By Greg Powell
The financial advice industry in the U.S. is finally learning how to serve the growing population of “overlooked millionaires,” investors with between $2 million and $20 million in assets whose needs are too complex for most advisors, yet lack the profile to draw the attention of elite Wall Street groups.
Even advisors who seek to serve this market by incorporating CPAs, estate planning attorneys and other cross-functional experts into their teams too often fail to engage in depth with the most valuable asset in many overlooked millionaires’ broader portfolios: their businesses.
While many sophisticated advisors can discuss their clients’ financial plans in microscopic detail, they do entrepreneurial clients a disservice when they treat their businesses as a “black box,” taking a hands-off attitude and assuming that clients don’t need their guidance in this aspect of their financial lives.
The fact is that, in order to provide truly holistic advice to overlooked millionaire business owners, advisors need to add some “McKinsey” to their practices by leveraging their skills to assess the health of a client’s business and, where possible, help set them on a path to achieve their valuation and cash flow goals.
After all, for a business owner, a shortfall in the company’s performance can mean the difference between success and failure for their own financial plans. Here’s how advisors can help in the financial planning and business consulting process:
1. Draw specific connections between business performance and retirement lifestyle.
Many business owners lack the perspective and expertise to envision the specific impact of their company’s projected cash flows and exit valuation on their personal financial plans. Advisors can bridge this disconnect by presenting clients with multiple retirement scenarios that explicitly demonstrate the impact on the client’s post-career lifestyle of a 20 percent, 40 percent or even 60 percent shortfall in cash flow or valuation for the business.
Assuming the client is open to discussing details of their business with the advisor, these tough love conversations often serve to start a dialogue on the obstacles that are preventing the business from achieving its growth or cash flow goals, which may include changes in the company’s broader industry or a lack of access to adequate capital. Once the client realizes they may not be on track to hit their retirement goals, they are frequently eager to work with their advisor to develop solutions.
2. Engage third-party experts and members of your own team to help clients draft concrete business plans.
Once a dialogue on the direction of the client’s business starts, advisors should seek to include the company’s CFO or CPA in these conversations to identify concrete steps for overcoming the most pressing challenges, whether that means identifying new funding sources, scaling back less profitable operations or expanding into more promising areas.
Whenever possible, advisors can further enhance their value by assembling their own diverse team that includes CPAs, MBAs and other talented professionals—and which draws on the advisor’s own experience as an entrepreneur—to draft business plans for their clients. By organizing the action items identified above and pairing them with financial projections and valuation estimates, this crucial step can help clients shift seamlessly from diagnosing challenges to taking proactive steps to solve them.
3. Support the business’s value by consulting on succession planning and transaction structuring.
One significant factor in determining the sale value of a business is something many advisors know well: succession planning. In order to maintain its value, every business needs strong leadership in place when the founder exits.
Advisors who take a highly engaged approach to their entrepreneurial clients’ businesses are often in the best position to lend guidance on this issue. In some situations, these advisors can provide crucial perspective on whether a client’s children are prepared to take over, or whether bringing in an outside CEO would be the better option.
In other cases, the children may be well-qualified to lead the business but may not have access to capital to fund a purchase. In one instance, our firm worked with a couple who wanted to sell their business to their two sons, but the brothers lacked the capital to purchase the company.
We helped the sons develop a business plan, then guided them through the SBA loan process to secure appropriate funding. With our understanding of the business and the parents’ retirement needs, we were also able to advise on the structure of the sale, starting with an upfront lump-sum payment supplemented by a 5-year earnout. Years later, the parents are still with us—and our relationship with them has never been stronger.
Serving overlooked millionaire clients—many of whom are successful business owners—poses a host of interesting challenges for financial advisors, just as it presents a wealth of opportunities. Advisors who can provide guidance to these clients on their entire portfolios, including their businesses, can position themselves to establish trusted and productive advisory relationships with these clients that can last for decades.
Greg Powell is President and CEO of Fi Plan Partners, a wealth management and financial planning firm based in Birmingham, Ala.
