Have you ever asked yourself what type(s) of people are your best clients? If you have not, skim through your list of clients and make a note of those with whom you are actively engaged and who are decisive in the way they conduct their business with you. Chances are that a great number of these clients are small-business owners, partners in professional groups, or retired individuals from either of these groups. Now ask yourself what the special needs are of this group, and how you can effectively serve those needs.

This module focuses on one of the most important classes of clients for the investment professional: small-business owners and professionals in their own practices. As a group, these clients tend to have a high net worth and a variety of financial needs that the investment professional can effectively serve.

The majority of business owners are small-business owners, and because of their impact on employment, innovation, and wealth creation, they have been the subject of academic study for several decades. As distinct from other workers, these individuals are found to have:

Unlike salaried managers in large corporations, business owners do not act as agents, but as principals, and their decisions affect their personal fortunes directly. Every experienced investment professional will recognize the greater comfort level that the typical business owner has in making personal investment decisions when compared to the typical salaried employee. Salaried employees making decisions with their employer’s money may take far less risk when investing their own money. For the small-business owner, every decision involves his or her own money.

In addition to investment planning, small-business owners often require assistance with their liquidity, retirement planning, risk management, and general financial planning needs. Being well-versed in more than just one of these areas can open up considerable opportunities for serving the client. The eventual transfer of the business likewise provides ample opportunities for the investment professional, not only with regard to investment of any funds generated, but also for tax planning, retirement planning, and estate planning related to any of the exit planning strategies the business owner may utilize.

Author: Cindy Shnaider, MSF

Cindy Shnaider, MSF is an associate professor at the College for Financial Planning. After earning her master’s degree from the College, Cindy began developing and teaching finance and financial planning courses in the College’s graduate degree program, and has continued to do so for over five years. Some of those courses include advanced corporate finance, behavioral finance, and portfolio management. You can contact Cindy at cindy.shnaider@cffp.edu.

Complexity Level: Intermediate