Boomers Need Succession Planning, Principal Says

Financial advisors and their business owner clients thinking about retirement need to get serious about succession planning and selling their firms.

The challenge is how.

“So many business owners are very wealthy, but they are company wealthy and not cash wealthy,” said Jerry Ripperger, vice president of consulting at Principal Financial, a big recordkeeper and provider of retirement plans for small and midsize companies.

One way to unlock that wealth and generate cash – for advisors themselves or for their clients – is for advisors to set up an ESOP, or employee stock ownership plan.

Thousands of advisors and business owners expect to retire over the next 20 years as the baby boom cedes its place to younger generations.

But even so, more than 70 percent of business owners in the U.S. do not have a formal succession plan and are not taking action, according the 2015 Securian Small Business Owner Life Stage Study.

About 7,000 ESOPs covering about 14 million employees in the United States, according to industry statistics.

ESOP Hub Features

To help advisors with a major “liquidity event,” likely the most important of their and their clients’ lives, Principal has built a website exclusively for ESOP-related information.

The webpage acts as content-rich hub to which advisors can go for ESOP insights written by experts.

Website features include:

• Ways to help business owners see the value of a succession plan.
• Answers to top questions advisors and business owners have about ESOPs.
• Quick survey to assess if ESOP is right for a client or potential client.
• ESOP benefits for advisors, business owners and their employees.
• Easy access to Principal succession planning and our ESOP expertise.

Advisors who want to talk to an ESOP expert can call an 800-number.

“While ESOPs are not a new phenomenon, they are an underutilized strategy in helping business owners successfully plan their exit strategy and leave behind a legacy they can be proud of,” Ripperger said.

Getting the Message Out to Advisors

Other estate planning strategies like buy-sell agreements and pension risk transfer also factor into any succession planning discussions.

In all of them, ESOPs included, advisors play a key role in guiding business owners toward one strategy over another.

“We want to get the message out and financial advisors play critical role in talking to their clients about succession planning, estate and tax planning and the all of that is a potential touch point for ESOPs,” said Ripperger.

Advisors who have set up ESOPs say these types of plans vary according to the kind of companies and the employees population served.

Unlike other qualified retirement plans such as a 401(k)s or a 403(b) where there’s more uniformity, ESOPs establish an employee-owned company, and ESOP plan distributions can be tailored to specific employees.

• ESOPs are an exclusive option for C- and S-corporations.
• Assets are primarily invested in company stock.
• ESOPs offer owners flexibility in selling all or part of your business.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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