Advisor Today - November/December 2015 - (Page 46)
By John Bradberry, CLU, CFP
Financial Planning FAQs of
Here are some questions small-business owners frequently ask-and how to answer them.
mall-business owners will face
a variety of challenges over
the span of their working
years. For many, just keeping the
doors open for business requires
nearly all of their time and mental
capital. As a result, personal
financial planning is frequently
put off in lieu of more immediate
concerns. It's important, however,
that these entrepreneurs set aside
time to address potential financial
pitfalls that can catch even the
savviest business owner off guard.
Here are some frequently asked
questions I receive from smallbusiness owners regarding their
personal financial situations, as
well as a few that I find aren't asked
Q: "When will I be able to retire?
Am I doing everything I need to be
doing to reach my retirement goal?"
For many, this is the first question
that comes to mind and one that
often leads them to consulting a
financial planner. In many cases,
my clients' businesses are their
largest assets and their retirement
plan. They are typically successful
entrepreneurs who recognize that
they need some guidance and are
looking to retire without having to
rely on the sale of their business.
The solution: I recommend that
small-business clients look into
instituting a qualified retirement plan,
such as a pension, profit-sharing,
defined-benefit or 401(k) plan.
Qualified retirement plans not only
solve personal retirement needs, they
also help attract and retain talented
employees. We rely on the MetLife
Pension Resource Center, which
integrates plan design, administration,
compliance, provider evaluation and
fiduciary management to ensure each
component is working in harmony.
46 ADVISOR TODAY | November/December 2015
Q: "Are my investments
properly allocated based on my
Can the client withstand a large
correction in the market if he is
on the doorstep of retirement?
U.S. equities are on a six-year win
streak, and bonds are approaching
the twilight of a 30-year bull
market. With interest rates expected
to continue their upward trend and
equities trading at all-time highs,
it's important that I asses my clients'
risk portfolios in relation to their
financial plans for the business.
The solution: I work with clients
to create a fundamental approach
to dealing with volatility in today's
market. It's important to prepare
for potential market corrections and
make sure that short-term cash needs
are not in volatile or illiquid assets.
It's also vital to recognize clients'
risk tolerance and make sure they are
knowledgeable and comfortable with
where their assets are invested, given
today's market conditions.
Q: "How can I most efficiently pass
along my business to my heirs?"
When it comes to estate planning,
the first thing that most people think
of is taxes. The business may not be
very liquid upon the owner's death
and may need to come up with cash
to keep day-to-day operations go ing
or pay the estate tax obligation.
The next issue that needs to
be addressed is divvying up the
business interest amongst heirs. In
the event of an unexpected death,
various open-ended scenarios can
arise if there is no preexisting
agreement. This can lead to
disagreements on who assumes the
remaining interest of the business.
The solution: An accurate valuation
is essential to tax and transfer
processes. Not having a current
Ultimately, we're not
selling products; we're
valuation is a common pitfall when
it comes to transitioning a business.
The IRS will require valuation
documentation at the time of transfer,
making it important to regularly
revalue the business to ensure it
hasn't deviated from the client's
financial plan. A good practice
is to make sure the valuation is
documented at least yearly by a thirdparty firm or the client's accounting
department. The company's annual
meeting is a good time to tackle this.
With regard to transferring the
business, it is essential to have a
buy-sell agreement in place for the
business to transition to the client's
successor. This helps remove any
uncertainty in the event of the
owner's unexpected passing and is a
proactive way to alleviate potential
future legal issues.
One possible consideration to
satisfy the estate tax is setting up a
life insurance trust. This type of trust
is designed to cover any forecasted
liquidity needs. It doesn't count
toward the estate; so, it doesn't get
pinged with an additional estate tax.
Q: "What happens if I can't cover
my business' debt obligations?"
Unfortunately, most business
owners don't have sufficient
insurance to cover debt obligations
in the event of disability or death.
If the owner is suddenly unable to
come to work, that debt doesn't go
away. Clients often overlook the
fact that their families will be left
responsible for meeting those
The solution: I recommend that
my clients regularly revisit their
Table of Contents for the Digital Edition of Advisor Today - November/December 2015
From the Editor
In Step with a Winner
Finding Success in the Chinese-American Market
Dealing with Client Confidentiality
Hashtag Your Way to Social Media Relevance
Starting the LTCI Conversation
From Term to Perm
Protecting the Downside with Allocation Adjustment
Jules Gaudreau: A NAIFA Success Story
NAIFA Takes NOLA
Helping Clients Cope with Market Volatility
NAIFA Government Relations
Working with Single Women
Financial Planning FAQs of Small-Business Owners
Three Retirement Conversations to Have with Clients Today
The Advent of Robo-Advisors
Moving into the Retirement Space with 401(k) and 403(b) Plans
Moving the Sales Process Forward
Cultivating the African American Market
The Lighter Side of LIfe
Advisor Today - November/December 2015