In my previous commentary Eureka, no one blames the Advisors! I suggested that advisors to business owners need to accept a good deal of responsibility for the failure of a majority of private company owners to focus early enough on the strategizing for, and execution of, the inevitable transitions of their businesses.
This commentary discusses:
- what constitutes being an facilitator, an advisor, and an expert.
- experts in the context of degree of opinion subjectivity and the importance of careful expert selection when seeking expert advice.
This commentary follows from my previous commentary dealing with advisor responsibility for transition postponement. It is based on:
- over 40 years of active business valuation and transition practice across Canada and internationally.
- ongoing discussion with business transition and valuation advisors, and ongoing business transition research.
To paraphrase the trademarked U.S. Farmers (Insurance) Group Inc.’s business statement, when it comes to professional services in the context of business valuation and transition “I know a thing or two because I’ve seen a thing or two”.
The selection of business transition facilitators and expert advisors across all business disciplines bears directly on the success of business strategizing, planning and execution – and hence on both business transition and valuation. That said, arguably the most important selection in a business transition context is the selection of the right facilitator/advisor.
The ‘trusted advisor’ stamp that heads this commentary
The term trusted advisor seems increasingly popular, particularly among advisors. This where a good definition of trusted advisor is hard to find.
When I hear someone refer to themselves as a trusted advisor. I always wonder about the existence of untrusted advisors. This where it seems to me at the time an advisor is engaged they must be trusted or would not be engaged, and that their mandate will be ended on the earlier of (1) engagement completion, and (2) if and when they no longer earn that trust.
Transition advisors: anyone can claim to be one!
In Canada, and to the best of my knowledge in the United States and other parts of the world, there is no professional association of business transition advisors that offers a recognized degree or certificate that one might consider akin to – for example – the Canadian Professional Accountants, the Law Society of Upper Canada, the Canadian Association of Business Valuators, or the American Institute of Certified Public Accountants. It follows that anyone can print a business card – or as one might say in times past hang out a shingle – and proclaim themselves to be a business transition advisor.
Over past years I have come to know three Canadian advisors accepted by their peers to be competent transition advisors. I asked each of the three, separately and independently of each other, how many advisors in Canada they would turn to for transition advice if they owned a manufacturing business worth $25 million. They each said “only five in all of Canada”. I did not ask them for specific names, but assuming they each included themselves on their list – and may have included each other on their lists – one fairly might shake their head in consternation and dismay.
To be forewarned is to be forearmed.
The important difference between an advisor, a consultant, and a facilitator
In a business context an advisor is a person with a greater than average knowledge in one or more specific business related disciplines who advises another person or a collective group of persons.
A consultant is a business discipline specific consultant (e.g. an income tax expert) who provides expert functional advice for a fee without being accountable for the outcome arising from his/her advice.
Some suggest an advisor is one who offers a mentoring or leadership role to others as contrasted with – and being different from – a consultant who offers functional advice. As a practical matter in my experience the terms advisor and consultant generally are used interchangeably, and few embrace this subtle difference.
A facilitator is an independent, objective and neutral person who – without ownership of individual or group intentions, actions and outcomes – assists a group of people:
- understand their common objectives.
- to plan how to achieve those objectives.
- to make achievement of those objectives easier and more effective than they otherwise might be.
A facilitator is distinctly different from an advisor or consultant. However, importantly a facilitator may concurrently function as an advisor or consultant in the course of the group achieving its objectives.
So, what is an expert anyway?
A dictionary definition of an expert is along the lines of a person who has a comprehensive and authoritative knowledge of or skill in a particular area.
I don’t particularly like the term ‘expert’ and think it very overused. This said by someone who has been thought and said by many to be an ‘expert’ for almost half a century.
For me, an expert is someone who in the context of the advice they are being asked to give:
- leave their egos at home in the context of their advisory engagements.
- very importantly know what they don’t know, and and are secure enough to acknowledge that where what they don’t know matters to their client advice.
- are both willing and able to find and enable their clients to seek advice from people able to effectively fill in the missing information gaps.
- believe that when rendering advice for fees they are much like the old West ‘gunfighters at the OK corral’. That is, they are only as good as the ‘last time out’ – and their reputation hangs on the objectivity and efficacy of their advice in the matter immediately in hand.
There are ‘experts’ and then there are ‘experts’
While not often discussed, it should come to readers as no surprise that some advisor experts in any given field are more ‘expert’ and experienced than others in that same field. This where within any profession:
- some experts are more experienced, more intelligent, more diligent, more efficient, more productive, more objective, and bring less bias to their work – or some combination of those things – than do other experts.
- each “expert” knows, but typically doesn’t say, who they would engage if they had a personal problem that required the attention of a fellow professional.
By way of example, many years ago one of my granddaughters had to undergo a very sensitive and somewhat high-risk operation. Dr. X was scheduled to perform the operation. I well recall asking a medical specialist friend whether he would be happy to have Dr. X operate on his granddaughter. My friend suggested while Dr. X was proficient, it would be better if Dr. Y operated instead.
How whether advice is factual or subjective should influence advisor selection
Advisor selection becomes increasingly important as advice moves:
- from being more factual and less subjective – for example advice with respect to the income tax rules related to business reorganizations.
- to being more subjective and less factual – examples include (1) advice with respect to business forecasts, and (2) advice with respect to individual owner and manager capabilities and other issues.
Simply put, the greater the degree of subjectivity required to be applied by an expert to reach an opinion or give advice, the “more expert” the expert needs to be
The corollary is, of course, that the combination of a greater degree of subjectivity and the poorer the expert the higher the risk to the advice-seeker that they will less than the best advice.
Stated as an equation:
Simply put, the greater the level of subjective thinking and judgment required of a business expert, the greater the care needed to select the right expert who brings the best knowledge, experience, intellect, diligence, and objectivity to the task at hand.
Considering and weighing this issue is something I suspect those who engage business experts – be they discipline specific business experts or business transition facilitator/advisor experts – don’t always do to the extent they should when choosing them.
Check experts out carefully before engaging them
Irrespective of differences in the comparative “expert ability” of facilitation and discipline specific advisory experts – be the issue at hand transition, valuation, or some other business issue – is something that those engaging experts need to focus on and take into account when doing that. Similarly within professional firms advisors recommend each other to clients. Business owners need to consider such recommendations carefully in the contexts of advisor comparable experience and capability – and potential advisor conflicts of interest that may exist but not be disclosed. For example, an accounting/consulting firm that does the annual audit of a business might find itself in conflict – or at least perceived conflict – if it accepts a business transtion engagement from that business and has or is thought to have an inherent bias in pleasing a business owner who is instrumental in ‘auditor selection’ over other owners of the business.
It follows that anyone hiring an advisor – and particularly as the advice becomes more subjective – should not be penny-wise and pound-foolish. When in practice and asked about fees – where I based my fees on hourly rates – I always suggested to first look at the minimum hourly rate anyone who did the advisory work I did charged and to consider that as a base cost that had to be paid. It then was only the incremental fee per hour over that minimum hourly rate that was open to debate as to its reasonableness.
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Ian R. Campbell FCPA FCBV
Ian R. Campbell is a Canadian business valuation and transition expert. He is the author of several Business Valuation texts and of 50 Hurdles: Business Transition Simplified. The Canadian Institute of Chartered Business Valuators recognizes his contribution to the Canadian Business Valuation Profession through the annual The Ian R. Campbell Research Initiative.
He writes The Business Transition and Valuation Review newsletter for business owners and their advisors.
You can reach him by email at email@example.com, or by telephone at 905 274 0610.