Advisors need to keep conversations regarding financial literacy and estate planning going with clients, according to Ryan McNally, vice president and market leader, GTA, BMO Harris Private Banking in Toronto, even if everything seems to be well in hand.
According to a study released by Toronto-based BMO Harris Private Banking on Tuesday, 80% of affluent Canadians believe their children are prepared to manage their inheritance. Furthermore, two-thirds of respondents said they spend time talking about finances with their kids.
While these statistics are encouraging, McNally says advisors have a responsibility to dig deeper and to find out exactly what clients are covering in these financial discussions.
Once an advisor understands the nature of those financial conversations, he or she can help clients prepare their children even more for their future financial responsibilities. Advisors could suggest the children attend structured educational programs – BMO Harris Private Banking offers a program called Financial Fluency for adult children of high school age or older – and arrange a meeting for clients to speak openly about their estate plans and wishes with their children.
“[Encourage clients] to get pretty transparent,” says McNally, “about here’s what our family wealth plan looks like, here’s what we have, here’s what our values are reflective of, here’s what our estate plan means to you as the children.”
Canadian families might be confident in their children but they have less faith in future market conditions. Only 26% of high-net worth Canadians believe their heirs will be better off financially then them, according to BMO, with 60% saying that the economy is likely to be the cause of their children’s financial struggles.
“I think that’s a reflection of the times that we’re in,” says McNally. “We’re finding that our clients have seen a lot of volatility during their lifetime and they are committed to giving their kids their very best opportunities … but they’re also realistic and I think that stat reflects that.”
As such, given that clients and their heirs can expect a few ups and down in their financial future, McNally believes advisors should treat financial literacy and estate planning conversations as an ongoing project. “There’s an opportunity for advisors to continuously engage with their clients,” says McNally. “If we’re going to provide good advice to our clients we need to engage with them and their children about…the transition of wealth.”
Wealthy families intend to leave about 30% of their estates to children, according to BMO, while 60% will go to a spouse or partner. The remaining wealth will be distributed between other family members (four percent), charities (three per cent) and a board or company (three per cent).
Study results were compiled by Pollara through an online survey of 305 Canadians with at least $1 million in investable assets between March 28 and April 11, 2013.