Despite its economic impact, there is a distinct lack of advisors specializing in the unique and complex needs of this burgeoning space
Family enterprises make up a significant proportion of businesses in Canada and play an important role in the country’s economic growth. Yet, despite their economic impact, there is a distinct lack of advisors specializing in the unique and complex needs of these businesses and the individuals that lead them.
According to James A. Burton, Executive Chairman and CEO at PPI, a national insurance marketing organization, and Chairman of the Family Enterprise Xchange Foundation, many family enterprises struggle to receive effective financial advice. This advice gap leads to problems for business owners and represents a real missed opportunity for Canadian advisors.
“In the past, the traditional approach to providing advice for people who could be described as a family enterprise was to lump them in with everyone else, to treat them like any other investor,” Burton says. “Family enterprises have been receiving linear advice. Advisors zoom into a certain issue and concentrate on that specific challenge rather than looking at the broader company or family picture.”
Burton believes that advisors need to change if they want to take of the opportunities that family enterprises offer. He advocates for a more holistic approach – for advisors to not only focus on the business owner but also on the issues that affect shareholders’ decision-making processes, and most importantly, the situation and relationships in the family.
“One of the ways to become more effective with this demographic is to be more empathetic,” Burton says. “Do not just focus on the investor, look a bit deeper. What dreams do they have for their children and grandchildren and how does that impact what they do with their company and investments?”
In order to fully service these high net worth clients, advisors need to be able to approach business development from a relationship building standpoint. They need to avoid being transactional and simply providing one-off solutions. “Don’t just solve the problem of today,” he says. ”Think about the long-term, about why a family and its business is in a certain situation, what is driving their decision making processes and the potential impact on their enterprise continuity.”
“Advisors need to become more knowledgeable on family enterprises,” Burton says. He is so committed to this cause that he’s deeply involved with the Family Enterprise Xchange, Canada’s organization dedicated to bringing global best practices and support to business families and their advisors, and advocating on their behalf. “For family enterprise advisors, we have a designation program delivered by the Family Enterprise Xchange. It is a year-long program that gives advisors knowledge on the dynamics of family enterprises and their intricacies. There is a need for a new breed of financial planner who sees beyond traditional sales techniques and focuses on building a holistic practice of family enterprise planning services.”
Burton sees myriad benefits for an advisor who moves from the transactional approach to adopt a more relationship focused method of operating.
“The transaction based model of advice is very commoditized and disintermediated at this stage, and is being questioned by all regulators,” he says. “Roughly $1 trillion is going to be transferred between seniors to their younger family members in the next 10 to 20 years, so there is a tremendous opportunity to look at this with a long-term view. Talk to the clients who may not have the assets to invest today but will when they capitalize and sell their business in the future. Building relationships and trust – particularly in the grass roots area of Canadian family enterprise - will be one of the keys to success for the advisor of the future.”