Focus on Financial Planning

Keith Costello

Keith Costello is president and CEO of the Canadian Institute of Financial Planners (CIFPs) and the Canadian Institute of Financial Planning (CIFP). Over the past 15 years, Costello has led the creation of educational solutions, practitioner support services and advocacy support for financial planners.

Financial planners and financial advisors need to have a strategic plan to deal with the massive inheritance baby boomers will receive or risk losing AUM

By Keith Costello |

Baby boomers will inherit $750 billion over the next several years in the largest-ever transfer of wealth in Canada, estimates a recent report from Toronto-based Canadian Imperial Bank of Commerce (CIBC). Specifically, the report suggests that 2.5 million Canadians over the age of 75 have a total net worth of $900 billion or more — and the beneficiaries of this wealth will be Canadians aged between 50 and 75 years old.

Financial planners and financial advisors will be competing for these assets. Some financial planners and advisors will have clients who will be providing inheritances and will try a "retention strategy" to retain these assets at the time of inheritance. Others will try to attract inheritor clients — and their newly acquired assets — who are not satisfied with their parents' advisors. Financial planners and advisors will need to understand the needs and preferences of baby boomers to craft a successful plan to retain or acquire these clients.

In addition to understanding the needs of baby boomers, you must be able to impact the estate planning process. This will be very difficult, based on the following research: Only 6% of households use estate planning services with their primary advisors, and the primary case of attrition is the client passing away and assets leaving as estates are executed, according to a recent study from Boston-based Cerulli Associates; and 39% of Canadians whose parents have a will have not explicitly reviewed it with their parents, according to a recent Harris Decima poll.

So, what will baby boomers need? Baby boomers are still deciding on how to distribute their accumulated wealth and the wealth that they still stand to inherit. They're living longer and healthier lives, expect to retire later, and are travelling more. Based on this, they will spend their assets, thereby reducing the inheritance amounts. They may distribute this wealth to their children and grandchildren before they die through gifts of assets so they can enjoy and influence how the money is used while they are alive. They may also plan on leaving lump-sum bequests to institutions and charities.

To figure out how to do all this, baby boomers will need increasingly sophisticated advice to maximize their independence and individuality — life planning while minimizing tax exposure. Furthermore, they will need enhanced estate planning. Baby boomers tend to have strong existing relationships with their financial planners and advisors and are comfortable with the advisor-led model.

A detailed look at the 2012 edition of Statistics Canada's Survey of Financial Security shows that for the 65 years and older age bracket, inheritable assets, by order of size, are non-financial assets. The largest is a person's principal residence and other real estate, followed by deposits in financial services institutions, mutual funds and investment funds, and stocks and bonds. This further exemplifies the sophistication of advice that baby boomers will require to manage these inherited assets.

Thus, advisors should have the following action items in place to retain or attract baby boomer clients who stand to inherit large sums of wealth:

> Build capabilities for family estate planning services.
This is critical during the wealth transfer period regardless of what side you are advising from - the parents of baby boomers or baby boomers themselves as an effective tool in attracting and retaining clients. This creates a more holistic conversation and  adds value. If you don't have the expertise then you'll need to create a network to collaborate.

> Ensure that you have the services that baby boomers and their children need.
Provide multiple approaches to keep baby boomer clients happy and to engage their children, who will be the next inheritors. Allow self-directed assets alongside managed assets, and ensure that you provide cash management, debt management and insurance services. Work with or hire a younger advisor who will resonate more with the children of baby boomers, as there's a strong correlation between the ages of advisors and their clients. Also, be prepared to offer lower-cost services to attract and engage these baby boomer children.

> Help clients navigate their inheritances.
Go beyond estate planning and actually support heirs during the difficult experience of a death in the family, making the process less stressful. You may approach this from either side of the transfer, but specialize in the transfer process and support your client or potential client in navigating this unfamiliar and unpleasant exercise.  Remember that relationships are the main reason clients leave their advisors, so this is a great way to build lasting trust.

A "great" wealth transfer is coming to baby boomers. Having a strategic plan on how to deal with the complex needs of baby boomers and their inherited assets, and impacting the wealth-transfer process, will determine if this is an opportunity or threat for financial planners and advisors.