When someone dies and leaves their investment portfolio to their spouse, that person will usually stay with the same investment manager. But when the child is the one to inherit the portfolio, the story is often much different.
A global survey of financial advisers by Natixis Investment Managers found that 50 per cent of children inheriting an investment account chose to leave their parent‘s financial adviser, compared with just 28 per cent of spouses when they inherit the account. The study also found that one-third of advisers have lost significant assets through this generational attrition.
Losing clients during inheritance can be an existential threat to an investment manager, the survey found, especially as $84-trillion in generational wealth is expected to be passed down in the next 20 years.
“When a client dies and leaves their holdings to a spouse or children, the relationship has to reset, and that puts assets under management at risk,” read the report.
Andrew Dobson, a fee-only financial planner with Objective Financial Planners in Markham, Ont., said he recently helped two clients – a woman and her son – deal with this decision when the woman’s husband died.
The woman wanted to stick with her husband’s adviser – partly out of loyalty – but the son felt it was better to consider other professionals that offered lower fees.
Mr. Dobson said it‘s a situation he regularly deals with, and that it‘s important to consider your options when inheriting a parent’s portfolio.
He said a new adviser or investment company could have lower fees, a better array of financial products that they’re licensed to offer and advice more relevant to younger clients, who may have vastly different goals from their parents.
Mr. Dobson also has clients who discovered their parents had been neglected by an adviser they had for decades, with an outdated portfolio that hasn’t been reviewed properly in years.
Samantha Sykes, a Toronto-based senior investment adviser with Raymond James Wealth Management, says if your parent’s adviser is nearing retirement, it could be a good time to start looking for your own adviser to have more consistency in the longer term.
However, if your parent’s adviser is attentive and responsive to your needs, a change may not be necessarily warranted, she said.
Ms. Sykes said good wealth management is about more than just stock-picking. Ask yourself: Do you like working with your parent’s adviser? Does their communication style work with yours, and can they understand how your needs differ from those of your parents? If the answer is yes, then Ms. Sykes says it could be worth sticking it out.
But if you’re planning on finding a new adviser, understanding how the fee structures of different products and advisers works is key, and can be challenging to figure out on your own.
Mr. Dobson said a fee-only financial adviser can be expensive but a good way to decipher the best course of action when inheriting a portfolio. They’re also an unbiased voice because fee-only planners don’t get commissions from selling products and are instead directly paid by the client.
Consultations for that kind of service can cost around $1,500 to $2,000, Mr. Dobson said.
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