Get your HNW client out of legacy limbo

Chances are your high-net-worth (HNW) client needs your help developing an inheritance plan.

That’s because only 22% of HNW Canadians have such a plan, reveals research by RBC Wealth Management, conducted in collaboration with Scorpio Partnership.

This lack is all the more alarming considering an estimated $400 billion is expected to be transferred to the next generation.

Read: How to handle multijurisdictional planning

“Our research shows that inheritance typically begins at age 29, so Canadians need to act now to ensure their legacy lasts,” says Tony Maiorino, head of RBC Wealth Planning Services, in a release.

But the research shows that’s not happening:

• Almost 60% of Canadian parents don’t feel confident that their children will preserve or grow their inheritance, yet nearly 70% list their kids as top inheritors.
• Canadian children remain in the financial dark, with only 37% of their parents comfortable discussing all the details of their inheritance plans.
• More than half (56%) of Canadian inheritors receive no guidance before receiving their financial windfall.

The earlier children are educated, the more confident they’ll be at making sound financial decisions. In fact, 66% of those who began their financial education before the age of 18 now rate themselves as confident.

Even when families do have the inheritance conversation, only one-third of HNW inheritors know how their benefactors want them to use that wealth. Only one-fifth receive guidance on the various options used to transfer wealth.

And what’s at stake isn’t merely personal.

“If the current generation is able to transfer its knowledge as well as its wealth effectively, it could increase the likelihood that future generations will be better prepared to preserve wealth, drive economic growth and give back to their communities,” says Douglas Guzman, group head at RBC Wealth Management and Insurance, in the report.

Read: Estate planning for diverse communities

How advisors can help

The research shows both family and advisors are important sources for financial education. The top-three ways respondents learn about wealth and money are from:

• family conversations (48% of Canadian respondents),
• meetings with their private bankers or with their financial advisors (also 48%) and
• reviewing information received from their financial advisors (40%).

(Results don’t equal 100% because respondents could choose more than one answer.)

Canadians, in particular, seek out knowledgeable people to build their wealth knowledge (57%), compared to Americans (53%) and the British (41%).

Financial literacy programs offered by financial advisors are cited by only 12% of Canadian respondents as a learning method. However, the report suggests both informal and structured learning — as with a literacy program — will better help your client preserve wealth for future generations.

About the research

The research, conducted in summer 2016, surveyed 3,105 HNW people with an average net worth of US$4.5 million. The survey included 1,054 Canadians with an average net worth of $3.8 million. Respondents included men, women, professionals, retirees and business owners, as well as givers and receivers of wealth.

Also read: KY(A)C: Know your (affluent) client