Business owners, by nature, have different requirements for an advisor working with his business than he does for an advisor working with his family investments. While some business owners use the same advisor for both purposes, many do not.
There are reasons for keeping the two concerns separate, just as there are reasons for working with one advisor to satisfy both needs.
In Spectrem’s study Serving Business Owners, investors who own their own business discussed the advisors they used for their business and personal needs. The study proved that there is a nearly equal split between business owners who separate advisor usage between business and personal needs and those who turn both matters over to the same advisor.
“Certainly, Business Owners take personal financial matters into consideration when discussing business finances, but the perspectives are much different,’’ said Spectrem president George H. Walper Jr. “Having one advisor to work with can streamline and simplify matters, but there are complications from a business finance standpoint that could make a separate advisor a wise choice.”
Advisors can know what is best for a business owner based on the complexities of the finances involved and the knowledge and expertise the advisor has. Many advisors who work with business finance have a colleague who could better handle personal finance, and vice-versa. Keeping both accounts in house would obviously benefit the firm, and would probably make life at least a little easier for the business owner as well.
There are, however, tax and regulatory considerations for providing financial advice to Business Owners that do not cross over into personal financial needs. Therefore, it is not surprising that Business Owners would find it advantageous to take their business financial needs to one person trained and fully aware of the economic atmosphere for businesses while taking their personal financial needs to an advisor tuned to private personal accounts.
According to Serving Business Owners, only 55 percent of business owners use the same financial advisor for both business and personal needs. However, 26 percent say they would like to use the same advisor but do not, and almost all of those say the advisor they use for one purpose does not have the expertise to handle the other function.
While this may be true on an advisor-by-advisor basis, any advisor who handles one side of a business owner’s investment and finance matters should be able to recommend an advisor in the same firm or an advisor with whom they have a relationship who can handle the other side of the ledger.
There is a small percentage of business owners who say they like the idea of having diversity and separation between the two accounts.
In the study, the business owners surveyed were segmented by age, gender and the size of the company they own. Of greatest interest is the fact that the owners of the largest companies (by employee number) were more likely to use the same advisor for personal and business purposes. Younger business owners were also more likely to use the same advisor for both purposes.
Both banks and financial planning companies are cited as being unable to handle both personal and business finances appropriately.
Top Takeaways for Advisors
Business Owners are certainly ready to split their business and personal finance needs if required to do so, and some prefer it. However, advisors should consider those investors who like the idea of keeping these areas of concern together, whether it is for ease of access and advice or because it is somehow less expensive, as lucrative clients with a great deal of opportunity for growth in both areas.
There are financial reasons for separating business finances and personal finances. Advisors must know in which areas it is best to provide separate and different advice. Working with an in-house advisor to separate the two financial needs could make an investor feel good about having a team of advisors working for him.
*According to Spectrem research, there are currently 29.8 million households with $100,000 - $1 million in net worth (not including primary residence, NIPR). There are 9.1 Millionaire households ($1 million - $5 million net worth, NIPR), 1.21 million Ultra High Net Worth households ($5 million - $25 million net worth, NIPR) and 145,000 households with more than $25 million in net worth, NIPR.
©2017 Spectrem Group