Advisor Cathie Hurlburt routinely begins client meetings by asking her clients about their children and their parents. It is part of the certified and registered financial planner’s multi-generational approach to her practice, Integrated Planning Group Inc. in Vancouver. Hurlburt is looking for ways to plan better for her clients.
“There are a lot of things people don’t think about,” she says. “And, if you approach this from a family perspective, you will find there are, for example, tax credits you can move around.”
Certainly, “multi-generational” has become something of a buzzword among advisors in recent years. As aging clients have accumulated wealth, there has been growing recognition among advisors that when those clients pass on, their assets could pass on, too, to heirs who could very well have their own financial advisors. A multi-generational practice — and the referrals it generates — has started to make a lot of sense.
But both Hurlburt and Julie Littlechild, president of Advisor Impact Inc. in Toronto, are adamant that working with families is not merely a prospecting tool.
“It’s a different business model that requires a different approach to managing client relationships — different knowledge and different processes,” Littlechild says. “It’s a business model that has to be built up. If you are offering family wealth management, it affects many areas of your business, from having the underlying knowledge of how wealth transfers in the most tax-efficient way to having relationships with appropriate lawyers and accountants who can offer support in those areas to having communication that reflects the fact that you offer this service.
“If you aren’t ready to deliver a coherent approach to family wealth management to your clients, exercise caution,” she adds. It is not for every advisor — nor is it for every family.
Knowing the larger family group — as Hurlburt does — brings into play a host of multi-generational issues. It also makes for better ways to serve the client. Aging parents may be subject to tax credits that can be enjoyed by their children. For example, elderly parents may transfer unused disability tax credits to their adult children if those children are helping to support the parents financially (see page B3). Similarly, if clients help their parents with medical prescription costs, an unused medical expense deduction may be transferable.
Babysitting often presents another opportunity for tax savings. When the grandparents look after the children, the parents can pay them — even if that means giving them money to go out for dinner or the theatre — and claim the amount as a child-care expense. The babysitting grandparents would have to issue a receipt and declare the payment as income, but low-income seniors typically would not have to pay taxes on it. In order to find these potential tax savings, Hurlburt says, it’s important for the advisor to know “who’s who in the zoo.”
David Lloyd and Mark Kin-ney, both managing directors of Newport Partners Inc. in Toronto, find some of their high net-worth clients want to pass some of their wealth to children and grandchildren while these clients are still alive. Lloyd and Kinney — who make a practice of educating the family members, aged 16 to 25, of their wealthy clients — see this as a practice run, giving the young people a chance to learn to manage money
“They become clients and we teach them about investing, creating investment policy statements,” says Kinney. “We prepare them for when there’s another zero at the end of the figure, so they’ll have a good foundation in place to manage it.”
“This is the beginning of a relationship,” adds Lloyd. “It’s an educational process that never stops.”
In some circumstances, clients may use education trusts — putting money into inter vivos trusts to finance their grandchildren’s education. “The adult children would be the trustees of that trust, together with the grandparents,” says Lloyd. “They would participate directly in the investment decisions and monitor the trust, knowing the income from the portfolio will go to the grandchildren’s education.”
Often elderly parents want to be assured that, after their death, their money will go to their children and eventually to their grandchildren. The second generation may be in a better tax situation to take the money now or even jointly, Hurlburt says.
@page_break@“There are all kinds of ways to move the money around or gift it,” she says. For example, the older couple can give the money to their children, but with an agreement that they can’t use it for vacations or buying a car; it is for the grandchildren’s education. (The agreement can stipulate that the account requires two signatures in order for the parents to make a withdrawal.)
Grandparents can give their grandchildren seed money to start their own RRSPs and open RESPs for them. Advisors can recommend these strategies only if they know about the clients’ families.
So, if you are building a business that offers family wealth management, it takes a commitment on your part as the advisor, and a significant investment of time and money to equip your practice to deal with multi-generational issues. That often means upgrading your skills and knowledge base in estate and tax planning, and even adding staff with experience in those specialities; revamping communications such as your newsletter and Web site; and seeking out professionals such as lawyers and accountants who can support your services.
It can even mean increasing your office space to accommodate family meetings.
The first step in positioning yourself as a family wealth-management specialist is to make sure you have the client base to support such a service. Do you have clients who want to take a family approach to financial and investment planning? Or do you have clients who feel their financial affairs are no concern of their other family members? If the latter, will you be able to gain new clients who want to take a multi-generational approach?
Once you have decided to specialize in multi-generational planning, what is the process for offering this service? Littlechild offers these practical tips:
> In the initial meeting with a new client, include some discussion of family issues.
> Make sure all client communications, such as mailings and newsletters, includes references to your expertise in multi-generational planning.
> Ensure that all elements of your client-management process — including the information you gather on clients, the way you regard family wealth as part of the overall financial picture and the involvement of family members — all reflect your strategy as a multi-generational advisor.
> Focus on the overall family portfolio in your reporting.
> Offer resources that appeal to family issues.
> Ensure that educational activities such as client workshops, newsletters and other tools focus on family issues and are designed to attract members of the extended family.
> Choose client appreciation activities that appeal to people with children.
> Make sure you and your team are trained specifically to work in multi-generational planning, with an emphasis on estate planning.
> Develop a centre-of-influence network that includes professionals who specialize in working with the elderly or in supporting families in other ways.
Once you have positioned yourself to serve families, there are a number of tools and tactics you can use to help ensure you understand and meet your clients’ needs.
The family conference is the first step in coming to grips with a family’s financial situation, estate needs and other matters that will affect the family wealth. These are structured meetings organized by the advisor, designed to make sure the clients and their adult children understand the family’s overall financial picture. These meetings go beyond wealth, and often touch on difficult topics such as long-term care, elder care and living wills.
(In “The Library” on page B11, George Hartman recommends a book that can help advisors and families start conversations about such topics.)
The family meeting not only provides you, the advisor, with information, but also opens up communication among family members — an extremely important component of successful family wealth management.
“If you don’t have regular family meetings in which you can have open and frank discussions, it can lead to problems,” says Kinney.
“One of the key messages we’re finding is that it’s all about communication,” Lloyd adds. “That is, communication about the family’s wealth, the parents’ goals and the children’s goals and responsibilities.”
It’s also advisable to integrate regular family update meetings into the financial planning process. These meetings, which should include the entire family and should be scheduled every two or three years, are designed to encourage family members to discuss changes and developments in their lives that may or may not affect the family estate. These meetings should be conducted in a comfortable atmosphere that promotes open discussion among family members, Littlechild says.
Client workshops are an excellent tool for educating clients on estate planning and other issues. Workshops can be focused on specific topics such as living wills and long-term care insurance.
While family wealth management can benefit both clients and advisors, it is not for everyone. “You have to have a family that has its act together,” Hurlburt says. “You find this kind of profile in more financially conversant families. Not all families are comfortable having an outsider knowing their business.”
For families in which there already are conflicts over money — such as resentment about unpaid loans between members, for example — family wealth management probably will not be successful.
“The difficulty is there’s an element of the unknown to all this,” Littlechild says. “If you are offering family wealth management, you need to know the family members, you need to talk to them and you need to assess whether this is a functional family.”
But a multi-generational practice certainly has its rewards. A few years ago, Hurlburt was working with a middle-aged client whose aging parents needed estate planning advice. By working with the family, Hurlburt has helped ensure that the client’s mother is well looked after following the death of her husband; she has helped five grandchildren establish RRSPs; and she has advised on the creation of four RESPs for great-grandchildren, among many other strategies.
Although the portfolio of the original client’s father was substantial, this is not a wealthy family. Hurlburt is quick to remind that family wealth management should not be regarded as a way for advisors to accumulate more assets under management; it’s about providing advice and helping parents prepare their children to stand on their own financially. In the process, the advisor provides better service. IE
Get the whole family in the picture
- By: Grant McIntyre
- April 3, 2007 April 3, 2007
- 10:35