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Business owners are better prepared for wealth transfer says RBC research

17/05/2017 Leah Hodgson

Business owners are better prepared for wealth transfer than others, according to research from RBC Wealth Management. 

With $4 trillion in wealth to be passed down to inheritors in Canada, the UK and the US in the coming years, RBC's "Business owners and wealth transfer: Applying lessons learned in business to wealth transfer" report looks at the mindset of business owners towards wealth transfer planning. 

More than one third (39 percent) of those surveyed have a full wealth transfer plan in place compared with 26 percent of employed professionals. 

The tendency to be well-prepared for wealth transfer is higher amongst business owners with investable assets over $10 million. The survey shows that they are three times (58 percent) more likely to have a full wealth transfer plan than those with less than $1 million (19 percent). This would suggest that a the value of the business increases, business owners pay more attention to wealth transfer planning.

John Younger, managing director - business owners and entrepreneurs at RBC Wealth Management, commented: “For business owners, a career of self-reliance appears to engender a hands-on approach in the process of wealth transfer. A business owner’s assets are often illiquid and inextricably linked to personal interests, creating a layer of additional wealth planning challenges that don’t tend to apply in normal circumstances – it is that intersection this paper seeks to address.” 

Business owners apply the same hands-on approach to financial education with 96 percent making a deliberate effort to educate themselves on wealth according to the survey. Being self-started, they tend to self-educate with 68 percent of respondents conducting their own research. Only 19 percent said that they take advantage of structured financial literary programs offered by their financial advisers. 

Although business owners tend to be better prepared, there is still room for improvement. One in five (22 percent) have not yet started planning while only 51 percent have taken the first step by drafting a will. 

According to Mr Younger, people tend to put off the wealth transfer planning as they have a "tough time" broaching the subject. 

Guy Huntrods, RBC Wealth Management's managing director, head of investment counsellors, added: “Historically, there has often been a degree of discomfort when discussing matters of wealth with close family. This report reveals a constructive approach from a young age; business owners recognise the importance of giving the next generation a well-rounded wealth education to guide them on their journey.”

Indeed, 45 percent of those surveyed intend to better prepare their children for inheritance by giving them more guidance than they received. The majority (36 percent) consider wealth transfer to be the most important of financial topics to teach their children compared with other topics such as budgeting (33 percent), the family business (32 percent) and entrepreneurship (25 percent). 

The survey also showed that business owners welcome professional guidance in educating the next generation with 29 percent turning to financial advisers and private bankers. Family, however, remains the preferred source of guidance on matters of wealth, at 51 percent. Business owners with investable assets of more than $10 million are less likely to seek input from family (42 percent) than those with less that $1 million (57 percent). 

Mr Younger noted that one key trend emerging is that business owners are educating their children earlier. They typically start at 25 with younger business owners intending for their heirs to begin their wealth education before 18 (20 percent).

The research also suggested that business owners are more likely than other groups to transfer some of their assets during their lifetimes. 40 percent intend to make lifetime transfers compared with 32 percent of employed professionals. 

RBC identified two key motivators of "giving while living": the opportunity to share financial knowledge and the opportunity to witness the positive impacts of their wealth; and the legacy they envision leaving. 

The report concluded that the proactive attitude of business owners and their willingness to better prepare their children suggest that the next generation will be well-positioned to take on and effectively manage their legacy.

The research is based on data from 384 business owners across the UK, the US and Canada with average investable assets of $6.4 million. 

In addition to the Business Owners & Wealth Transfer report, RBC Wealth Management will release two additional research papers over the coming weeks, which will delve further into the challenges and opportunities families and millennials face when it comes to inheritance.

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