Eric Klein on Unsuccession Planning

Eric Klein of Farber Financial Group got everyone’s attention at the Distinguished Advisor’s Conference (DAC) 2015, with his counter-intuitive (and often entertaining) presentation on “Unsuccession Planning.”

He started off by citing a recent study that found only 24% of business owners have a formal succession plan. Advisors are constantly being told that succession planning is one of the most critical services to provide to clients. We all know that, and yet it seems that clients are more and more resistant to even discussing it. Why?

As founder, partner, and managing director of Farber Financial Corporate Finance, Transactions & Valuations Practice, Klein knows a thing or two about why the succession planning conversation is becoming a tired, ineffective, and irrelevant one for your business clients. The traditional route of retiring at 65 is simply not one that your clients of today frequently want to take. It’s an arbitrary number that doesn’t apply in a world where people are living far longer, technology offers new ways to remain engaged in the business even when in a remote location, and there is a lack of decent alternative investments to the business.

There is less incentive than ever for business owners to sell the family enterprise, and most have children who are professionals in their own right, with their own career, and who have no desire to take over the family business. Furthermore, there are new ways of continuing to manage the business, as well as creative ways of handing the company over to a good management team. Besides, many of your clients would rather work till they die and have the business sold after their death; face it, a lot of your clients can’t face their mortality, don’t like to give up control, and don’t want to leave their “work family” or lose the meaning and purpose that work provides them with.

So instead of forcing a succession planning discussion that most clients don’t even want to have, advisors need to change to stay relevant in this changing environment. Advisors need to be flexible, to focus on their clients’ needs and goals—to start thinking about . . . unsuccession planning. Instead of trying to “know your client,” really try to “understand your client” in a more meaningful way. What really motivates them and what’s most important to them? If they’re not retiring, then now what?

If your clients plan on staying engaged in their business for the foreseeable future, then your role in their “unsuccession planning” includes:

• Keeping the business’s returns up in a competitive world to retain and grow the value of the company.
• Buoying up the management team so they can potentially take over the business one day.
• Diversifying the wealth of the business owner who has the bulk of his or her personal wealth tied up in an illiquid private corporation.

Klein presented some creative solutions you can offer to clients who have no intention of leaving the business, including the following:

• Do nothing (deal with wrapping up or selling the business after the client dies).
• Sell the whole business and remain employed by the person who buys it.
• Sell part of the company. This is a growing trend and there are endless possibilities for structuring this kind of arrangement.
• Refinance the business and take some of your risk out of the equation.
• Explore strategic philanthropy. Your clients who are wealthy business owners may not need to free up the millions locked in their business to finance their lifestyle or their familys, but the wealth they have built could do a world of good in the community for generations to come. For business owners with a sense of purpose and for whom work provides a deeper meaning in their life, this can be a very attractive option.

Unsuccession planning is a refreshing look outside the box, and an excellent way to have an entirely different conversation with your business-owner clients—one that is extremely meaningful to them.

Farber Financial Group will be back as our sessional sponsor at the January Distinguished Advisor Conference in Toronto. Their topic will be: Director’s Liability and Non Arm’s Length Transfers: Understanding the CRA’s Ability to Collect Tax Debts from Third-Parties. Did you know that both the Income Tax Act and the Excise Tax Act allow the Canada Revenue Agency to transfer the tax liability of an taxpayer onto third-parties? This presentation will examine the current state of tax law when attributing liability onto directors of corporations and non-arm’s length persons.