A young professional of South Asian ethnicity talking with a Polynesian female client in front of laptop notes
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If you’re a founder or a business owner considering an exit one day, or believe it’s right around the corner, what are the questions you’re not even thinking about – but should?
Say you sell your company for $1 billion, or even a smaller $10-100 million range – where do you want the money sitting 1 week, or 1 month after it hits your primary bank account? How much of it should be in cash, versus equities, bonds, commodities, or real estate? Do you want to transfer some of the new liquidity to children or other family members, with optimal tax planning – or even tax-free? If so, can you do something before the deal gets signed?
Jonathan Penta knows. He has spent more than 20 years, including a good chunk of that at firms such as Morgan Stanley and then UBS, before starting his own advisory firm, Penta Wealth Management. As we’ve seen, going from a big firm to being an independent advisor isn’t an uncommon path for advisors. During his 20+ year career, Jonathan has advised hundreds of clients, and a number of them on exit plans
So what are his learnings?
First: There is no one-size-fits-all
Jonathan’s point is to design a plan and put together a team for the client – that fits their specific needs. That’s where his experience of 20+ years comes in handy. Some business owners are focused on charitable contributions and tax optimization, while others are focused on family and estate planning. Jonathan’s view: cover all bases. The thing is, each plan is unique – his clients have spent their lives building interesting businesses – big and small – they want some vanilla things, however, they also want differentiation and customization. Remember, these are highly intelligent and thoughtful individuals – Penta says.
As an example, sure, Jonathan could select the S&P 500 for all of a client’s equity; however, the S&P has become top-heavy, and if just buying the S&P 500 Index, clients could end up being over-weighted in “the big 7 stocks”. When appropriate, he uses Trefis High Quality Portfolio (HQ), which has outperformed its benchmark – a broadly diversified combination of S&P 500, S&P midcap, and Russell. The HQ portfolio strategy with 30 stocks has scored >91% returns since inception and has provided better risk-reward, less of a roller-coaster ride than its benchmark, as evident in HQ Portfolio performance metrics
Point is, when there is data, Jonathan doesn’t hesitate to differentiate.
Second: Don’t leave things to the end – risk appetites often change
Jonathan starts early – well before the actual exit event.
As an advisor, he typically plays a quarterback – coordinating with accountants, insurance brokers, estate attorneys, M&A attorneys, and investment bankers, collaborating on his clients’ behalf to ensure all planning areas are fully integrated rather than in “silo’s”. He has a deep set of trusted relationships he can tap into with his years of work on business exit and transition planning.
It can take time to get things ready for signature. For the part of incoming funds that are to be invested, you want to have an asset allocation plan ready. It’s an iterative process that requires navigating through a lot of questions: What portion should go into equities? What’s the value of adding asset classes such as commodities and gold to an equity portfolio’s performance? What about if you combine commodities and real estate with HQ strategy’s outperformance? Is it time to diversify into crypto holdings?
But it all starts with one question: What’s the client’s overall risk appetite, and what are the client’s goals? The risks they took to build and accumulate wealth were in the past. Now that they’ve acquired wealth, they often look for more protection. All these questions matter in the long run. And Jonathan wants to leave enough time to plan for all that in order to design highly customized wealth management solutions for the families he serves.
Finally: Plan for contingencies
Yes, of course, Jonathan has put a trusted team together, and there is a plan going in. However – in his words – “you have to plan for surprises”. What if there is a last-minute delay in the deal, or a change in tax or estate policy – that’s obviously rare; however, there are always things outside your control. All of that can work just fine if you have a team that has seen many, many clients and business owners through exits, and if you can prepare them ahead of time to expect the unexpected.
Does Jonathan only focus on business owners and exit plans?
Not at all. He has plenty of retirees, entrepreneurs building wealth, and other professionals, such as doctors and corporate executives, as clients. Many of the clients Jonathan serves are families that he has worked with for over 2 decades.
Do people closer to retirement or in retirement have different needs?
Definitely. Wealth protection and risk management are way more important to people after a certain age and as they approach the distribution phase – they might have less time to recover from deep losses, and understanding the impact of market crashes and downturn resilience of the portfolio is an even more important consideration.
When assessing risk appetite, Jonathan often asks his clients a simple question: if you want to hold on to your favorite stock – say Nvidia, will you panic and sell if it starts dropping by 25%, 30%, or even lower? Holding on to a falling stock is never easy, and concentration risk needs to be carefully managed. As a way of managing downside risk and creating portfolio efficiencies, Jonathan often utilizes Empirical’s asset allocation models, which have yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Consistent with their unwavering focus on risk management, Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients with better returns with less risk versus the benchmark index. Jonathan’s clients find that valuable and reassuring, especially during periods of market volatility.
In summary – each client is different. In Jonathan’s mind, however, there are plenty of shared experiences and needs. He applies the same principles: be prepared, plan for contingencies, and work with a trusted team. This has served his clients well over the years.
If you’d like to get in touch with Jonathan to learn more about his services and how he may be able to help, he has created a rich video library, and we know he’d love to share what he has learned.
Purpose
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