How to approach wealth management strategies in tough economic times

In a tough economy, wealth management planning often gets pushed to the back burner as executives devote their time and energy to business survival.

But the worst thing you can do is wait for a market upswing to start thinking about managing your wealth.

“Despite economic uncertainty, now is the time to make sure you take a careful look at your wealth management strategies,” says Stewart Beach, executive vice president of wealth management for Old Second National Bank. “Don’t wait to plan until things get better.”

Instead, evaluate your company’s benefit plans, formulate a succession plan and think holistically in terms of financial assets.

“It’s important for individuals to look at not just their personal financial assets but at their entire balance sheet,” Beach says.

Smart Business spoke with Beach about how to develop strategies to execute a sound wealth management plan in this economy.

What wealth management challenges are businesses currently facing?

This is one of the most difficult times we’ve faced in the last 50 years in terms of market uncertainty. For the last year, business owners have been taking a good, hard look at their operations and figuring out ways to tighten their belts.

This is not necessarily a bad thing — in fact, many companies are benefiting from this exercise. During fat times, many companies carry around extra weight. But in terms of wealth management, there are side effects that companies can face as a result.

First, many companies that offer defined benefit plans are not meeting their return requirements. The plans have become underfunded and the company has to invest its own cash to support the plan at a time when cash flow has been reduced.

This is a financial risk for companies already in a crunch. As a result, many companies have switched from defined benefit plans to 401(k) or similar plans, and many organizations have stopped offering a match for employee contributions. However, while this might benefit the business, it can result in a real hit to employee morale.

Second, family-owned businesses are watching their private equity values drop. Those that were executing a succession plan and hoping to sell the business now may need to bench those plans until the markets return to a better place.

Finally, some companies are seeing wider margins because of leaner operations. A business that doubled its sales and is operating with 25 percent less staff than it was previously is in a highly favorable wealth management position now with positive cash flow. But over the long term, that business could risk losing employees when the market turns. Hard workers will feel taken advantage of and look for jobs elsewhere.

The lesson is that wealth management involves much more than money; it also includes managing human capital to ensure the best returns.