I’m often asked why it’s important to partner with a family wealth services professional, especially when someone is already engaging a financial broker, legal team or accountant. The following scenario shows how family wealth services provide a personalized and holistic approach to wealth management and planning.
James is sixty and has built a successful local business. He recently received an attractive offer from a national brand to buy the business. Over the years, he stewarded the business’s earnings. When the business generated excess cash beyond what the business needed for reinvestment, he would invest in liquid securities and real estate and fund his retirement accounts. James knows he needs help choosing the best course with the offer he received. In the past, he often prudently engaged legal and accounting professionals for his business when needed. He recognizes that their involvement over the years was limited to drafting documents, preparing income tax returns, and otherwise focusing mainly on specific situations as opposed to business and financial planning. Also, he has an investment broker who manages his portfolio of personal stocks and bonds as well as his company’s retirement plans. No one knows his overall financial situation.
While this situation is a favorable one, his gut tells him that none of these advisors has the focused expertise he needs to navigate this transaction. James knows he must be missing something. He checks with other business owners in his network who have been through similar liquidations of their businesses to hear about their experiences. After long discussions with several of these contacts, he discovers that many have faced similar challenges; they even vented various frustrations about their experiences.
James then calls Chuck, a vendor of his for many years who had liquidated a few years before:
Chuck: “Hey, James! How are you? It’s been many moons.”
James: “Chuck, I’m doing well. In fact, I have a letter of intent on my desk from one of these national brands much like you had a couple of years ago. This offer is for a substantial sum, and I’m trying to find a safe landing on this. I’ve been wondering to myself—how did Chuck get through this?
Chuck: “Well, congratulations on the offer. Frankly, I faced the same difficulty. I mean, you spend decades building something of value and invest your life into it. You don’t want to let any stone go unturned that could cost you in the form of a low sales price or an unwelcome income tax payment.”
James: “That’s exactly where I am. I have those same concerns now.”
Chuck: “Yep. Well, here is my story. I had a contact at a wealth management firm I had used for my company’s retirement plans, some personal investment management, and for help with a trust for Becky, my daughter with special needs. That firm has a group called Family Wealth Services, and their niche is to provide value-added holistic wealth planning.”
James: “Yeah, I’ve got a financial advisor who does holistic planning. I mean, he handles some investments and has modeled a retirement plan for my wife and me. I’ve thought about contacting him, but this seems a bit out of his purview.”
Chuck: “I guarantee that what I’m referring to is out of his purview. When I spoke with my wealth management group, they educated me on this same topic because I had made that same point to them—I mean you do see ‘holistic wealth management’ all over the place. My group told me that most financial advisors lack the experience and depth to handle the situation as complex as mine.”
James: “That makes sense. I can see how that would be the case. My guy admitted that he knew nothing about my business on several occasions. I guess it was meant to be a compliment.”
Chuck: “Sounds about right. Yep, they explained that there is a dearth in the market of substantive service offerings to wealthy clients who may not have the resources to afford or the need for the bells and whistles of their own dedicated family office staff, but who will have need for regular access to make good wealth planning decisions. That resonated with me.”
James: “It does with me too in my situation right now. How did your experience unfold?”
Chuck: “Well, they met with me at my office, and really dug in to understanding my business. They reviewed the letter of intent, looked over historic tax returns, built custom models of my cash flows, constructed financial projections. Looked at income tax planning opportunities related to the sale as well as for my situation after the sale. After it was done, I understood my business’s financial position from a different perspective. I mean, they really understood it. They also were preemptive to model out estate planning options based on my situation.”
James: “Wow, it sounds you like handed the ball off to them, and they ran with it.”
Chuck: “They really did. Their team has experience with these kinds of deals, so that facilitated it. In fact, the law firm that I normally used was not geared up for this transaction, so they helped me find one who could better assist. Plus, they directed the income tax planning and facilitated it with the CPA firm I use.”
James: “Hmm. How did the negotiations go?”
Chuck: “That was the best part—the financial and income tax analysis that they provided affected a couple of the more significant terms when we negotiated the purchase/sale agreement. I didn’t have to fly blind on this. They facilitated the process.”
James: “It sounds like you actually had a positive experience. The others who I’ve visited with regarding their experience in selling seemed to be still licking their wounds.”
Chuck: “I’ve heard the same from others that I have spoken to as well. I’ve told others like you about this group, but they decided to go another route. And, you know, they have expressed regrets over choosing to not engage them.”
James: “You mean, someone missed a tackle?”
Chuck: “Yeah, unfortunately, one missed out on a deferred income tax opportunity, and it was too late to remedy it. Another liquidated okay but then passed away soon after that without doing any planning; she was divorced and had a taxable estate, so after paying Uncle Sam income and estate tax, her kids ended up with only a fraction what she sold the business for. Another discovered that someone in his network with a comparable business sold it for more.”
James: “Would this group have been the difference maker?”
Chuck: “I believe so. These things are their bread and butter. That’s the unique value that they bring.”
James: “What then was the hang-up? Why didn’t the others use the group you recommended?”
Chuck: “Honestly, for some, I think it was pride. They didn’t want to admit that they needed help. It’s funny, people take their cars to get an oil change and get the fluid levels checked, but they hesitate when it comes their most valuable assets. For others, they wanted to use their current advisors even though I told them that their advisors lack the breath of skill and experience needed for these types of transactions.”
James: “You don’t believe that it had anything to do with this group’s fees? Like sticker shock about the price or something?
Chuck: “No, their fees are reasonable, which my colleagues affirmed. They charged me a reasonable fee to assist with the sale of the business and to restructure some things for estate planning purposes using a family investment entity for my wife and me, some trusts, and charitable planning. Their incentive is that I will invest my assets with them after the sale.”
James: “That sounds reasonable. Are their ongoing fees, like those for asset management, reasonable?
Chuck: “Yes, their asset management fees are competitive. And they provide much more—financial planning as well as income and estate tax planning. I mean real planning here—they model out everything. It’s not out of a box. It’s customized for my wife and me. Also, they are my go-to on the family investment entity and its holdings of different alternative investments as well as charitable planning. They quarterback my family wealth strategy. I know when something happens to me, all my family needs to do is contact them, and they will guide them through the process.”
James: “Hmm. Holistic service. How are they able to do so much?”
Chuck: “They have made the investment in personnel with broad financial and accounting experience in many industries in business. Other wealth management groups have professionals who focus solely on managing liquid assets like stocks and bonds and offering various financial products proprietary to their brand. So, they lack the requisite depth of experience in these other areas and are unable to provide the robust financial advice about the other arenas that we’ve mentioned.”
James: “Chuck, I am much obliged for this counsel. You’ve left out one thing though.”
Chuck: “What’s that?”
James: “Whether you are going to refer me to this group.”
Chuck: “Oh, that’s gonna cost you.”
James: “I figured as much. What’s your game?”
Chuck: “A dove hunt, what else?”
James: “Deal! Albany, Texas, here we come.”
Heritage Family Wealth Services
Individuals facing situations like James are often dealing with complex situations. We have a team of strategists with in-depth experience who make it their business to learn about your business and unique situation. Heritage helps clients strategically grow, preserve and pass on family wealth and support a succession of legacy business interests.