* 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 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
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
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."