Portfolio Intelligence podcast: how financial professionals can help business owners with exit planning

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Source: Exit Planning Institute, State of Owner Readiness Survey, 2022

John Hancock Investment Management and Exit Planning Institute are not affiliated.

John Bryson:

Hello, and welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting and education savings here at John Hancock Investment Management. As always, the goal of this podcast is to help advisors deliver better outcomes for their clients and their practice. Today we're focusing on business owners. Business owners are a key segment for investment professionals and advisors to focus on. So I've invited Lee Small, senior vice president and divisional manager at John Hancock Investment Management. Lee oversees the distribution of John Hancock Investment's mutual Funds, ETFs, 529 college savings plans and separate accounts in the central division of the United States, the heartland. Lee, welcome to the podcast.

Lee Small:

John. Thanks so much for having me.

John Bryson:

So Lee, I know you've worked a lot on this new value add program that's been created by John Hancock called ‘Empowering Business Owners' Conversations’. Tell me why you created this pro program and how'd you do the research to create this?

Lee Small:

Yeah, John. Thank you. When you talk to financial advisors, there are typically five big life triggering events that cause a financial professional to win additional assets from existing clients or to acquire a new client. And they are typically a client retires from a company, death, divorce, inheritance. And then the other one is a business owner sells or exits their business. Now this is typically the largest money emotion opportunity for a financial professional, but it's also sometimes the hardest to capture. And when we went out and talked to several broker dealers in the industry, we found everyone lack content around working with business owners, and specifically business succession planning.

So what we did here at John Hancock Investments, we went out and found a leader in that space, it's the Exit Planning Institute (EPI). And EPI is a leading authority in exit planning and helping business owners increase the value of their business. They're also an education company that certifies and supports more than 2,600 CEPAs, which are certified exit planning advisors. From partnering with EPI, we launched our empowering Business Owner conversations program, really to help the financial professional become the most trusted advisor to the business owner. The program covers really three things. It goes over the business owner challenges they face, and more importantly the financial professional's role in that process. We also give you conversation starters and messaging to use with business owners. And then last, just steps around to build your brand and to build a network business owner, advisors to partner with and work with in the field. We're super excited about this program.

John Bryson:

Excellent. And how'd you go about conducting the research or how did the Exit Planning Institute go about doing that?

Lee Small:

Yeah, as I mentioned, they're a leading authority in that space and they have chapters all across United States, they do tons of surveys. So we use their research really to hone in on what are the three biggest challenges to business owners, and then more importantly, the importance of really working with a financial professional to do personal and financial planning with business owners. So the research is robust and again, leveraged all of EPI's research and their expertise in that space.

John Bryson:

This is great. So it's not just theoretical, it's on the ground research that's been done. Now, you mentioned some of the biggest challenges business owners face, so that's going to be an exciting but stressful time. How can a financial advisor help?

Lee Small:

Yeah, great question. Well, when you look at some of the challenges, I mean, think about this for a second, John, most business owners, 80% of their owners' wealth is locked up in their business. And at the same time when we looked at the research, 50% of business transactions in the US are involuntary due to death, divorce, disability, disagreement, and distress. So it's important for business owners to have a written plan and transition plan in place. Yet, when you look at the surveys, they show that 79% of business owners do not have a written transition plan, and 49% have done no planning at all. So there's a huge need for financial professionals to work with business owners around the personal planning and the financial planning. So great, great opportunities there, and again, these challenges are real and they need to be addressed by the business owner.

John Bryson:

Okay, so is this being addressed by financial advisors today? You talk about the Exit Planning Institute and having a plan. Is this something that an advisor's focused on with those business owners?

Lee Small:

Yeah, I tell you, when you think about exit planning, this is probably the biggest misunderstood thing out there. Most business owners think exit planning is something they'll do 12 to 24 months before they sell the company. Most financial professionals think, "Hey, this is something I'll work with the owner on when they get ready to sell." Through the CEPA program and EPI, we realize that exit planning is actually a business strategy. And the one goal of exit planning is to help take the owner's successful company to a very significant company.

And what you'll see, the definition of a significant company is one that is valuable, transferrable, attractive, and ready at any given time. At the same time, the owner's personal financial and business goals are completely aligned. And really, if you think about that definition, in order to do that, the owner has to engage a financial professional to really help them with their personal and financial goals. I mean, listen to this, John, 75% of owners regret selling their business after 12 months. Why is that? And the number one reason, they did not have a good personal plan in place on life after they transition or exit the business.

John Bryson:

Wow. Wow. That's impressive. It kind of goes back to the whole theory of if you're going to get into something, know how you're going to get out of it and having a plan well thought out in advance makes a ton of sense. Tell me again one more time, the definitions that you rattled through there?

Lee Small:

Yeah. Definition of a significant company is one that is valuable, transferrable, attractive, and ready at any given time. And that's what exit planning is all about, it's a business strategy that makes sure the owner is ready and the business is attractive. And attractiveness is really, how much is a buyer willing to pay for that business? And there will never be a successful exit unless the owner's personal, financial, and business goals are completely aligned. And when you think about that, you have to engage a financial professional to accomplish those things.

John Bryson:

Yeah. And knowing this space could really help a financial advisor separate themselves from the competition. That's excellent. So Lee, last question for you. What resources do you have available to help financial advisors better serve business owners?

Lee Small:

Yeah, thanks John. We're super excited to partner with financial professionals in the marketplace. A couple things. Number one, we built financial planning checklists, estate planning checklists to use with business owners. But what I'm more excited about are two other things. We also have a conversation starter guide with some messaging and questions that you want to dive deep with business owners and ask them to find out what they're concerned about, the advisors they currently have in place, help them realize some of the challenges, and more importantly, really separate you from the competition. You'll see that you have a good knowledge of the challenges facing business owners.

In addition to that, we developed a client approved white paper on the methodology and the planning process that a value advisor, a value advisor is a consultant, someone that would work with a business owner on helping them grow value in the business, and a financial professional would use with the business owner to help them increase value of the business. It really sets out the challenges they face, but more importantly, really positions the financial professional's role in the entire process of exit planning.

From there, we also have created a Communicating Your Value program, and it's designed to help financial professionals with strategic messaging they will use with business owners, and it's also helpful to help a financial professional build their core value story. The number one goal there is to help advisors clearly articulate all the value they bring to the business owner relationship and the fee associated with that value. So a lot of great programs to really help financial professionals go after this space and gather a lot of assets and gather a lot of new clients in this space.

John Bryson:

Lee, this is super helpful. On the Portfolio Intelligence podcast, we talk a lot about investments. We talk about having a plan, having an entry point and an exit point. But like I said at the beginning, it's more than just delivering better outcomes for clients, it's helping advisors build a better outcome for their practice. They can do that by helping business owners with an exit plan, having that plan, not only on the investment side, but what to do with that business. I want to thank you for joining us today. Lee, this was super helpful. Folks, if you want to hear more, please subscribe to the Portfolio Intelligence podcast on iTunes or wherever you subscribe to your podcasts. You can also visit our website, Jhinvestments.com to hear about all the items that Lee had mentioned to help business owners and help advisors be a better partner with business owners. As always, thanks so much for listening to the podcast.