Employee Stock Ownership Plans (ESOPs) are an alternate — and potentially tax advantaged — business succession option that greatly benefits all parties under the right circumstances.
You
have the opportunity to increase AUM by helping coordinate your client’s most important (and valuable) transaction.
Your Client
receives a liquidity event by selling a portion or all of their business while retaining control of business operations if they choose.
Your Client’s Employees
can become owners of their company through a defined contribution retirement plan that might perform better than a 401(k). In fact, the average employee owner typically has retirement savings worth 3-4 times more than employees of non-ESOP companies.*
*https://www.nceo.org/articles/esops-too-risky-be-good-retirement-plans
How An ESOP Works
Employee Stock Ownership Plans can be a more creative solution than other traditional business succession options.
These can take months to complete and involve a multi-member team, which may include:
• You
• Wells Fargo Private Bank
• Wells Fargo Commercial Bank
• Wells Fargo Securities
• Lawyers
• Accountants
• Trustee
• An Investment Banker/ESOP Advisor
• Us
Wells Fargo Advisors is not a legal or tax advisor.
The Private Bank is an experience level for qualifying clients of Wells Fargo Wealth & Investment Management (WIM). WIM offers financial products and services through affiliates of Wells Fargo & Company. Bank products and services are available through Wells Fargo Bank, N.A., Member FDIC.
Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Securities, LLC, member NYSE, FINRA and SIPC and Wells Fargo Bank, National Association.
Completing An ESOP Can Be Broken Down Into Five Phases:
A feasibility study including a sell side valuation, to help determine the total value of the company, amount of liquidity that will be produced, the percentage of the business to be sold and other items of importance
Selecting an ESOP advisor or attorney to help your client find an institutional trustee and organize the transaction
A formal valuation on behalf of the trustee, where the company’s buy-side valuation is established
Design and execution, including the implementation of the ESOP itself and education of the employees
Ongoing administration to maintain the ESOP’s tax-qualified status.
Once completed, both your client and the company garner tax advantages unique to ESOPs.
Wealth and estate planning with your client, ahead of the transaction closing, positions you to help them afterwards. This is likely the biggest liquidity event of their lives.
A feasibility study including a sell side valuation, to help determine the total value of the company, amount of liquidity that will be produced, the percentage of the business to be sold and other items of importance
Selecting an ESOP advisor or attorney to help your client find an institutional trustee and organize the transaction
A formal valuation on behalf of the trustee, where the company’s buy-side valuation is established
Design and execution, including the implementation of the ESOP itself and education of the employees
Ongoing administration to maintain the ESOP’s tax-qualified status.
Once completed, both your client and the company garner tax advantages unique to ESOPs.
Wealth and estate planning with your client, ahead of the transaction closing, positions you to help them afterwards. This is likely the biggest liquidity event of their lives.
Is Your Client A Good Candidate?
The mechanics of completing an ESOP are intricate. But identifying if one is right for your client is relatively simple.
You can start by answering these five questions:
Do they own all or part of a private company?
Have they considered business transition and do they have a plan for that?
Do they believe the company is worth at least $10MM?
Do they have at least 20 full-time employees?
Are they concerned to whom they would sell their business (or worried if they could sell it at all)?
Do they own all or part of a private company?
Have they considered business transition and do they have a plan for that?
Do they believe the company is worth at least $10MM?
Do they have at least 20 full-time employees? 
Are they concerned to whom they would sell their business (or worried if they could sell it at all)?
If the answer to more than half of those questions is “Yes,” you might want to let them know Wells Fargo Advisors has a team dedicated to this specialized succession option. Download this helpful guide.
Did You Know?
80% of business owners are thinking about succession
Less than 25% of business owners are actually putting together a plan
2.3 million businesses will need to be transitioned by 2033
At least 300,000 businesses are ideal for employee ownership
Four ESOP Advantages
What Owners Receive from Each Potential Selling Option
ESOPs Provide Tax Benefits
ESOPs provide tax benefits at a personal and company level. Capital gains taxes might even be eliminated permanently.
ESOPs Are Flexible
Your client can sell any amount, up to 100% of their company, while creating a buyer for future sales that doesn’t exist today
ESOPs Reward Employees
ESOPs reward employees for their loyalty, keep jobs in the community and maintain leadership continuity
ESOPs Allow An Owner To Exit At Their Own Pace
Your client may choose to continue to work full time, part time, consultatively or not at all.
The advantages may be obvious, but ESOPs are relatively unknown. And you want to be the one to tell your business owner clients about them before someone else. Doing so increases the likelihood resulting assets from selling the business stay with you.
That’s why we’re here. As part of Wells Fargo Advisors, we work for you to provide a potentially stronger succession option for your clients so you and your firm can maintain or elevate its AUM.
Learn About the ESOP Process
How We Make A Difference
The Fiocchi McCarthy ESOP Group of Wells Fargo Advisors have built a practice specializing in:
- ESOP education and educational collateral
- 1042 Tax Deferral so your client can potentially maximize the benefit of selling their business
- ESOP Cash Management that is customized for short and long-term repurchase obligation needs