Wealth Advisers Can Still Participate in the Silver Tsunami

A financial adviser talks with his older client in an office.

(Image credit: Getty Images)

The so-called silver tsunami is upon us, with millions of business owners set to retire, leading many to sell the businesses they spent their lives building.

The aggregate amount of wealth to be transferred is staggering, and the financial services industry has been positioning for this event for decades.

With as much as 90% of their net worth tied up in their appreciated business, successful entrepreneurs are archetypes for estate planning needs.

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Wealth managers are already adept at coordinating with tax and estate professionals to help minimize their clients' tax burden — and it's this sort of high-touch team-leading effort that allows advisers to add value to a business owner before touching a dollar of their exit proceeds.

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Advising early to avoid losing clients

Advisers who are well-versed in working with business owners understand how important it is to begin advising on the client's business years in advance of a transaction — or risk losing them.

The minute a business sale closes, a throng of wealth managers will proposition the sellers. Friends, professional colleagues, even the private-equity firm that bought their business — everyone has a wealth manager contact they think the business owner should consult.

It's all too easy for the investment bank that set up the financing deal — to connect these business owners with its own wealth management practice.

Advisers need a plan

The challenge is that offering advice on a merger and acquisition (M&A) transaction often takes wealth managers out of their depth quickly. But with so many business-owning Baby Boomers set to retire, wealth advisers need a plan to ensure their business owner clients and prospects become and remain their best clients.

The good news is that to succeed with these clients doesn't require an adviser to become an M&A savant overnight.

More than anything, high-net-worth clients are seeking an increasingly personalized relationship with their wealth managers — which means managers have an opportunity to demonstrate their value by leaning in and knowing the right questions to ask.

As focused as wealth managers are on their clients' personal financial goals, they should also focus on their business goals.

Advisers need to know the details

While the wealth adviser understands how the timeline of a business sale is related to their clients' eventual retirement plan, most business sales don't play out exactly according to plan.

Businesses change hands for all kinds of reasons — they're outgrowing their founders' capabilities, acquisition multiples in their sector have become red hot or simply because the owner is burned out and wants to do something else.

Even more important is that as many as 50% of company sales are involuntary, driven by the same five D's that drive every other major decision in financial planning: divorce, death, disability, distress and disagreement.

That's why being engaged early — not just as an owner reaches retirement — is key; advisers can't be engaged in something they don't know is happening.

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Selling a business is no small task — it's a high-stakes process packed with decisions that can permanently shape an owner's net worth. They only get one shot at getting it right.

On top of that, they're juggling the emotional weight of keeping suppliers calm, reassuring customers, supporting employees and negotiating with potential buyers.

The truth is, no owner should have to navigate that alone — they need a trusted ally in their corner during this critical time.

Knowing who to introduce is key

To become that ally, wealth managers need to begin profiling and anticipating the needs of the entrepreneur years ahead of a potential exit. Teaming with and introducing the right corporate finance or M&A specialists is one way to deliver those solutions.

With their assistance, the wealth manager can develop a strong understanding of the business' operations, trends, productivity, capacities and goals.

It's these transformational business goals, such as acquisitions or recaps, that often require capital beyond the business's internal means. Businesses often raise capital multiple times before ever considering a sale.

Corporate finance professionals can help entrepreneurs understand market timing influences, terms and funding options.

Ultimately, the role of the corporate finance or M&A adviser, in a capital raise or business sale, will include managing a competitive process to find the ideal lender or investor, driving optimal terms and increasing the likelihood of closing within a defined period.

Without the right corporate adviser involved, business owners might not know or understand the full scope of deal options available to them — leaving them feeling dissatisfied or disheartened by the time the deal closes.

Delivering solutions and driving beneficial deal terms on behalf of their client will position wealth managers for long-term success.

A great financial adviser will work to bring in experts to provide answers and solutions to their business owner clients' most difficult problems and complex questions.

Ultimately, if a financial adviser wants to work with business owners, the strategy is simple:

Plan for an estate
Participate in growth
Optimize the exit

The silver tsunami has created a monster wave that will last at least another decade — wealth managers need to work to catch it.

John Stewart is a registered representative of CV Securities LLC ("CVS"). CVS is a broker-dealer, and its primary business is referring business owners to investment banks and receiving referral fees for such introductions when a securities transaction closes. This arrangement may create potential conflicts of interest as CVS has a financial incentive to make such investment banking referrals. In certain situations, referring wealth management firms and other professional groups may receive a portion of the fee paid to CVS by the investment bank which may create additional conflicts of interest as those firms may have a financial incentive to make referrals of business owners to CVS. This article was prepared with editorial assistance from a third-party public relations firm compensated by CreoValo LLC. CreoValo is the parent company of CVS. CVS is a Member of FINRA and SIPC. For more information about CVS and its registered representatives, please visit FINRA BrokerCheck at www.finra.org/brokercheck. Mr. Stewart did not receive any compensation related to the preparation of this article.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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John Stewart began his career in corporate banking with Comerica before being recruited by Merrill Lynch, where he helped launch a new division dedicated to serving private business owners. In this role, he developed innovative financial products, including the Private Sales Referral Network (PSRN). The PSRN platform led to the successful transition of thousands of private businesses. John holds Series 7, 63, and 79 securities licenses.