Within financial services, the term family is referred to as a household.
A household used to be defined as those people who resided at the same address, but now extends beyond a single physical address and includes members of the same family, even if they reside in different residences.
Families that work together with one team of advisers can leverage knowledge and obtain several benefits, ranging from the immediate to estate planning.
In recent years, there is a growing trend where multiple generations of a family/household are working together with one team of advisers. To illustrate, we will divide up a larger family into four generations by age. Generation one may be in the age group 75 to 100; the second generation may be in the age group 50 to 74; the third generation may be 25 to 49; the fourth generation may be 1 to 24. Each of these different age groups have different goals.
The first generation (75-100) may want to pass on some of the wealth to the other generations either immediately, over time or as part of an estate plan. When the family accounts are all linked, this process is considerably easier. As an example, the first generation may want to gift financial investments to the second generation to pay off debt, top up Tax Free Savings Accounts or to help with retirement. The first generation may also want to help the third generation with a down payment on a home or set up Registered Education Savings Plans (RESP) for the fourth generation family members.
The second generation (50-74) is often assisting both the first generation and the third generation. Dealing with aging parents is significantly easier when the financial accounts are held at the same financial institution. We often encourage the first generation to ensure that a trusted member of the second generation has power of attorney.
The third generation (25-49) may be just starting to invest and want to work with a qualified financial adviser. Most established full-service investment advisers have minimum account sizes for new clients. For some advisers this may be $250,000, $500,000 or $1,000,000. The third and fourth generations can often only get access to a qualified adviser by linking family accounts.
We encourage our clients to bring other generations into meetings. These meetings help educate them about non-registered, RRSP and TFSA accounts. Open communication and being exposed to financial knowledge are two areas that we help facilitate if the generations both consent. One of the best gifts you can give future generations is to assist in this education process and to introduce them to a qualified financial adviser who helps set them on the correct long-term path.
Another benefit of families working together is that they can lower their investment counsel fees. The greater the amount of assets a family has with one financial adviser, the lower the fee can be as a percentage. The fees can fluctuate by adviser, but for illustration purposes we will use the minimum account size levels. An adviser may charge 1.50 per cent for accounts between $250,000 and $499,999, 1.25 per cent between $500,000 to $999,999, one per cent at one million. The fees as a percentage continue to go lower as the household value increases.
To illustrate, we will assume three generations have investments with three different financial institutions. The first generation has $900,000 and would normally have fees at 1.25 per cent (or $11,250 annually). The second generation has $450,000 and would normally have fees at 1.50 per cent (or $6,750 annually). The third generation has $225,000 and is currently investing in mutual funds with an average Management Expense Ratio (MER) at 2.46 per cent (or $5,535 annually). Combined, this family is currently paying $23,535 annually.
However, if the family met with one financial adviser, then the combined household could lower annual fees by 33 per cent to $15,750. Each generation would have fees lowered to 1.00 per cent.
Linking accounts enables all members of the family to benefit from lower fees. It helps the younger generation through enhanced communication and provides introductions to qualified financial advisers. It helps the older generation by greatly simplifying the estate planning process. It enables the adviser to provide you and your family the best advice after having reviewed both the family goals and each generation’s overall goals.
Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and rirector of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250.389.2138. greenardgroup.com