As seen in WealthManagement.com: 2024 Mid-Year Outlook
Since the introduction of fee-only and AUM-based pricing in the 1980s, wealth advisors have evolved from transactional order-takers to trusted advisors. Acting as the quarterbacks of their client's financial lives, they provide comprehensive, world-class services encompassing everything from investment advice to retirement planning, estate strategies, and beyond. Their role continues to adapt, meeting the changing needs of their clients with high-fidelity financial plans that drive well-executed investment strategies.
This approach works well for highly liquid clients with substantial investable assets that fit within a firm's mandate. But what about high-net-worth individuals whose wealth is tied up in a small or medium-sized business (SMB), often their largest and most significant asset? Should advisors overlook them, or can they use existing and new tools to offer proactive advice? Ignoring this segment of clients means missing the opportunity to invest in business owners early, yielding substantial long-term benefits.
Consider this: The Great Wealth Transfer is upon us.
Knight Frank's 2024 Wealth Report estimates that $90 trillion will be transferred in the coming decades. Moreover, more than $10 trillion will come from the sale of 8 million boomer-owned businesses, according to CABB. This highlights the importance of focusing on this underserved market segment.
Pre-liquidity planning is crucial, and wealth managers are uniquely positioned to build strong relationships and trust with their clients. Waiting until a liquidity event to deepen relationships may be too late. Despite this, only 35% of business owners engage with a financial advisor, according to a Truist survey.
Here's the opportunity: Business owners and their advisors prioritize wealth creation, yet 98% of business owners do not know the value of their business, according to a CNBC survey. This means both the owner and advisor lack critical information about the most significant asset's potential impact.
Wealth advisors can use technology to bridge this gap to provide SMB owners with the insights needed to understand and optimize their business value. Advanced financial modeling software, business valuation tools, and data analytics can offer real-time insights into an SMB's financial health. By integrating these technologies into their practice, wealth advisors can deliver services that extend beyond traditional investment advice, addressing the unique needs of SMB owners. This approach merges high-tech and high-touch to create a white-glove approach to advisory.
As the saying goes, what gets measured gets managed. When an SMB grows, so does its advisor. Advisors can offer invaluable insights to business-owner clients, shifting the conversation to critical aspects of financial planning, including estate, succession, tax, and liquidity planning, alongside measuring the SMB's overall financial health.
The evolving role of wealth advisors presents a significant opportunity congruent with the Great Wealth Transfer and AI advancements. By leveraging technology, advisors can close the wealth gap and provide holistic, proactive advice that supports business owners throughout their financial journey. Embracing these tools and strategies not only benefits clients, but also positions wealth advisors as indispensable partners in their client's success.
Author: Matt Beecher