Prepare to be patient if you aim to serve wealthy business owners

This ultimately lucrative market is all work and little pay in the early part of the relationship

Mar 14, 2014 @ 9:12 am

By Liz Skinner

The nation's business owners are an affluent bunch and they require a broad swath of services from a financial adviser — but the potential pay-off to advisers may be many years down the road.

About one-third of the nation's wealthy investors, those who have $1.5 million or more to invest, are business owners, and that proportion jumps dramatically as wealth level rises, a new study finds.

About 74% of the super-affluent, those with $5 million to $20 million to invest, are business owners, and a whopping 89% with $25 million or more to invest own businesses, according to a report by CEG Worldwide and Wealth Engine.

“There's a disproportionate amount of wealth with private business owners versus the rest of the country,” said James Dean of WealthEngine.

However, many business owners' wealth initially is tied up in those companies, so there may not be many assets for an adviser to manage at the onset of a relationship. The payoff typically comes when the owner sells or takes the business public.

Advisers who target business owners help these clients protect their assets with insurance and buy-sell agreements, make sure they are mitigating taxes, structure retirement vehicles, and create plans for extracting business value to benefit their heirs, said John Bowen, chief executive of CEG Worldwide, a consulting and coaching firm for advisors.

The financial planning advisers do for these clients' businesses has to incorporate the personal financial goals of the entrepreneur, too.

“In an ideal world, these clients want the independence of having enough capital outside their business so they have some flexibility,” Mr. Bowen said.

Lou Stanasolovich, founder of Legend Financial Advisors, which has been serving business owners for 18 years, estimates that 70% to 80% of a business owner's assets are tied up in their business for its first 10 years.

“There's no money in the beginning; they're just fighting to survive,” Mr. Stanasolovich said. “They don't even retain us until there's some money available,” and even then some don't think they can afford a financial adviser's services, he said.

Legend advisers have learned to charge business clients hourly fees for business financial planning “so that they can cut us off when they want.”

The firm's advisers have had to develop a lot of expertise to provide a variety of services to business clients.

Helping clients put together a team of lawyers, accountants, insurers and bankers with the expertise needed for their business, as opposed to using professionals whom they may have outgrown, is one of their most important goals, Mr. Stanasolovich said.

Advisers also help clients set up defined-benefit plans, self-directed retirement plans, and less frequently, a Simplified Employee Pension plan, which he said aren't as good from an asset protection standpoint.

Business financial planning also involves reviewing balance sheets and income statements and asking questions about ways to tighten up expenses, or suggesting other ways to add value for the owner, he said.

Of course, business owners know they need to do a lot of these things. They often don't follow through, though, because entrepreneurs typically have more to do than time to do it. Advisers help push these decisions to the forefront, he said.

“We lose money on most of our business owner clients,” Mr. Stanasolovich said. “The key is to keep them long-term so you're there when they sell off their businesses.”

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