So What's In It for You to introduce an ESOP to a business owner? An ESOP offers several ways to help grow your practice and generate revenue. Let's look at some of the more common opportunities generated from the formation of an ESOP.

An ESOP converts a non-investable asset (equity in a privately held company) into a readily investable asset (cash.). For example, if a company establishes an ESOP and buys $10 million of stock from one or more of the current owners, the owners will have $10 million in cash to invest, creating a great opportunity for a financial professional.

Typically, a sale to an ESOP will generate life insurance needs. The selling owner or his/her estate may need life insurance to fund future tax obligations. The company may want insurance on the life of the selling owner during the loan period (or the bank may require it). Life insurance can be a very efficient way to fund the long term repurchase liability created by the ESOP as well.

Often times the owner is selling to an ESOP as part of a succession strategy. Retaining key employees during this ownership transition is important to the company–and the bank that loaned them the money. This is a great time to review executive benefits and introduce non-qualified deferred compensation plans. Reviewing other protection needs, such as key person coverage, can also be warranted.

As employees have a benefit event such as retirement, leaving the company, etc., the ESOP typically requires that the participant receive plan proceeds in cash rather than company stock. These balances can be tens or even hundreds of thousands (and sometimes even millions) of dollars in a mature ESOP. This is great time to work with the departing employee for rollovers to individual retirement accounts.

The financial professional who assists with ESOP formation often becomes the advisor on the other retirement plans offered by the company. The company typically continues to offer other plans, most notably a 401(k) plan, in addition to the ESOP.

This is not an all-inclusive list but highlights some of the more significant financial professional opportunities that can be generated as a result of implementing an employee stock ownership plan. Dismissing ESOPs because they do not pay a financial professional directly could be a good example of "penny wise and pound foolish."

Instant Insights /

Promoting ESOPs: WIIFY (what’s in it for you)

More From HR Executive

Related Stories

Recommended For You