Developing client profiles are key in assessing their lifestyles, assets and
objectives-and in building your business.
Business owners are the nucleus of today's wealth.
Most high-net-worth individuals identify business ownership as the
origin of their wealth, and more new money is being created through
businesses every day. In our last article we reviewed the demographics,
product interests, satisfaction levels and long-term business plans of
In this month's article, we will review a case study of a small-business owner to better understand issues, concerns and opportunities associated with these types of professionals. As with previous case studies we have relied on the Whole Client Model, the holistic client profiling methodology used by many of the most successful financial and legal professionals, to help us develop a broad awareness of the client, his lifestyle, his assets and his objectives. Ideally, the information collected as part of the profiling process is presented on a single page so it is easier to identify the relationships between the various people, assets, products and circumstances in a client's life. Because of space limitations, relevant highlights of the client's profile will be presented in summary paragraphs.
Business Owner Case Study
Client: RB is a 56-year-old male with a successful long-haul trucking business. He has an annual income of $500,000 and a net worth of roughly $16 million.
Financials: RB's net worth is comprised of the following things: an ownership stake in the trucking company valued at $10 million; $2 million in investable assets; $3 million in retirement assets; a term-life policy with a face value of $500,000 that is nearing expiration and not convertible; and $1 million in equity in his primary residence. Additionally, he has an estate plan that was drafted more than 15 years ago.
Relationships: RB has a 51-year-old wife with whom he has two children. Their son is 31 years old and currently on parole after a two-year stint in prison for theft. Their daughter is 28 years old and divorced. She has primary custody of her six-year-old son, RB's first grandchild. RB's brother, a recovering alcoholic, works in the trucking business, as do RB's sister-in-law and her husband. RB has a partner in the business who is semiretired and has an ownership interest worth $4 million. RB has extensive client and vendor relationships throughout the local area due to his long-standing presence in the community.
Interests: RB likes to spend his free time hunting and fishing with friends in the mountains near his primary residence. As a result, his discretionary income goes toward maintaining his cabin, entertaining his friends and ensuring that he has state-of-the-art hunting and fishing equipment and gear. RB has never expressed an interest in philanthropy.
Advisors: RB has a number of existing relationships with professional advisors. He has an advisor managing $1 million (for the purposes of this case study, this advisor is the one profiling RB), an accountant who handles both his personal and professional affairs, and a long-term banking relationship that provides him with credit lines as well as the cash-management services for his company, the overall administration and investment management for his company's retirement plan and management of another $1 million in assets.
Process: Like many top business executives, RB is a big-picture thinker who can make decisions quickly. He is not interested in details or the mechanics; he doesn't want to know how things get done, only that they have been taken care of appropriately. He is confident making most decisions himself and rarely consults either his financial advisor or his accountant, but relies on them largely to execute transactions according to his specifications.
Goals and Concerns: RB would like to fully retire from the business by age 60 and, in preparation, wants to sell his company in the next few years and convert his ownership stake into liquid net worth. Despite the fairly short time frame, he has yet to set specific time or asset targets or identify potential buyers. In retirement RB plans to spend more time hunting and fishing, and he wants to upgrade his cabin and buy or build a custom lodge on a sizable parcel of land. In the meantime, RB carries a significant burden-both financially and emotionally-for his immediate and extended family members. He has assumed financial responsibility for both his son and daughter until they get back on their feet again, and plans to cover medical and educational expenses for his grandson until he is 18. He knows that his brother, his sister-in-law and her husband rely on the trucking company for income and benefits and will take steps to ensure they remain gainfully employed after a sale. He also wants to help his brother address his substance abuse problems, but has refused to pay for a third stay at a detox facility and remains wary of his brother's commitment to sobriety.
RB has a sizeable estate rife with complexities that will benefit from professional insights, and the practitioner who provides the needed expertise will be the one to capture additional business from him, assume a more central role in his affairs and secure a place on his list of trusted advisors. Based on the information provided above, a number of business development opportunities can be readily identified.
Develop a plan to capture up to $1 million in additional investable assets from the bank.
Determine RB's level of satisfaction with the bank's management of the retirement account and, if appropriate, take over the investments and/or administration of the plan.
Evaluate the trucking company's key-person risk and buy/sell agreements and follow up appropriately.
Arrange to buy out RB's business partner to consolidate ownership of the trucking company in preparation for a sale.
Help RB update his estate plan, in the process evaluating life and disability insurance needs for the family.
Facilitate the exchange of RB's current term policy.
Help RB use the estate planning process to specify exactly how he wants to provide for his family members in the future.
Get involved in planning for the eventual sale of RB's business to ensure adequate financial and tax planning; one option to consider is freezing the current value of the trucking company to mitigate the tax obligation.
Ask RB for referrals to his business partner and other close business associates, both inside and outside the firm.
Helping RB identify and address his wealth management needs will produce two important opportunities for a capable wealth manager. First, both goodwill and trust will be generated through the effort, which can, in turn, strengthen the relationship between RB and his advisor and create a favorable environment for business expansion. Secondly, by conducting the Whole Client Model exercise a number of opportunities can be identified allowing a savvy wealth manager to implement a plan of action.
Hannah Shaw Grove, a leading authority on private wealth, can be reached at www.hannahgrove.com. Russ Alan Prince is the president of Prince & Associates Inc., the foremost financial resource for affluent families and their advisors.