Just because you are not an expert on Employee Stock Ownership Plans (ESOPs), it doesn't mean you have to avoid suggesting what could be an ideal solution for certain business owner clients.
As I wrote last month, ESOPs can help business owners diversify their portfolio by converting business ownership into liquid assets that can be invested elsewhere. ESOPs also provide an exit strategy and generate assets needed for a liquid retirement.
The ESOP creates significant cross-selling opportunities for financial professionals who bring the idea to clients. But you may be stalling on the concept because you don't know much about ESOPs.
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You don't have to be an ESOP expert. You can get a working knowledge through online resources then you can rely on the expertise of those who do know ESOPS inside and out. Engaging the right team is the key.
So who do you need on that team?
- An ESOP consultant to help with benefit level modeling and plan design. This is likely one of the first (if not the first) team members that you will engage. Often times the ESOP consultant can also provide project management expertise for the transaction.
- Legal counsel to prepare the documents required by the plan and to make sure that the transaction documents are in good order.
- Valuation experts to determine the fair market value of the company (this needs to be done on an annual basis).
- A Trustee that is involved in tasks such as voting the ESOP shares, overseeing the determination of fair market value of the stock, and managing investments. The trustee may be external or internal.
- Accountants to ensure that the financial records are in good order and reflect the changes being made with the introduction of the ESOP.
- Education and communication consultants to help you explain the program to your employees.
As you help your client staff the team, be sure to talk with several service providers as not everyone has expertise in ESOPs. As a result, it is not uncommon to use different professionals for the ESOP than for other business activities. Your ESOP consultant can provide recommendations for you.
It is important to keep the lines of communication open between the various professionals. As in most endeavors, a good team can make all the difference in the world. In this instance, the right team allows you to showcase your value because you helped bring them to the table for your client.
Company stock is not a pooled investment. Stock may experience greater volatility and should not be directly compared to investment options that have a more diversified investment mix.
It is not intended to serve as a complete investment program by itself.
Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group (The Principal), Des Moines, IA 50392.
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