Transitioning from Corporate Finance to Personalized Wealth Management

In this episode, Jeff Guylay focuses on the best practices to maximize after-tax proceeds from a transaction. Jeff is joined by featured guest Raj Rathi, co-founder of Rathi Singh Private Wealth Management, to share his insights from helping his clients understand the nuances of how best to manage their wealth. Jeff and Raj discuss the importance of diligently working to articulate one's long-term personal and financial goals and utilize the wealth created in a transaction to achieve those goals. Key takeaways from this episode are: • Planning matters; and the sooner business owners start thinking about these important topics, the better • Assembling a complete team, spearheaded by a trusted private wealth advisor, can materially improve the odds of achieving business owners’ lifelong goals post-transaction through wealth preservation In this episode, Colonnade Advisors addresses the following questions as related to maximizing wealth created in a transaction: Why and how did Raj make the transition from working with corporate clients to wealth management? (02:24) Raj: "My corporate life tended to be transactional, where I would have wonderful client relationships, but sometimes those relationships tend to fade after the transaction has transpired. I realized that I liked to keep those relationships, and I liked to have those flourish a little longer. Also, there is an incredible opportunity for my personal clients to get the value-added services from somebody that can look at their situation from a much broader perspective."

"Corporate clients have the benefit of an M&A advisor giving them expert advice on how to navigate every nuance of a transaction. Private clients don't get that same type of benefit. They tend to do things by themselves. There is a tremendous amount of inefficiency that exists in the way private clients manage their assets."

"Part of the reason for my transition was the opportunity to work with corporate clients on an individual basis and help them, as a trusted advisor, on the private side. To help them figure out the most efficient structure regarding what happens with their wealth after they sell their business."

When should business owners start thinking about post-transaction wealth management structures? (08:35) Raj: The best structures tend to be implemented before a transaction takes place. Colonnade, as a sell-side advisor, is incredibly value-added. You focus on maximizing your clients' pretax return on a sale and also try to highlight that there is a maximization that happens after the sale with the estate taxes and structure."

"No client has a crystal ball on exactly when they may sell a business. The best advice is pre-planning never hurts because you don't know when exactly the sale is going to occur."

Can business owners work in parallel with an M&A advisor on a sale transaction and a private wealth advisor on post-transaction wealth management? (10:50) Raj: Yes, it can run on a parallel path, but it takes a little bit of work. Business owners will need a good banking team to assist on the actual M&A execution and have a good private banking team that can work with the estate attorney or other key advisors. The critical component here is the more time you have, the better, and if you don't have a lot of time, there are still things that can be done that are quite valuable."

Why is it important to consider post-transaction wealth management before a transaction takes place? (12:18) Raj: "Knowing how much of the transaction proceeds you will need for your lifespan, how much of the proceeds you want to give to your children, and to charity, in advance, will allow private wealth advisors more time to research the best approach."

"Protecting your kids from creditors or predators can be done pre-transaction, harder to do post-transaction, not impossible but a little bit harder."

"With the right structure, the estate tax bill can be alleviated into perpetuity. These are the kinds of things that are better addressed ahead of a transaction."

Who is typically involved in the private wealth management team? (14:41) Raj: "Private wealth advisor, accountant, estate planning attorney, and tax advisor."

Are there structures to minimize capital gains tax on the transaction proceeds? (18:04) Raj: "Sellers should plan on how much they need in their lifespan. Then plan the amount for gifting to children, grandchildren, or charity. We can use gift structures that are right down the middle of the fairway with what is permissible by the IRS, etc. Sellers would need to check with their tax advisor and the estate planning attorneys, but there are many proven structures."

"Marrying what we do on an after-tax basis with what M&A advisors do on a pretax basis can be a home run. With proper structuring, the assets are protected from creditors and predators and can be passed down from generation to generation with minimal tax consequences.

What are the three main questions that business owners should be thinking about regarding post-transaction wealth management? (21:40) Jeff: "What are your lifestyle needs? What do you want to give to your kids and grandkids or future generations? And then philanthropically, what do you want to accomplish?"

Are business owners generally prepared to answer those three main questions? (25:32) Raj: "Those questions should be asked year in, year out for generations or decades. Many business owners will stress about the transaction side, as they should, but they do not marry it with stressing about the after-tax side, which does matter a fair amount."

As a wealth management advisor, what are key factors to consider to advise your clients successfully? (25:50) Raj: "Understanding the risk appetite of the client, which entails hardcore planning and analytics on the client and the family and what they need. We have structural conversations with the client to understand the constraints and navigate that on a real-time basis over many years. Also, building in the flexibility structurally so that clients can adapt over time."

Can you give an example of one of your private wealth clients? (26:18) Raj: "One of my clients was a Fortune 500 company CEO who just retired. Over the past ten years, he brought down his estate tax from $30 million to $4 million. The wealth transferred successfully on a multi-generational basis, with charity benefits and tax efficiency throughout the portfolio. That doesn't happen by accident. It happened by continued conversations and being smart about pre-planning and post-planning."

Ideally, when is the optimal time for business owners to meet with private wealth management advisors? (31:16) Raj: "A year or two before a transaction would be wonderful, but the reality is most people do not do so for various reasons. When business owners decide to hire an advisor to sell the business, that is a good breakpoint to engage an estate planning person and have a team on a parallel path. Another good breakpoint is when the seller is in the letter of intent phase in a transaction."

"Even if business owners engage a private wealth advisor post transaction, there is still a lot of good work that can be done, but it just takes a lot longer."

Featured guest bio and contact information: Raj Rathi Email: rajeev.rathi@ml.com

Raj Rathi is a graduate of The University of Chicago and Dartmouth's Tuck School of Business. Early in his professional life, Raj was an investment banker with JP Morgan and Lehman Brothers, eventually serving as a co-leader in the investment bank's industrial practice.

After working in banking for over 15 years, Raj shifted his business activities to private clients from corporations and co-founded The Rathi Singh Private Wealth Management practice. For the past 15 years, Raj & his team have focused on providing a coordinated approach to wealth management that overlays risk, estate, tax, and portfolio considerations to maximize outcomes for clients.

Raj's clientele includes Fortune 500 CEOs, business owners, and individuals with generational wealth. Ultimately he views his role as helping clients understand the nuances of how best to manage their wealth with a purpose and how best to define that strategy based on their goals.

Please note that neither Merrill Lynch nor Colonnade Advisors provides legal or tax advice. Please consult with your advisors as appropriate.

Host Information Gina Cocking Gina Cocking serves as the Chief Executive Officer of Colonnade Advisors. She returned to Colonnade as a Managing Director in 2014. Gina began her career in investment banking at Kidder Peabody, was an analyst at Madison Dearborn Partners, and an associate at J.P. Morgan & Co. She was a Vice President at Colonnade Advisors from 1999 to 2003. She left Colonnade to gain operating experience as the Chief Financial Officer of Cobalt Finance, a specialty finance company. She went on to become the Chief Financial Officer of Healthcare Laundry Systems, a private equity-backed company for which she oversaw the successful sale to a strategic acquirer. Gina served as the Line of Business CFO – Consumer Banking and Lending at Discover Financial Services. Gina serves on the Board of Directors of CIB Marine Bancshares, Inc., a bank holding company based in Brookfield, Wisconsin, that operates banking offices in Illinois, Indiana, and Wisconsin. Gina received her BA in Economics and an MBA from the University of Chicago. Additionally, Gina holds the Series 24, 28, 79, and 99 securities licenses. Jeff Guylay Jeff Guylay is a Managing Director of Colonnade Advisors. Prior to joining Colonnade in 2000, Jeff was an investment banker at J.P. Morgan in the firm's Mergers & Acquisitions and Fixed Income Capital Markets groups in New York. He also spent several years in J.P. Morgan's Chicago office. Jeff has over 20 years of M&A and investment banking experience and has served as lead execution partner on over 25 M&A and financing transactions at Colonnade. Jeff received an MBA from Northwestern University's Kellogg Graduate School of Management and a Master of Engineering Management from the University's McCormick School of Engineering. Jeff received a BA from Dartmouth College and a BE from Dartmouth's Thayer School of Engineering. Jeff holds the Series 7, 24, 63, and 79 securities licenses. Jeff serves as a director of the non-profit Nurture, an organization dedicated to enhancing the nutrition and wellness of children and families. About the Middle Market Mergers & Acquisitions Podcast Get the insiders' take on mergers and acquisitions. M&A investment bankers Gina Cocking and Jeff Guylay of Colonnade Advisors discuss the technical aspects of and tactics used in middle market deals. This podcast offers actionable advice and strategies for selling your company and is aimed at owners of middle market companies in the financial services and business services sectors. Middle market companies are generally valued between $20 million and $500 million.