MOST FINANCIAL ADVISORS BELIEVE they're on top of the issues with their key clients. But a recent U.S. study points to alarming deficiencies in estate planning. The study also found there are gaping com¬munication divides between many wealthy investors and their spouses and children, as well as with their advisors.

The research study, conducted this year and commissioned by the U.S. Trust division of Bank of America Corp., surveyed 500 clients with at least US$3 million in investible assets. The survey was conducted among American clients, but there is no reason to believe the findings aren't equally relevant in Canada.

I had referred to this research, along with two other reports, in my column on the coming retirement revolution in the July issue. This study bears more scrutiny because it reveals significant discrepancies in the way high net-worth clients regard their financial plans.

For instance, the study found that even though 84% of parents think their children would benefit from discussions with a financial services professional, six in 10 have never introduced their children to the professionals managing their own financial affairs.

On the issue of philanthropy, the study found, HNW investors are increasingly interested in seeing the impact of their giving now rather than leaving a legacy when they pass away. Despite this trend, four in 10 have never sought advice about legacy planning or philanthropic strategies.

Further, few HNW investors have well developed plans to preserve and pass on their assets, either to their children or to charity. When it comes to financial goals, less than half of wealthy parents put "leaving an inheritance to children" as a priority; it was fifth on the list of things they want to do with their money, just ahead of "having fun."

Yet, many HNW investors consider the success of their children to be one of the most important measures of their own success. So, there is a dramatic divide between the priority that previous wealthy generations gave to transferring wealth to children compared with the importance placed on it by many affluent boomers.

Even if your clients don't have investible assets of $3 million, there are still important lessons from this research.


The study also found that HNW clients, having worked hard for financial security and freedom, now want to be able to travel and focus on relationships.

The importance of travel- not the seniors' bus tours of the past but trips to exotic locales that include activities such as hiking - creates an opportunity for advisors looking to deepen client relationships. Consider exploring a relationship with a travel agent who specializes in travel to unusual destinations for active seniors.


The U.S. Trust study found huge deficiencies in the estate plans of many HNW investors, some of whom have only basic financial plans and estate plans.

While 88% of the survey's respondents had an estate plan in place, almost four in 10 said those plans are not comprehensive. Almost half of the respondents indicated that there are gaps in their understanding of some aspect of their estate plans.

Most respondents' estate plans contain basic elements, such as a will and beneficiary designations for insurance and retirement savings. But more sophisticated tools - such as revocable trusts, irrevocable trusts, life insurance trusts and charity trusts - were used in only 10%-50% of cases.

Fifty-six percent of those surveyed have not documented their personal property and assets, and half have not documented instructions about the distribution of personal possessions among their heirs often a source of family conflict and heartache in the settlement of estates.

Only 30% of HNW clients in the study have designated a power of attorney. Four in 10 do not have a financial plan that factors in the impact of long-term care or end of-life health-care costs.

Astonishingly, the study also found that only 3% of HNW business owners have a business succession plan in place. That 97% of business owners are without a succession plan should set off alarm bells.

This research report could be a catalyst for talking to your clients about their estate plans. When setting up the next meeting with HNW clients, consider saying: "A recent survey of affluent investors indicated that many had significant gaps in their estate plans around things such as documentation of assets, powers of attorney and the use of different kinds of trusts. I wonder whether this is something we should review in our next meeting."


Almost all HNW investors have discussed some aspect of their financial situation with their spouses; 90% have talked about taxes, and almost 80% have discussed investment decisions and risk tolerance.

More difficult conversations are less likely to take place. For example, 30% of HNW investors haven't discussed income needs in retirement with their spouses.

One-third of HNW client couples haven't talked about each other's debts and obligations. Four in 10 haven't shared the details of their estate plans. Almost half of the survey respondents haven't discussed plans for long-term care.

(Note that these are overall averages. In every case, men are less likely to have talked about these issues with their wives.)

Ensuring that both members of a client couple fully understand where they stand financially isn't just the right thing to do - failing to do so could expose you to litigation after the "dominant client" passes away.

As this can be a sensitive topic, you can offer to help break the silence. In cases in which you normally deal with only one member of a couple, suggest a meeting that includes the client's spouse. Offer to discuss any unanswered questions about where they stand on their finances.

You can always blame your compliance department for insisting that you have this conversation.


Even among parents planning to leave an inheritance, many HNW investors in the survey were concerned about whether their children will be prepared to handle it. Among those surveyed, only about one in three "strongly agree" that their children will be able to handle their inheritances.

Two-thirds of respondents said their heirs don't fully understand their wishes on how to divide personal property. Slightly less than half do not believe their children will reach a level of financial maturity to handle the family money they will inherit until they are at least 35 years old. Half have not fully disclosed their wealth to their children, and 15% have disclosed nothing about the family wealth.

Key reasons given for avoiding a discussion about their wealth were: fear that their children would become lazy (24%); they would make poor decisions (20%); they would squander money(20%); or they would be taken advantage of by others (13%).

Sometimes helping HNW clients get what they want from their money can be tricky. There are instances in which clients have made a conscious decision not to share some aspects of their financial situation with their children . .In those cases, you can make suggestions, but you need to draw the line at becoming intrusive.

If your clients are resistant to having these conversations with their children, consider starting with easier conversations - on issues such as dividing personal property (although sometimes this can be tricky) - before getting into more sensitive areas such as overall family wealth.

If your client has a trusted lawyer or accountant, another option is to include that professional in a conversation about how to remove this communication barrier.


There are also gaps between HNW clients and their financial advisors. Even though 84% of respondents thought their children would benefit from discussions with a financial professional, six in 10 have never introduced their children to the professionals managing their financial affairs.

As well, one in four have never discussed intergenerational wealth transfer with their advisors. Half of those surveyed have never discussed with their advisor ways of teaching children to handle wealth responsibly. Four in 10 haven't discussed legacy goals.

All of these findings point to some very big red flags for advisors.

For the U.S. Trust report, visit:


Dan Richards
Investment Executive
Audust 2011

Dan Richards is CEO of Clientinsighis (www. clientinsights.ca) in Toronto. 


Dan Zwicker said...

Given the importance of financial health which is second only to personal health it begs the question: "Why did this study produce these findings?".

The discussion of financial matters among family members is akin to the discussion of 2 other subjects in our society: sex and religion.

All three are taboo - among many fathers, mothers and business persons.

It's time to take a clinical view.

We are no longer living in the 18th. century.

Financial literacy among young people and others is not a luxury which only the affluent can enjoy.

In a financial world which has repeated seismic financial disruptions financial literacy is a basic survival tool.

Every financial advisor has a fiduciary responsiblity to any client to whom financial advice is provided to 'Raise The Bar' from that of a Sales Professional to that of an unbiased Financial Practitioner.

Nothing less is in the interest of the client.

The financial services sector has a systemic conflict of interest built into each product distribution platform. How we are incentivized through our compensation arrangements may have a direct impact on the product solutions which are offered.

Highly professional advisors whose primary focus is their duty of care to their clients deal with the conflict very simply by being fully transparent in matters of compensation. Clients are offered choices in how they may pay their advisor.

However, advisor compensation continues to fall under a cloud of mystery as do the other subjects in this study. The solution rests in a regulatory decision to legislate and enforce both the professional standard of education and practice for any financial advisor to include those professional designations which are relevant to their specialty.

We expect the same standard among the classical professions.

Our clients' financial health and well being demand no less a standard.

It simply requires that each professional 'Raise The Bar' and make a commitment to meet the elevated standards.

Respectfully submitted,

Dan Zwicker
Toronto, Canada

Dan Zwicker said...

“We have found a significant dichotomy between clients we talk with, who tell us that intergenerational wealth transfer is the single most important issue on their minds, and a large segment of high net worth population we surveyed, who are not taking action and therefore leaving the legacy of their life’s work to chance.”

- Keith Banks, President, U.S. Trust