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Going Downstream Isn’t Necessarily the Key to Success


A widely cited study about financial advisor growth strategies concluded that many wealth managers have put too much emphasis on ultra-high-net-worth (UHNW) clients and not enough on the mass affluent. As a result, they’re “leaving money on the table” in the less affluent segment to the tune of $230 billion, the study estimated. I suspect it may be more.

With all due respect to the survey authors, I think they’re missing the point. Going downstream to the mass affluent isn’t necessarily the key to success. It’s about finding ways to work with the highly affluent who don’t have lots of investible assets to give you (yet) – that is, successful business owners.

Business owners have a tremendous amount of assets built up, but because most of their wealth is tied up in their businesses, it’s illiquid until the exit. That means they don’t have tons of investable assets for you to manage (yet). For the most part, they haven’t planned their exits. They haven’t planned for their estate. They have no liquidity in their estate. They’re largely ignored by the big law firms and financial service firms. That’s where you come in.

Owners typically work with the same local attorney, banker and financial advisor they’ve had since the business was in its early stages. That team has served them faithfully over the years, but now they’re in over their head. In addition to the planning challenges mentioned above, most of the owner’s real estate assets are owned by their corporation – it’s just a lot of messes that can never be straightened out. But that’s who has most of the real wealth in this country – the entrepreneurs and the business creators of the world.

This is an enormous opportunity for you if you can think beyond “asset wrangling” and take a more holistic approach to the planning. That’s what successful business owners need. It’s not about new technology or business model 3.0 as the survey authors would have you believe.

The Hidden Uber Wealthy

Managing the investable assets of business owners – especially post-exit – is just a small part of the equation. You need to help business owners protect their assets, transfer it tax-efficiently to the next generations of their family and help them give it away efficiently – and on their terms. Many successful entrepreneurs are quite charitably inclined. It’s short-sighted to think that helping them give money away reduces your assets under management (AUM). It actually sets the table for growing your business

Case in point: a U.S. Trust Study of the Philanthropic Conversation found that one-third of UHNW respondents (31%) would switch to a new advisor if that advisor could talk to them meaningfully about philanthropy. Think about that for a second. One-third of affluent families would switch to a new advisor if that individual was more adept than their current advisor at helping them give their money away. It has nothing to do with investment returns, asset allocation or finding hot alternative investments. It has to do with understanding the client’s values and seeing the whole picture.

But advisors tend to focus on solutions—and how they get paid for recommending or implementing those solutions. Okay. I understand we all have to make a living. I understand charitable planning can be complex and requires a lot of study. But many advisors don’t want to tackle anything new, and that mindset will only come back to haunt them in the long run.  

Finally, there’s the fear of asset migration—the elephant in the room. If you think charitable planning will result in lower fees under your AUM business model, then you’ll find plenty of reasons not to recommend it to your clients. But if you do charitable planning properly, it will boost your business, not reduce it. You’ll have assets that can stick around for multiple generations through various types of trusts, foundations and charitable funds. Plus, once clients spread the word about how well you integrated philanthropy into their overall financial plan, the referrals are likely to roll in.

Real World Example

A few years ago, one of my clients was beginning to step away from his large engineering firm. His planning was complicated by the fact that, engineering firms, like most professional corporations, can be owned only by other members of the profession.

Faced with that challenge, we were able to determine that there was significant personal goodwill as one of our client’s assets. We were able to donate his personal goodwill to a “young” pooled income fund, which also named his children and grandchildren as successive income beneficiaries.

My client’s partners redeemed the personal goodwill for cash, and he has now invested that cash to receive a nice portion of his retirement income for the rest of his life (and his wife’s). When the couple passes away, their two daughters will receive income and ultimately his grandchildren will receive income as well.

Because of this one element of his planning, we were able to produce a significant income tax deduction, avoid capital gains tax on the sale of the personal goodwill (a zero-basis capital asset) and reinvest 100% of the proceeds for that will benefit three generations.

If we had approached this client from simply an AUM standpoint, the engagement would have been more limited and not nearly as worthwhile for us to assist him.

Again, a business often represents 80% to 90% of the value of an owner’s estate. But it’s illiquid. If the owner dies suddenly, their estate will likely owe tax and probably won’t have enough money to pay it. With enough time to plan, you can craft tax-efficient ways to create the necessary liquidity for your client’s estate. The $24 million estate exemption is set to sunset at the end of 2025. That’s less than three years away, and many expect it to be cut in half. The time to start planning is now. Again, that’s where you come in.

For more, see my recent articles Let’s Get Real About Charitable Intentions and Help Baby Boomers Make Their Businesses Sellable.


Randy A. Fox, CFP, AEP  is the founder of Two Hawks Consulting LLC. He is a nationally known wealth strategist, philanthropic estate planner, educator and speaker. 



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