Latest / Your Estate Matters / Episode 58 - Does Your Family Need a Personal CFO? with Frank Danielson

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Episode 58 - Does Your Family Need a Personal CFO? with Frank Danielson · Your Estate Matters

0:02
[SPEAKER_01]: Hello, and welcome to your State Matters, presented by Heritage Trust.
0:07
[SPEAKER_01]: Your State Matters is a podcast dedicated to everything of states, including building and preserving your legacy.
0:13
[SPEAKER_01]: If it's the state-related, we'll be talking about it.
0:16
[SPEAKER_01]: We're having the conversations today that will help Canadians protect their families, their assets, and their legacies tomorrow.
0:32
[SPEAKER_01]: Frank Danison is a dedicated personal CFO and wealth mentor for a select group of high net worth families and entrepreneurs.
0:38
[SPEAKER_01]: Leading the private family office team, he focuses on meeting the complex and evolving needs of his clients.
0:44
[SPEAKER_01]: I'll be then preserve, grow, and manage multi-generational legacies and wealth.
0:48
[SPEAKER_01]: Since founding the Danus and Group Both Management in 1994, Frank is earned a reputation for exceptional client service and insightful wealth management advice.
0:57
[SPEAKER_01]: His team takes a disciplined holistic approach to financial planning and to grading tax, legal, insurance and investments strategies to tailor solutions to each client's unique needs.
1:13
[SPEAKER_01]: Thank you so much for joining us in your state matters.
1:16
[SPEAKER_01]: It's a pleasure to have you.
1:17
[SPEAKER_00]: It's a real pleasure to be here and I've been super excited about this.
1:20
[SPEAKER_00]: I guess we've had a couple of false starts on here so I'm so happy to be here and this is a conversation that's really important to me and it's not just about the money which we'll find out today.
1:31
[SPEAKER_01]: So we've known each other personally and professionally for years and I've always been incredibly impressed with not just your financial acumen, but your humanity and your empathy and your very values first and provide a real holistic approach to individuals and family.
1:52
[SPEAKER_01]: So I'm really excited to talk to you and hear about what some of your experiences are.
1:56
[SPEAKER_01]: Thank you.
1:57
[SPEAKER_01]: Tell us about your path.
1:58
[SPEAKER_01]: I understand you have an education degree, and then you built an extremely large and successful financial advising and investment practice.
2:08
[SPEAKER_01]: And now you do sort of personal CFO and family office.
2:11
[SPEAKER_01]: Tell us about that trajectory.
2:13
[SPEAKER_00]: Yeah, I guess like a lot of people might age when I first began.
2:16
[SPEAKER_00]: I didn't know exactly what I wanted to be when I grew up.
2:19
[SPEAKER_00]: My calling was definitely more entrepreneurial.
2:22
[SPEAKER_00]: And it called me out.
2:24
[SPEAKER_00]: And at that point, I began in this business more as I guess a traditional advisor.
2:29
[SPEAKER_00]: providing feel-only advice.
2:30
[SPEAKER_00]: So part of the early days, I guess I was one of the Renaissance where I wanted people to pay me for my time and not sell products, which was very, very hard in the early days.
2:39
[SPEAKER_00]: So as that evolved into around the year 2000, I started getting bigger and bigger clients and more complexity.
2:46
[SPEAKER_00]: And at that time, that's when the sort of, I would say I transitioned from a traditional advisory role into more of a personal CFO or family office.
2:55
[SPEAKER_00]: And really it just sat down with two clients and asked them, what is it they need?
2:59
[SPEAKER_00]: And how can I best support them?
3:01
[SPEAKER_00]: and it just opened up all these new chapters on how I can provide advice and how we can serve them.
3:06
[SPEAKER_00]: So I think that's really the essence of who we are as a group.
3:10
[SPEAKER_00]: It's really the people before numbers.
3:12
[SPEAKER_00]: It's really being curious with families and find out what's most important to them and not always taking the first answer.
3:18
[SPEAKER_01]: So what does that mean in practice, like a family comes to you, maybe they've built some walls, maybe they've got investments or running businesses, maybe they've got complexity in their families, like how does that values exercise interplay with what you do for them?
3:34
[SPEAKER_00]: a great question.
3:35
[SPEAKER_00]: I think that starts right from the very first meeting and the very first phone call.
3:40
[SPEAKER_00]: And I think for some families it's a bit of a surprise.
3:42
[SPEAKER_00]: I came to you about investments.
3:44
[SPEAKER_00]: I didn't come to you about all this other stuff.
3:47
[SPEAKER_00]: So for some families it's a reframe right from the start and for most families it's very refreshing.
3:52
[SPEAKER_00]: It doesn't get it chanced to really find out their why, their purpose, the meaning behind money.
3:58
[SPEAKER_00]: Money is different things to different people.
4:01
[SPEAKER_00]: And I can probably have some fun with you, but we don't have the time and find out what your money values are.
4:05
[SPEAKER_00]: I think that's a big part and that's something that evolves as the relationship evolves, right?
4:09
[SPEAKER_00]: Sometimes people need to feel safe, but I think at the end of the day everybody wants to feel understood.
4:14
[SPEAKER_01]: So yeah, money is a complex topic.
4:17
[SPEAKER_01]: I think something at Heritage Trust is, we help people protect their families, their assets, and their legacies.
4:22
[SPEAKER_01]: That sort of art purpose and our why.
4:24
[SPEAKER_01]: And, you know, those are words, but what it means in practice is different from every individual and family.
4:31
[SPEAKER_01]: But,
4:32
[SPEAKER_01]: unpacking where you want to go is as important than maybe just a spreadsheet or, you know, just a set budget if it's not connected to higher value or what your purposes are where you're going.
4:44
[SPEAKER_00]: Absolutely.
4:44
[SPEAKER_01]: You spend your days inside the lives of like extremely successful families.
4:49
[SPEAKER_01]: What are the unspoken challenges and what do you see with those families of what they're experiencing?
4:55
[SPEAKER_00]: I think the biggest thing that we tend to see is the heaviest risks or the emotional side of wealth or the soft side of wealth, not the financial.
5:04
[SPEAKER_00]: It doesn't mean that families aren't optimized, they can't do things a little bit better.
5:07
[SPEAKER_00]: For us, I think it's a lot of the unspoken things.
5:11
[SPEAKER_00]: It's really engaging families or next generations and conversations that they never had.
5:16
[SPEAKER_00]: And they don't know how to start.
5:18
[SPEAKER_00]: And part of that recent work is I think you I'd ask you out to that event we did with Dr. Moira Summers is really to find the why behind wealth and what is you know wealth without meaning I think is very empty.
5:32
[SPEAKER_00]: So as much as we do all the cognitive stuff, all the analytics, all my reflective thinking side, I think that's an important piece that families, you know, for example, you know, how to families do pre-nups.
5:44
[SPEAKER_00]: So I think for us, it's wealth isn't always easier, sometimes it gets more complicated with more wealth.
5:50
[SPEAKER_01]: and spoken to this is like the next generation.
5:53
[SPEAKER_01]: I think sometimes the mistake the professionals make is how do we convey wealth of the most tax-efficient matter with privacy?
6:04
[SPEAKER_01]: I think the difficulty is sometimes technical professionals do incredibly complex trusts or tax driven planning, but they've never actually looked at the underlying structure, the family or what the goals are, or what the idiosyncrasies are,
6:17
[SPEAKER_01]: The next generation, like, how do you bring in that next generation and build while stewardship or get buy-in for what the goals are?
6:27
[SPEAKER_00]: Wow.
6:28
[SPEAKER_00]: I think that could take the rest of the podcast.
6:30
[SPEAKER_00]: So I think it really starts with engaging all the stakeholders.
6:33
[SPEAKER_00]: That's really the starting place.
6:35
[SPEAKER_00]: And that doesn't always work.
6:36
[SPEAKER_00]: Sometimes the parents don't want to engage with the next generation.
6:40
[SPEAKER_00]: They don't want to have the conversation and it goes back the other way.
6:43
[SPEAKER_00]: Or as you might know, if you have three kids in the family, two or fully engaged ones disengaged.
6:49
[SPEAKER_00]: And sometimes that disengaged child
6:56
[SPEAKER_00]: I think really at the end of the day, it's about engagement, it's reaching out and starting those small conversations.
7:02
[SPEAKER_01]: So you as an advisor, what does that look like in practice?
7:05
[SPEAKER_01]: Like, do you facilitate family meetings?
7:07
[SPEAKER_01]: Do you recommend education?
7:09
[SPEAKER_01]: Do you do family charters?
7:11
[SPEAKER_01]: Like, what does that mean in practice?
7:13
[SPEAKER_00]: I think for every family, it's a little bit different.
7:15
[SPEAKER_00]: We like to work with everyone in the family.
7:17
[SPEAKER_00]: So if we have a first gen that has a mom and a dad, and there's two kids very early on, we like to reach out and sort of begin a conversation.
7:26
[SPEAKER_00]: Usually that sort of starts out on the estate plan or some communication or sharing of values.
7:32
[SPEAKER_00]: Sometimes it evolves into a family meeting.
7:34
[SPEAKER_00]: We're all hanging out in the boardroom and we have some fun together and sometimes it's a little less fun.
7:39
[SPEAKER_00]: But at the end of the day, you have to start somewhere.
7:42
[SPEAKER_00]: So in summary, it's usually working with the next gen, separately one on one, so they have a safe place.
7:48
[SPEAKER_00]: It's not a two-way conversation.
7:50
[SPEAKER_00]: They need to know they feel safe, and they have a chance to voice what's important to them.
7:54
[SPEAKER_00]: So sometimes we'll also have team members that are, let's say, millennials.
7:59
[SPEAKER_00]: So they're not sitting down with somebody that's like mom and dad.
8:02
[SPEAKER_00]: And I think that really helps ease the conversation.
8:05
[SPEAKER_00]: And you have to look at this as a multi-year conversation.
8:08
[SPEAKER_00]: So what does success look like?
8:10
[SPEAKER_00]: How do you know that a family's done it well?
8:12
[SPEAKER_00]: I think the families that really thrive are the families that communicate and the families that have a plan.
8:17
[SPEAKER_00]: So it's really intentional and they have a purpose.
8:21
[SPEAKER_00]: I think it's also something that tends to evolve, like I said over time.
8:25
[SPEAKER_00]: And for a lot of our families, just they feel like they never have got it figured out.
8:30
[SPEAKER_00]: But when you look back over three, five, ten or 15 years, the progress they
8:36
[SPEAKER_01]: Let's get practical.
8:37
[SPEAKER_01]: What does a personal CFO mean for a busy family or a founder or the wealth generator?
8:43
[SPEAKER_01]: What does that mean?
8:45
[SPEAKER_00]: I can take two sides to that.
8:46
[SPEAKER_00]: The first thing I would say is a personal CFO is really somebody stands at the center of your whole financial life.
8:52
[SPEAKER_00]: Somebody who can see the whole map, and just not the territories and the provinces, if he's Canada's analogy, a lot of folks in our industry and our profession work in silos, so the accountants will work with the client, the lawyers will work with the client, the financial advisor will work with the client, the insurance agent will work with the client, but nobody steps back and see how it all works together.
9:13
[SPEAKER_00]: through a plan.
9:13
[SPEAKER_00]: So I would say that we stand at the center of clients financial life and also the heart.
9:19
[SPEAKER_00]: So like I said, we want to get really clear about what's most important and what their biggest challenges are.
9:26
[SPEAKER_01]: So a family starts working with you.
9:28
[SPEAKER_01]: What changes?
9:30
[SPEAKER_01]: Like, what does it feel like when someone works with you and I'd say they're a year and what would they notice?
9:35
[SPEAKER_00]: I think the first thing they notice is they can breathe, but they finally have a place where I guess in my language they've never really understood where they stand in relationship all their goals or more importantly they've never even had written goals and a plan.
9:49
[SPEAKER_00]: So I think that through that clarity that builds confidence and confidence that builds a peace of mind.
9:56
[SPEAKER_00]: So I think really at the end of the day it's an emotional shift more than a financial shift.
10:00
[SPEAKER_01]: So, you know, I know a little bit about your practice.
10:02
[SPEAKER_01]: You've got founders, you have physicians, and my experience with working with physicians is like highly intelligent people, often blind spots or opponents around.
10:17
[SPEAKER_01]: Money, like, what does that look like for you when you've got these clients?
10:20
[SPEAKER_00]: The first thing that they all have in common is a real time start.
10:23
[SPEAKER_00]: Right.
10:24
[SPEAKER_00]: And time star of people, it's like table scraps.
10:27
[SPEAKER_00]: They're just, you know, going from one thing to the next.
10:29
[SPEAKER_00]: Yeah.
10:30
[SPEAKER_00]: So I think at the end of the day, it's important to kind of, you know, put everything on a table, have a systems view of everything.
10:37
[SPEAKER_00]: At the end of the day, they want their time back.
10:40
[SPEAKER_00]: They want to do what's most important.
10:42
[SPEAKER_00]: They're scared of these things.
10:44
[SPEAKER_00]: They're an expert in their own history.
10:45
[SPEAKER_00]: And we do also have financial professionals that are a bit do at yourself.
10:50
[SPEAKER_00]: and sometimes their eyes get open a little wider that there's more things than they were thinking that they need to look at or address.
10:57
[SPEAKER_01]: Like, what about that driver-bounder personality?
11:01
[SPEAKER_01]: Like, the wealth creators, like, they often have incredible skills that have, like, built some numbers to run a wealth, but they're often in a little bit autocratic or, you know, not the most collaborative individuals.
11:13
[SPEAKER_01]: Like, how do you manage that?
11:15
[UNKNOWN]: Yeah.
11:15
[SPEAKER_00]: Maybe I can share a story.
11:16
[SPEAKER_00]: We have a process that we have most families that down called Financial DNA.
11:20
[SPEAKER_00]: And you might recall that back in our early days.
11:23
[SPEAKER_00]: And this is to help us accelerate and really understand who it is we're working with, how they see the world, how they communicate, how they make decisions, how they think of risk.
11:32
[SPEAKER_00]: And I would say a lot of these drivers are entrepreneurs might have a little bit of ADHD.
11:37
[SPEAKER_00]: Right.
11:37
[SPEAKER_00]: And they create a big wake.
11:39
[SPEAKER_00]: So there's nobody really behind them that sort of managing the wake.
11:42
[SPEAKER_00]: So to speak, it takes a little bit of time to earn their trust.
11:45
[SPEAKER_00]: But again, these are the people that can benefit most from a little bit of structure.
11:50
[SPEAKER_00]: a little bit of pre-planning, some proactivity, somebody that corrals the troops and all the professionals, but also holds some accountable.
11:58
[SPEAKER_00]: So the things are most important.
11:59
[SPEAKER_00]: And sometimes, some of these individuals in the past have never really had any accountability.
12:04
[SPEAKER_00]: And you have to do that with love and a little bit of care, but you know that's how we show up.
12:09
[SPEAKER_01]: So what's your example you're going to tell us a story?
12:12
[SPEAKER_00]: Yeah, so the example I might share is maybe around the year 2005 was introduced to this family by a friend and said, you know, this is somebody that is actually a family office client that was one of their best friends and a golfing friend of theirs.
12:27
[SPEAKER_00]: Well, why is that?
12:28
[SPEAKER_00]: I said, well, you know, super successful entrepreneur, fantastic creating things, but not very good at managing things.
12:35
[SPEAKER_00]: So that relationship started off, where everything was closed, chested, didn't really want to let me see the whole map.
12:43
[SPEAKER_00]: Just wanted to sort of, you know, piecemeal.
12:45
[SPEAKER_00]: And as we got through that relationship in about six, six months, eight months, I kind of got to the place and said, well, but this client's not going to open up and not going to allow us to see the whole picture.
12:55
[SPEAKER_00]: It's probably not a really good fit.
12:58
[SPEAKER_00]: It's sort of shared.
13:00
[SPEAKER_00]: And that was a tough conversation to have.
13:02
[SPEAKER_00]: I was still pretty young.
13:03
[SPEAKER_00]: This would have been one of my biggest clients at the time.
13:06
[SPEAKER_00]: And just sort of shared.
13:06
[SPEAKER_00]: I don't think this is a fit.
13:08
[SPEAKER_00]: And this is why it's not a fit.
13:10
[SPEAKER_00]: That was the first time I guess I got to use one of our sees, which is courage to help families.
13:15
[SPEAKER_00]: So at the end of the day, we need to be courageous and loyal champions for clients and their family.
13:20
[SPEAKER_00]: And at the end of the day, if they're not willing to be courageous for themselves, then they're probably not fit for us either.
13:24
[SPEAKER_00]: And this individual had built up six businesses.
13:27
[SPEAKER_00]: They had tons of venture capital, tons of private equity, fast forward a couple years.
13:32
[SPEAKER_00]: The great financial crisis comes this whole,
13:35
[SPEAKER_00]: Businesses now turned upside down.
13:37
[SPEAKER_00]: There's no liquidity.
13:38
[SPEAKER_00]: All the venture capital was illiquid.
13:41
[SPEAKER_00]: So now they were in a real mess.
13:42
[SPEAKER_00]: If they had not have sat down with it at that time, they wouldn't have had that $10, $15 million of liquidity.
13:48
[SPEAKER_00]: And would have lost two other businesses.
13:52
[SPEAKER_00]: Or half their wealth.
13:53
[SPEAKER_01]: you basically said this isn't a fit and then they decided to be more open come on all like what happened.
13:59
[SPEAKER_00]: It wasn't more open come on all.
14:01
[SPEAKER_00]: It was a totally dark and no communication vacuum for about two months.
14:08
[SPEAKER_00]: And then I I can't recall exactly what had happened.
14:11
[SPEAKER_00]: But it started with an email communication that led to another meeting essentially a reset.
14:17
[SPEAKER_00]: on the relationship.
14:18
[SPEAKER_00]: And I think it was the most powerful reset that I think back over 20 years, you know, the impact of that family, the two kids, one has mental health issues, the other one does have a very good relationship with the mom and the dad.
14:33
[SPEAKER_00]: Now, if I look back today in 20 years, that family is thriving.
14:38
[SPEAKER_01]: So let's talk about the logistics.
14:40
[SPEAKER_01]: So how do we coordinate the rest of the team?
14:43
[SPEAKER_01]: So you talked about the fact that professionals often work in silos.
14:47
[SPEAKER_01]: So you've got talks, legal insurance, investments strategy.
14:50
[SPEAKER_01]: Like how do you quarterback those individuals so they're rowing in the same direction?
14:56
[SPEAKER_00]: very good question.
14:57
[SPEAKER_00]: I'm going to slow down and ponder that.
15:00
[SPEAKER_00]: The very first part is to engage with each of the professionals in a way that helps everybody understand that we're not here to take any part of their job.
15:09
[SPEAKER_00]: We're not here controlling the process.
15:11
[SPEAKER_00]: We're all standing on the same side of the tables the client to support them in their best interests.
15:15
[SPEAKER_00]: I use the analogy a lot of times with the counts that we're your foot shoulders.
15:19
[SPEAKER_00]: We may see the client more often, we may have more information.
15:22
[SPEAKER_00]: That doesn't mean that your part isn't the most important part.
15:25
[SPEAKER_00]: You know, the tax part is a big part of client's planning.
15:29
[SPEAKER_00]: Including people and helping them see that, you know, we're not there to take over their job and that 1 plus 1 equals 3.
15:37
[SPEAKER_00]: And if we include the client in that 1 plus 1 plus 1 equals 6.
15:42
[SPEAKER_00]: The second part of that is having a structure where everybody can kind of see a whole picture.
15:47
[SPEAKER_00]: So that's where my technology or systems thinking and ability exchanging information, collaborating if they want the latest client goals, if they want access to the financial plan, if they want to understand proactively how the portfolio and distributions are going to affect the tax plan next year, that we map out a client service plan for those professionals.
16:08
[SPEAKER_00]: it's not often it's very rare in fact if I look back that we get all the stakeholders around the table, but there's these micro conversations that go on throughout the year.
16:17
[SPEAKER_00]: And so would you thank yourself as like center of the wheel of the spokes or how does you might recall that's one of my favorite ways to so if you look at a personal CFO and I'll be hesitant to use the word family office because I think as much as we might say you know we're a family office light and unless you're a single family that has three full-time salary people
16:38
[SPEAKER_00]: That's a family office where there's 100% alignment here paying the bills versus a multifamily office or something like we do or provide some of these services for 2,000 families.
16:49
[SPEAKER_00]: But really, if we look at the spokes of the wheel, there's three or four that we do very, very well.
16:53
[SPEAKER_00]: The accounts might do a couple.
16:55
[SPEAKER_00]: The insurance agent might do one or two.
16:57
[SPEAKER_00]: The estate, M&A lawyer, et cetera.
16:59
[SPEAKER_00]: The teams can be quite broad and the multitude of our clients if they don't have an executive assistant or somebody in their business, we will hire them.
17:07
[SPEAKER_00]: Because that is almost or even more critical than the piece that we provide.
17:12
[SPEAKER_00]: Who's making sure that things don't slip through the cracks?
17:15
[SPEAKER_01]: And so does that assistant report to the family unit or the business unit?
17:20
[SPEAKER_00]: Or a lot of times it's both.
17:22
[SPEAKER_00]: And for the most part, it's hired through the business.
17:25
[SPEAKER_00]: But another whole big conversation on this, what do you do when the business is sold?
17:31
[SPEAKER_00]: And that's a whole nother host of issues.
17:32
[SPEAKER_00]: They have all this infrastructure, all these people that ran the operation.
17:37
[SPEAKER_00]: So what do you do now when you sell your business for $150 million?
17:39
[SPEAKER_00]: And you've lost your whole team and you've lost your identity.
17:42
[SPEAKER_00]: So that's a whole nother conversation.
17:44
[SPEAKER_01]: And is that when you see people setting up family offices?
17:49
[SPEAKER_00]: That tends to be when they're more open to that.
17:53
[SPEAKER_00]: I think if I go back 20 years ago, that was new language, people didn't even know what that meant.
17:57
[SPEAKER_00]: If we look back the last five years, you're seeing more of those things, they might understand a personal see-a-full a little bit better than a family office, but every family is unique.
18:07
[SPEAKER_00]: So one family might require 15 or 16 services, one family might need three.
18:12
[SPEAKER_00]: I have a very simple life.
18:14
[SPEAKER_01]: One thing I've noticed in the industry is the family office word has become really diluted because it's been used as the sort of marketing, lingo, arguably, that people are using the cell products.
18:28
[SPEAKER_01]: And so if we think like what is a family office, I think it's unique to every individual, but it's basically like the family chooses to consolidate wealth.
18:37
[SPEAKER_01]: Like if you've got the golden goose, that's
18:39
[SPEAKER_01]: playing eggs, I think the idea is, do you want to keep the goose together?
18:42
[SPEAKER_01]: Or do you want to cut up the goose and to disparate hearts?
18:45
[SPEAKER_01]: And I think if a family wants to remain cohesive continuity, they're going to have to have some sort of family office structure.
18:52
[SPEAKER_01]: And that's usually a financial person, sometimes legal, you know, an administrative person.
19:00
[SPEAKER_01]: And then as the bigger
19:02
[SPEAKER_01]: the wealth or the complexity of the family you can add and add services.
19:06
[SPEAKER_01]: I know it heritage trust we, we do have some family office clients that it but I do sort of recoil at the word that it sounds overly fancy or ambiguous, but like sometimes it's just arguably bookkeeping like it's not sexy or payment.
19:22
[SPEAKER_01]: Yeah, it's a simple thing.
19:24
[SPEAKER_01]: But I mean, it can include a lot of things, so it really depends on the amount of wealth, the complexity of the family, and how much consolidation they want, or whether they want to go their own ways.
19:34
[SPEAKER_01]: And you know, it's funny they've got that shirt sleeves data where the majority of businesses don't successfully transition.
19:41
[SPEAKER_01]: But I think the question as well is that really success anyway, because if you're transferring wealth,
19:48
[SPEAKER_01]: It could be the net sale proceeds of the business and if you're building stewardship and each of the gen to your gen through you're doing their own successful things, maybe that is success.
19:59
[SPEAKER_01]: You don't necessarily have to stay together.
20:01
[SPEAKER_01]: It depends what the family wants and
20:03
[SPEAKER_00]: Absolutely.
20:04
[SPEAKER_00]: I think you brought up two really important parts there.
20:07
[SPEAKER_00]: Nicole is, if I'm fully objective and fully honest, you know, we do provide services and we are paid through investments.
20:14
[SPEAKER_00]: We also have fixed fee arrangements for some families that we don't manage the assets for, but there's a lot of product sales, you know, whether it's to insurance, investment management.
20:24
[SPEAKER_00]: So I'm also very hesitant to use the word.
20:27
[SPEAKER_00]: I think it's
20:33
[SPEAKER_00]: And another part I might add to this, if I may, is the CPO, is the Chief Problem Solving Officer.
20:39
[SPEAKER_00]: So a lot of times we see in families, whether it's mental health, health, the service that we provide, just, or I provide around health because it's my passion about engaging private medical services, concerted services around the world.
20:55
[SPEAKER_00]: I might take up two days a month solving those problems or helping a child that has mental health issues
21:03
[SPEAKER_00]: So really, when you say personal CFO, you might look at the left side, but there's this whole that right family side, you know, what are the most important problems pressing that family and that's more important than the rate or turn or anything else, right?
21:16
[SPEAKER_01]: So let's talk about you quite a business owning family.
21:19
[SPEAKER_01]: What is a successful transition?
21:21
[SPEAKER_01]: Is it transitioning the business?
21:23
[SPEAKER_01]: Is it exiting and transitioning wealth?
21:26
[SPEAKER_01]: Like tell me about that.
21:27
[SPEAKER_00]: succession and transition you're talking about two distinct issues.
21:31
[SPEAKER_00]: So if I kind of not pull us back too much to that right brain again, but your individual transition of selling a business, the majority of our founders identity is tied into that business.
21:44
[SPEAKER_00]: They're daily structure.
21:45
[SPEAKER_00]: their sense of control, their willingness or unwillingness to address those issues can be a really big roll block.
21:54
[SPEAKER_00]: So I think for the most part is this willingness to address some of those issues, because historically what we found is, there's two times and I'll turn this question back to you.
22:05
[SPEAKER_00]: So when do we tend to see a high risk of divorce when the kids leave the house?
22:09
[SPEAKER_00]: So first seven years, kids leave the house or when you sell a business?
22:14
[SPEAKER_00]: because when the husband and wife comes home and they were the founder, they want to boss around their spouse.
22:19
[SPEAKER_00]: They have no daily structure, things become very tense.
22:22
[SPEAKER_00]: They go, I haven't seen you for 35 years.
22:26
[SPEAKER_00]: So maybe I'll turn that back to you.
22:27
[SPEAKER_00]: You know, what are the things that you see?
22:29
[SPEAKER_01]: I think it can often be subconscious.
22:31
[SPEAKER_01]: I'm thinking of one individual we're working with right now who is in their early 70s, has run a successful business for 40 years, has built a lot of personal wealth as well.
22:46
[SPEAKER_01]: And the person says that they want to exit, but every time a perspective
22:59
[SPEAKER_01]: So I think there's a subconscious, I don't even think it is conscious, but I think this person says on one hand, oh, I do.
23:11
[SPEAKER_01]: I'm working too hard.
23:12
[SPEAKER_01]: This is so stressful.
23:13
[SPEAKER_01]: I want to spend time with my spouse.
23:16
[SPEAKER_01]: What's the point of building all this wealth if I never get to enjoy it, time is finite and in my early 70s.
23:22
[SPEAKER_01]: But you know, I'm getting up at four o'clock in the morning to work on this stuff.
23:25
[SPEAKER_01]: This isn't sustainable.
23:26
[SPEAKER_01]: Like, this is real, but then very valid perspective producers will, I can't do that.
23:31
[SPEAKER_01]: Well, no, absolutely not.
23:32
[SPEAKER_01]: There's no way I'm going to like, you know, it's like clearly, there's some sort of dissonance between what is being said and then what is happening for them.
23:45
[SPEAKER_00]: personally, heart and brain aren't aligned.
23:46
[SPEAKER_01]: Yeah, so I think in that individual, you know, the other thing about that driver founders, they're they're not often most reflective people.
23:57
[SPEAKER_01]: And you know, they didn't grow up where people went to therapy or talked about their feelings or, you know, so it's funny with this individual.
24:04
[SPEAKER_01]: I will
24:05
[SPEAKER_01]: email them questions and I will get one word answers.
24:08
[SPEAKER_01]: No.
24:10
[SPEAKER_01]: They're trying to communicate.
24:12
[SPEAKER_01]: So I mean, it's a little bit of a stereotype.
24:15
[SPEAKER_01]: And that's when there's people like us that are technical advisors.
24:20
[SPEAKER_01]: And, you know, we got a school for years, we spend years becoming competent, technically, and that's really important.
24:28
[SPEAKER_01]: But what it what in practice it seems like 90% of our success is something often we've never been trained in, which is like understanding the human experience in dealing with the soft piece and the EQ and it's like, okay, I'm not going to be successful in servicing this
24:46
[SPEAKER_01]: and touch with that.
24:47
[SPEAKER_01]: And, you know, I've, like, for me, I've been a layer for 25 years.
24:50
[SPEAKER_01]: I have, you know, undergrad, a lot of great masters of law.
24:54
[SPEAKER_01]: Nobody said one word about how to manage.
24:58
[SPEAKER_01]: You know, somebody who's having developmental life barriers and doesn't want to talk about them and stuff like that.
25:05
[SPEAKER_01]: So it is, it is a very.
25:07
[SPEAKER_01]: interesting, fascinating piece.
25:10
[SPEAKER_01]: And I enjoy working with people like you and multi-disciplinary teams to do the technical piece, but then also get underlying what's going on for that family.
25:19
[SPEAKER_01]: And, you know, it's one thing I can talk about, like Emily Griffiths is a speaker and is written books.
25:25
[SPEAKER_01]: And she's, we can talk about her because she speaks very openly about this, but how succession doesn't work.
25:31
[SPEAKER_01]: So she talked about her father who was this incredible entrepreneur and built all this wealth and had beautiful, beautiful, technical planning.
25:40
[SPEAKER_01]: But the family wasn't necessarily unbored and there was sort of two older kids and two younger children.
25:48
[SPEAKER_01]: And because there was a big age difference, they had had really different life experiences.
25:53
[SPEAKER_01]: And a lot of the beautiful planning
25:57
[SPEAKER_01]: undone basically because there wasn't buy-in from the family and they had really different goals.
26:03
[SPEAKER_01]: And she speaks about her own family where they are actually saying no to technical complexity and really focusing on building ball stewardship, entrepreneurial stuff for the next generation, but not trying to be too technical and tax based and more of the human part
26:25
[SPEAKER_00]: Well, I think if I were to distill that down to one word, it's alignment.
26:29
[SPEAKER_00]: Right.
26:29
[SPEAKER_00]: Right.
26:30
[SPEAKER_00]: And the best laid plans if there's no alignment don't happen.
26:34
[SPEAKER_00]: And the majority of the clients that we've actually brought on, I'm helping those families three to five years prior to selling the business.
26:41
[SPEAKER_00]: help them to get across that finish line, getting prepared mentally, financially and emotionally for that big decision, standing around the table when the going gets tough and they're fighting for the last 10 million dollars.
26:53
[SPEAKER_00]: And they know it doesn't make any difference.
26:55
[SPEAKER_00]: If you get a hundred million or nine million, it's just a scorecard.
26:58
[SPEAKER_00]: But if you don't close the deal, you don't get it done that.
27:01
[SPEAKER_00]: It might be seven years till you another chance based on
27:09
[SPEAKER_01]: So I think the statistic is the majority of Canadian employment in GDP is small to medium size business.
27:18
[SPEAKER_01]: The majority of these businesses are family owned and are going to transition in the next 10 years with the aging of the baby boom and I think like nobody's plant.
27:27
[SPEAKER_01]: Like what do we do?
27:28
[SPEAKER_01]: But that how do we how do we communicate with people better?
27:31
[SPEAKER_00]: And it's interesting, you know, I probably see the same stats.
27:34
[SPEAKER_00]: I felt like we have that conversation 10 years ago, and 90% of those families have just moved the needle and other 10 years and still haven't dealt with it.
27:42
[SPEAKER_00]: So it's interesting.
27:44
[SPEAKER_01]: Well, people like us are living longer so they can.
27:46
[SPEAKER_01]: Yeah, I can't agree with that.
27:48
[SPEAKER_01]: Okay, so let's just talk about risk management.
27:50
[SPEAKER_01]: Let's get a little bit more technical like you got a family that comes to you.
27:54
[SPEAKER_01]: How do you assess?
27:56
[SPEAKER_01]: risk and what are some of the strategies you do?
27:58
[SPEAKER_01]: I mean, we're in a highly volatile, uncertain and fast changing time.
28:03
[SPEAKER_01]: How do you help families still find?
28:06
[SPEAKER_00]: Yeah, I wouldn't say risk is a four-letter word.
28:08
[SPEAKER_00]: If I can start off with that.
28:11
[SPEAKER_00]: And what I mean by that is when you think of risk, you have to look at human capital risk, right?
28:16
[SPEAKER_00]: And that's just not your intellectual capital.
28:19
[SPEAKER_00]: And do you have all your eggs and one basket called a business?
28:22
[SPEAKER_00]: that business disappears.
28:23
[SPEAKER_00]: You've worked your whole 50 years in that business and you don't have enough financial assets, so that's a huge risk.
28:29
[SPEAKER_00]: So concentration is a big one.
28:31
[SPEAKER_00]: So people that tend to be in successful in real estate as a perfect example, so I can think of like a half dozen families that have built up, you know, north of a hundred million dollars in real estate, and that was extraordinarily successful for 30, 40 years when interest rates were low.
28:46
[SPEAKER_00]: Cap rates were different.
28:48
[SPEAKER_00]: You'd fast forward the last five years.
28:50
[SPEAKER_00]: It's been a bit of a disaster for families.
28:53
[SPEAKER_00]: So they might think that they're diversified as well.
28:56
[SPEAKER_00]: So for example, an entrepreneur sold their business for $85 million, they net it out about 70 million attacks prior to calling us.
29:04
[SPEAKER_00]: They found four financial advisors.
29:06
[SPEAKER_00]: Each of those advisors got a quarter.
29:09
[SPEAKER_00]: And when I looked under the hood and looked at the portfolio, they had expensive diversification.
29:14
[SPEAKER_00]: They owned a lot of the same stuff.
29:15
[SPEAKER_00]: It truly wasn't diversified.
29:17
[SPEAKER_00]: It wasn't built to weather the storms that are coming or occur on occasion.
29:23
[SPEAKER_00]: And the clients were paying three or four times more and fees and they should have probably been paying.
29:28
[SPEAKER_00]: So risk comes from so many different levels.
29:32
[SPEAKER_01]: How are we managing risk that there are some people that are saying AI is going to, if we ever get to AGI, like artificial general intelligence, and there's wildly different predictions about whether that's going to happen and what the timeframe is, but the economic disruption and enormous potential job loss
29:54
[SPEAKER_01]: huge changes in our economy like nobody knows what's going to happen but I think we all know there's going to be an enormous change like how are you helping people navigate that.
30:04
[SPEAKER_00]: It's a very small question.
30:05
[SPEAKER_00]: You hit the nail ahead, the future's unknowable.
30:08
[SPEAKER_00]: I don't know the future, no one knows the future.
30:10
[SPEAKER_00]: So you have to start with that premise.
30:13
[SPEAKER_00]: Second of all, technological change.
30:16
[SPEAKER_00]: We can look back through history, there's industrial revolution, there's farming.
30:19
[SPEAKER_00]: The biggest shift that I can think that was more slower motion, the draw some parallels to today.
30:25
[SPEAKER_00]: If you look in the United States of America, just under 20% of people were involved in farming in agriculture, you look back today, and it's less than 1%.
30:33
[SPEAKER_00]: So you get these huge shifts in the underlying sectors of parts that are driving the economy.
30:38
[SPEAKER_00]: I think this is gonna be a fast, a faster change.
30:43
[SPEAKER_00]: So how will governments adapt?
30:45
[SPEAKER_00]: I think capital markets are quite efficient at how they allocate capital.
30:48
[SPEAKER_00]: So I think that'll happen in real time.
30:51
[SPEAKER_00]: But as a society, I think we're gonna have to be dealing with some bigger issues.
30:55
[SPEAKER_00]: Do we have universal,
30:57
[SPEAKER_00]: funding of, you know, hundreds of thousands of people in Canada lost their job.
31:02
[SPEAKER_00]: They can't replace it based on training and other things.
31:05
[SPEAKER_00]: So I think we're in a situation where, you know, broad diversification is extraordinarily impossible.
31:11
[SPEAKER_00]: You can't always think that, hey, put all your money in equities that's going to work out or, hey, let's concentrate all our money in AI stocks and I could start a whole
31:22
[SPEAKER_00]: one of the most dangerous words and finances this time is different because usually history rhymes.
31:27
[SPEAKER_00]: So, you know, does this lead into something where the benefits don't quite come true.
31:33
[SPEAKER_00]: Those stocks are reprised and there were two thirds or three quarters of their value.
31:38
[SPEAKER_00]: Is there another debt crisis coming?
31:40
[SPEAKER_00]: So diversification, owning bonds, fixing come other asset classes and not just concentrated to the winners or what's doing well now.
31:48
[SPEAKER_00]: I think is really
31:50
[SPEAKER_01]: But how are you advising people when there's really 10 companies that are carrying the market?
31:55
[SPEAKER_01]: Like, what do you say to people in terms of diversifying?
31:59
[SPEAKER_00]: diversifications always are friend, right?
32:02
[SPEAKER_00]: So I could go back and show you a composite of 100 years and the year 1900, the US stock market composed 15% of the world market capitalization.
32:14
[SPEAKER_00]: Great Britain was 24%.
32:17
[SPEAKER_00]: Fast forward to 1950, the United States is at similar levels, 65 percent, fast forward to 1970, to 1989, the United States goes from a capitalization of 65 percent to 26 percent, and Japan took over the world.
32:34
[SPEAKER_00]: So just because U.S. has been this success story, I think it provides a bias.
32:40
[SPEAKER_00]: It doesn't give an accurate window into the future for expected returns.
32:44
[SPEAKER_00]: So valuations matter the cost of capital is the expected return.
32:49
[SPEAKER_00]: And right now U.S. stocks cost a capital is extraordinarily low.
32:53
[SPEAKER_00]: And that usually means unusually low rate of returns going forward.
32:57
[SPEAKER_01]: When we're not easy questions, like Kusmas coming up, Trump saying he's wants to try to turf the deal.
33:04
[SPEAKER_01]: We've got incredible competition from China, like, is Canada and decline?
33:10
[SPEAKER_01]: What's going to happen to our standard of living?
33:12
[SPEAKER_01]: We can't get projects done, our standard of living and productivity is plummeting.
33:16
[SPEAKER_01]: What's going to happen to Canada?
33:18
[SPEAKER_00]: Really throw in the easy questions out here today and call again, you know, I don't know if I can answer that, but I can use the passes and example.
33:25
[SPEAKER_00]: So if you go back to the early 90s in Canada, we were a bit of a disaster right the amount of debt highest to GDP are currency was getting crushed bond markets were asking for higher yields based on the risk.
33:39
[SPEAKER_00]: Fast forward, what happened over the next 10 years?
33:41
[SPEAKER_00]: Canada was one of the lowest jet to GDP.
33:44
[SPEAKER_00]: We brought this thing called GSD, very unpopular.
33:46
[SPEAKER_00]: It was supposed to be a temporary.
33:47
[SPEAKER_00]: It's still here today.
33:48
[SPEAKER_00]: Economies adapt.
33:50
[SPEAKER_00]: People adapt.
33:52
[SPEAKER_00]: Maybe Mark Carney is part of the answer here.
33:54
[SPEAKER_00]: This product, given in Canada, has been an absolute disaster.
33:57
[SPEAKER_00]: How we reinvest or lack of reinvest in our economy over the last 10 years or 15 years.
34:02
[SPEAKER_00]: And I won't shift my political view on that.
34:05
[SPEAKER_00]: But it's been an unmedicated disaster.
34:08
[SPEAKER_00]: So again, you can't look at the past and say that's the expectation of the future, because capital markets will enforce discipline, capital markets will enforce change, the cost of capital will increase, bond rates will increase, and that will cause governments to make change, there's three ways you can grow out of a debt crisis, right, the first one is you can grow your way out.
34:29
[SPEAKER_00]: That tends to be the most popular.
34:30
[SPEAKER_00]: The second one's austerity.
34:32
[SPEAKER_00]: I don't think there's any will of Canadians U.S. for that.
34:36
[SPEAKER_00]: And a third one is some level of debasement of currency.
34:40
[SPEAKER_00]: And maybe that's the future for the United States.
34:43
[SPEAKER_00]: But I think it's pretty unlikely.
34:44
[SPEAKER_01]: So if you could give Canadian families one step that they could do before the end of 2025 or Q126, what is one thing that they can do to move themselves forward financially?
34:59
[SPEAKER_00]: Let's get back to the conversation piece, which I think is a big one.
35:03
[SPEAKER_00]: So hold a 30 minute family future conversation, right?
35:07
[SPEAKER_00]: Start with the small conversations, find some way to engage your kids or your kids to engage your mom and dad.
35:15
[SPEAKER_00]: That's been a big thing that I see as different.
35:19
[SPEAKER_00]: Today's generation's very different than we might have been.
35:23
[SPEAKER_00]: If you look back 34 years, you might say that they're entitled, they're not engaged,
35:29
[SPEAKER_00]: You know, they want to hurt wisdom.
35:31
[SPEAKER_00]: They don't want to inherit the money.
35:33
[SPEAKER_01]: Well, that's a great way to leave it.
35:34
[SPEAKER_01]: Thank you so much for strengthening time at us.
35:37
[SPEAKER_00]: Absolutely, but a pleasure to be here.
35:39
[SPEAKER_01]: This podcast is for informational purposes only and should not be considered individual legal, financial, or tax advice.
35:46
[SPEAKER_01]: Make sure to consult the advisor of your choice to advise you on your own circumstances.
35:53
[SPEAKER_01]: Thank you for joining us for this episode of Your State Matters.
35:56
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36:01
[SPEAKER_01]: Whether you're planning your own estate or your acting is executive for somebody else's, Heritage Trust can help.
36:07
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36:12
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36:25
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