In last year's issue of HIDEAWAYS, we talked with Paul Morse of Morse Wealth TD Wealth Private Investment Advice about the challenges and complications of legacy planning when it comes to passing along the family cottage. Based on the feedback we received and the number of people who reached out to Morse Wealth citing the article, it was clear we'd tapped into a live current.
Right now, as the youngest of the Baby Boomer generation enters its sixties, we find ourselves in the early stages of the biggest multigenerational wealth transfer in history. It stands to reason that many families are having conversations, or should be, around how to manage that transfer with agility and confidence–to the benefit of everyone involved.
For family enterprises, doing so requires a broader conversation than just figuring out where your assets will go. In fact, it involves reframing basic concepts so that we’re thinking beyond legacy to focus on continuity. Your legacy is what’s left behind when you’re gone; continuity is how you hand off to the next generation the skills, values, assets, and practices to carry forward what you have established.
To that end, we sat down again with Paul and other members of the multidisciplinary team at Morse Wealth to talk about Paul’s recent accreditation as a Family Enterprise Advisor, and how it informs the way the team advises around continuity planning with their family enterprise clients.
Having recently earned the Family Enterprise Advisor designation after an intensive year-long program operated out of Western University’s Morrissette Institute for Entrepreneurship, Paul is well-equipped to lead his team in advising family enterprises on a multifaceted approach to continuity planning. “Continuity planning is an integrated and dynamic process,” says Paul. “It’s less about transitioning wealth within the family and more about finding meaning as a family in the mindsets, behaviours, values, and habits that set the course for continued success.”
In Canada, Paul is one of only three accredited Family Enterprise Advisors working as an advisor with TD Wealth Investment Advice. Part of what drew him to the program was the learning structure. “We were grouped into teams of six made up of cross-functional professionals to work with an actual client,” he explains. “The experience of working in a multidisciplinary way for the betterment of the client in terms of goal achievement and adding value to the client’s experience was very similar to how we do things at Morse Wealth. It reinforced the value of our approach.”
That approach is to bring diverse disciplines and areas of expertise together at the Morse Wealth advisory table to ensure that all perspectives are discussed and the client’s legal, accounting, investment, and other interests are covered. At Morse Wealth, multidisciplinary specialists include a High Net Worth Planner, Tax and Estate Planner, Business Succession Advisor, and Estate Planning Advisor.
“Families need to shift their mindset from transitioning wealth to transitioning the values, worldview, and practices that have brought about and sustained their success.”
Many different cultures have variations of a proverb that says wealth does not last beyond three generations (in American culture, “Shirtsleeves to shirtsleeves in three generations”). The thinking goes like this: The first generation works hard to achieve success. The second generation, having witnessed the labour and sacrifices of their parents, is motivated to preserve their wealth. The third generation, having never known anything but abundance, does not value it and squanders it away. “Statistically, it’s true,” says Paul. “Family enterprises have a high failure rate because the values and vision that created the business are not assets that can be handed down in the same way that material and financial wealth can.”
Instead, families need to shift their mindset from transitioning wealth to transitioning the values, worldview, and practices that have brought about and sustained their success. As the vast majority of family enterprises control more than one firm, this goes far beyond teaching the kids the nuts and bolts of how to run the family business.
“As a Family Enterprise Advisor, I work with my team and our clients to find clarity around the roles involved in the family enterprise,” says Paul. “We think of it as a Venn diagram with three interconnected circles representing the family, the business, and ownership.” (See diagram below.) Everyone involved fits in at least one of those circles (for example, family members not involved in the business and non-family owners each belong in one circle only) and some people exist at the intersection points, with the family owner-employee inhabiting all three circles. Understanding that different family members will have different perspectives depending on where they sit in the diagram is essential to managing expectations and understanding potential sources of disagreement.
To protect the interests of the family enterprise, each person’s role should be clearly defined and acknowledged. Active family members with the greatest business acumen should represent the family interest in the business while others who want to be involved should focus on the enterprise’s philanthropy and day-to-day operations. Codes of conduct, employment policies, and a clear governance structure that allows for the participation of non-family members where it best serves the interests of the family enterprise are all essential elements. Where family dynamics could be obstructive, an outside party facilitator can be invaluable in running family meetings and establishing a code of conduct.
“A family enterprise should be considered as a collection of components,” says Paul. These include the operating business or businesses, financial assets, real estate, heirloom assets, philanthropy, deferred assets such as life insurance policies, and human/non-financial assets.
It’s in the last of these, the human assets, that the wealth of the family enterprise really resides. “If the vision and values of the family enterprise aren’t communicated and lived on a day-to-day basis, if they don’t become part of the family narrative, then all the other components can easily be lost within a generation,” says Paul. That’s why at Morse Wealth advisors start off by asking clients to talk about their values and vision relative to their family life, their career, their business and money matters, and their community service involvement. All of those are important to the family as an organism. “To ensure continuity,” explains Paul, “the vision needs to be articulated, disseminated, codified, revisited, and celebrated.”
It should be clear that all this takes intention and time, and benefits from the involvement of a disinterested party with skills and experience in family enterprise planning. “Much like arranging for passing down the cottage,” says Paul, “your family’s chances of continued success and prosperity improve dramatically if you work with professionals to help formalize a structure and build continuity in the family enterprise instead of not communicating, focussing on transactions, and assuming that everything is going to fall into place when you’re gone.”
Paul Morse, FEA, CIM®, FCSI
Senior Investment Advisor
TD Wealth Private Investment Advice
705-330-036
[email protected]
morsewealth.ca
linkedin.com/in/paul-morse-td
