Managing the expectations of clients of wealth managers

Clients know it all, and want instant satisfaction. 

With the Web putting information at everyone’s fingertips in an instant, advisers face a lot of know-it-all clients. Many clients feel their Internet research makes them more knowledgeable than the advisors are.

Many clients also want instant gratification. Jacoline Loewen says, “We need to recognize this phenomenon and try to set realistic expectations for our clients…regarding the process, timing, potential complications, fees and likely results.”

Jacoline Loewen
LinkedIn profile for Jacoline Loewen

The sale of a business brings wealth and other unspoken isues

A business sale creates wealth, and unease. 

When a business owner cashes in and sells an enterprise, it often brings some confusion–even unhappiness–along with new wealth. This may seem to be similar to that internet meme - First World Problems. Think about it. People hear you are suddenly wealthy and that you should invest in your neice's startup.

To be of help in that situation, advisers may need to step outside their own comfort zone and discuss non-financial issues with clients. Advisors can help their client to focus on a new set of goals.

Jacoline Loewen is a Director with UBS Bank and writes about M&A, private equity and wealth management for business owners and entrepreneurs. You can follow her on Twitter @jacolineloewen or contact her at jacoline.loewen at ubs.com

The benefits of tax-loss and investing

Benefits of tax-loss harvesting are inflated. 

Some so-called robo-advisers may be overstating the benefits of tax-loss harvesting. Some of the claims we’ve seen are unrealistic given our more than a decade of experience managing tax loss harvesting portfolios and results we’ve seen from competitors we respect. 

The claims made by online advisors arguably represent the triumph of favorably simulated back-tested results over actual experience.

Wealthy families and their trusts

Trusts that use multiple advisers. 
Traditionally, the directed trust model called for electing a trustee and an investment adviser. Now, the wealthiest families are slicing and dicing trustee duties into many different functions. 
Directed trusts are showing up with as many as eight different roles, including a “special assets advisor,” a “distribution advisor” and a “trust protector.”

More Women reaching the Billionnaires List

There is a strong showing of women making it to the Billionaires' List, and not all through the old fashioned way of death of a spouse or divorce.
Forbes has the list and tech is the foundation of the wealth of oly two of the women. I thought there would be more. Here it is:

Women make up 10% of global super-rich and 172 women, 25% more than in 2013, are in renowned club of billionaires.

 From the Facebook executive who told women to "lean in" to get ahead at work, to a Nigerian oil tycoon and a British online gambling entrepreneur, a record number of women have entered the global club of billionaires.

A total of 172 women, up 25% on 2013, have made Forbes' 28th annual billionaires' list. Women now make up 10% of the global super-rich.

Facebook chief operating officer Sheryl Sandberg, with a personal fortune worth more than $1bn (£600m), becomes one of the highest-profile new entrants to the Forbes list, joining Meg Whitman of Hewlett-Packard as the only other female tech billionaire.

According to Forbes, a record number of 42 women broke into the list for the first time, although only 32 female billionaires (1.9% of the total) built their own fortune, rather than inheriting it from a parent or husband.

The world's richest woman is Christy Walton, who shares a $36.7bn chunk of the Walmart fortune, edging out one of L'Oréal's principal shareholders, Liliane Bettencourt.

One of the top UK entrants is Denise Coates, the British online gambling queen who, along with her brother, owns Bet365. Coates was at school when she started working as a cashier in her father's betting shops and has amassed $1.6bn in personal wealth.

Fiercely private, she has escaped almost all press attention in the UK despite Bet365 taking almost £20bn in bets and making £150m in profits in the year to March 2013.

In a rare interview two years ago, Coates told the Guardian how she has, on occasion, had to correct some people who had assumed that her father, a well-known businessman, ran the company. Her business, which employs 2,500 workers, mostly in Stoke-on-Trent, made a £150m profit last year, even after swallowing £31m of losses from Bet365's controlling interest in Stoke City football club

Coates, who owns half the business, received pay and bonuses of £5.4m, as well as her share of £15m in dividends. Even after these payouts the company had a further £430m in cash reserves on the balance sheet. In the past five years, Bet365 has paid out dividends totalling £130m.

A total of nine women feature in the top 85.


Jacoline Loewen
https://www.linkedin.com/in/jacolineloewen

The democratizing of financial services

A few years ago, I began to hear about the democratization of investing into private equity.  It was recognized that the earnings can be significant. Allowing the grandmother investor, for example, to put money into privately owned companies in the same way the public stock market allows, will have a way to go.
Currently, one way that was created to allow the average joe to invest with minimal knowledge is by going into your bank and selecting mutual funds. They show up on your bank app and give a pretty reasonable return.
Using the TFSA account, the average person could also invest into a startup but maybe (probably) lose their investment as the risk is so high at such an early stage.
So although we do have some democratization of the investment opportunities, the Canadian retail banks do offer their mutual funds which are a great start, the fees are hidden and do take a significant chunk of the returns.
We will come back to mutual funds and other investments where you can get started. In the meantime, one of my favourite motivational coaches, Tony Robbins, has put out a book on Money. In it, one his themes was about - surprise - democratizing investments. I liked his message:

Think about the four main elements that impact our quality of life: our relationships, emotions, health, and money. The most difficult one for many people to manage—and a frequent source of widespread confusion and anxiety—is the money.

2015 is the year that will change.

The One Big Idea for 2015 is the democratization of financial services, which means that for the first time, everyone will have access to the unbiased advice and education they need to make confident, informed decisions about money and investing. Everyone will be able to find knowledge, tools and insights to help them achieve their financial goals.

The current financial system is opaque, complex, and designed to enrich and reward those on the inside. Average investors are so in the dark when it comes to the system that most don’t know just how much they don’t know.

For example: how is your financial advisor compensated? Do they have a legal duty to put your interests first, or are they primarily paid to distribute products? If you’re like most people, you don’t know.

What can you do today for your retirement?

Saving for our children's university and retirement is one of life’s biggest savings, but surveys show these investments too often come last.
What could you do if you can see yourself in one or both of these situations?
 Something. 
Start by trying to save just 2% of what you’re bringing in; put the contributions on systematic automatic contributions to be sure they make it into the designated pot. 
Here’s the deal. Someone is reading this and thinking, `What the heck. It’s too late for me.’ But you don’t have to make these changes all at once. Look at your long-term plan and trim away that extra tank of gas or movie night out to start supporting all that you want down in ten or fifteen years.

Jacoline Loewen 

Just take the time and get your financial goals written

"If your financial plan is not written and measurable...it's just hope!"

Wealth managers versus brokers

Typically, wealth managers, also known as financial planners, earn their living either from commissions or by charging hourly or flat rates for their services. A commission is a fee paid whenever someone buys or sells a stock or other investment. You may want to avoid financial planners who rely on commissions for their income. These advisers may not be the most unbiased source of advice if they profit from steering you into particular products.

A growing number of financial planners make money only when you pay them a fee for their counsel. These financial planners don’t get a cut from life insurers or fund companies. You might pay them a flat fee, such as $1,500, for a financial plan. Or you could pay an annual fee, often 1% to 2% of all the assets—investment, retirement,  university savings and other accounts—they’re minding for you. Others charge by the hour, like lawyers.

You might also encounter financial planners who cater exclusively to the rich and refuse clients with less than $2 million to invest. Don’t take it personally—hugely successful planners in this range of wealth are called wealth managers and would just prefer to deal with big accounts rather than beginner clients. 

You want a planner who’ll make the time to focus on your concerns and is interested in growing with you.

If you have more than $2 Million to invest, look for the wealth managers usually found in the global banks.

How do you select a financial planner when you sell your business?

When you sell your company and all of a sudden, you have millions to invest, it can make you quite giddy. All of a sudden, your long last relatives will appear on your doorstep asking for a loan or an investment. Your niece will want you invest in her new app which is "brilliant".  Suddenly, you can access wealth manages who need you to have more than $2million to open an account. These wealth managers are the elite of financial planners.

Financial planners advise clients on how best to save, invest, and grow their money. They can help you tackle a specific financial goal—such as giving you a macro view of your money and the interplay of your various assets. Some specialize in retirement or estate planning, while some others consult on a range of financial matters. At the very least, they should find out about your family.

Don’t confuse planners with stockbrokers — the market mavens people call to trade stocks. 

Financial planners also differ from accountants who can help you lower your tax bill, insurance agents who might lure you in with complicated life insurance policies, or the person at your local bank urging you to buy their off the shelf mutual funds.

Anyone can hang out a shingle as a financial planner, but that doesn’t make that person an expert. They may tack on an alphabet soup of letters after their names, but CFA (short for certified financial planner) is the most significant credential. A CFA has passed a rigorous test on the specifics of personal finance. CFAs must also commit to continuing education on financial matters and ethics classes to maintain their designation. The CFP credential is a good sign that a prospective planner will give sound financial advice. Still, even those who pass the exam may come up short on skills and credibility. As with all things pertaining to your money, be meticulous in choosing the right planner.

Their firm is important. Some small planner make you pay dearly. They are smart but you end up paying more as they still have to place orders for your portfolio and they will have to pay a fee and pass that along to you. 

What to do a few years before selling your business

When his father was 67 years old, an unforeseen financial crisis forced the succession. Patrick Bermingham, Bermingham Construction, knew his father did not have the appetite to fight for the company’s survival; in one moment, his father shook his hand and Patrick was put in charge.

“My father was the supreme leader, but after that handshake, he never questioned my decision making.” Stepping into a precarious financial situation meant that Patrick had to make rapid decisions and get a plan for survival.

“I needed money. I bought a new suit from Harry Rosen. I got on a plane to Japan. I sold a patent. It enabled me to stabilize the business,” he says.

Then he set his long-term plan which meant looking at the hard truths.

Patrick needed a family succession plan, but knew that his children were much too young to take over. He could also see the valuation was too low to sell the business. He eventually decided to transition the business to outside owners by allowing the employees to buy shares , and not to do succession planning for the next generation of the Bermingham family.

When it comes to the family finances, structuring existing money can be done several years before a sale of a business or any other significant liquidity event. Trusts can be structured more favourably in times of low interest rates and low valuations for company stock.

At the time of Bermingham’s low valuation, when a sale is not possible, it may be suitable to transfer ownership in the family business to a trust at favourable terms. You can allow for a more tax effective transfer of ownership than during times of high interest rates or high stock valuation.

Patrick decided to do an estate freeze for his family. Then Patrick began the transition process by allowing employees to buy shares in the company. The company’s debt-equity ratio was still too high though, and the company needed more investment capital. Again, Patrick brought in experts to help organize and manage a partnership with private equity.

Eventually, after four years, the company was bought back from the private equity firm. When it came time to sell to a world class, strategic corporation, a few years later, Mr. Bermingham said the company was polished from all the steps taken along the way. “The secret of transitioning your business is that it is a long term process. You hedge your bets and maximize your value by buying and selling and then buying back parts of the company. It is not something you do suddenly.”

read more

By, Jacoline Loewen, column

special to the Globe and Mail.

Selling the family business: legacy or leftovers?

Family business owners who are considering selling are often discouraged by the question, ‘what will I do now?’ according to Dr. Tom Deans, former business owner and author of "Every Family’s Business." In an interview, Deans said that owners’ identities often get so wrapped up in the business that they find it difficult to imagine life after the company is sold.

To overcome this barrier, it’s important to frame the question more personally. He recommends asking ‘who will I be?’ The answer can then form the vision for the family legacy and provide a critical piece of the puzzle. After all, to be profitable, he or she needs to define the vision for the family business.

When running a business, most founders and owners need to reinvest their money back into the business in order to have the cash flow to build client orders. Concentrating this money into the business finances the parts and the salaries required to get product out of the factory door and into the hands of the customer. This means that extra cash is absorbed, and for many years the family business does not spin off large salaries and a wealthy lifestyle.

During the sale of a business, owners often leave legacy issues on the back-burner. Due to the hectic pace of due diligence and negotiation before a sale, issues like governance and long-term goal setting are often neglected. Yet ironically these ‘softer’ issues are often the hardest to confront.

When a company is sold (known as a liquidity event), it can bring sudden wealth – even richness – which can and will affect individuals and their families who may be unprepared.

“Making money is very different from protecting wealth,” said Deans. “Owners are good at solving problems and they can see transitioning as another problem to solve. Managing new wealth is about risk aversion and relinquishing control.”

It’s counterintuitive for owners who have success from taking risks and being in control. Within the family business, it will now be far more about being co-operation and preparing the heirs.

Choosing how to structure and manage the newly liquid assets can freeze up the owner and their family. Answering the following questions can help unfreeze the move from family business owner to family wealth manager:

What does the wealth mean for the family? Is it important to leave a family business legacy? Family business owners can create the legacy with their wealth, but Deans cautions against pigeonholing future generations.

“Many owners make the mistake of instilling pride in the family business; that life is about tradition and not about pursuing their own dreams – and definitely not about reaching their full potential. Imagine if Henry Ford had followed in his father’s footsteps as a farmer, and Steve Jobs in his father’s footsteps as a restaurateur?”

What’s the risk level of each family member? Insufficient oversight of their business affairs and inadequate awareness of potential risks means families are more exposed than they realize. Each family member’s level of risk tolerance is obvious when skiing or driving a car, but not when planning the family legacy.

What risks can the family agree to take together? Constructing a risk framework around each of the family members will give a common understanding of the family goals, reduce the stress and improve the mood at future family get-togethers.

What to do first? It’s common to delay the decision making process because the first step is the most difficult. It’s safer to maintain the status quo than to risk a family argument. Reading about other family business stories and distributing case studies of similar family business situations can begin the conversation. Organizing a meeting with other family business owners who sold and have been through the journey to wealth management will also help inspire action.

“There are financial advisors to assist business owners through this transition to wealth. Families are complex and emotional. Using financial experts is not a sign of weakness, but of strength and wisdom,” said Deans.

The road from running a family business to managing the family wealth is well-trodden. It may seem an ideal situation to outsiders, but family businesses who have gone that route know the challenges. But one thing is for certain: those who make the conscious decision to build a family legacy and get the governance in place to manage their wealth will have a smoother journey ahead. “This is how new money becomes old money.”

Jacoline Loewen is Director of business development, UBS Bank (Canada). Prior to joining UBS, Jacoline served as director of Crosbie & Company Inc., specializing in finance for private capital business, owner-operators and family businesses, specifically acquisitions, restructuring, sales, successions and private equity financing. She has over 20

years' experience working with owner operators, family enterprises and in strategy. Jacoline has authored numerous works, including Money Magnet: How to Attract Investors to Your Business, used as a textbook by various business schools across Canada. She is also a regular columnist for The Globe and Mail.

You can follow Jacoline on Twitter @jacolineloewen or contact her at 416-345-7012 jacoline.loewen@ubs.com

Lessons in finances by FIFA World Cup Soccer 2014

World Cup soccer has lessons that can be applied to how we choose to live our lives. The National Post has a great article on the topic:

When Robin Van Persie jumped into the air and headed in the goal against Spain, the crowd went wild. Van Persie earned his reputation as The Flying Dutchman and one of the world's best players. But those astonishing plays are the exception, not the rule; teams can’t rely on them to win games. At the end of the day, good defensive soccer moves are equally important as jaw-dropping goals, although they’re often given less attention. If you want to win, stopping opponents at midfield may not bring in the glory, but it’s a vital component of the game. It’s great to score five goals, but you still lose if they score six goals against you.

The same is true in the game of personal finances. Just like in soccer, if you want to succeed, you need a good defensive strategy. It’s nice to bring in the big bucks, but if the money leaves your bank account faster than it comes in, at the end of the day, you will lose the game.

Jacoline Loewen and be reached at email - jacoline.loewen "at" ubs.com

5 Ways investing is the same as running a business

Many of my baby boomer clients wonder whether they should keep their wealth in their businesses, or sell and invest the proceeds elsewhere. While they understand the need to diversify, they find investing in other markets less appealing since they don’t have the experience and perceive it to be a greater risk.

Working with business owners, my challenge is just as much about helping them invest money as it is helping them change their perception of themselves. You see, many of my clients view themselves as business owners when they should be thinking of themselves as family wealth managers. This is a surprisingly difficult shift for owners to make.

I first heard about this concept from a multi-generation family business owner who viewed his role as “caretaker of the family wealth” and, given that they had been successful for four generations of the business, there was clearly a message here.

Another difficulty for owners is to realize that their level of risk has changed. There are now a number of different investment products designed to deliver returns against specified risk levels such as hedge funds which help diversify some of the risks associated with owning only equities. The equity stock market has long been the primary diversification option, but fears of volatility, crashes and other forces beyond the control of a business owner have often seen only a small portion of their wealth invested. Today business owners can tap into a far wider range of investment options, as well as good portfolio managers at reasonable prices.

The change in mind set from business owner to family wealth manager is daunting, says David McLean, founder of the ROMC Fund. His advice applies to business owners who are used to weighing risk and the likelihood of returns, and who approach their investing with the same passion as owner-operators. Here are a few ....read the rest at The Globe and Mail.

Jacoline Loewen is the director of business development of UBS Bank (Canada), named Best Private Bank Globally 2014. Ms. Loewen is also the author of Money Magnet: How to Attract Investors to Your Business. You can email her at jacoline.loewen@ubs.com or follow her on Twitter @jacolineloewen.

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River Cree with Crosbie issues the first cross-border bond from a Canadian First Nation

There has been a complete make over of the Thomson Reuter PE Hub website and the editor, Kirk Falconer, is scooping up stories on a usually closed industry of private equity. Here is his latest story on the innovative deal done by Crosbie with one of the leading First Nations casino enterprises:

River Cree Enterprises said it has issued the first cross-border bond from a Canadian First Nation-owned entity, tapping a group of Canadian and U.S. institutional investors. The bond issue, estimated by The Globe and Mailat $200 million, has helped facilitate the Enoch Cree Nation‘s acquisition in partnership with River Cree Enterprises of sole ownership of the Edmonton, Alberta-based River Cree Resort and Casino, buying out minority partnerParagon Gaming. Advice in connection with the acquisition and financing strategy was provided by investment bank Crosbie & Co, which confirmed that the bond issue attracted interest from investors that are active in alternative assets markets. The casino will be managed by gaming property operator Sonco Gaming Inc of Halifax, Nova Scotia. Torys LLP was one of the legal advisors on the deal.
Read the rest here

Cover-FX discovers that Private Equity does take your business to the next level

The Globe and Mail has a story of value to entrepreneurs and business owners thinking about growing their company, but choking from lack of capital.

Deals with Canadian firms are being closed by large and sophisticated investors that, at first glance, seem to fall well below the revenue threshold usually required for a chat over lunch – never mind an acquisition.

Private equity and strategic buyers are dipping their nets into shallower waters and scooping up small companies. U.S. investors, in particular, are not waiting for businesses to grow organically because they recognize there’s a risk they might attract the eye of a Canadian equivalent. Once a business has signed with a tier-one private equity firm or a strategic partner, there won’t likely be room for another investor, unless it’s at a significantly higher price.

Sophisticated investors have the experience, and the research and consumer data, to identify what might be tomorrow’s stars, given some additional capital and oversight. The trick is to spot small businesses that already have a product with market leadership potential. The company must be able to replicate its efforts in multiple markets and address a highly specific customer need.

The founders and shareholders need to demonstrate they have the operational competence to take capital and use it to roll-out an expansion strategy. Lee Graff, co-founder and president of Cover FX, a foundation cosmetics company, landed her investment partners through serendipity.

Ms. Graff was invited to lunch, under the impression she was meeting with the owner of a U.S. retail chain who was interested in carrying her cosmetics. She went over the Cover FX story for two hours. First, she talked about the specific customer need the company addressed – Ms. Graff had worked with a dermatologist for many years, mixing colour and textures onto patients’ faces.

Read the rest of the article. 

Jacoline Loewen, Advisor on Sale of your business or partial Sale of your business.
416 362 1709