Managing the wealth transfer

“Sometimes we find ourselves in situations in which it’s unlikely we’re going to continue to manage the capital,” Eizenga says. Often the decision is a matter of practicality, he adds. Heirs might live in another province or country; they might have loyalty to their own advisor; or they may be planning to use the money to pay down debt.

While seeing assets vanish is not a cause for celebration, it’s also not something any advisor should take personally, Eizenga says. Besides, the transfer of wealth is a two-way street. “We’ve had money come in [from] the other direction,” Eizenga says.

He describes one case in which he did not have a relationship with the inheriting child, but ended up managing the child’s inheritance plus his other investment assets. “Because of how we’ve handled the entire package,” Eizenga says, “we got everything.”

Barry Dennis, advisor with Dennis Financial Inc. in Fredericton, which operates under the Investment Planning Counsel Inc. banner, is equally sanguine about the yin-yang of asset management. “Money has always come and gone,” he says. “The numbers are just bigger now.”

According to last year’s BMO Inheritance Survey, approximately $1 trillion is expected to change hands from one generation to the next over the next two decades. The good news for advisors is that the same study indicated that a significant majority (slightly more than 90%) of expected heirs say they plan to invest at least a portion of their inheritance. So far, so good.

Some advisors are skeptical that these good intentions match what the heirs will actually do, however. After all, this group of anticipated beneficiaries, mainly baby boomers, are known for amassing the largest personal debt load in history. Adult children typically earmark future inheritance money to pay down debt or pay off a large mortgage, according to George Hartman, managing partner of Elite Advisors Canada Inc. in Toronto.

The BMO study suggested how much the attitudes of the “want it all” generation may be seeping into their inheritance plans. Although 91% of survey participants claimed they would use the inheritance for investing for key life events, almost 80% also claimed they’ll use the money for reducing debt, for travel and for purchasing things they need. With the average inheritance in Canada at slightly less than $100,000, achieving all these goals will be unlikely for many estate heirs.

Further, boomers’ parents are living longer and, in many cases, spending a good chunk more money than expected on things such as home renovations and pricey end-of-life care. So, it’s understandable that some advisors think the wealth transfer predictions may be out of line with reality.

Erika Penner, certified financial planner and retirement and estate-planning specialist in Richmond, B.C., says she knows people who are paying as much as $120,000 annually for parents’ long-term care. “Yes, they have the money,” Penner says, “but there will be less to pass along to beneficiaries.”

That’s not to say there isn’t plenty of money in motion for advisors to pick up. Barry points out that the same inflated house prices that created an environment of mortgage-stressed heirs, for example, also means that family homes are worth more when they’re passed along to the next generation, while pension payouts also are much larger than they used to be, creating a lucrative inheritance for those lucky enough to be on the receiving end.

But the problem remains: advisors spend years establishing strong relationships with a client and all that work can simply disappear into the wind a few weeks after the client’s death.

Here are some things you can do to keep an edge in maintaining those assets:

– Meet the family

As an advisor, you should know the structure of your clients’ families, including the ages and whereabouts of beneficiaries. Taking this knowledge a step further, Hartman says, you should meet with the adult children of your clients and try to establish a rapport with the family members.

Léony deGraaf Hastings, advisor and elder planning counsellor with deGraaf Financial Strategies in Burlington, Ont., asks her clients early on if she can meet with their children to ensure everyone knows how the estate plan is structured.

deGraaf Hastings also asks for a client’s permission to copy adult children on correspondence and accommodate out-of-town children by making herself available when they are in town for a visit.

Hartman recalls one advisor in the U.S. who would ask clients outright if they wanted their assets to continue to be managed by the same advisor if they were to die. Then, she would ask them: “Is there anyone who could object to me continuing to be involved in managing your money?” This question helps to prepare for conflicts that may arise among the client’s children.

Terry Ritchie, director of cross-border wealth services with Cardinal Point Wealth Management LLC in Calgary, makes family connections part of his initial “know your client” process. He asks clients to share any issues they might foresee regarding their heirs and their inheritance.

Family dynamics can complicate matters significantly. Knowing what might be around the corner can give you a chance to address concerns or, at the very least, prevent being caught off guard if the assets are withdrawn suddenly.

Flexibility is important when working with heirs, deGraaf Hastings says. Plans naturally are going to change when money is inherited, so the key is to figure out what the new client wants. If deGraaf Hastings’ clients’ beneficiaries are relying on the money to pay down debt, deGraaf Hastings will offer to work with them by providing cash-flow planning services. Perhaps the heirs’ own advisors had never offered this service.

“Boomers are all about lifestyle,” deGraaf Hastings says. She suggests helping the heirs find ways to enhance their lifestyle while still planning for retirement.

– Tackle the distances

Families are spread far and wide these days, presenting another challenge for advisors interested in building relationships with clients’ children. One reason why Dennis’ practice is licensed in five provinces (New Brunswick, Nova Scotia, Prince Edward Island, Ontario and Alberta) is to ensure that he can look after far-flung family members. Dennis has observed that Canadians from the Atlantic provinces have long headed west for work when they reach adulthood. But now, he also sees more retired parents moving away from the region to be closer to their children and grandchildren.

“It’s not easy maintaining a relationship,” he says, “with 1,000 kilometres between you.”

While Dennis has used video-conferencing technology in family meetings to involve children who live elsewhere, nothing beats face-to-face meetings. So, he travels frequently to meet with client families. Dennis recently conducted a business trip to Ontario, where he met with several clients, including one who had moved to Hamilton to be closer to her kids and grandkids, with whom Dennis also works.

Ritchie, who specializes in both U.S. and Canadian money management to advise dual-citizen and snowbird clients and their children, also considers travel a key part of his business.

– Make yourself invaluable

Advances in medical care are enabling people to live longer, although not always at the top of their cognitive game. As a result, you may work closely with the adult children of clients who have become incapacitated, particularly if those children have power of attorney.

Penner says such situations give you yet another opportunity to stand out from the crowd. For example, she often provides adult children with a list of services they can access to help them in their caregiving roles.

Penner herself has been through that situation with her mother, so she has a deep understanding of the challenges of caring for an elderly parent.

Says Penner: “I have found that my personal experience has given me a lot of insight into the obstacles the client and adult children may face.”

She adds that this type of extra service makes her stand out from other advisors.

Ritchie, meanwhile, contacts and visits some of his clients more often than their own children do (but he’s quick to admit he isn’t a perfect son himself). Such frequent contact cements strong client relationships, he says. Sometimes, he even will stay over with clients when he visits them in the U.S. to discuss their estate plans.

Ritchie speaks of one client who became seriously ill. That client required a higher – and more expensive – level of care as his condition deteriorated.

“The burn rate through the accounts was higher than expected,” Ritchie says.

That worried the client’s children, who wanted to be assured that their mother would have enough to support herself. Ritchie met with the children on a quarterly basis to run the numbers and assure them that the family’s investments would last even beyond the mother’s needs, which he suspected also concerned the children. These are sensitive issues, Ritchie adds, that require delicate handling.

deGraaf Hastings also helps the next generation through the difficult time of a parent’s prolonged illness or death.

“I try to bring some calmness to the situation,” she says, “and reassure them that everything is under control and that I will have all the paperwork they need to sign. They don’t need to worry about anything, as far as money goes.”

deGraaf Hastings, having dealt with bereavement herself – her mother died when she was quite young and her daughter died this year – knows the intensity of grief and how difficult decision-making can be when caught up in its fog. deGraaf Hastings’ clients appreciate this personal approach, she says: “It gives me credibility. I’ve been through it.”

– Learn from experience

Losing assets as a result of an inheritance is not the end of the world, and it is not necessarily your fault. What is important, Hartman says, is understanding why an heir moves his or her account. In many cases, the move is due more to an age gap than anything else.

“There’s often the feeling that it’s the ‘old guy’ [advisor],” Hartman says. “And [the child thinks], ‘Mom and Dad’s advisor wouldn’t understand me. Maybe I would like someone who’s more like me’.”

That is why your succession plan can help you manage the wealth-transfer issue.

To that end, Eizenga’s team recently hired an advisor who is 20 years Eizenga’s junior.

“He’s better positioned to connect culturally with the next generation of our clients,” Eizenga says, adding that heirs don’t want their advisor to be on the cusp of retirement; they prefer someone younger who is going to be around for a few decades.

The wealth transfer trend is expected to shake up the investment industry somewhat, as advisors inevitably will lose assets – and others will gain those assets – when clients die.

But if you work on building strong relationships with your clients and their heirs, you increase the chances of retaining those assets.

deGraaf Hastings estimates that 30%-50% of her client accounts stay with her after a client dies. In fact, deGraaf Hastings has had clients ask their children during family meetings to keep assets with her after they die.

Says deGraaf Hastings: “Treating Mom or Dad right really goes a long way with adult children.”

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