The firm has released findings based on a survey of 137 advisors, highlighting the range of issues that business owners face as well as the ramifications of these on their wealth in the future.

Key Private Bank emphasized that most common wealth management pitfalls for business owners are both emotional and logistical. Regarding the former, for example, family dynamics and an “inability to let go” were cited by 44 per cent and 39 per cent of advisors respectively.

Meanwhile, 71 per cent of advisors said a lack of a succession plan is the most common logistical pitfall, while 48 per cent noted that clients also often have unrealistic assumptions about the value of their business. Other logistical challenges, as reported by advisors, include having a majority of wealth concentrated in the stock of a closely-held company, and having too small a nest egg to be able to sell up. 

This is despite the fact that 75 per cent said their business owner clients often treat their companies as “lifestyle businesses” to help them maintain a certain level of income over the course of their lifetime. More alarmingly, just four in 10 said very few or none of their clients have thought through the wealth implications of their business succession strategies.

“More often than not, business owners emphasize the journey to success, but fail to consider the work it takes to wind down. It could take years to prepare a business for exit,” said Francis Brown, a wealth specialist at Key Private Bank.

“Furthermore, a recent Treasury Department proposal to limit valuation discounts when transferring businesses to family members could cause business owners to further stall succession planning,” Brown said. “It’s becoming exceedingly important that business owners work with their financial advisor early in their career to chart the best path at every stage of a business’ lifecycle.”

Other areas of risk include not having a management succession plan in place and having insufficient savings - both of which can in fact create a need for business owners to work for longer to guarantee a certain level of retirement income. Indeed, nearly half of advisors said business owners can be predisposed to “leaving money on the table at exit” by failing to develop a transition plan several years in advance.

In other findings, an overwhelming 78 per cent of the firm's advisors said most business owner clients pass the torch to a successor within the family, or sell the business to another company or competitor. Nearly half, meanwhile, expect to see family transfers within the next year, although one in five warned that business owners are not using proper intra-family transfer strategies to minimize tax implications, such as gifting and trusts.

“Whether navigating family dynamics, finding it difficult to let go or making unrealistic assumptions about a company’s valuation, business is often very personal,” Brown added. “For business owners, the most common wealth management pitfalls result from emotional ties to their company. That’s why it’s extremely important for business owners to be candid with their financial advisors early on about all aspects of their lives.”

Indeed, with a growing number of businesses in the US being privately-held, and many owners edging closer to retirement, the lines between succession planning, retirement planning and family wealth have blurred somewhat, Bank of the West said in a paper earlier this year. Click here for more insights on the topic.