Canada's banks expand business planning teams


Members of the Canadian Greandier Guards march down a city street after a changing of the guard ceremony in Ottawa, June 23, 2003. The guard, dressed in their scarlet uniforms and bearskin caps, return to public duty during the summer months for Changing of the Guard and Relief of Sentries ceremonies. REUTERS/Jim Young (JIM YOUNG/REUTERS)

For many Canadian business owners, it can take the sudden death of a colleague or a debilitating illness before they realize they don’t have succession plans and they are badly needed.

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 to relatives or through a sale. It’s left a void that the country’s banks are vying to fill.

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“Our business owner clients are very quickly turning 60, 61, 62, 63, 64, 65,” says Tony Maiorino, head of wealth management services at Royal Bank of Canada (RBC). “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 adds, and a startled business owner might think: “‘Holy crap, I don’t want that to happen to me.’”

The need for contingency planning is helping RBC’s business succession unit swim against the tide, Mr. Maiorino says. It is expanding rapidly at a time when many global banks have cut back on staffing in the wake of the financial crisis.

Mr. Maiorino’s team is now nearly 200 strong, an increase 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 and hired James Wong, who co-authored The Transition Experience: What every Canadian family business owner should know beyond succession planning while at BMO.

Succession planning is not a revenue-generating business – RBC and its rivals don’t charge for most of the service – but the payoff comes when clients start implementing their plans, 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,” Mr. Maiorino explains.

RBC’s 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,” says 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 Mr. Niven says 80 per cent to 90 per cent 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. Mr. Maiorino and Mr. Niven both estimate that more than 60 per cent of small or medium-sized business owners have no succession plan and they reach out for help only when something big happens.

Small-business owners tend to use local lawyers and accountants when they start out, and they may pour themselves into their businesses for decades before they stick their heads 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 travelled to a Toronto suburb to try to help out after the unexpected death of a business owner. The man was in his 40s, and he 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 they 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,” Mr. Halpern says, noting that some tax minimization strategies need at least two years advance planning to work.

Mr. 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, Mr. Niven adds, recalling a case where a business owner assumed his child would take over the business. The child told Mr. 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,” Mr. Niven says. “We try to start with the most pressing need first.”

At RBC, Mr. 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 per cent 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.’ 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.”