The Wealthy Entrepreneur



Published On

June 9, 2014

Published In


MONTREAL | OCTOBER 13, 2010 | | SINCE 1778The Wealthy EntrepreneurAbout 40% of Canada’s rich own businessesBy ANDY HOLLOWAY, Financial PostA new generation of Canadian businessowners and entrepreneurs is starting to findout they’re wanted by financial plannersand institutions that have already tappedthe wealthy establishment for business.The reason? They are the new rich.About 40% of the country’s morethan 544,000 high-net-worth householdsown businesses, according to a recentRBC survey. By comparison, just 8% ofCanada’s millionaires inherited their riches.Those numbers underscore how wealthdemographics are shifting to younger agegroups and to “earned” wealth rather thaninherited wealth.No wonder the financial industry isturning its attention to managing thewealth of entrepreneurs. And they coulduse the help.Not that entrepreneurs are incapable ofmanaging their own affairs, says MichaelNairne, co-founder and chief investmentofficer of Torontobased Tacita Capital,a fee-only adviser that deals with high-net-worth clients. But he says many ofthem have too much of their wealth tiedup in their businesses’s assets. That’s notsurprising since their businesses are oftentheir life’s work, but it’s a risky strategy toretain wealth in the long run.For example, the recent recessionwas particularly punishing for smallmanufacturer-owners as business dried upor moved offshore. By contrast, establishedwealthy households may have a businessbucket, but they also have huge assets inwhat Mr. Nairne calls the portfolio bucket.”They’re interested in growth, but theiroverall goal is one of capital preservation,”says Mr. Nairne, who adds it’s timeentrepreneurs followed suit by diversifyingtheir assets.Indeed, most entrepreneurs act less likethe rich folk they’ve become and morelike the hoi polloi who take a fragmented approach to managing their financialaffairs. They likely have an investmentadviser, maybe even three or four of them,and an accountant, as well as a corporatesolicitor, auditor and insurer to take careof their business operations. But they’reoften missing tax-planning opportunities,they duplicate investment mandates andoften pay unnecessary interest costs, saysMr. Nairne.And they typically don’t realize anyof this until someone close to themhas a health scare or dies. The trigger,or groundhog moment, as AnthonyMaiorino, vice-president and head of RBCWealth Management Services, puts it, isless about fixing a particular problem thanfacing one’s own mortality.Once they realize they don’t have aplan, they have plenty of options thanks toa financial industry that is realizing thereis untapped potential in what has been themost entrepreneurial generation. “Twentyyears ago, it was the mortgage industrywhere a lot of innovation was happening,because baby boomers were gettinghouses,” says Mr. Maiorino.There’s even a peer-to-peer networkinggroup for really rich entrepreneurs. CalledTiger 21, the New Yorkbased organizationwas started in 1999 to help entrepreneursfigure out what to do with the proceedsfrom selling their businesses. Memberssit in on monthly daylong meetings wherethey can learn from other members as wellas professional speakers. The club nowhas 140 members in the United Stateswho collectively manage approximatelyUS$10-billion in assets, and it’s movinginto Canada. But membership doesn’tcome cheap: annual dues are $30,000 perperson.But Thane Stenner, managing director ofTiger 21 Canada, says the interest shownso far is high enough that Tiger 21 doesn’t expect any problems finding a dozen orso members in each of Montreal, Toronto,Calgary and Vancouver. The MerrillLynch Capgemini 2010 World WealthReport states there are more than 30,000Canadians with more than $10-million inassets, and 4,000 of them with more than$30-million. “A lot of entrepreneurs whohave built up successful businesses don’teven consider themselves wealthy, evenif they have a business worth $20-, $30-, $50-million or even higher,” says Mr.Stenner. “The reason is they haven’t hadtheir liquidity event.”Once that event happens — whetherit’s passing the business on to an heir orselling out to a partner or a third party — itcan be a bit of a shock to realize they’reno longer driving an operational business.”They now have one hand on the wheelversus two,” says Mr. Stenner, who, priorto joining Tiger 21 was founder of StennerInvestment Partners and a director withwealth-management firm RichardsonGMP.Of course, as the saying goes, youcan take the business owner out of thebusiness, but you can’t take the businessout of the business owner. Entrepreneursnever really retire, says Mr. Maiorino. Buttheir focus may shift to their investmentportfolio or family planning rather thanthe ongoing business.RBC’s study reports that high-net-worthfamilies control $1.8-trillion in wealth or67% of the total wealth in Canada. Thesecret to managing entrepreneurs’ share ofthat wealth, says Mr. Maiorino, is exactlythe same thing that made them successfulin the first place: planning.Fortunately, most entrepreneurs stillhave plenty of time, something they didn’thave much of while building their wealth.¬© Copyright (c) The Montreal Gazette