Looking around the conference table in 2021, the five owners of Bill Few Associates—all of them in or nearing their sixties—realized they needed a succession plan. The market to sell a business like theirs was hot and they saw many Pittsburgh-based financial planning firms choose to go that route over the last 10 years.
But that idea didn’t sit well with them. And they thought about how fortunate they were in 2001 when Bill Few, who founded the business in 1987, sold his stake to them. “Bill always said, ‘if we take care of our clients and take care of our employees, everything else will take care of itself,’” Mike Kauffelt, Co-CIO and part-owner, said.
They knew that selling to a larger firm would mean about a third of its 35 employees that handle important day-to-day tasks like administration, human resources and information technology would likely be let go. So, instead, the owners sold the business to their employees through an Employee Stock Ownership Plan (ESOP) on June 30, 2021, ensuring the legacy of Bill Few Associates continues to grow and thrive in Pittsburgh.
Kevin McPhillips, executive director of the Pennsylvania Center of Employee Ownership (PaCEO), applauded the firm’s decision. “Creating an ESOP when the incentive to sell to a third party is so strong should be celebrated. It’s great when owners decide to invest in their employees like they did at Bill Few Associates. When employees feel secure in their jobs and financial futures, businesses and the local economies thrive,” McPhillips said.
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There are currently more than 300 companies in Pennsylvania that are either partially or fully employee owned. They include Voodoo Brewery, Nicklas Supply and Sheetz. Nationally, 5,000 other companies have Employee Stock Ownership Plans (ESOPs).
Formalized by Congress in 1974, ESOP companies take out a loan to buy a company from previous owners then it divides the ownership among the employees. Since profits of 100% ESOP-owned S Corporations are generally federal and state income tax-exempt, the income tax savings can be used to pay back the loan in part or whole. Once the loan is paid back, the profits and future tax savings stay with the company and the new employee owners.
The finances for an ESOP are handled by a trust. Owners are paid full, fair market value for their shares with the employees paying nothing to make this happen and are able to sell their ownership stake when they leave the company. For most ESOPs, this is retirement money in addition to a 401k. As co-owners of the company, employees vote on major events like mergers and spinoffs, but the board of directors and management team still handle corporate strategy and day-to-day decisions.
To help make this transition, the owners of Bill Few Associates enlisted the help of Dan Zugell, Director at Business Transition Advisors, Inc. (BTA) in Pittsburgh. “It is quite remarkable how quickly all five owners came to the same conclusion that an ESOP was the right tool to not only provide a transition method for themselves but also to enhance the retirement accounts of the associates who helped build one of the most respected wealth management firms in Pennsylvania. It was a pleasure joining them through the transition,” Zugell said.
Kauffelt said since the transition there is a sense of relief among the employees and its 3,000 clients. “This transaction allows employees to increase their retirement capital and share in the benefits of ownership. We can also ensure our current and future clients that the same quality, care and talented employees that have defined Bill Few Associates since 1987 will continue well into the future,” he said.
If you have questions about our firm becoming employee owned, or if you would like information on how we can serve you, call us today at 412-630-6000. Our experienced financial advisors look forward to talking with you.
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