Key Private Bank, the wealth management arm of KeyCorp, released the results of its latest advisor poll, which examines how the decisions business owners make can impact their wealth in retirement. The poll surveyed 137 Key Private Bank client-facing advisors who specialize in working with business owners to navigate exit strategies, manage succession planning and prepare for retirement.

"Whether navigating family dynamics, finding it difficult to let go or making unrealistic assumptions about a company's valuation, business is often very personal," said Francis Brown, Wealth Specialist at Key Private Bank. "For business owners, the most common wealth management pitfalls result from emotional ties to their company. That's why it's extremely important for business owners to be candid with their financial advisors early on about all aspects of their lives."

The findings reveal that business owners, particularly lifestyle business owners, can have competing interests when it comes to planning for the future of their company and ensuring their personal long-term financial well-being. Three-quarters (75%) of advisors report business owner clients treat their companies as lifestyle businesses to help them maintain a certain level of income over the course of their lifetime. In fact, nearly half (44%) of the advisors indicate that clients most often sell their business to monetize their investment or fund retirement.  Despite this reality, four in 10 advisors say very few or none of their new business owner clients have thought through the wealth implications of their business succession strategies.

Tying up a majority of personal wealth in the business is the most common wealth management challenge business owners face, according to more than one-third of advisors. Other common pitfalls for business owners include lacking a management succession plan and having insufficient savings—both of which can create a need for business owners to work longer to guarantee a certain level of retirement income.

If not addressed, these challenges can result in a financial shortfall for business owners when it comes time to exit the business. For example, nearly half of advisors (47%) say business owners can be predisposed to leaving money on the table at exit by failing to develop a business transition plan several years in advance.

"More often than not, business owners emphasize the journey to success, but fail to consider the work it takes to wind down. It could take years to prepare a business for exit," Brown continued. "Furthermore, a recent Treasury Department proposal to limit valuation discounts when transferring businesses to family members could cause business owners to further stall succession planning. It's becoming exceedingly important that business owners work with their financial advisor early in their career to chart the best path at every stage of a business' lifecycle." 

When considering business owners who are looking to transition out of their company, 78% of Key Private Bank's advisors say most pass the torch to a successor within the family or sell the business to another company or competitor. Nearly half of advisors say they expect to see family transfers within the next year, although one in five warn that business owners are not using proper intra-family transfer strategies to minimize tax implications, such as gifting and trusts.

"Tapping into the mindshare of our advisors in the field provides us with a clear understanding of the challenges our business owner clients face," said Terry Jenkins, President of Key Private Bank. "Their insights give us the clues we need to proactively help our clients to develop and execute on their financial plan, so they can afford to continue leading the lifestyle they've enjoyed throughout retirement."