Skip to main content
AP Forefront Newsletter Back to Blog

Myth #9 - If a Financial Advisor Introduces You to a Captive... Run!

Every year, a few self-proclaimed captive experts will write articles warning "if a financial advisor approaches you about setting up a captive insurance company, run". They don't mean that you should necessarily run away from doing a captive, mind you, only that you should run from your financial advisor and toward (they never actually say but strongly imply) them.  If these talking heads are to be believed, any financial advisor approaching you about a captive insurance company has an ulterior motive: Such advisors are just looking to sell you a tax scheme for their own selfish reasons. By contrast, the talking heads spreading such warnings would have you believe that they care only about helping you manage your business risk and are otherwise completely unbiased.

Regrettably, rather than having the intended effect, the confusion and uncertainty that result from the misguided admonitions of the talking heads often scare small and mid-size business owners away from making a powerful, positive move that will immensely benefit them and their businesses, forming and owning their own insurance company to vastly improve their risk management and asset protection and substantially reduce their taxes.

Large corporations, who frequently make use of captive insurance companies, have the benefit of Chief Financial Officers (CFO) and an entourage of financial executives and managers who develop and execute financial strategies on behalf of the business. But most small business owners don't have an internal CFO or Finance Department. They often have only bookkeepers or accountants. In small businesses, even those employees with a CFO title often function more like a Controller. 

There is a vast difference between tracking the dollars and developing and proactively executing complex financial strategies with those dollars.  

As a result, successful small business owners and small business CFOs have for decades looked to outside advisors to assist with the development and implementation of advanced financial and business strategies. In small businesses, it's the outside finacial planner, wealth advisor, CPA, property & casualty broker or life insurance agent who usually introduces complex financial strategies-like succession planning arrangements, buy/sell agreements, qualified and non-qualified retirement plans, and (yes) even captive insurance companies--to the business owner. It's important to recognize this fact, and to recognize that, in discussing captives, these independent outside advisors are no more biased or conflicted than when discussing the business' 401(k) plan, for example. They are certainly far less biased than the "one trick ponies" who so vocally lament their involvement with captive insurance companies.

Don't let the marketing propaganda and large-company bias of the Old Guard's talking heads prevent you from learning all you can about captive insurance companies from your trusted advisors. A trusted financial planner, CPA, wealth manager, or insurance broker will likely have your best interests at heart, and the good ones will partner with a captive specialists firm to insure that any captive you may form is well run.