The “per­fect storm” for ex­ecu­tors cre­ates op­por­tu­ni­ties to grow your prac­tice

The big wealth trans­fer isn’t com­ing; it’s al­ready hap­pen­ing. Crit­i­cal but mis­un­der­stood role key to the wealth trans­fer mar­ket

Investment Executive - - NEWS - Mark O’Far­rell, BA | CLU | CHFC | TEP | CEA Pres­i­dent, the Cana­dian In­sti­tute of Cer­ti­fied Ex­ecu­tor Ad­vi­sors For more in­for­ma­tion on be­com­ing a Cer­ti­fied Ex­ecu­tor Ad­vi­sor (CEA), visit­ or con­tact Mark O’Far­rell di­rectly at mo­far­rell@cice

Over the next 20 years, $1.5 tril­lion in as­sets will be trans­ferred to the next gen­er­a­tion. Pop­u­lar wisdom tells us the wealth trans­fer will be­gin as the boomer gen­er­a­tion (1947–1967) turns age 80. What many peo­ple don’t re­al­ize is that the surge in births in Canada ac­tu­ally be­gan 10 years ear­lier, in 1937, mean­ing the great wealth trans­fer is al­ready upon us. The com­mon mis­con­cep­tion that the great wealth trans­fer won’t be­gin for an­other 10 years puts most ad­vi­sors at risk of miss­ing the vast ma­jor­ity of the trans­fer­ring as­sets, ac­cord­ing to Strate­gic In­sight. The size of this pool of wealth rep­re­sents both op­por­tu­ni­ties for ad­vi­sors to grow their as­sets un­der man­age­ment and po­ten­tial chal­lenges as as­sets could be lost or eroded as wealth trans­fers to an­other gen­er­a­tion. How­ever, the op­por­tu­nity isn’t where you might first think. Most ad­vi­sors fo­cus on their clients who are tes­ta­tors (the le­gal ti­tle of an in­di­vid­ual with a will). How­ever, by only fo­cus­ing on the tes­ta­tor, the ad­vi­sor is miss­ing one crit­i­cal cat­a­lyst in the wealth trans­fer equa­tion: the ex­ecu­tor, mean­ing the in­di­vid­ual ap­pointed by the tes­ta­tor to ad­min­is­ter and ex­e­cute the will. Of­ten the ex­ecu­tor is a child of – or the most trusted younger re­la­tion of – the tes­ta­tor. One of the best op­por­tu­ni­ties for ad­vi­sors to grow their prac­tices is through the ex­ecu­tors of their clients’ es­tate as­sets, or through clients who have been named ex­ecu­tors them­selves. Changes in the role of the ex­ecu­tor, be­havioural char­ac­ter­is­tics of the tes­ta­tors and the dy­nam­ics of the wealth in­dus­try make en­gag­ing with ex­ecu­tors a vi­tal part of an ad­vi­sor’s tool­kit. But this im­por­tant skill set is one that many ad­vi­sors lack. Mark O’Far­rell, Pres­i­dent of the Cana­dian In­sti­tute of Cer­ti­fied Ex­ecu­tor Ad­vi­sors (CI­CEA), re­ports that un­der 1% of ad­vi­sors hold a Cer­ti­fied Ex­ecu­tor Ad­vi­sor (CEA) des­ig­na­tion, but that num­ber is grow­ing.

Un­der­es­ti­mat­ing es­tate size leads to missed op­por­tu­ni­ties

Sev­eral crit­i­cal fac­tors ex­plain why the ex­ecu­tor is the key to the wealth trans­fer op­por­tu­nity. The cur­rent gen­er­a­tion of tes­ta­tors of­ten un­der­es­ti­mates the size and com­plex­ity of the as­sets be­ing left be­hind. A re­cent Man­ulife Fi­nan­cial sur­vey in­di­cates that 85% of tes­ta­tors ei­ther have no idea how much they will leave be­hind, or be­lieve it is less than $100,000.4 The av­er­age net home eq­uity alone of Cana­di­ans aged 65 and up is ac­tu­ally $446,000, ac­cord­ing to Sta­tis­tics Canada and the Cana­dian Real Es­tate As­so­ci­a­tion. These es­tates could also con­tain a wide ar­ray of bank ac­counts, in­vest­ment port­fo­lios, phys­i­cal prop­erty, life in­sur­ance and other as­sets. More­over, this un­der­es­ti­ma­tion of es­tate size and com­plex­ity has led to al­most all Cana­di­ans nam­ing close fam­ily mem­bers as ex­ecu­tors rather than trust and es­tate pro­fes­sion­als. “Right now, we know that 99% of Cana­di­ans6 are go­ing to name a fam­ily mem­ber as their ex­ecu­tor,” O’Far­rell says. “Frankly, that num­ber is fright­en­ing, be­cause it should be much lower.” There are also equally sober­ing num­bers on as­set re­ten­tion: 98% of heirs do not want to leave these as­sets with “their par­ent’s ad­vi­sor,” ac­cord­ing to In­vestor Eco­nomics. “So, if the ad­vi­sor is seen as their par­ent’s ad­vi­sor, odds are that money is go­ing to bleed out and the ad­vi­sor is go­ing to see their book de­cline,” O’Far­rell says. “I al­ways en­cour­age ad­vi­sors to see the ex­ecu­tor re­la­tion­ship as an op­por­tu­nity for as­set gath­er­ing. They can mas­sively build their AUM by en­gag­ing with ex­ecu­tors.”

“Ex­ecu­tors are the con­duit to the tes­ta­tor and to the heirs. They are among the most trusted and in­flu­en­tial peo­ple in the tes­ta­tors’ lives. So, en­gag­ing with the ex­ecu­tors is cru­cially im­por­tant in har­ness­ing the wealth trans­fer op­por­tu­nity.”

While many ex­ecu­tors feel hon­oured to be en­trusted with the re­spon­si­bil­ity, the re­al­ity is that the ex­ecu­tor role can leave an in­di­vid­ual, who nor­mally doesn’t have pro­fes­sional ex­per­tise, open to lit­i­ga­tion from heirs, cred­i­tors or other third par­ties af­fected by the es­tate.

Ex­ecu­tors: Con­nect­ing both gen­er­a­tions

These fac­tors have led to what can be char­ac­ter­ized as “a per­fect storm” com­ing down on the cur­rent gen­er­a­tion of ex­ecu­tors. This is where the ad­vi­sor can come in: not to re­place the ex­ecu­tor, but to pro­vide crit­i­cally im­por­tant ad­vi­sory and in­vest­ment ser­vices. Get­ting tes­ta­tors to ac­knowl­edge and pre­pare for the com­plex­ity of es­tate plan­ning can be an up­hill bat­tle. Meet­ings with ex­ecu­tors are im­por­tant and po­ten­tially more ef­fec­tive touch­points that con­nect both gen­er­a­tions. More­over, trans­parency about the role is para­mount, as bet­ter out­comes are achieved when the le­gal and fi­nan­cial im­pli­ca­tions of be­ing an ex­ecu­tor are fully out­lined. “Ex­ecu­tors are the con­duit to the tes­ta­tor and to the heirs,” says O’Far­rell. “They are among the most trusted and in­flu­en­tial peo­ple in tes­ta­tors’ lives. So, en­gag­ing with the ex­ecu­tors is cru­cially im­por­tant in har­ness­ing the wealth trans­fer op­por­tu­nity.” Be­com­ing that cen­tral ad­vi­sor to the es­tate re­quires sup­ple­men­tary knowl­edge and qual­i­fi­ca­tions, which can be ob­tained by be­com­ing a CEA. This is a spe­cial­ized des­ig­na­tion that po­si­tions ad­vi­sors at the crit­i­cal junc­ture of wealth trans­fer, and equips them with tools and re­sources to help meet an ex­ecu­tor’s needs.

“As soon as clients hear the word ‘ex­ecu­tor,’ a light comes on and they’re sud­denly en­gaged. A CEA des­ig­na­tion will po­si­tion the ad­vi­sor at the core of the great­est trans­fer of wealth in Canada’s his­tory.”

Of­ten an ex­ecu­tor ap­proaches the role not know­ing what prob­lems he or she may en­counter with the es­tate. The com­pre­hen­sive knowl­edge base of a CEA-des­ig­nated ad­vi­sor can be in­valu­able in these sit­u­a­tions. O’Far­rell re­calls an ex­am­ple when an ex­ecu­tor brought him on board to help with the es­tate plan of a tes­ta­tor busi­ness owner. Af­ter ex­am­in­ing the tes­ta­tor’s cur­rent will, he dis­cov­ered that the char­i­ties the tes­ta­tor wanted to be­queath money to would likely not re­ceive any­thing. “So, we ad­dressed his phil­an­thropic in­tent, in­tro­duced a will for the busi­ness and drafted a new per­sonal will. The tes­ta­tor signed the wills, but sadly passed away the next day. How­ever, due to the timely in­ter­ven­tion of a CEA-des­ig­nated ad­vi­sor, his wishes were ful­filled and his char­i­ties re­ceived $12 mil­lion.” In­ter­est in the CEA des­ig­na­tion is grow­ing, with the CI­CEA form­ing a num­ber of strate­gic part­ner­ships. Ad­vo­cis (The Fi­nan­cial Ad­vi­sors As­so­ci­a­tion of Canada), the Cana­dian Credit Union As­so­ci­a­tion and sev­eral of Canada’s big five banks have come on board to have their ad­vi­sors cer­ti­fied. “As soon as clients hear the word ‘ex­ecu­tor,’ a light comes on and they’re sud­denly en­gaged,” O’Far­rell says. “A CEA des­ig­na­tion will po­si­tion the ad­vi­sor at the core of the great­est trans­fer of wealth in Cana­dian his­tory.”

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