Between 2020 and 2030, there will be a huge intergenerational wealth transfer in Canada – over $1 trillion (1). As an Advisor, are you positioned to take advantage of this transfer of wealth?
If you have mature clients, you understand the unique issues and lifestyle decisions that they face and how these decisions can have a significant impact on the value and transmission of their wealth. As their Advisor, you are in a position to offer unique perspectives and solutions that can make a difference.
Let’s take a look at a typical scenario. Alice, 79, lives in the family home where she raised her children Louis and Sandra. She has always been independent, but since the death of her husband a few years ago, she is experiencing loneliness combined with a loss of mobility that have made it increasingly difficult to live on her own. After lengthy discussions with both her children, Alice decided that the time had come to sell her home and move into a retirement facility. In the current real estate market, her house sells for over $500,000 and overnight, Alice finds herself with a significant amount of money to invest. Her wish is to leave the largest possible inheritance to her children, and that the money be passed on quickly and easily in order to avoid conflicts between Sandra, whom she has appointed as executor, and Louis, who might be eager to receive his share. Believing she was doing the right thing, Alice invested her half a million dollars in Guaranteed Investment Certificates (GICs) with her bank which she assumed to be the best solution. After all, she thought, you should buy what you know.
In an alternative scenario Alice meets with Peter (her daughter Sandra’s Advisor) with both her children, to find a simple way to ensure that her wish is met and, that her funds are transferred to her heirs when she passes. Peter, the Advisor, explains that money held at the bank in GICs is considered part of the estate. Other personal assets like real estate, and even other investment products such as securities and mutual funds are also considered part of the estate. The settlement of an estate can be a long and complex process that can keep funds tied up for months or longer, during which time the executor cannot pay any money to their heirs. This situation doesn’t align with Alice’s wishes, so what are her options?
Peter suggests that she consider investing the money in a segregated fund contract, a product similar to mutual funds, offered exclusively through insurance companies. The solution protects the capital and allows the money to be passed on quickly and easily when the owner passes away, often avoiding conflicts between the heirs, as per Alice’s wishes. But how?
First and foremost, a segregated fund contract allows investors to subscribe to a guarantee for their invested capital, from 75% to 100% on the maturity date and in the case of death, ensuring some protection against the downturns in the investment market. Depending on the insurer, it is possible to subscribe to such a contract until the ages of 80, 85 or even 90. In addition, some insurers offer the option of protecting investment gains through resets, allowing contract holders to add their gains to their invested capital, locking in a new higher guarantee at a later maturity date. And as with life insurance policies segregated fund contracts allow for beneficiaries to be named to receive the proceeds at death, bypassing the estate process, and allowing for direct payment within a relatively short time frame.
Peter was successful in presenting Alice with a viable option to achieve her goals of capital protection and a simplified and timely estate settlement for her children. Also… Peter has now become Alice’s Advisor; that’s a win!
The opportunity in the senior market is huge and as an Advisor, you want to be part of it. If there is one group within our population that has been underserved in terms of financial advice, it is the senior market. The truth is that the pandemic made face-to-face meetings with mature clients more risky and asking them to access and use technology for virtual meetings has been a challenge. Hopefully, the improved conditions now making face-to-face visits possible will allow for some catch-up as the need for estate planning advice has never been greater.
You may be thinking that you don’t have many seniors like Alice in your client base. Maybe, but one thing is for sure, you have access to their children and can certainly influence decisions there. Here is a simple prospecting idea. Systematically ask each of your clients the following question: Are you the executor of your elderly parent’s estate? This should set the stage for a meeting between you, your client and their parent to discuss estate planning, answer their questions and discuss possible solutions for an easy transfer of wealth. Don’t sit on the sidelines… take advantage of the great wealth transfer today!
For similar articles and videos about estate planning, read and share Learning From Experience: The Carte’s Story and INFOclip: Transferring Wealth to Future Generations.
And if you have any questions, please contact your local PPI Collaboration Centre.
- Manulife Private Wealth. Preparing your family for the great wealth transfer. Manulife. October 2, 2020.