by Peter Mitham | photos: Brian Howell
It’s a classic of tabloid journalism: the nondescript neighbour who leads a frugal and reclusive life only to leave an estate worth millions. But all around us are hard-working entrepreneurs whose unassuming ways veil a wealth far beyond what the average worker could ever aspire to.
Most are business owners content to draw a salary just like the staff they have had to hire as their businesses grew. Indeed, researchers at the Canadian Centre for Policy Alternatives note that the top one per cent of Canada’s rich receive the lion’s share of their wealth not from inherited wealth or passive investments but from employment income. However, unlike most of us, the “working rich,” to coin a term, are not content to simply siphon a portion of their disposable income into mutual funds or a balanced stock portfolio, hoping that come retirement they’ll have a comfortable nest egg. These are active investors who work as hard at their investments as they do at their careers and who just might offer a few lessons for those of us who look on helplessly as our investments rise and fall at the mercy of global markets.
These blue-collar millionaires are savvy to business principles, hands-on and risk averse, says David Sung, president of Nicola Wealth Management Ltd. in Vancouver, which has made a point of reaching out to this untapped segment of the investment community in recent years. “They have a real aversion to debt. They don’t like living beyond their means, and they tend to like to pay cash for everything they buy. They tend to be really street-smart individuals. They’re very cautious with their investments, and they love hard assets such as real estate.”
It’s a description that fits Coquitlam commercial painter Mark DuMerton, owner and operator of M&L Painting Ltd., which employs anywhere from 40 to 120 staff at any given time. Recent contracts include such massive projects as the Hotel Georgia renovation in downtown Vancouver and Aspac Developments Ltd.’s Harbour Green 3 tower in Coal Harbour.
DuMerton’s introduction to commercial painting came more than 30 years ago when he was 18. A colleague corralled him into a summer job painting service stations. The partnership led to ventures ranging from painting to selling Okanagan fruit out of the back of a truck at a Surrey street corner. When DuMerton married his wife, Lynn, four years later, he dedicated himself to painting full time. The business was home-based at first, but with the help of mentors and a developing network of contacts the business grew, as did his wealth.
The company’s statement of core values includes integrity, honesty and loyalty, but DuMerton sums up his guiding business principle in simple terms: “If we create value for others, we create value for ourselves.”
The proof lies in the business relationships that began developing as M&L grew. As he accumulated more wealth, DuMerton says, people he had met in the course of his business would approach him, asking, “Hey, do you want to come in and buy a commercial building with me?” The result was a number of real estate investments, construction projects and other joint ventures where he could stake some cash and see a return without too much worry. “It’s absolutely relationship based,” DuMerton says. “As I find people who are good at what they’re doing – better than me – and they’re putting their own skin into it, I’m great.”
Those investments range from residential subdivisions throughout the province to Walnut Beach Resort, a 112-room hotel on Lake Osoyoos that opened in 2008. “We go in with lots of cash, and so even through some challenging times in the last little while we’ve never had a cash call, and we’ll still walk away with making a profit,” he says. “Are we going to make what we were making three years ago? Of course not. But that’s what it is.”
As his wealth grew, DuMerton realized a professional wealth manager, not just savvy investment partners, could play a role, and that’s when he engaged Nicola Wealth Management. “In the last two years, I’ve invested more money with them than I have in my own stuff because I look at the numbers and I can’t really look and say I’m going to make more money doing it on my own,” he says. DuMerton relies on Nicola for tax planning advice as well as investment expertise and says he respects Sung for standing behind the investments he recommends. DuMerton says he’s willing to take bad news on the chin, as long as it comes with an honest analysis of where he stands.
M&L Painting, for example, operates on a rolling 12-month financial plan that effectively presents DuMerton with a year-end picture every month. “We’re always looking at 12 months, 12 months, 12 months. So it really gives you a good understanding,” he says.
DuMerton’s no-nonsense approach is reflected even in the vehicle he drives. Although he could easily afford to cruise around town in a low-slung luxury sedan, his utilitarian 2007 GMC Envoy does double duty as a work and pleasure vehicle. He logs 80,000 kilometres a year, close to 220,000 kilometres in total on his current model. And extra features are minimal; he hardly needs a bass booster and surround sound for his choice of listening entertainment: the AM730 traffic report.
Despite his obvious success, DuMerton doesn’t expect his kids to follow in his footsteps. He claims to have been sidetracked by the entrepreneurial direction his career took and is glad his kids are attending university (even though all three are veterans of the family business). He wants his kids to get an education and follow their own dreams – a solid entrepreneurial value in its own right. “There’s no pressure,” he says, noting that his eldest son Robert is articling at Lawson Lundell LLP while his daughter Dana is a teacher.
The freedom DuMerton gives his kids highlights another reason wealth managers are seeing this new kind of client: today’s entrepreneurs and their families are less likely to be shackled by career than previous generations, with kids reluctant to depend on their parents’ businesses for job security. Post-?secondary schooling opens career options and means the family business isn’t the only chance they’ve got to make a name for themselves.
This is even true in the farm sector, where land holdings represent more than 92 per cent of the typical B.C. farmer’s wealth and tax laws facilitate the passing of farmland from generation to generation. The fact that wealth in the farm sector is so tied up in hard assets has upped the demand for wealth management advice.
Children may have the same down-to-earth values and work ethic of their parents, but they’re also savvier, says Garnet Etsell, chair of the BC Agriculture Council and co-owner of Coligny Hill Farms Ltd. in Mount Lehman just west of Abbotsford. “They’re more business oriented; as a result, they look upon the farm a little bit differently than say our parents did,” Etsell says in his spacious farmhouse just behind the long, low 800-foot, three-stage barn where his turkeys reside. “A lot of farmers, especially young farmers, aren’t blue collar. To be in farming today, you have to understand business. And there’s a lot of farmers out there today who have business degrees, and if they don’t have a business degree, they’ve got a degree in something else.”
Etsell himself personifies the trend. Growing up in the Fraser Valley, he was keen on agriculture even before his parents bought a blueberry farm when he was 15. It was more of a lifestyle than a business decision for them; when it became too busy, they sold it. Etsell studied agriculture at university, but a stint as a farmhand made him realize an entrepreneurial approach was needed if he ever hoped to have his own farm. It was another lifestyle choice, but one aimed at furthering his goals.
“I worked for a year as a herdsman and quickly decided that I would never own a farm on the back of farm wages,” he says, explaining that he returned to school, studying business at UBC, articled as an accountant and worked for 30 years as a chartered accountant before returning to farming full time in 2005.
“We always worked with the intention that we would eventually own a farm. So even with my accounting, I’ve always worked in the agriculture industry,” he says.
Real Estate Investments
But getting there meant managing his wealth soundly, the sort of thing wealth managers encourage entrepreneurs like Etsell to do. While his professional designation gave him the understanding and earning potential to sock money away, it was by deploying savings in real estate investment that he managed to build the wealth needed to acquire the land to start his farm. Buying a property in Chilliwack led to joint ventures with other investors, and he was able to plough the profits from these into a small farm near the Abbotsford airport in 1998 and eventually purchase his current property in 2001.
“It was really the property in Chilliwack that set us up to be able to ultimately afford to get into farming,” he says. Real estate development allowed him to afford the Mount Lehman property, site of his current turkey farm, which was worth $14,000 an acre when he bought it in 2001. Today it’s worth $50,000 an acre, giving him clout with banks as well as substantial wealth, much of it bound up in his assets.
To manage the challenges this land-bound wealth posed, Etsell made sure to incorporate the farm (which also facilitated an initial relationship with a business partner). His accounting background gave him foresight, which he acknowledges many farmers don’t automatically have. It’s often not until they’re trying to implement a succession plan or some method of wealth management that planning begins. By that time, most farmers have reinvested a sufficient amount in their farm business that managing the equity they’ve accumulated is a challenge.
“You need to develop a business that’s separate, whether it’s an investment business or whatever, outside of the farming operation as well as your farming operation,” says Etsell, who has done this through his initial real estate investments and subsequent ventures. “It’s just part of your annual planning process as well as your long-term goal setting.”
While strong on recognizing investment opportunities and minimizing risk, the working rich aren’t typically strong on this kind of long-term planning. That’s where financial advisers come in, and farming in particular has been a rich vein of new business for firms such as Meyers Norris Penny LLP and Canaccord Wealth Management, which have been exhibiting at the annual Pacific Agriculture Show each winter in recent years.
“As the farmers are getting younger, the ones who do have [wealth] no doubt see the merits of looking to advisers,” says Dan Lepp, a partner in the Abbotsford office of Meyers Norris Penney who works with farmers and owner-operated businesses. “A large part of our succession work in years gone by has been from managing the tax side. What is changed now is we are spending a lot more time dealing with our farm clients on managing the monetary issues of succession.”
A less complex but equally important set of issues faces Sung’s clients at Nicola Wealth Management, where the tax considerations of operating businesses are typically more important than succession plans and the disposition of assets. The entrepreneurs Nicola Wealth Management attracts have been successful building their own businesses and investing in others, but maximizing tax savings to free up more investment cash is not always on their radar. Typically, says Sung, as long as they’re seeing cash flow, they’re happy.
Apart from ignoring long-term tax planning, Sung says, other common oversights include the lack of a business plan for accumulated wealth and no diversification – but entrepreneurs have usually recognized this problem by the time they’re talking to a wealth management firm.
Beyond seeking alternative investment types (which seldom involve RRSPs, to the surprise of many entrepreneurs), Sung identifies tax-efficient ways to provide for entrepreneurs in the present. Receiving dividends from an incorporated business rather than a salary (which often incurs a double dose of payroll taxes) is one example.
A business owner who draws a salary is also paying the employer’s portion of the payroll taxes, Sung notes. Typically, that amounts to more than $8,000 a year in Canada Pension Plan premiums for an owner and spouse employed in the business that doesn’t need to be paid. That’s money that could be invested instead, and that’s where advisers such as Sung earn their keep.
And the service Sung provides keeps entrepreneurs such as DuMerton happy logging miles on their road-worn vehicles, whether they’re driving to work, taking a night off or meeting new associates for their next venture. With an adviser such as Sung keeping his money safe and the cash flowing, DuMerton can focus on what really interests him: building relationships and discovering new opportunities.