It is not uncommon for the valuation of a privately-held business to be one of the central issues in a litigation matter, such as a shareholder dispute or a family law matter. When this is the case, the attorneys representing the parties to the dispute will need to be on the lookout for litigation landmines.
As previously covered in Part 1 of this series, we were assisting in a family law matter in Virginia and were provided a prior valuation report of a business to review. Aronson expressed our concerns with the purpose of the valuation (gift tax) and the standard of value (fair market value) to the client. We continue that discussion with another concern, the date of the valuation. The valuation date of the report preceded the date of the divorce trial by about 15 months. Business valuation reports are date-specific, and while it is possible that the value of the business had been static, based on our initial research it appeared the company had achieved a few significant milestones during the intervening months.
There are no hard and fast rules concerning business valuation reports and the length of time until “expiration.” A valuation report could be more than 15 months old and still reasonably represent the value of a business, or a report could be three months old and be woefully out-of-date. Some factors that could influence this include: the industry, addition/loss of contracts or customers, stability of management, technological changes and changes in the competitive environment.
Depending on the facts and circumstances of a matter, as well as the jurisdiction, the date of a valuation can be a critical, yet sometimes overlooked, element in a litigation matter. For example, in the aforementioned family law matter in Virginia, any of the dates to the left could be the date(s) required to have a business valued.
Navigating and deciphering a valuation report can be tricky business. Making a determination as to its current validity as well as identifying the proper valuation date(s) are just some of the many issues to be addressed. To learn more about how Aronson’s Financial Advisory Services team helps attorneys untangle complex financial disputes and conduct accounting investigations, click here; or, please contact Will Kunz at 301.222.8216 or firstname.lastname@example.org.
The initial effective date for the new Fiduciary Rule was April 10, 2017; however, the Department of Labor (DOL) delayed it for 60 days after the new Administration took office. The DOL was instructed to review the Rule during the delay period to further determine its impact on plan participants. While the retirement plan industry cautiously waited out the delay, the overriding presumption was that the Rule was dead. Surprisingly, the DOL announced on May 22, that the Rule would in fact be moving forward without further delay.
Under the Rule, an advisor making a recommendation or sale as opposed to giving ongoing advice is considered a fiduciary. Previously, only advisors charging a fee for services were deemed plan fiduciaries. Such fees could be hourly or a percentage of assets, but not commissions. As a fiduciary, the DOL requires advisors to act in the best interest of their clients. All fees must be shown in hard dollars and any conflicts of interest disclosed. At the heart of the Rule, is the fact that a fiduciary must recommend investments that are in their client’s “best interest” not investments that are merely suitable based on various needs and objectives. The net effect being a sub-set of advisors who were previously giving investment advice that were not considered fiduciaries, will be considered as such on June 9. Additionally, advisors that give investment advice related to IRAs will now be considered fiduciaries. These “new” fiduciaries are subject to the best interest standard where as previously they were not.
The investment industry and retirement plan sponsors alike have prepared for these new requirements for the last several years; many plan sponsors have already established a relationship with an advisor that meets the fiduciary standard. Additionally, many investment companies have modified their client service model or forgone servicing retirement plan assets to avoid the fiduciary standard.
To the non-advisor community, it seems shocking that advisors were not required to provide investment advice in the best interest of the recipient for a reasonable fee. Does this mean some advisors have been providing advice that is not in a person’s best interest at an unreasonable fee? Yes, it does!
Plan sponsors should be mindful of how the Rule evolves and its impact on the relationship with their advisor. It remains to be seen if any changes will be attempted or provisions are further delayed. Luckily, the DOL will likely focus their initial efforts on compliance with the new Rule as opposed to accessing penalties.
If you have any questions, please contact Aronson Compensation and Benefits Practice Director Mark Flanagan at 301.231.6257.