The trillion dollar wealth transfer question

by 03 Dec 2014

So here is the challenge: What are the right questions to ask to ensure successful wealth transfer?

Here are a few questions for owners of family enterprises and their advisors to consider:
  • What is stopping task-oriented, entrepreneurial owners from taking something they feel is important and dealing with it as they would with any business problem?   The answer to this question may be more emotional than logical.  Chip and Dan Heath are two Stanford professors who authored the book “Switch” which may give some guidance on how to make change when change is hard.  They use the metaphor of the changee being the rider, which represents the logical part of the brain, sitting on an elephant, representing the emotional part of the brain. They need the energy needed to make change happen but there has to be a path for the rider and the elephant to travel.
  • Is there any hard evidence that a succession plan by itself will guarantee a successful transition of wealth and ownership to the next generation?  Eisenhauer said that in preparing for battle, plans are useless but the process of planning is indispensable.
  • Is the traditional approach of meeting almost exclusively with financial advisors, with little or no discussion with the family members who are the key stakeholders and beneficiaries of the wealth at death, a viable strategy? It may be that we as advisors are focusing on the right problems but we are leaving out a critical step in the sequence of where and when the family stakeholders get involved.
It is important to realize on a more positive note that a transition is only a failure if there is a significant reduction of wealth to the family enterprise during this period and if family relationships are harmed. Oftentimes, the operating business is sold by shrewd families at its optimum value only to be re-invested in other more profitable enterprises, real estate and philanthropic assets. The point is that the family enterprise or wealth from the family enterprise continues to grow and the family relationships remain strong and harmonious. This should be the goal for a successful transition.

The good news is that advisors who “sharpen the saw” and get trained on best practices gleaned from research of some of the most successful multi-generational family controlled companies in the world will be in demand. It is more of a facilitative skill to help the family gain some consensus on what needs to be done and less about the advisor “rifling” out a solution too early and potentially harming the family.

There is actually a professional designation for Family Enterprise Advisor (“FEA”) that trusted advisors can qualify for in a one-year program through the Institute of Family Enterprise advisors.  It is well worth the investment for advisors who have these types of clients.  It can be a great extension to your business.

Who knows, you may help save the next Michelin Tire, Ford Motor Company or Canadian Tire and their families.

Hugh MacDonald ,CPA,CA,CLU.FEA is a Financial, advisor  and President of Canadian Succession Protection Company, a life Insurance agency in Toronto that provides life insurance and succession planning strategies  to owners of family enterprises and their families.


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