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David Kitai 00:00:07
David, hello and welcome to this special episode of WPTV. My name is David Kitai, Senior Editor at Wealth Professional. Liquidity events, or money in motion events are those moments when the robber really hits the road for an advisor. When a client sells their business or comes into an inheritance or buys or sells a house, they get married, they get divorced, they send their kids to college, or there's just a significant change in wealth that needs to be managed. The tax implications are varied. The impacts on the financial plan can be immediate and they can be challenging. Thane Stenner is an expert at these moments. Thane is the Senior Portfolio Manager and Wealth Advisor at Stenner Wealth Partners plus of Canaccord Genuity Wealth Management. He joins us today to talk through how he approaches these crucial moments. Thane thank you for joining us today.
Thane Stenner 00:00:54
My pleasure. David, happy to be here.
David Kitai 00:00:57
So Thane, let's start with you know broad defining of terms. How do you define a client liquidity event?
Thane Stenner 00:01:06
Well, basically it implies, so it's a great question. It implies something where there's a larger than normal cash inflow from either a sale of a business, an inheritance, possibly an insurance payout, whether, you know, somebody's taken their private company public through an IPO, or there's an M and A transaction where a C suite executive is already, you know, CEO chairman of a publicly traded company that now has a takeover offer, and there's various pre planning that kind of goes into the bottom line is it's kind of like a larger than normal cash inflow from a larger type of event.
David Kitai 00:01:51
So you've listed a wide range of circumstances and a lot of different incomes, outcomes, whatever. What is your general approach to these incredibly varied events?
Thane Stenner 00:02:05
Firstly, I'd say that the earlier that the recipient is likely to be receiving, let's say, let's just use a business sale as an example, the earlier we get involved to pre planning typically allows us to optimize the after tax proceeds and sometimes even the total pre tax proceeds as well, assuming that, you know, a business owner, for example, has their own tax professionals and, you know, estate professionals, etc, there's a lot of, you know, collaboration work that goes into working with them so that the transition or the transaction can go as smoothly as possible. So that's it's kind of the pre leading up is the is the preferred way of doing it. It doesn't always happen that way. Sometimes, you know, a bid for a company of an entrepreneur comes out of the blue. They're not, they're not aware of it, but hopefully they've done some pre planning, if they're have any inkling of, you know, potentially selling a business in the next one to two years, for example.
David Kitai 00:03:12
So the other piece that seems to to occur to me, and as he kind of comes out in that pre planning, is is just the stage of information gathering, when that sale is coming through, or whatever the source of the liquidity event might be, again, the devil's in the details. So how do you approach the kind of the the information gathering stage of this process?
Thane Stenner 00:03:33
Well, yeah, so firstly, I would say, you know that we signed, we're it's our client already, that were already governed by confidentiality agreements. So sometimes, you know, sellers of businesses are bound by NDAs or non disclosure agreements with potential buyer, but they are allowed to engage with their professional advisors to kind of prepare for the the potential outcome of what's going to happen. The second thing I guess I would say, is, as far as data gathering, there tends to be a lot of details that you do want to gather. One would be, you know, what's the adjusted cost base of the business, for example, because you're trying to establish, what's the potential tax of this particular transaction, if there is taxation, and you know, really try to get ahead of that, because there's certain maneuvers, certain planning strategies you can utilize, like the section 85 rollover, for an example, that we work with the accountants and tax lawyers to kind of help, basically, in essence, optimize the proceeds. So again, earlier the planning the better. Less stress to the seller and they feel going into negotiations, better prepared and just more comfortable.
David Kitai 00:04:52
So as you say, earlier the better. But sometimes these liquidity events can happen rapidly. Yeah. An offer per a deal might be, you know, suddenly the timeline is days to hours, and you are going to need to be there, be available to your client and make this work on a tight timeframe. How do you, you know, ideal conditions are one thing. How do you manage it when conditions aren't ideal? What does it require from you as an advisor?
Thane Stenner 00:05:19
So what I'd say is that, basically, most takeover offers went up. Yes, they can happen by surprise, but normally they have a anywhere from a 30 to 90 day or six month fuse to them. So it's not like they have to accept or not within 48 hours. It's very, very rare that, in fact, it's almost impossible to kind of do that properly. What they may end up doing is agreeing in principle to something or sign the letter of intent, you know, with this, with the buyer, and then real negotiations kind of begin, and then a lot of the heavy lifting really comes in. But in order to do it right, you probably need a good three months minimum planning to just to make sure you're not leaving anything under the off the table, and that, you know, in essence, you're not overlooking something that can come back and bite you kind of you want to try to minimize regret right at the end of the day, if you're selling a business, you want it to go smoothly. And so there's, you know, there's always a little bit of pushback, but the sooner that the wealth owner kind of tells their advisor, or tells us, for example, that they're kind of getting ready or they're in discussions. In fact, we've got one right now with a client in Ontario. They went through an auction process. They shortlisted down to three potential bidders letters of intent out of like 17 they he whittled it down to three strategic ones, and then at that point, what we're able to do is provide some behind the scenes research and analysis for them on the potential buyers. Sometimes there's strategic reasons why a seller will say, No, you know, if it's a publicly traded company buying my company, whether it's private or public, there could be a section 85 rollover to defer taxes on some of it or all of it. So that could be a big thing on a big transaction. Secondly, you know, there's because we've, you know, seen literally hundreds of these types of transactions in my career, you end up seeing where maybe a private equity group is approaching to take them over, for example. So structurally, you know, are they going to buy the full company? Are they going to buy? Is there going to be any carried interest? Is there any exchange where or take back from the seller's point of view of where they maybe have to invest in the private equity portfolio that's buying it. So there's a lot of different nuances that kind of come into into the scene, into the picture, and Canada, it's an area that I just absolutely love. I'm kind of think in some ways, I'm kind of half investment banker, capital markets person, half wealth manager. I'm not officially, just for the compliance people, obviously, but it's kind of how I think, and it's something that I've done many, many times, and I really enjoy.
David Kitai 00:08:09
Absolutely I mean, yeah, the intellectual challenge alone sounds it's meaty, it's interesting. Every situation is unique. It's super compelling to get into the weeds of it. And boy, would I love to pick your brain about some one, like individual example stories, maybe off the record for something we we work on a little later. But, you know, going back into the process, you know, you mentioned tax implications, you mentioned adjusted cost base, you mentioned some of the sort of the avenues that are available. Anything else you would add on that? any other kind of
Thane Stenner 00:08:39
Yeah, so, for example, the capital gains exemption personal tax capital gains exemption per family member can be actually utilized in a sale of a transaction. And you know, so if you can save, if you have six people in your family, four kids, two adults, and you use up all six, that you can shelter millions and millions of dollars worth of the portion of the price, right? So anything above that is taxable, above those limits, but yeah, the capital gains tax comes into play. Timing comes into play. For an example, sometimes, you know, offers come in later in the year, and maybe you want to close, maybe the buyer wants to close before year end, and sometimes you have to, but if you can kind of punt it into the next year into January as a closing for an example, you can potentially defer the tax bill for 1516 months, versus three or four months to the end of the following year. Right? So there's some there's some adjustments that can take place. And the other thing that, you know, I find is, you know, in this one example I just gave about this Ontario, that one of the bidders is a publicly traded company. So we actually did up a workup, a research workup of that publicly traded company, their financials, latest financials, what the what the analysts are saying? About the company, etc, because if they can exchange company shares for publicly traded company shares, that's section 85 rollover, whether it's a US or Canadian company, and that can defer taxes significantly, if not fully, on the on the transaction. But the seller would want to know, okay, this publicly traded company, like, what's like? How good are they, right? So we're we study the public market, so we're able to provide them a full workup behind the scenes. They say, Okay, here's the balance sheet, here's the income statement, here's what the analysts are saying about that company. Because if you're gonna sell $100 million business, and you get $100 million worth of stock, publicly traded stock back, tax deferred, great. But what's their dividend yield? What's is, do they have too high a debt, etc, etc. So again, it makes them more informed when they get in the room to understanding what options, how to assess it, and to make, you know, to increase their confidence that they're making a really sound decision.
David Kitai 00:11:03
It's fascinating that your expertise as an investment advisor and the traditional wheelhouse of this industry, is suddenly pulled into the more novel spaces that advisors are expected to operate in the tax and estate planning, the business disposition decisions. It's really fascinating to see how closely these skills kind of work together, and how how they can all be contained in in one person thing.
Thane Stenner 00:11:27
So it is a team effort, I will say, you know, just as a caveat, not a CPA. So we obviously deal with the client CPAs, or some other expert CPAs, if they need some help, tax lawyers. We're not tax lawyers, but we work very collaboratively with the clients, advisors and or some external counsel and expertise the So, and, you know, I'm very fortunate and blessed to have a fairly large team of 13 people on my team. So we kind of go into, you know, rolling up the sleeves and really digging in for for clients. So I've got a number of analysts and portfolio managers, kind of on my team that actually helped me get this information to our clients.
David Kitai 00:12:10
Credit to the whole team, obviously. And it again, speaks to the modern direction of the industry, where team based approaches seem to be the, the only way to really deliver this level of service to high net worth and ultra high net worth individuals. Now there's the there are other liquidity events beyond just the sale and disposition of a business. So one of them, and we're encountering it a lot now, is inheritance. We're in the middle of the intergenerational wealth transfer. Baby Boomers are passing on and leaving, you know, the greatest wealth in human history and the hands of one generation to their heirs. How do you adapt financial plans for clients when you know their parents or grandparents pass on and leave them with this sudden, maybe unexpected in terms of the total amount they didn't know was coming? But this, this sudden influx of of cash?
Thane Stenner 00:12:59
Yeah, so the influx of cash, I mean, again, it kind of comes back to having dialog with your clients. Say, look, have you prepared your errors for this? They should be educated about things. And it's, when do you think? You know, this is a fun question I ask, but I go, when do you think the best time for us to be teaching your errors? Yes, yes, is while you're alive, so they can understand what your thoughts are as to maybe some guidance or some moral suasion as to how they should kind of manage the capital. And then we kind of bridge that so, you know, part of the, part of the role of a, you know, an expert Wealth Advisors, basically, to facilitate these conversations. And I would say, coming up with the like, really insightful questions will then dictate, kind of some really interesting conversation. So coming up with, you know, some really good questions in advance of that, and then walking them through with with their heirs to start the dialog. And it takes, you know, takes months. It takes years, sometimes, for them to be fully prepared. The best analogy I give is kind of like, quarterback is the money holder receiver or the running back is the money receiver. And both need to be trained. One needs to be trained to throw the ball or hand off the ball. The other one needs to be trained to receive the ball. So in, you know, NFL, CFL terms, it's kind of an analogy we use quite a bit, and it seems to make a lot of sense. And it's a it's an interesting exercise. I would say starting kids in their teens, early adults is preferable. But at the end of the day, starting whenever you can, is really what needs to happen. This is that that values and educational process, which again, takes some time, it's got I'll give you one other quick example. I've got a multi generational, three generational family, so my team and I kind of engage them at different. Levels. So I've got one that has 1814, 13 year old sons, 18 year old is engaging with some of my youngest team members. For example, I come in a little bit as a little bit of the elder statesman, put the put the parents on with me, or the grandparents. And it's actually, you can actually have a lot of fun doing it, and you can actually make it a creative dialog, right? So it's good.
David Kitai 00:15:27
I mean, it's, it's, again, it's fascinating after hearing you talk about the hard skills and the tax management and all of this that goes into disposing of business, now, suddenly it's the soft skills. There's, there's so much that you're having to pull from. But what occurs to me is, is the idea of, you know, despite the inevitability of death and taxes, which is really what we're talking about here, people don't like talking about them. And they don't like talking about, necessarily, how much money they have. They worry about the impact that that knowledge might have on the next generation. They worry about, you know, a lot of these kinds of more amorphous anxieties around their wealth. So how do you break some of those taboos? How do you show that actually having the open conversation can be healthier in the long run?
Thane Stenner 00:16:10
Well, so a couple things there. I've been an executor, fortunately, unfortunately in my life, twice, my best friend passed away a young family, 39 at the time, two young kids and business and real estate and a bunch of different things. And my sister also passed away, my middle sister, so I had to kind of navigate certain things there that were kind of tricky. So I've seen really practical things where you kind of go. Oh, you know, I wish, I wish I would have done that before, or wish I would have gotten the instructions a little bit earlier on this for that, but you see where the ball can be dropped. So I think, you know, part of this conversation, people, when they talk about their estate, for an example, you know, never fun talking about, you know, when you're going to pass, of course. But the reality is, you can use levity. You can you can smile. You can have, you know, Zoom calls with them, and you can kind of just create an interesting dialog where it doesn't have to be so tense. So I've learned a lot of facilitation kind of skills, I guess, in my career. So, you know, you hit a point there. David, that was really good. I kind of consider myself and our team kind of half expert technicians on different things, and half, in essence, trying to figure out the psychology of the people were injured. So we actually utilize a tool called the financial DNA tool, survey tool, 40 questions online. Takes 1520, minutes to do. For an example, this is one of many things we do, but that kind of kicks out a report, six page report on the individual taking it and it they're one of 10 profiles. So it's not a quiz. It's not like there's right or wrong. It's like, here's how, based upon how you answer. Here's kind of your, you know, an engager or your initiator, or you're an influencer, or you're an adapter, like this 10 different pros. I've been using this program for, you know, just under 20 years now, designed by a group of psychologists, and I can tell you, it's brilliantly done and amazingly accurate. Now, it doesn't displace this, right? It doesn't displace interaction on Zoom or in person, of course, but I can tell you it's been amazingly accurate. We do it on our own team. So, so, for example, I'm an initiator. 75% of all business builders are initiators, by by happens, downs, and my, our team, is an adapter. So the alternate worth space, dealing with 25 million net worth type clients like we are, you have to be adaptive to the scenario you have to end. And adaptive doesn't mean reactive, although we have to react, it also means being proactive and trying to help lead them through the journey of a liquidity event or an inheritance or divorce or whatever, right? That's That's part of our role is to try to be, you know, in essence, some wealth Sherpas, I guess, a fun way to put it,
David Kitai 00:19:27
Yeah, absolutely, a way to go up that mountain having, having climbed up before yourselves, to maybe belabor your, your elegant metaphor there, but you mentioned, actually divorce, and that's sort of the the other area of a sort of money in motion event that that I really would like to get into, because it's one, it's one I've not explored that much as a reporter. And it's one that I think it doesn't have the same, you know, influx of cash necessarily. It has influxes for some and outflows for others. So how do you manage when, when clients tell you that they are getting a divorce?
Thane Stenner 00:20:01
Yeah, so 50% of all marriages fail, unfortunately, regrettably, it's just a fact of life. And the entanglement of the finances of the household, you know, is can be really, really challenging. Estate planning, division of assets, fairness, you know, all of these issues kind of come up. You know, education for the kids and grandkids. So when it comes to divorce, the really tricky part about that is that it's a typically, the emotions are much higher, like it's so, you know, I can be dealing where we can be dealing with the spouse that's going through a divorce, and let's say she's going to receive half of a $50 million net worth, kind of balance sheet of the family, we have to be really cognizant of asking her a lot of questions and making sure she feels as though she's getting fully hurt so and we've got to really make Good notes so that when we circle back later and we develop a new wealth plan for it, for example, because she's now on a new path, then basically we have to tie those points back in both verbally, in writing, emotionally to actually, so she understands, Yes, this is I'm now pivoting to a new path way in my life, but it's fraught, fraught with emotions, which would be really tricky navigating to be candid.
David Kitai 00:21:33
It's fascinating, though, that you speak to the power of touchstones, right? And it's something that has occurred, and in a lot of the ways that I'll talk with different advisors about those reading those sticky situations again, that could be death, that could be inheritance, that could be future goals and plans, and yeah, divorce is certainly up there among the stickier of situations. But having something that you can refer back to, actually having it on the record, having it as something that sort of that's been clearly stated and stated back and the value that that can have in bringing someone on board with with the plan. I mean, it's, to me, it's almost a no brainer, but it is. It's fascinating to hear it articulated so clearly.
Thane Stenner 00:22:10
Yeah, it's it's powerful when done right. It's challenging when done wrong. I can just tell you that much for sure. Part of the other thing that I think kind of comes into play, not on the divorce side, but with the kids and next gen the other day, you know, parents don't want their kids to grow up with entitlement. So, so you're at an access point where maybe the parents created, you know, significant wealth and and you know, they're, they're not wanting Johnny or Betty to kind of, you know, grow up in Silver Spoon, so to speak. Right? So they're actually quite concerned about that. And the main thing behind that concern or anxiety is, you know, will I, if by them inheriting a lot, or if I gift them a lot, will it take away their natural drive to succeed on life. Will it? Will it take them away from building something themselves, right? So now the entitlement piece is an area that there's lots of counselors, lots of strategic coaches and stuff that we sometimes bring in to kind of facilitate some of these discussions, some really, really good ones on a global basis. And it's particularly important when the level of wealth is, you know, a family is way, way up on the wealth curve. You know, 50, 100, 500 billion, plus billion status, the wealth in my in my book that I wrote back in 2001 called True wealth. Wealth tends to amplify personalities, the good and the bad. So somebody that's kind of Kinder generous, you know, they become extremely successful. They tend to be even more philanthropic and more giving, right? And the opposite can also be true. You can get the the opposite type of personality, that they become even more miserly. It will be as simple putting it, but you know, at the end of the day, it's it really comes back to trying to find out what their values and marry the values to whatever liquidity event occurs, or whatever is going on, money motion event in their in their lives.
David Kitai 00:24:27
Yeah, there's the other piece, which is, you know, and in some ways, you've touched on it a lot already. But speaking generally about these money emotion events, when advisors are approaching them, what are kind of the common mistakes? You'll hear from them, or you'll see them making, especially newer advisors who are maybe dealing with some of these situations or dealing with this echelon of clients for the first time in their careers.
Thane Stenner 00:24:51
Yeah, I would say there's a lot of missteps early on for a few reasons. One, they're trying to prove themselves. Technically, so much that they stay in the word speak of the wealth management industry, a lot of technical stuff at the end of the day, people are people, and they need to be spoken to. And, you know, break things down, simplify and help them just relate to what you're talking about, versus using a lot of acronyms and buzzer words of the industry. And then secondly, if they don't cross over to the values part or the personality part of the families, the different personalities and dynamics there, it's going to be very difficult them, for them to connect and candidly, win the business. Because a lot of times, a lot of times, what ends up happening is an entrepreneur goes through, or, you know, husband wife go through a major liquidity event or preparing for it, and they feel like they've outgrown their existing advisor. It's one thing to have, you know, portfolio of a couple million dollars, but let's just say they go through liquidity events after, you know, 25 years of running the business, and it's for $100 million intuitively, they get a sense of really, like my existing advisor, but I don't really know if they're at this new level, if they can actually help lead me and cater to my newer needs. And it's not a it's not an entitlement thinking. It's more around, you know, is there other opportunities at that wealth level, on the wealth curve, is there, is there other things out there that maybe my, you know, high school friend that was wealth advisor, you know, I've been with for 20 years, 25 years, but I just get a sense that I'm now, I need a more advanced level of thinking and skill sets and and quite candly, uh, product and investment opportunities, because, because the well you are that you definitely have a lot more investment opportunities available to you. Yeah, absolutely.
David Kitai 00:27:01
So the other piece, and we may have already kind of hinted at this when we talk about the intergenerational wealth transfer, but why is it so important for advisors and the whole industry to really be looking at liquidity events now? Why do they need to learn from your expertise?
Thane Stenner 00:27:17
Right now, we've got a huge demographic shift taking place, right? You've got, like, literally, the just the tip of the spear on the baby boomers just starting to arrive, and the amount, like we're talking trillions and trillions of dollars, are going to shift one generation to another here over the next 1020, years. So if you're not equipped to have some of these conversations or to understand the questions you should be asking, and you know you're going to miss out, and quite cantly, other people are going to win the business, or actually, even more importantly, you're either maybe not going to win the business, but in the same token, you may lose The relationship because you haven't kind of kept up with their situation and your credentials and your ability to actually engage at a much higher level.
David Kitai 00:28:11
So with that somewhat ominous outlook as a final question, what do you hope other advisors and the wider industry, firms, dealers, even, even the regulators, take from your approach and the way you're handling these, these moments in your clients lives?
Thane Stenner 00:28:29
You have to become a better listener, because at the end of the day, if you're listening way more and you're asking better questions, you're going To draw your client, you're going to draw out from your clients what they're going through. One of the, you know, one of the worst scenarios. I remember 20 years ago, I had a client of mine, you know, I missed asking him certain questions about his business. I found out, like, six months later, he sold a business for 25 million, and went to another firm, went to another advisor. So it was like, going, okay, that ouch, ouch, that hurt. So kind of taught me something. It's like, okay, no, I've got to be more, you know, I've got to be asking questions around. Is there any significant changes happening in your life right now or soon to happen, or planning to happen? What are the areas that you know could be most value added to you, from a point of view, what an advisor can provide to you or a team can provide to you, and they'll clients will tell you, but you got to be asking the questions as you you know the ship is going to sail by you, and missed opportunity.
David Kitai 00:29:37
Well, you're preaching to the converted when you talk to a journalist about the power of questions, but I can only echo just the the value that can be found in asking that appropriate, open ended question. And you know how to how to even use silence sometimes to let someone open up to you in a way you didn't expect.
Thane Stenner 00:29:57
Very good point. And I just add just a little. Bit more punch to that comment. One of my mentors many years ago said the quality of the questions dictates the quality of conversation. So if you ask really basic, simple questions, which of course you need to at certain points to start things off, but the more you get into more nuanced questions with with some more where your client is, in essence being forced to think a little bit more, to go a little bit deeper. They'll remember that. They'll actually remember who asked them the insightful questions, because it'll create conversations that are far more in depth, far more interesting and far more meaningful, impactful to the client and the advisor.
David Kitai 00:30:47
With that, all I can really thank say is thank you for high quality conversation, and I'll say that that was largely in the quality of your answers rather than my questions, but I really do appreciate your time and just thank you for being with us and sharing these insights.
Thane Stenner 00:31:02
Excellent. Thanks very much, David. My pleasure.
David Kitai 00:31:06
And thank you to all of our viewers for WPTV. I have been David Kitai, thanks and have a great rest of your day.
