Brace yourselves: the next big wave in wealth transfer is coming

14 March 2020 by National Bank Investments
A couple discussing the details of their succession.

The statistic is shocking: 66% of children fire their parents’ financial advisor after they’ve received an inheritance1. That means that the wealth inheritors of two out of three of the clients who sit in the chair opposite you will likely not further maintain your financial relationship. It’s a harsh truth, but it’s also reality that’s all too common.

So, in anticipation of the biggest intergenerational wealth transfer in Canadian history, advisors are at risk of losing serious business. If retention strategies don’t become a priority, more than $1 trillion hang precariously in the balance2.

The risk: losing your client’s business in the absence of a relationship with the inheritors

It may seem logical for advisors to secure the ongoing management of client wealth by appealing to their children, but it’s something that only 15% of professionals do3. It’s a simple business development strategy but a crucial component to establishing a trusting – and faithful – relationship with the inheritors.

Drafting a broader financial plan that is inclusive to your clients’ children could not only help ensure a successful transfer of the wealth in question, but also solidify the likelihood of you continuing to manage it. It goes without saying that you’d be retaining the corresponding advisor fee paired to the relationship, too. But suddenly losing the wealth that was accumulated over some 20 years of meeting with your client, shaping their objectives, and creating a longstanding rapport (hello, Christmas and birthday cards) goes well above mere disappointment. It’s a huge hit to your ego book, too.

Talking about wealth transfer with existing clients can actually be perceived as a competitive advantage; it shows them that you’re considering a holistic view of wealth planning by touching on succession. All parties can agree that it isn’t an easy topic to broach in general, but it can also ensure the future financial security for their children. And, really, if you’re truly appealing to human nature here, it’s hard to put a price on that last point.

The opportunity: building up your client base of young investors

Plan pre-emptively: if the average age of your clientele is increasing, their wealth may not end up being yours to manage much longer. Serving an older clientele generally comes with the perk of managing higher levels of personal wealth (as it tends to increase over a person’s lifetime).

Conversely, building trust with younger investors, despite a lower net worth, may increase your chances of eventually managing their inheritance.

To exclude low net worth individuals from your strategy now hurts your potential to build a trusting relationship based off the wealth they do have later on and reduces the chances of a client bringing you future wealth. Remember: if two out of three inheritors fire their parents’ advisors, then there is an opportunity for you to be the advisor they leave their parents’ for.

What you can do to help your clients

As financial experts, we have a legal and moral obligation to see that wealth transfers occur as successfully as possible. There are two principal ways to help: 1) have the estate or succession conversation (we know it’s not easy), and 2) provide support for the elements they may not have considered, like tax planning or other fees that could be incurred when the wealth changes hands. Get ready for Canada’s biggest wealth transfer by getting your clients to talk about succession planning (nobody likes the mortality conversation), and providing them with the tools and direction they need to not only be prepared, but succeed, too.

 

Legal notes

  1. InvestmentNews. “The great wealth transfer is coming, putting advisers at risk“. August 2015
  2. “Investor Economics Household Balance Sheet Report—Canada 2017“, Strategic Insight 
  3.  “Investor Economics Household Balance Sheet Report—Canada 2017“, Strategic Insight

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

National Bank Investments is a member of Canada’s Responsible Investment Association and a signatory of the United Nations-supported Principles for Responsible Investment.

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