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By Jonathan Chevreau
National Post
Monday, May 07, 2007 |
I've never liked the term "estate planning," which seems innately dull and boring. So let's use the more exciting term "intergenerational wealth transfer."
Adrian Mastracci, fee-only portfolio manager at
KCM Wealth Management in Vancouver, says, "Estate planning is one of six "vital pillars" of wealth management. The others are investment management, retirement planning, risk management, tax planning and business planning."
This is becoming a major opportunity for financial advisors as the Baby Boom generation steps up to the plate for their piece of the "trillion-dollar transfer of wealth."
Advisors who are themselves ageing Boomers are more likely to be aware of the nature of this opportunity. Younger advisors may find the stock market more exciting but should recognize they should add estate planning to their repertoire -- or at least be acquainted enough with the issues that they can recommend practitioners who specialize in it.
"When advisors discuss broader issues with clients, such as estate planning, and look at the big picture with clients beyond their investments [in contrast to solely acting as a client's "stock jockey" or portfolio manager], they can ultimately deepen their relationships with clients," says Wendy Templeton, vice-president of Wealth Transfer and Estate Planning.
Principle five is to "hire an expert." A will is not an estate plan, Templeton reminds us. It's necessary to get practical and creative solutions from an expert.
Advisors more interested in investments might benefit by considering Templeton's eighth principle: "Look at your estate plan as an investment that pays big returns."
Those returns may come from tax savings or avoiding the cost of litigation. There's also a less tangible return in preserving family harmony and leaving behind a legacy of care and order.
Anyone who doubts the devastating consequences of neglecting "wealth transfer" should read Les Kotzer's book The Family Fight, or his follow-up, The Family War. Co-written with fellow practitioners at Thornhill, Ont.-based Fish & Associates, these books contain heartbreaking stories of families torn apart by failure to plan how parental wealth should be fairly distributed to siblings.
They accurately depict the pitfalls, Templeton says. "Estate litigation is a booming business. The primary role of an IA is to get their clients to go and get the advice."
The older the client, the more pressing the need to get moving. Principle nine is "follow your plan through to completion," or as Templeton quips in an interview, "They don't call it a deadline for nothing!"
She says advisors with thorough grounding in estate planning can add far more value to clients. Their gratitude will ultimately pay dividends in terms of more assets or referrals to other family members.
Advisors who do this can be described as "wealth advisors" able to dig more deeply into family dynamics. "It's not just about growing a portfolio, but how the client can share this with his/her family."
In large wealth-management firms, the client inevitably becomes acquainted with a wider circle of experts as the advisor brings into the fold trust, estate and insurance experts.
One advisor who takes a similar approach is Adrian Mastracci, president of Vancouver based KCM Wealth Management Inc. Mastracci considers estate planning one of six "vital pillars" of wealth management. (The others are investment management, retirement planning, risk management, tax planning and business planning.)
He divides estate planning into four phases: Preparing the way with a will and a detailed list of assets and liabilities; considering the options; appointing the doers (executors, trustees, powers of attorney etc.) and then "get it done" by getting all the specialists onto the team.
A similar team approach is also used by Templeton. She is a lawyer who focuses on estates and tax.
Average investment advisors don't have to master all these specialties themselves but should act as a catalyst to get clients to consider the issues and seek specialized help.
Templeton cites a recent U.S. study that found the number one reason high-net-worth individuals finally got around to drafting their wills was because an investment advisor pushed them to do so. "The role of an IA can be absolutely key," she says.
The second most common reason was witnessing the bad experience of others who did not address the issue in time.
Templeton says advisors don't always appreciate how much clients value referrals to good estate planning or other professionals. This is why she recommends the annual client review include estate planning along with the usual market recaps and updates of goals.
Don't just ask a simple question such as, "Do you have a will?" That can be dismissed with a yes or no. Better to pose more open ended questions, such as, "When was the last time your estate plan was reviewed?" The answer can better uncover unmet needs.
When talking to new clients or prospects, let them know estate planning is one of the things you offer.
Templeton considers wealth transfer the most mature stage of wealth management because once you have enough wealth to live on and retire, the question arises as to what to do with the rest of it.
In theory, you could turn an investment advisor into an estate- planning expert, but "why would you?" Templeton asks. "You don't make your money doing that. You don't want to do the clients' estate planning yourself. The IA's role is to help people recognize what their needs are."
Advisors are in a unique position when it comes to estate planning. Not only can they act as catalysts to initiate the process, but they can help clients break it down into digestible steps and monitor the program.
The process often means handing clients over to other professionals, but there can be no expectation of receiving finder's fees in return. "Absolutely not," Templeton says, "and financial advisors often discourage it for that reason."
On occasion, the people to whom you refer clients may be in a position to reciprocate. But the biggest benefit is in building your business by involving family members and other advisors in the process.
"I've seen situations where an accountant starts sending clients to an advisor because they see the holistic approach they take," Templeton says. "Lawyers will do it, too, but there's not a huge opportunity for estate-planning experts to make referrals back."
I profess my disappointment that none of Templeton's 10 commandments begins with the biblical words "Thou shalt not."
Templeton has a ready rejoinder for that:
"Thou shalt not die without doing thy estate plan."
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