Why You Need a Fiduciary for Your Exit
A $1M+ business exit is a high-stakes liquidity event, and a fiduciary advisor is your key to success. These strategies, backed by 40+ years of expertise, reveal how fiduciaries maximize wealth, minimize taxes, and secure legacies for entrepreneurs and NIL athletes.
A business exit—whether a sale, merger, or IPO—is a defining moment for $1M+ entrepreneurs and NIL athletes with equity stakes. Yet, the challenges are real: capital gains taxes (20% federal), the 3.8% Net Investment Income Tax (NIIT), state levies (up to 13.3%), and costly reinvestment mistakes can erode up to half your proceeds.
Many advisors are paid on commission and may put their interests first—costing clients millions in extra fees or taxes. By contrast, a fiduciary advisor is legally required to act in your best interest and build strategies around your unique goals. This makes all the difference when executing a high-stakes exit. Here’s how a fiduciary advisor protects your wealth, minimizes taxes, and helps you build a real legacy.
Why Fiduciary Guidance Matters for Business Exits
Fiduciaries are regulated under SEC and state law to put client interests first—no sales quotas, no kickbacks, and no conflicts. A 2024 Schwab study found that business owners using fiduciary advisors saved 15–25% in taxes and fees compared to those with commission-based advisors—often hundreds of thousands of dollars or more.
Fiduciaries excel in:
- Advanced tax planning—such as installment sales or 1031 exchanges to defer or spread out gains
- Building low-cost, diversified reinvestment plans
- Legacy and trust structuring to avoid estate tax and keep wealth in the family
- Navigating IRS rules, state tax exposure, and volatile markets with your goals in mind
By contrast, commission-based brokers may recommend high-fee funds or one-size-fits-all products—costing clients over $100K per year on $5M portfolios (Forbes, 2024).
Case Study: An $8M Startup Sale, Done Right
In 2023, a startup founder exited for $8M. The first advisor, paid by commission, recommended a lump-sum sale and expensive mutual funds. The result: $1.9M lost to taxes (federal, NIIT, and state) and $200K in five-year fund fees.
By switching to a fiduciary advisor, the founder structured an installment sale to keep annual taxable income below the 20% capital gains bracket, built a low-cost ETF and muni bond portfolio, and used a dynasty trust for estate planning. This dropped total taxes to $1.3M (saving $600K) and improved returns, while $150K in fees were avoided.
Five Ways a Fiduciary Advisor Maximizes Your Exit
- Tax Deferral and Income Planning: Spreading out gains with installment sales or 1031 exchanges can keep your tax bill low—targeting the lowest possible brackets and minimizing NIIT exposure.
- Low-Cost Investing: Using ETFs and muni bonds (0.03–0.1% expense ratios) instead of high-fee products can save $50K–$200K each year on large portfolios.
- Diversified, Goal-Driven Portfolios: Reinvesting exit proceeds across income, growth, and tax-advantaged assets helps secure steady returns and protects your wealth from market swings.
- Legacy and Trust Planning: Advanced trusts (dynasty or charitable remainder) help minimize estate taxes and keep more wealth in the family or aligned with your values.
- Comprehensive Risk Analysis: Stress-testing your plan against market drops, tax changes, and major expenses (like health care) ensures long-term security.
Actionable Tips for Business Owners and Exit Planners
- Confirm Fiduciary Status: Use BrokerCheck or SEC records to verify your advisor is a fiduciary—CFP® or SEC-registered.
- Model the True Costs: Work with your CPA or advisor to estimate all exit taxes and fees, and run projections under different exit structures.
- Automate and Diversify: Use automatic transfers to move funds into diversified, low-fee accounts and avoid “sitting on cash” or overconcentration.
- Stay Ahead of Tax Law Changes: Regularly review your exit plan as laws change (like the sunset of the TCJA in 2025) to avoid future surprises.
- Reinvest for Income and Growth: Create a plan to turn proceeds into long-term passive income, not just a one-time windfall.
Key Challenges
Exits are complex. Tax mistakes, market timing errors, and high fees can cost $1M+ on a $5M sale. Rushed exits, lack of planning, or working with the wrong advisor can erode years of effort. Advanced planning, a low-cost portfolio, and the right team are the best defense.
Conclusion
Business exits are life-changing—but only if you keep what you earn. The right fiduciary advisor can cut taxes, reduce fees, and protect your legacy. If you’re preparing for a sale or want a second opinion on your exit plan, book a free call at freedomcapitaladvisors.com. Make your exit work as hard for you as you did for your business.
