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
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.”