Industry News

Starting the succession planning conversation is a great opportunity for advisors to get to know the next generation

By Fiona Collie |

Helping small business owning clients get their succession plans in order is all about having an informed discussion.

A study by TD Bank Group found that one in 10 Canadians own a small business yet only one third of those business owners have a succession plan in place. Many of those business owners are now approaching retirement after establishing and growing their businesses over the past 20 to 30 years, says Jeff Halpern, business succession advisor, TD Wealth Private Investment Advice, in Markham. As such, starting that succession planning conversation is a great opportunity for advisors to get to know the next generation.

However, before setting up a meeting, Halpern warns advisors they should make sure they do their homework first. "It is a great conversation to open up with client but in our experience it's a conversation that requires you to have the necessary technical comfort," says Halpern, " because there are a lot of technical matters that relate to succession."

Advisors can make sure they have the right technical knowledge in one of three ways. First, they can find out if their firm has an internal team of succession planning experts who can help in client meetings. Or advisors can build an external team of professionals such as chartered accounts, will and estate experts and insurance professionals, who can navigate the advisor and the clients through the succession planning discussion.

Finally, advisors can become the expert themselves by joining association such as the Canadian Association of Family Enterprise (CAFE) or by going back to school and taking courses at institutions such as the Sauder School of Business's Institute of Family Enterprise Advisors, which is associated with the University of British Columbia.

According to TD, 41% of small business owners plan to transfer their companies to their children yet only half of those clients have talked to their children about their plans. "If the owner of the business passes away or transitions the business to his child, the next in line client is in fact that next generation," says Halpern. "So, having these discussions early and getting to know the family wealth both in terms of the patriarch and the next generation of business owners makes really good sense."

Advisors with small business clients shouldn't wait to start these conversations with their successors as the process itself can take years. Often the intended successor needs to be groomed for the business and go through a mentorship period at the firm, says Halpern. As well, in some cases the client's may simply not have all the necessary skills or knowledge to run the company and the client may have to consider hiring other people to work along side his son or daughter.

As well, if a client has two or three children but only one intended successor, advisors need to take a close look at the individual's entire estate to make sure no one feels slighted later on. "[Advisors] can actually value the entirety of the estate and then allocate different asset classes to the children," he says, "so as not to force them to be co-owners in asset classes they really don't have an interest in." Examples of asset classes to consider include the business, an investment portfolio, insurance policies and real estate.