Wealth creation has boomed in the past year. Entrepreneurs have been able to take advantage of favourable conditions within certain industries and have grown their businesses.

Others have benefitted from the frenzy of M&A activity and have sold businesses, generating significant wealth. So, not only are there opportunities for entrepreneurs, there are plenty of new business opportunities for wealth advisers.

Katie Royals spoke to three advisers specialising in entrepreneurs – Gordon Scott, head of entrepreneurs and strategic partners at Brown Shipley, Karan Sejpal, head of business owners and entrepreneurs at Cazenove Capital, and Duncan MacIntyre, UK chief executive at Lombard Odier - to find out what is in store for them in 2022.

Optimism

Despite the obvious challenges, including Covid-19 and Brexit, entrepreneurs still remain optimistic.

According to a Lombard Odier survey, the majority (83 percent) of entrepreneurs think the UK is currently well positioned as a centre for business and entrepreneurial activity, with 76 percent confident it will remain so over the next five years.

A similar proportion also believe the UK is well positioned as a global financial centre, both now (80 percent) and in five years’ time (76 percent).

There are high levels of business optimism among the entrepreneurs community.

Mr Sejpal echoed this sentiment in regards to M&A and business sale activity, saying 2022 is “looking like it is going to be a very strong year.”

The entrepreneur’s lifecycle

Entrepreneurs do not become millionaires or billionaires overnight – many never get there at all.

However, once businesses start to take off, things can move very fast. “The numbers can become eyewateringly big quite quickly,” Mr Scott noted.

Entrepreneurs are used to moving quickly. Mr Scott said “the speed they want to operate at is incredible”.

When things are moving so fast, there is an “opportunity to make poor decisions and there is a potential regret factor for founders and entrepreneurs,” Mr Scott warned.

This is why advisers need to have relationships in place before this starts to happen. At this point the client will not be as interested in a firm’s investment proposition or any products it can sell the firm. Instead, they need genuine advice or even a sparring partner.

Selling a business

Entrepreneurs often think they know everything. Relinquishing control is difficult. Entrepreneurs often think they know what is coming next. “But, who knows what is coming down the tracks next,” Mr Scott asked.

Helping the client to think clearly about their business and its future is crucial. They may not be the best chief executive to take their business to the next place.

Once the decision is made, selling the business needs to be handled delicately. A business sale can be almost “bereavement-esque”, Mr MacIntyre noted.

Of course, some entrepreneurs have the opposite reaction and find the sale almost euphoric. All clients are unique, so it is important to recognise the emotional journey and understand how each client is feeling.

Despite these emotional challenges of selling, the realisation of business wealth after a sale left 75 percent of entrepreneurs happier, Lombard Odier said.

As a result of these challenges, “wealth managers have to approach things slightly differently. You need to move away from what you always do and instead focus on what the client wants,” Mr Sejpal explained.

It is key to think about life from their perspective rather than just looking at their profile. “Money management is a given. You have to go beyond your day job.”

One thing all three advisers agreed on was the need to be a sounding board for clients, allowing them to bounce ideas around and helping them come to the right decisions for them.

“You need to develop an expertise in everything that is not your day job and become a true sounding board to clients,” Mr Sejpal said.

After the wealth event

Once the business is sold and the capital is realised, the main opportunity for wealth advisers begins.

By this stage, the relationship will generally be well established and there should be a strong level of trust between the entrepreneur and the client.

Despite the risk-taking nature entrepreneurs are often categorised as, these founders do not want to take risks with their money. The majority are focused on preserving their wealth for future generations.

Mr MacIntyre believes entrepreneurs are miscategorised. They are not risk takers, instead they just have very high levels of conviction.

“An entrepreneur is somebody that genuinely believes in what they are doing and they are not doing it to be financially successful. That is not their motivator.”

Many successful founders have come very close to failure in the past and know what it is like to nearly lose everything. They do not want to risk that again.

Looking forward

The advisers all agreed there will be plenty of opportunities in 2022.

“The energy and the pace that successful founders move at and their ability to create not just wealth, but to create jobs and new products is astounding.

“They have the ability to cause real behavioural shifts and make societal, sustainable and environmental changes,” Mr Scott said.

And entrepreneurs are genuinely interested in sustainability. “[They] are right at the edge of it,” Mr MacIntyre emphasised.

Despite this, Lombard Odier’s research found just 55 percent take sustainability into account in current investment decisions, and only a quarter of portfolios are allocated to sustainable investments.

Given the increased activity among entrepreneurs, it is not surprising that an increasing number of wealth managers are aiming to target the client segment. They should be careful.

Looking after entrepreneurs is “easier said than done. Everyone wants to get involved, but it is very hard to do it well,” Mr Sejpal warned.