only half the battle. The next step is finding a ROBS provider who is not only licensed but provides quality ROBS plans, customer service, and client experience.

At Leading Retirement Solutions, we offer this and more. With our ROBS (QES) Pooled Employer Plan through Leading Plan Solutions (LPS), we connect the innovation of a ROBS plan, with a transparent cost-reduction strategy. Once the plan is in effect, LPS is jointly hired by all participating employers.  By sharing a plan with other companies, each employer receives a reduced rate. LPS also assumes responsibility for the plan to maintain legal requirements, leaving you to focus on your business.

Of course, we don’t expect you to take our word for it. We encourage you to ask tough questions about our plans and what they can do for you. Don’t hesitate to chat with us, connect through our contact page, or view our other ROBS blog content for fast information.


If you are looking for more tips and information about retirement plans, don't hesitate to get in contact.

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