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