What an RIA Can Do for Retiring Business Owners That an Investment Bank Won't

The act of planning for and entering retirement is a challenge for any client regardless of their level of wealth and how it is structured, but for the owners of successful closely held businesses, the process of “retiring” can be incredibly complicated — and emotionally fraught.

According to Brian Baum, managing director at Interchange Capital Partners in Pittsburgh, the owners of successful closely held businesses face tremendous challenges once they begin to plan for their life after work and how they will liquidate what can be a very substantial amount of wealth tied up in their company.

Not only are there critical choices to be made about deal structures and tax mitigation strategies, but these successful entrepreneurs must also think deeply about what their day-to-day life will look like post-sale. There are additional concerns to be addressed about the fair treatment of loyal employees and customers, adding yet another layer of complexity.

In Baum’s frank assessment, many business owners simply have no idea where to begin or how to optimally approach the eventual sale of their enterprise. Making matters worse, he suggests, is the fact that many business owners turn to the support of narrowly focused investment bankers who are more concerned about getting deals executed quickly than getting deals done efficiently and effectively.

As Baum told ThinkAdvisor in a recent interview, Interchange Capital Partners was established with this clear, singular purpose: to offer a more holistic and responsive approach to transition planning for closely held businesses.

Baum says the decision in 2020 to break away from the traditional wirehouse model (he and his father left UBS) and establish an independent registered investment advisor has allowed the firm to fulfill this vision to great effect, and he is equal parts excited and optimistic about what is coming next for the organization.

THINKADVISOR: Can you tell me about the decision taken in 2020 to break away from UBS to start an independent RIA? Was business transition planning always your intended focus?

BRIAN BAUM: The story goes back to when I was still in college at Penn State University. I studied psychology and business, and when I graduated, I knew that I wanted to work in the advisory business.

My father was working with UBS at that time, and I joined him in his practice to get my feet under me and start to build my own book of business. With his support, I was able to take a pretty interesting approach to learning about this business and what our clients face.

I was 22 at the time, and I went out and just started calling on people in the Pittsburgh region who I thought were successful and wealthy, and I just asked them to tell me about their story. I told them I wanted to learn from their example and about how they got to where they are today in terms of running these really successful businesses.

I had hundreds of meetings like that over a two- or three-year period, and so I was able to learn so much about what this community of successful business owners was dealing with. And frankly, it was remarkable, because there was just so much continuity in terms of the challenges they were facing when it came to transitioning away from being business owners.

No matter the size of the closely held business or the industry, from $25 million to a couple of billion dollars, nobody had this thing figured out. What’s more, their attorneys and accountants didn’t have this figured out, either.

That was such a beneficial lesson to learn and it really opened up our eyes to this opportunity to create a firm that was laser-focused on this issue. By the time the COVID-19 pandemic came around and caused so much disruption, we saw it as our opportunity to do a reset and go down this path of creating an independent advisory firm.

Can you describe your planning process at a high level?

I would describe our process as being based in three primary phases.

First, there is the longer-term planning that we engage in alongside our business owner clients well in advance of any liquidity event. It’s about ensuring the right enterprise value is being built and helping our clients just win back more of their time so that they can focus on improving their business and enjoying their life.

Next, the planning phase is about everything that happens leading up to and during the transition itself. This is often a more intense phase because there is so much that we can do in advance of a deal to achieve greater tax efficiency and better outcomes overall.

And then, finally, there is everything that happens after the sale from a private wealth and family office perspective. We’ve designed Interchange to be able to help the client and their family across this entire journey.

Where I think we really stand out is in that phase right before, during and after the transition. We’ve developed a better model compared with the traditional investment banking perspective. The difference is that we are not just focusing on the deal itself and the dollars and cents of the deal.

Our approach as an independent RIA allows us to know our clients so much better, and our holistic process allows us to work with the family ahead of the event to get the right ownership structure in place so that the deal, once enacted, will be to everyone’s maximum benefit.