Introduction (0:07)
Alex (0:07): This is The Human Touch podcast by Legacy Keeper, where we’re focused on helping families understand financial planning strategies. I’m Alex Mason, your host, and I’m here with Darin Nooren, CEO at AgSecure Capital. Darin, thanks for joining me.
Darin (0:22): Thank you, Alex.
Alex (0:23): I know that you’re heavy in the agricultural space. Is it mainly in Alberta? Are you working in other provinces as well?
Darin (0:31): Everywhere except for Quebec.
From the dairy farm to farm finance (0:32)
Alex (0:32): So I’d love to hear a bit more about your background, how you got in the industry, and kind of who you’re working with, and I think there’s a uniqueness to your business. So I’d love to learn a bit more about that.
Darin (0:43): So I grew up on a small dairy farm just north of St. Thomas, Ontario, really well bred cows. This is only 35 cows, but like Master Breeders herd and highest milk producing cow ever in Canada in 94. Just loved the cows, loved the farming, loved watching the neighbors come fill silo, all that stuff. I was just a little boy, and then dad didn’t want to milk cows. So the cows went down the road to Shores and got auctioned off a bunch of different ways. Dad still has the land. He share crops with the neighbors that we all used to, as teenagers, work for at one time, up the road. And that’s really where I got that entrepreneurial bug was working down the road for the neighbors, because they were farmers that, well, they call themselves farmers, they’re entrepreneurs, that farm. So driving around in the truck with them, definitely got my PhD in farming, not literally, but figuratively. And then it was kind of like, well, you can’t work here forever, so what are you going to do when you’re 18? So I went to school for business, didn’t know what else to do, and then went back for financial planning and took that course. And you get your CFP credits and everything through that while you’re in school, which was awesome. And then just started dealing with farmers, because those were the only people I really knew.
Alex (2:15): How do you end up actually working with farmers? Like, what set off the light bulb to say, oh, there’s something that I can help them with?
Darin (2:23): There was not nearly enough succession planning on both sides of my family. So if you left where I grew up and went to the intersection at the highway, if you went south down that highway, both sides of the road were dad’s side of the family, and that same highway, if you went north, both sides of the highway were mom’s side of the family. So you drive through that for 20 years of your life, like once you’ve got your license, and you’re looking around and thinking about it’s like there’s got to be a better way. You drive by all those farms, like I mentioned earlier, that’s in here, it’s not in here, if you know what I mean. You want to prevent that as much as possible for other people.
What’s on a farmer’s mind (3:12)
Alex (3:11): What are farmers concerned about right now? You mentioned weather, obviously. Are there market factors or is it mainly just day-to-day agricultural challenges? What’s on their minds?
Darin (3:26): Equipment breaks down. Employees get ticked off, don’t show up, then the weather, then markets, then interest rates, then their home life. The list goes on and on. Proper financial planning for a farmer is probably number 30 on their day-to-day priority. They know that they need to do it, but it’s like the phone starts ringing at 6am for all these guys and gals that are running these successful farms, and it doesn’t stop until nighttime when it’s dark again, right?
Alex (4:06): So how do you get through them? How do you explain to them or show them the value of this on top of all the other things they have to do?
Darin (4:18): Most of them have a pretty good idea. Once you start talking to them in 5 or 10 minutes, they can be like, yeah, we need to sit down and look at this because the numbers are so big now. Like a $100 million, $200 million farm, there’s way more of them than you think. Way more of them. It’s not 10 cows and 30 pigs anymore. It’s like the Lotto Max is 85 million today. Well, I’d have to win it like five times to catch up to some of the farms across Canada. It’s big dollars.
Alex (4:53): And so when it comes to communication, you talked about succession, thinking about the next generation of farmers, what do those conversations normally look like when you not only speak with the head of the family or the head of the corporation when you’re talking to other people within the family?
Darin (5:12): Usually, I just try to put myself in their shoes and be like, this is what I see, and this is what I think you might see as well. And I can help you take care of all this. I just talk to them like farmer to farmer. I don’t roll in a BMW and a three-piece suit and use big words and try to sound smart or anything. I just talk to them like a farmer. I talk to them like a neighbour. It’s pretty simple. I just happen to know about financial planning for farms because I’ve been doing it for 16 years now.
Asset-rich, cash-poor (5:48)
Darin (5:48): I already had the idea that you could probably finance life insurance just sitting there as a 20-year-old in college in class because to me, I just looked at it like a farm. It goes up in value slowly, and it’s got a bunch of equity that’s relatively boring like a farm. So why wouldn’t the bank, if you’re worth a couple million bucks, give you a line of credit or a loan against it? Because farms, they have great balance sheets. Some of them have amazing balance sheets like beyond belief. There’s no cash. There’s no free cash flow. And if there is, they want to go buy another farm or build another barn or buy more quota or build more grain bins or buy newer combines or whatever it is. Like $10 million in agriculture is not a lot of money. It sounds like a lot of money. Take $10 million, go start farming, and then tell me after that it’s a lot of money.
Alex (6:49): So basically, they’re reinvesting in the farm. Would anybody look at other investments outside of the farm, looking at wealth management outside of capital for the farm?
Darin (7:02): Some, very few. Very few. And so if they do, it’s a small percentage. I think more of them should because then when it’s kind of stormy in agricultural markets and not great weather, literally, for crop production like this year is way too wet. There’s going to be crop insurance claims all around me. Two or three or four or five million bucks just kind of invested separate would be pretty handy for a lot of farms. I think it’s good to have some separate. You don’t want to have everything in the farm because farming, you’ll make a couple million bucks and then you could lose a couple million bucks and that nice medium in between is a nice thought, but you can’t control when it’s going to happen. You can’t control the markets. You can’t control the price of inputs, equipment, interest rates, anything like that. So all you can do is take care of your own scenario and your own nest egg.
Life insurance as a farm planning tool (8:09)
Alex (8:10): Explain in a bit more depth how the insurance, the life insurance aspect can help your clients.
Darin (8:18): It’s just somewhere safe to store wealth in a corporation that eventually the money is going to all come out tax free. In Canada, it seems like as an entrepreneur and business person, it’s first of all to make money and second of all, how to keep the money from all going to tax and then everything else seems to be below that, which is kind of a scary thing when we’re potentially 50 and 70% taxation of lots of wealthy families, right? So yeah, and then the cash value of it, you can just access it back via line of credit or loan to put it back into the farm, go buy another farm, go do whatever you were going to do before. But I would say a quarter of our clients pay the insurance and then borrow it back and do the whole, let’s deduct all the interest and everything. A lot of them are growing so fast, they don’t even, their biggest concern isn’t the tax deductions. It’s the what happens to me if I die when I’m 60 years old, 70 years old, 80 years old and I have non-farm kids and I have a pile of debt, that’s usually what it is, or brothers and then you want to have a pile of insurance on one another so that you can buy out your sister-in-law or nieces and nephews or whatever it may be or at least pay down the debt so that it’s a lot easier to keep everything together and less stressful. Even in our own case, with our own farms, I do the exact same thing as what I’m recommending to the clients, exactly. Like I have the exact same policy, it might not have that extra zero behind it because I don’t have a $100 million farm yet but if something happened to me tomorrow, if I’m out chopping corn silage today and get hit by lightning, financially, all the family goals still continue on without me. It is perfectly fine. They’re still closing on farms this winter that we’ve already made deals on. That’s being paid off, income’s there. Some of it’s being invested for just boring income.
Corporate structure (10:36)
Alex (10:36): How much does corporate structure play into all of this?
Darin (10:40): Very important. So you can have, I like to use the example of $100 million because in my mind, you can break it down into percentages in relation to yourself. So if you have $100 million payout from a great big joint last-to-die on mom and dad, and it’s going to solve all the problems. So 20 years ago, we decided that $100 million was the answer to all the farms problems, debt, non-farming kids and everything. Well, that’s just sitting there in a holding company with no corporate structure and no proper ownership and classes of shares allocated to execute the goals of the family and the farm, then they’re just fighting over $100 million sitting in a bank account in a holding company, right? So you need to have like this class of shares goes to this kid, this class goes to this kid and the construction behind it. And then that the CDA credit remains and goes to the active farming operation because otherwise who’s going to use the additional CDA, right? And then the farm kid that keeps going on, there’s a lot of tax efficiency there for probably a good 25, 30 years after too.
Alex (11:59): And these are things that you discuss when you have conversation with clients?
Darin (12:04): Yeah, it’s brought up with the clients for sure. It’s mostly done with the accountants and lawyers for execution. Like my business partner, he deals with mostly accountants exclusively and he’s got every designation behind his name possible. And he just loves nerding out on tax and all that kind of stuff. And I’m more big picture, like the helicopter view over a 40,000 acre farm and then make suggestions of what I would do if I was in your scenario, that’s kind of, I’m on the road mostly, right? I like to be driving across the countryside in a Ford truck and meeting with people and he likes to be nerding out on tax in the office.
Growing the farm, keeping it fair (12:50)
Alex (12:50): So what do they ask you? So you come in, they know that it’s a problem. What questions do they have about it that are unique to kind of the business?
Darin (12:59): Well, just how to keep the farm together, how to keep it growing, because if you stop growing the farm, you’re going to take off the kids that are doing all the work, right? If you don’t want to stagnate it for 30 years just to take care of the kids that moved away when they were 18, went to university and never came home. That’s not fair to the kids doing all the work either. So it’s kind of like, how do you keep everybody happy? How do you, first of all, keep the farm growing and viable? You have to keep growing as a farm when opportunity arises. Because say you were at a thousand acres in 1975 and you’re at a thousand acres now. Well, all your neighbors that were at a thousand acres, they’re all at 15,000, 25,000 acres now. So you just, you became less competitive. It’s not even the acres, it’s now you’re less competitive. It’s harder to make moves. Having said that, I think there’s going to be a lot of opportunity for entrepreneurial farms to grow in the next 10 years. There’s a lot of older couples out there and individuals that are sitting on hundreds of acres, thousands of acres, and even personally, there’s a lot of people that are going to want to sell their land, lease their land, whatever it may be. There’s going to be tons of opportunity.
Alex (14:21): And so entrepreneurial opportunity, is that where you’re, that’s leasing land? Is there something more there? What does that look like from someone who knows nothing about it? When you say a farmer’s taking advantage of an entrepreneurial opportunity, what is that exactly?
Darin (14:37): Well, I’d rather buy it because in my mind, there’s more money in the real estate side of farming than there is in the cashflow side of farming, long-term for sure, right? You kind of have your real estate business and then you have your grain or your cattle business or your poultry or whatever you may be doing, swine. I would rather borrow the money and buy the land than rent the land while the land is going up in somebody else’s name, long-term. I’ve seen people lease a ton of land and then retire with a bunch of old equipment. And I’ve seen people own way less land than that set example. And they retire and they rent their land out for everything. And they’ve made more money in their retirement than they ever did farming. I’ve seen that happen, like more net because they don’t have all the expenses anymore, right? Keeping all the equipment rolling and putting all the inputs in the ground every April and May.
Technology, and keeping it simple (15:34)
Alex (15:35): Does technology come into play at all from either your side or the client side when it comes to understanding what the opportunities are for either entrepreneurial expansion, wealth management, insurance, how does technology help them or not help them at all?
Darin (15:55): There’s a lot of smart people out there doing a lot of smart things as far as it going back to technology and software with grain marketing, financial planning, everything. So I think it makes it easier. I think it makes it easier to find. It’s more attainable, the stuff you’re looking for. But it’s still the same old thing. Like we’ve been trading grain for thousands of years. We’ve been, life insurance has been around for hundreds of years. Banking’s been around for thousands of years. It’s just, I try to keep it super simple. We as entrepreneurs and farmers, we tend to overcomplicate things. It’s like, oh, well, what about this? What about this? There’s got to be more to it. Well, sometimes there isn’t. Just keep it simple. The less moving pieces, the better, right? It’s easier to understand, it’s easier to implement, it’s easier to execute. So, I don’t know. I don’t like to overcomplicate things at all. I probably 10 years ago did. Because then when you’re young, you want to kind of show everybody what you know. Not anymore.
The future of farming (17:08)
Darin (17:08): I think it’s going to be for sure the ones that have a strategic plan going forward that is going to be the successful ones 20 and 40 years from now. Like the technology is in equipment and farming, it’s not saturated because it’s always getting better, but it’s like they’re almost all good farmers now, if you know what I mean. So, it’s going to be the decisions made in the wintertime in the office that’s going to really determine who pulls ahead in the future as far as growth.
Alex (17:48): Are farmers competitive in that way? Are they constantly trying to get more land, get some more, is that just, I’m assuming it’s like, I guess every other business, but I pictured farmers as more of a community versus.
Darin (18:05): It is, but if you have a Ford dealership and you’re friends with the guy that owns the GM dealership next door, it would be similar, right? You’re still trying to get market share. It is a community though. There’s nobody that shows up and helps each other out more than farmers do. I lived through that with Boris Fire at the ranch. When everything’s on fire, everybody all of a sudden gets along real quick and shows up. So, it’s amazing how people work together that way.
