Over the years, small business owners – with their entrepreneurial energy – have emerged as ideal clients for independent advisory practices.
Serving this niche can be rewarding, but it also requires specialized expertise, especially when time comes for the client to sell their business.
Most small business owners use the business entity, by far their most valuable asset, to fund most or all of their retirement. This can create complications even in the best of times. Advisors must be able to offer practical support to high-net-worth business owners who confront a volatile environment just as they are about to make a deal. Some considerations:
Make use of dollar-cost averaging. When markets enjoy near-uninterrupted gains, the temptation is to convert the entire windfall into stocks. That approach comes into conflict with dollar-cost averaging, a fundamental financial planning precept, but many advisors allow it. Still, dollar-cost averaging exists for a reason: taking the guesswork and emotion out of the market. Don’t invest a lump sum; instead, make investments gradually. This will shield clients from risk.
Clients should always be ready to sell, even if there are no plans to do so. Business owners typically know when they want to sell, i.e. based on their age or reaching certain revenue milestones. It’s up to advisors to encourage clients to prepare for their exit years in advance, to guard against the possibility that market risk could erode the value of their business.
Make clear how much money a client will need in order to maintain their current lifestyle. Make sure business-owner clients know what it will take for them to preserve their current lifestyle – understanding that volatility is the norm, not the exception – not just now, but for the next 30 to 50 years. High-net-worth people are typically loath to make do with less. Many would actually prefer to work a few extra years in order to avoid it.
For more information, please read:
How To Serve HNW Small Business Owners During Times of Volatility | Wealth Management