I'm the first to admit that I have forgotten a lot of what I learned as an undergraduate student at the University of Northern Iowa (in all fairness I have learned a lot since then as well). But there is one thing that has stuck with me for the last 25 years and I think about it often. It is the inscription above an entrance to one of the historic academic buildings on campus, Wright Hall: "Do not do what is already done."
This simple statement challenges all of us to be better, faster, less expensive, or different. In a sea of sameness, where competition among financial professionals to build new business is intense, different can be a game-changer.
Let's face it, most companies have no shortage of financial pros calling with offers to assist with the 401(k) and other retirement plans. These calls are so prevalent that most C-suites have filters in place to block them from reaching the decision-makers.
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A way to break through is to use a different approach with a different conversation starter. Employee Stock Ownership Plans (ESOPs) can be that differentiator.
ESOPs are different than other qualified retirement plans in a couple of ways. First, they are typically invested primarily in the common stock of the sponsoring company. Second, they can borrow money (which typically would be a prohibited transaction in any other qualified retirement plan).
The message is also different. ESOPs are a retirement plan but the benefits extend beyond helping employees prepare for retirement. An ESOP can help business owners diversify their holdings or plan for the succession of their company. This leads to a very different conversation than one centered on the investment line up or administrative fees.
The ESOP conversation is strategic. It focuses on the goals and objectives of the owner and the company. It is also a long-term conversation as the ESOP is about a structured transition over time (typically three to seven years).
Some different ways to start the conversation:
- Have you planned a succession strategy for your business?
- Are you looking to create a liquidity event to diversify your holdings?
- Are you looking for a tax advantaged way to structure your business?
The audience is different. The ESOP opens doors to key decision-makers – the business owner, the board of directors, chief financial officer, etc. Human resource staff is certainly involved in the plan but the decision to implement is almost always made by the selling owner.
ESOPs can provide substantial benefits to business owners, the company, and the employees. Because they are a different kind of plan with objectives that are focused on the business owner, they break through the clutter and help gain access to key decision makers.
One more big difference, an ESOP transaction can generate significant investable assets along with cross-selling opportunities. Daring to be different in the ESOP world can have a big payoff.
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