Wealth Managers: How We Collaborate

As a wealth manager, you develop an intimate knowledge of your clients’ wishes regarding their overall financial situation, financial goals—especially upon retirement, and how to achieve those goals. As a wealth manager, you will want to integrate these with your client’s estate and family legacy planning.

If your client owns a business, that business and its value and returns will play a key role in the wealth management plan you develop for your client. There are two ways your client’s business will participate in that wealth management plan. The first is the on-going revenue spin-off that is available for investment or other aspects of wealth generation. The second is the value of the business at two important times: when your client retires and when your client passes.

Three Scenarios—With Consequences!

Let’s consider three (of many!) possible scenarios. In the first scenario, the retirement needs of your client may require their business to generate more investible returns than it is currently producing or expected to produce. In the second scenario, at the time of your client’s retirement from their business, choices must be made about the disposition of that business, and these choices have an impact on the value of the business and your client’s wealth position and portfolio. In the third scenario, at the time of your client’s passing, if their business has not been transitioned to a successor—either another family member or non-family owner—then your client’s will and perhaps the buy-sell agreement into which your client entered if there are business partners will determine what is to be done with the business and ultimately, its value.

In the first scenario, it is the profitability of the business that is a primary consideration during wealth management and planning. In the second and third scenarios, both the expected value of the business and the disposition choices made must be considered as part of wealth management and planning.

In the latter two scenarios, your client’s business will change ownership, either through the choices your client makes at the time of their retirement from the business or through the choices they have made in their will. The primary consideration is that the business generates significant expected value.

Scenario 1: Business Profitability

The assumptions you make about current and future client income will likely also include assumptions about future profitability and viability of their business. These assumptions may cover a significant number of years of the remaining life of your client while retaining ownership of their current business. It is critical to assess the long-term risk factors of that business that might hinder its meeting the assumptions you and your client have made.

One of the services offered by Your Business Legacy is our Business Sustainability Assessment™, a proprietary comprehensive assessment on three levels of the risk profile of all those aspects of your client’s business that are the key contributors to enduring success over the decades the business must continue to thrive to support your client’s wealth plan.

Scenario 2: Business Disposition upon Client Retirement

Upon your client’s retirement, there is a significant risk that the business may not be ready to be passed to a successor unless properly prepared for inter-generational transition or outright sale.

The business may have operated for possibly decades with your client making all the decisions, for example, or managing all their customer and vendor relationships. The reputation of the business may rest solely with your client, and this is likely to disappear with a successor owner whom none of the business’s customers or vendors know or trust. It is likely, too, that the business structure may be such that it cannot operate effectively without the direct involvement of your client because they made all the operating decisions for decades.

It is therefore important to assess the business’s readiness for transition. Our Business Retirement Readiness Assessment™ is designed to identify those gaps in business retirement planning that must be rectified for your client to receive the full value of their business when they retire.

Scenario 3: Business Disposition upon Client Passing

Upon client passing, especially if this is unexpected, the successor to whom the business is bequeathed may not be ready to assume major responsibility for the business’s success, or the business may not generate the value that was assumed—and depended upon.

In the first case, you’ll want to consider questions such as the following:

  • How prepared is your client’s successor to lead the business upon the owner’s passing?
  • What expertise, experience, skills, relationships, and overall readiness to assume leadership do they possess when the owner passes?
  • What are the qualities the successor needs to lead this business?
  • Are there gaps in the qualities needed and the qualities they possess?
  • If shortfalls, how can these qualities be developed?

In summary, how will your client ensure that the successor is ready to lead at the time of succession?

In the second case, for example, there may be a conflict between what the estate plan requires and what the operating agreement and by-laws of the business legally require upon death or incapacitation of the owner. This is especially true if the business has multiple owners. In this case, your client may wish the estate passed to their children, for example, but the operating agreement contains buy-sell clauses that give the other partner(s) first right of refusal to acquire the deceased partner’s share, usually under a pre-determined valuation methodology.

In both these cases, the ultimate business value can be affected negatively. As in Scenario 2, our Business Retirement Readiness Assessment™ can be of significant help in preparing the business for the transition that your client desires.

How We Collaborate

Your expertise and focus are on ensuring your client’s long-term financial and retirement goals are met. This may involve business restructuring to ensure it generates the long-term financial returns your client requires to ensure an adequate estate value at the time of retirement or passing.

At retirement, an effective transition of your client’s business may require several years of planning and possibly business reorganization and legal restructuring. Development of a successful business exit plan (succession plan), to be implemented upon your client’s retirement or passing, may require expertise in business law, business valuation, tax law, insurance products, successor preparation, business structure, and overall exit planning and execution—in addition to your expertise in financial planning and wealth management. The members of this exit planning team must be coordinated and must have as their singular purpose the support of and alignment with the wealth management plan you and your client develop together.

As the need arises, you may assemble and oversee the efforts of this team of experts to ensure the wealth management plan you provide your client will accomplish all that you and your client intend. Or, as a specialist in business exit planning, I can work in close collaboration with you to ensure that the issues and needs are identified through our Business Retirement Readiness Assessment™ and the appropriate experts are assembled and participate as a team to support you and your client in developing a wealth management plan supported by your client’s business retirement plan.