This article appears in the September 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Financial advisors face numerous challenges when dealing with their retired clients. This has become an acute concern for many participants in the 2023 Dealers’ Report Card, who shared that, on average, more than one-third of their books (34.2%) is in the decumulation phase.
Although some advisors said they faced no challenges in helping the retirees they had guided for many years, most respondents identified concerns regarding their retired clients. Those challenges included the need for more tax, wills and estate planning resources for aging investors, as well as managing clients’ investing, saving and spending during periods of market volatility.
“My retired clients are more in tune with [wills and] estate planning,” said an advisor with Desjardins Financial Security Investments Inc. (DFS Investments) in Alberta. “I get a lot of questions about those two items.”
An insufficient number of advisors rated DFS Investments for “support for tax planning, wills & estate” — only two of the dealers assessed in the Report Card had results in the area. Still, advisors with DFS Investments rated that category’s importance to their business at 8.7 out of 10.
DFS Investments offers a team of financial, tax and legal experts that advisors can access for “personalized guidance to mass-affluent and high-net-worth clients,” the dealer stated in an email, adding that it hopes to increase usage.
Ensuring clients “don’t liquidate too rapidly” was identified as a separate challenge by an advisor with Manulife Securities Inc. in Ontario. Another Manulife advisor in Ontario said “clients not taking enough money out” can also be a challenge, especially when the cost of living is rising.
Overseeing the generational wealth transfer was yet another hurdle cited, particularly “the intergenerational transfer of assets in a tax-efficient manner,” said an advisor with Peak Financial Group in Atlantic Canada.
A DFS Investments advisor in Alberta also mentioned the risk associated with wealth transfers, saying that they make sure their clients’ money “stays in the family instead of being hit by fees.”
The 449 advisors who answered the retired-client question reported average assets under management (AUM; as of Dec. 31, 2022) of $77.5 million. Assuming equal distribution of assets across households, roughly $26.5 million in assets (34.2%) are primed for decumulation per advisor.
“This percentage is growing,” said an advisor with Investia Financial Services Inc. in Ontario. Rather than focusing mainly on wealth accumulation, they said, “We continue to spend more time in the retirement arena, helping clients [with] the transition into retirement. The need for estate planning is becoming much more acute.”
Investia does not provide internal estate planning resources, and that dealer’s advisors rated the category 7.0 for importance. The firm stated in an email that it would revisit its approach if internal demand grew.
These trends could mean further shifts in advisors’ business needs as well as additional asset retention risk. As one advisor with DFS Investments in British Columbia put it, “As an advisor, if you’ve got a book of business that’s largely skewed to older, retired folks, your book is going to decline faster. You have to balance [serving them] with acquiring new clients.”
Many advisors mentioned clients’ heightened stress levels, especially among retirees.
“We had an easy 10 years. Easy money, cheap interest rates, growing economies — and now that is all changing,” said an Investia advisor in Atlantic Canada.
“Retirees feel volatility more than young people,” said a Manulife advisor in Ontario.
An advisor with Carte Wealth Management Inc. noted that older clients who are drawing down assets are becoming “more tentative, scared [and] susceptible to market volatility. [That means] managing human emotion.”
While dealer firms can’t control inflation, the markets or clients’ emotions, they know advisors want more estate and intergenerational wealth planning support.
CI Assante Wealth Management and IG Wealth Management were the two dealer firms that offered services in this area (“support for tax planning, wills & estate” was rated 8.1 and 8.7 by their advisors, respectively).
“With the intergenerational transfers happening, estate planning is the greatest thing we can do for our clients,” one CI Assante advisor in British Columbia said.
Other firms have taken steps toward providing support in this area. Peak, for example, announced a partnership with online estate-planning platform Willful in September 2022.
Robert Frances, president and CEO of Peak, said the dealer is watching several trends tied to aging clientele, including their product preferences and how they use technology. To continue to support advisors in this area, he added, the firm will keep seeking relevant partnerships like the one with Willful.
Investment Planning Counsel Inc. said it plans to build out its trust and estate offerings for advisors after its acquisition by Canada Life Assurance Co., announced in April, is completed.
“We’re definitely looking to fill that [estate planning] gap,” said Sam Febbraro, executive vice-president with Investment Planning Counsel, and president and CEO of Counsel Portfolio Services. “Canada Life has been very receptive and [it would] tie in perfectly with our high-net-worth offering.”
Febbraro added that enhancements to areas such as tax planning, cash-flow planning, estate planning and risk management are on the table.
How many clients are retired?
The percentage of clients in the decumulation phase varied widely from firm to firm. Across all firms in the Report Card, retirees made up 34.2% of the average advisor’s book. At CI Assante Wealth Management and Investment Planning Counsel Inc. that figure exceeded 40%, while advisors with Desjardins Financial Security Investment Inc. and Peak Financial Group said retirees accounted for less than 25% of the average book.