Advisors are always looking for an edge in the asset-gathering game. Whether it’s an investment advisor at a boutique firm with a personal touch, or a corner-office wirehouse rep touting his access to the most desirable alternative investments, just about everyone is trying to come up with ideas to differentiate their practices and win big clients. For those in search of that edge, here's something they may want to think about. It turns out ultra-high-net-worth (UHNW) family businesses need some extra help with business succession, asset protection and estate planning.
The majority of those business owners tend to be unsuccessful when it comes to transitioning their companies from one generation to the next, with only 15 percent of family-owned companies lasting past the second generation. That’s according to a U.S. Trust, Bank of America Private Wealth Management study that surveyed 242 second- to third-generation business owners with interests of at least $300 million, and average value of almost $730 million. "Owners of ultra-high-net-worth family businesses often have a team of advisors focusing on an array of needs such as wealth management, tax strategies and succession planning, without addressing the bigger picture,” says Chris Zander, managing director and head of the multi-family office group at U.S. Trust. "Given the near-term and long-term complexities with managing a successful family business, it is crucial that these families think about the wealth tied to their business and their personal fortune in a holistic, strategic manner," he adds.
Among the main issues advisors can address are the succession plans of these family businesses. While a large majority of UHNW family businesses have wealth transfer plans in place, most have yet to be implemented or updated. Over 75 percent of owners have succession plans, but only 38 percent have implemented them. One area of these succession plans where advisors can focus is tax-mitigation. Almost all respondents say they want to lower the tax burden associated with transferring the business.
"Most family business owners do have basic succession, trust and estate plans; however, too often, they are sitting on shelves gathering dust. Not only do these families need to act on implementing and updating their wealth planning strategies, they need more sophisticated strategies to better protect their wealth," says Mindy Rosenthal, managing director of Campden Research’s North American Business and co-author of the study.
According to Wealth, a book about the growth, maintenance and management of the high-net-worths’ fortune written by associates of Merrill Lynch and consulting firm, Capgemini, a big chunk of the “great wealth transfer” (about $41 trillion by 2053) will go to family members. “Wealth transfer and estate planning, in other words, will be in high demand for the foreseeable future and there is much work for wealth managers to do,” the book states.
Ronald Weiner, president and CEO of RDM Financial Group, a Westport, Conn.-based RIA with about $350 million in client assets, specializes in advising business owners. “It’s difficult to do these kinds of asset transfers because the one who built the business has a hard time giving it up emotionally,” he says. One of the factors for a successful transfer is that the financial advisor, CPA and attorney must all understand the issues surrounding giving away stock. “They have to be on the same page and work together,” Weiner adds.
Estate planning is another area where business owners need help. Over three quarters of respondents have personal estate plans, but 89 percent have not updated them after a life-changing event such as marriage, the birth of a child or the death of a family member. "The professional and personal financial concerns of this unique subset of business owners are more vulnerable to life events and legal proceedings, and must be addressed if they want to protect the financial security of the next generation,” Zander says.
RDM Financial employs two full-time employees who have earned MBA degrees, a certified financial planner and “an account pro” that lay out all the financial options for business owners. Weiner says business owners need to be approached in terms they are familiar with. “Business owners are the best possible audience for decision making. But you can’t just talk to them, you have to lay out proposals and provide alternatives.” He adds.