Second of Three Parts. In the first of this three-part series on high-net-worth business owners, we examined the financial needs of their businesses (see NU, Sept. 12, 2005). This exploration revealed extensive planning opportunities relating to such areas as succession plans, continuation plans, business valuations and business life insurance.
In this, the second part of the series, we will tease out the personal financial planning needs of HNW business owners as distinct from their business planning needs.
An often heard comment from financial advisors is that business owners are a highly saturated market when it comes to personal financial planning. At first glance, results from the 2005 Phoenix Wealth Survey appear to validate this perception.
High-net-worth business owners, for example, are significantly more likely than HNW non-business owners to report that they have a personal financial advisor (71% vs. 67%), and are also more likely to report receiving financial guidance from a more diverse set of advisors such as attorneys, private bankers, insurance agents, investment bankers and accountants.
The especially high penetration rate of accountants as advisors in this market also confirms the commonly held viewpoint that there is a significant “spillover” from business planning to the personal financial planning of the HNW business owner.
High-net-worth business owners are more likely than non-business owners to report that they have an estate plan in place (58% vs. 54%), as well as a formal written financial plan (43% vs. 35%). Additionally, they own most financial products to the same extent or greater than their non-business owner counterparts. Finally, as a group, HNW business owners are found to be much more “engaged” than their non-business owner cohorts when it comes to financial matters, as shown in Chart 1.
On the surface, there would not appear to be a wide range of unfulfilled personal financial planning needs within the HNW business owner market. However, further analysis appears to indicate one big exception to this commonly held broad generalization.
Specifically, this exception is in the area of retirement planning. Making the case regarding the opportunity for personal retirement planning in the HNW business owner market begins with the findings in Chart 2.
Just over one-third of working business owners plan to retire in the future, vs. close to half of non-business owners who are currently employed. Some of this may be a function of the fact that, for many business owners, their businesses are their lives. When discussing retirement in focus groups, for example, we frequently hear comments to the effect that “they’ll have to carry me out.”
What is more compelling in these numbers, though, is that a significantly greater percentage of business owners than non-business owners (and a full quarter of the business owners in our study) are not sure as to their retirement plans.
Some of this group, of course, may be contemplating joining the “they’ll carry me out with my boots on” crowd. However, our data indicates that there is more going on here than this simplistic explanation. Namely, business owners in this group are financially not prepared for their retirement and/or can’t see their way to it. Thus, for many HNW business owners, it is suspected that the “I love to work” explanation is a convenient rationalization.
Evidence of this comes in the fact that HNW business owners are less likely than non-business owners to report already having achieved their goal of assuring a comfortable standard of living in retirement (29% vs. 40%), as well as assuring that they won’t run out of money in retirement (25% vs. 31%). Consistent with this, HNW business owners are more likely than non-business owners to agree with the statements “I am very concerned about outliving my money in retirement” (38% vs. 33%) and “I feel I need to make up for lost time in saving for retirement” (36% vs. 22%).
Finally, HNW business owners in our survey did not express any special interest in annuities or any other financial products as vehicles to meet their retirement planning needs. This, of course, speaks to the role of an advisor who can help them implement retirement planning solutions and the fact that they are apparently not receiving such advice from the current cadre of financial advisors that they currently employ. When explored in greater detail, it was found that HNW business owners express significantly greater interest than non-business owners in guarantee features, like living benefits.
Walter H. Zultowski, Ph.D., is senior vice president, market and business development, with The Phoenix Companies, Inc. He can be reached via e-mail at firstname.lastname@example.org.
A quarter of the business owners in the study were not sure as to their retirement plans