Canada's banks eye business-succession planning for boomers
* Succession plans tie in wealth management, other services
* Bulk of business owners have no succession plan
* Banks hope to continue doing business with next generation
By Andrea Hopkins
TORONTO, Dec 20 (Reuters) - For many Canadian business owners, it may take the sudden death of a colleague or a debilitating illness before they realize they don't have a succession plan and need one badly.
Baby boomers own the bulk of small and medium-sized businesses in Canada, and many have neglected to make formal plans for passing on their businesses - either to relatives or through a sale. That has left a void that Canada's banks are vying to fill.
"Our business owner clients are very quickly turning 60, 61, 62, 63, 64, 65," said Tony Maiorino, head of wealth management services at Royal Bank of Canada, the nation's largest bank. "They see a colleague who dies, who gets cancer, who has a stroke, and their business is disrupted and their family is at a loss."
These are "groundhog moments," he says, and a startled business owner may think, "'Holy crap, I don't want that to happen to me'."
The looming need for contingency planning is helping RBC's business succession unit swim against the tide, Maiorino says, as it expands rapidly at a time when many global banks have cut back on staffing in the wake of the financial crisis.
Maiorino's team is now nearly 200 strong, up from 56 people in 2007, and Canada's major banks are not shy about stealing talent from one another to build the strongest team.
RBC recently raided Bank of Montreal, Canada's No. 4 bank, to hire James Wong, who co-authored "The Transition Experience: What every Canadian family business owner should know beyond succession planning" while at BMO.
While the actual work of succession planning is not a revenue-generating business - RBC and rivals don't even charge for most of the service - the payoff comes when clients start implementing the plan, which typically includes investing money, setting up trusts, tax planning and dealing with estate details.
"Within 18 months the share of wallet goes up ... they tend to give us more of their money to manage," Maiorino said.
RBC by no means has a lock on the business. Its competitors are jockeying to expand their business planning teams and link the service to existing commercial and private clients, many of whom are high-net worth individuals.
"Roughly 70 percent of our existing private company clients are going to turn over in terms of management over the next 10 years," said Ian Niven, vice president of succession planning at BMO Harris Private Banking.
"That's going to create a large amount of wealth, in terms of those who sell, that needs to be managed. As well, some of these businesses will be turned over to the next generation, and we want to make sure that we have demonstrated to the next generation that we are great service providers. It's really key to BMO's future growth."
While Niven said 80 to 90 percent of succession planning is done for existing clients, BMO is reaching out to lawyers and accountants, trying to attract new entrepreneurs.
It's a big untapped market. Maiorino and Niven both estimate that more than 60 percent of small or medium-sized business owners have no succession planning and reach out for help only when something big happens.
Small-business owners tend to use local lawyers and accountants when they start out, and may pour themselves into their business for decades before they stick their head up long enough to realize they haven't made a will, haven't had their business valued, haven't put partnership details on paper.
At Toronto-Dominion Bank, TD Waterhouse Business Succession Adviser Jeff Halpern is familiar with the impact of a failure to plan. Last week he traveled to a Toronto suburb to try to help after the unexpected death of a business owner.
The man was in his 40s, and left a wife and baby as well as a business partner. As they struggled to cope with the tragedy, they had no adequate business plan.
The partners had meant to set up a shareholder agreement but never actually did it, and that left the partner without a funding mechanism, such as insurance, to buy out the wife.
"It's important that business owners not only talk about succession, but contingency planning as well," Halpern said, noting that some tax minimization strategies need at least two years advance planning to work.
BMO's Niven would like 10 years of planning before succession takes place, focusing on three options: a family member taking over the business, the family maintaining ownership but with new management in place, or the sale of the business.
Just talking through the options can be surprising, Niven said, recalling a case in which a business owner assumed his child would take over the business. The child told Niven he had no intention of doing so. A new plan was needed.
"A lot of times it's avoidance. There are emotional issues to deal with in transition," Niven said. "We try to start with the most pressing need first."
At RBC, Maiorino is sending out 230,000 letters to business clients across Canada encouraging them to start the process.
"I'm concerned with the 60-some percent who are not doing this planning. I want to make sure we are reaching out to them, and saying 'We do this, we want to earn your business'," he said. "We are not just here to be there at the 11th hour and collect the money, which is what happens far too often. Managing the money is the easy part."
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