Part 4: Questions to Ask Wealth Advisors
The first three parts to this series, ‘Critical Questions All Owners Need to Ask,’ broke down the most salient issues that business owners should ask themselves about what they want out of a liquidity event; some of the most common mistakes and misconceptions about the M&A process; and the most important questions that owners should ask of potential Investment Bankers to identify best candidates prior to selecting an advisor.
In Part 4, we wanted to take a closer look at the questions and expectations that owners should have for WEALTH ADVISORS before, during and after the M&A process. To be clear, it is critical to do up-front work with an experienced financial advisor who has access to estate planning strategies, tax planning and investment options specialized for individuals with liquidity levels similar to yours. In our experience, this is an area most often neglected by a business owner. But avoiding or delaying this work will result in an inefficient structure that can meaningfully reduce your net proceeds from a transaction, or worse post-closing put at risk the money you have worked hard to create for your nest egg.
It is important to note that talking to new advisors should not be viewed as removing or replacing the long-time advisors you have used and trusted over the years. Those professionals always play a key role in successfully completing an exit and possess invaluable institutional and historical knowledge about your business and personal goals. However, if your current advisors do not normally work on the type or size transaction you are anticipating, you should add to your team the specialists who do. I liken it to the analogy that you wouldn’t go to your primary care doctor for open heart surgery. M&A transactions carry significant tax ramifications and require very specific technical expertise that will incorporate long-term objectives around trusts, tax mitigation, liquidity management, philanthropic goals, estate planning, and more.
It is imperative that certain powerful planning tools such as gifting into trusts, etc., be done well in advance of discussions with a potential buyer. The significant tax benefits of some planning strategies can be nullified and unwound if put in place too late in your sale process (for example, after you have a Letter of Intent).
Questions to ask when selecting an M&A focused Wealth Advisor, and why these topics are important:
What is the focus of your practice and can you describe your typical client?
You want to work with a group who focuses on Business owners with similar levels of potential value and post-closing liquid assets.
Are you a broker or a registered investment advisor (RIA), and are you a fiduciary? What is the difference and why is your designation better for me?
Generally speaking, a fiduciary financial advisor is more like a consultant compelled to act in your best interest, not paid a commission based on sale of proprietary products.
How long have you been with your firm and how often do you change firms?
Looking to see a commitment to the firm and practice with well-established internal team structure.
How many people will be on my team and who will be my primary day-to-day contact?
Understand which team members will perform what duties for you and what resources are available.
What do you think are the most important issues for me to consider pre- and post-closing?
Trying to assess the advisor’s high-level knowledge of how trusts and related investment strategies may maximize your net proceeds and best be used given your circumstances.
Why is your team the right fit for me, my business, and my family?
Answers can help you evaluate whether an advisor has compatible values and an approach you feel comfortable with.
What unique investment opportunities will I gain access to at this higher level of liquidity that haven’t been available to me previously?
Looking for an understanding and connections to private equity, alternative investment platforms and specialized opportunities for higher net worth clients.
What tax and estate planning strategies will be important for maximizing net proceeds?
Looking for creative solutions and genuine topic insights.
How closely do you work with tax advisors on the legal and accounting side?
Looking to see if they do the work in-house or collaborate with other advisors, or both.
What other professionals does your firm work closely with for clients of a similar size?
Looking to see how they approach the advisory team process and how they’ve operated in the past on similar deals.
How often will you meet with me pre- and post-transaction?
Looking for a defined sense of expected involvement and accessibility.
How do you manage downside market risk?
Looking to see what protections for your capital exist and how they approach risk mitigation.
How will you work with my children and other family members during and after the process?
Looking for a sense of overall estate management and long-term relationship commitment.
How is your firm different than competitors and do you invest in proprietary products or on an open platform?
Looking to see if their priorities best align with your own.
How do your fees work – flat fees, commission based, or a mix?
Looking for a concise answer to explain how they get paid; flat fees or fees capped at some level are likely better for you.
Do you have examples of some common mistakes that owners like me have made and how do you prevent them from reoccurring?
Looking for an honest an open approach to potential problem points and mitigation of risk factors.
What should I keep in mind as I look for and select the rest of my team: investment bankers, lawyers, accountants, etc.?
Looking for genuine insight on how to build a successful advisory team with potential tested and trusted connections to proven players.
The importance of establishing a good relationship with a professional wealth advisor who will have a direct impact on your wealth potential cannot be overstated. As with any relationship, it should be built on trust, mutual understanding, an alignment of goals, and confidence that they know what they are doing.
With the answers to these questions—and any others that address your specific concerns—you can determine which wealth advisory firm is the best fit for you, your company, and your family’s long-term plans. Planning early and revisiting often is always the best strategy, and failure to do so can result in significantly lower net proceeds from your transaction.
Be on the lookout for future parts in this series in the coming weeks:
Part 5: Questions you should always ask Law Firms
Part 6: Questions you should always ask CPAs/Accounting Firms
Previously published parts in this series:
Part 1: What Matters Most to Me?
Part 2: Seller’s Valid Concerns and Common Misconceptions in M&A
Part 3: Questions to Ask All M&A Advisors You Interview
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