Family meetings emerging as a new facet of financial planning

Five years ago, when Stephen Tait lost his mother, Muriel, to cancer, the family was left reeling from a loss they weren’t prepared for. Stephen, his sister, Jackie, and their father, Neil, expected that their mother and wife would be able to beat the disease she had spent the previous four years fighting.

“When my mother passed, she had the required will, but she wasn’t ready to go mentally. She had plans that she was going to fight this cancer, like we all did,” said Stephen Tait, a 53-year-old financial services executive in Toronto. “When she did pass, it was a bit of an eye-opener because there were a lot of things that we weren’t necessarily prepared for.”

Now, with his father approaching his 81st birthday, Stephen wasn’t surprised when he and his sister were asked to join his father’s financial adviser to have a family meeting about his father’s financial expectations in case anything were to happen.

“I wanted them to have a thorough understanding of my affairs and to know exactly what my assets were and how they are distributed so there will be no surprises when the time comes,” Neil Tait, a retired bank executive, said. “It wasn’t just a review, but it was an open discussion where if they had any observations or a suggestion that they liked to do things differently or change, then this was an opportunity for them to bring it up.”

Such family meetings are becoming a bigger part of the financial-planning process as Canadians are now living longer and many retirement plans are being extended to the age of 100, says Susan Latremoille, director of wealth management with the Latremoille Begg Group at Richardson GMP in Toronto.

“Those of us who have embraced this holistic perspective can see the linkages and help people with those turning points in their lives," says Ms. Latremoille, who conducted the Tait family meeting. “We provide way more services than we used to. It is no longer just an investment role. Today, there is nothing that is off the table. As people age, cognitive health becomes a bigger issue, educating children about money and leaving an estate, sickness and disease and the implications that come with that. “

And the importance of that role is growing. Canada’s wealth-management industry is in the midst of the biggest intergenerational wealth transfer to date. Approximately $1-trillion will pass from one generation to the next in Canada between 2016 and 2026, according to data from Strategic Insight. Not addressing plans can lead to misunderstandings, unpleasant surprises, possible legal complications and, in turn, family conflict.

Among Canadians with at least $500,000 in investable assets, 58 per cent have not discussed instructions for their estate with their heirs, according to a recent poll conducted by Investment Planning Counsel Inc.

Of those, 46 per cent said they intended to have a discussion at some point in the future, but 12 per cent said they had no intention of ever discussing inheritance plans with their beneficiaries.

“A lot of people don’t want to talk about it because they are afraid to upset family members, but the lack of communication could be leaving inheritors in the dark," says Sam Febbraro, executive vice-president at Investment Planning Council Inc. (IPC). Mr. Febbraro suggests financial advisers be introduced to family members as a first step. “Parents should explain their objectives and make sure there is clarity in the decisions they have made.”

In addition to investment portfolios, supplementary information that should be shared in a family meeting includes physical items, vacation homes and cottages, charitable donations and medical information, he says. Many people also don’t anticipate the size of the digital footprint they will be leaving behind, Mr. Febbraro adds. They need to provide details and passwords for financial, e-mail and social-media accounts and for any professional contacts such as lawyers and accountants.

Family meetings aren’t top of mind until there is a catalyst, says Darren Coleman, a portfolio manager with Raymond James Ltd., who has increased the number of family meetings with his clients.

“They can be tricky to set up because most people want to maintain their privacy, especially around close family,” Mr. Coleman says. “Money for many families is a taboo topic. It’s not something they are used to talking about, and want to keep very private."

“There are many clients who then realize how complicated it can be and they say they didn’t realize what went into it," Mr. Coleman says. “They don’t know how difficult it is for the survivors to cope with things."

For Neil Tait, he didn’t want to leave anything open for interpretation and plans to conduct a family meeting once every five years and will eventually incorporate his grandchildren into the discussion. Neil, who now spends his winters in Florida, has worked with Ms. Latremoille for more than 25 years and is confident that when the times comes, his affairs will run smoothly.

“My children had a pretty good idea of what my total investments were, but I had never broken it all down for them, “ he says. “This is something Susan laid out for them. While the total number wasn’t a surprise, the breakdown allowed them to see what is in the U.S, in Canada and what is held internationally – why we have it there and what the return is in each segment.”

As well, Neil spent a lot of time travelling abroad to Asia during his career and has continued to donate to the Chinese community in Toronto. Both his children know that’s something he holds dear to his heart, as well as the hospital that took such great care of their mother during her illness – Toronto’s Princess Margaret Hospital.

“I appreciated the opportunity – for both my sister and I – to actually be able to listen to my father’s plans for himself and speak with the person who will be executing on those plans,” Stephen Tait said. “The ability to talk about his final wishes and for him to know we will be able to follow through with them."

More Canadians need to start engaging family members in their wealth-transfer conversation, IPC’s Sam Febbraro says. He suggests the following steps to help ensure a smooth transition and prevent family conflicts.

* Introduce your family to your financial adviser: Set up a meeting with your children and your financial adviser – even if your adult children have their own adviser, it will be beneficial for them to have made the connection;

* Make decisions in a low-stress environment: Hold a family meeting when you are healthy and not under pressure to make decisions quickly;

* Explain your objectives: Share the reasons for the decisions you are making, your objectives and how they align with your values;

* Create an estate directory: This directory will detail essential items such as bank accounts, investments, insurance policies, wills and power of attorney and how to access them when needed;

* Include your executors: Introduce your executor to your financial adviser. Inform and educate your executor on your intent and wishes, where to find the will and if they need to contact any third parties;

* Educate your heirs: Educate and prepare your heirs to take over and manage your wealth.

Marta Iwanek/The Globe and Mail

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Planning for Long-Term Care: Tips for Seniors

 Photo via Pixabay by Rawpixel

Many seniors these days are looking for ways to extend their post-retirement income, especially when thinking about their future health. It’s impossible to know what life will throw your way, and planning ahead can be tricky. Medicare is an invaluable resource for most seniors, but it doesn’t cover everything, and the thought of requiring long-term care or a stay in the hospital one day down the road can be stressful.

Fortunately, there are several ways you can start preparing for your needs no matter what they may be three or five years from now. Figuring out whether you and your loved one want to remain in your current home or whether it will be safer -- and more cost efficient -- to downsize will be crucial during this process, as will thinking about what your family history is like. If there are certain illnesses or diseases that you’re predisposed for, it’s a good idea to talk to your doctor and find out how to prevent and manage them.

Keep reading for some great tips on how to plan for your long-term care.

Take a Look at Your Insurance

Some health, disability, and life insurance policies will cover long-term care, such as a stay in an assisted living facility or under a nurse’s care, but the terms are usually strict, and not all policies are the same. Take a look at all your insurance policies to get a feel for what they’ll cover, and don’t hesitate to call your rep if you have questions. You can start here for some great resources.

Downsize

Downsizing can be an option for seniors who are worried about their ability to stay safe in their current home. This can prevent a stay in a nursing home or assisted living facility due to injury, but it’s not the right option for everyone. Making a move is a big job, and it will likely require you to sell, donate, and throw away many belongings because there won’t be room for them all in a smaller home. If your current home has stairs, a large yard to take care of, narrow doorways, and small rooms that won’t facilitate a wheelchair or other medical equipment, it might be time to think about a downsize.

Plan for Staying at Home

There are other options besides moving into a nursing home or assisted living facility after an injury or illness. If you or your spouse need care at any point, you can take advantage of the many services available to seniors, such as home health aides, senior centers, and adult day care centers. These services will help you stay independent and won’t require as much money out-of-pocket as a long-term stay in a facility.

Put It in Writing

Whether you want to make sure your family is taken care of in the event that you are incapacitated by an illness or you want to plan for your ability to seek long-term care in the event that you need it, it’s imperative to put it all in writing and have it notarized. Making out a living will can help give you peace of mind and will leave no doubt as to your wishes should you be unable in the future to vocalize them.

Planning for your future can be an emotional time, leaving you feeling drained and stressed, so it’s important to take care of yourself. Eat a balanced diet, exercise daily, get enough rest, and reduce stress as much as possible. Thinking about what your needs will be in the future can give you peace of mind and will allow you to focus on what really matters.

Hazel Bridges
AgingWellness

 

Preparing finances now for possible cognitive decline is just plain smart.

Most investors try to stay on top of their accounts and follow the rules of prudent money management. But as the mind slows with age, decision making may be impaired, and experts warn that dementia and even Alzheimer’s disease can leave you incapable of managing your affairs.

“As we age, our personalities change and it’s undeniable that our cognitive abilities do, too,” says Marshall McAlister, a private wealth counsellor and principal at Pavilion Investment House in Edmonton.

Putting controls in place for the decline to come is becoming top of mind for many people, he says. They fear they might fall prey to fraud, for example, or begin to make mistakes with electronic banking. The wealthy are particularly at risk, as they have more to lose.

“We require older people to pass a driver’s test in Canada, but that’s not required for managing your finances,” he says.

Open this photo in gallery Older people need to prepare for the time when the optimal strategy is to let someone take over.

A 2016 study by Texas Tech University and the University of Michigan showed that financial literacy drops significantly as people age, matching the erosion of memory and problem-solving abilities later in life. Respondents to basic financial questions saw their test scores fall 1 percentage point each year above age 60.

At the same time, however, older people didn’t report a loss of confidence in their capacity to make financial decisions, the researchers found, because the decline happened gradually and they were not aware that their abilities were degrading.

“It’s not going to be optimal if you can’t remember if you rebalanced [your investments] and you can’t keep up with your records,” says Sandi Martin, a fee-for-service financial planner at Spring Financial Planning in Gravenhurst, Ont. It makes sense for older people to designate others who can pick up the baton long before that day arrives, she says.

“We all have to prepare for the time when the optimal strategy is to let someone take over,” she says. Choosing someone to take over for you can be difficult, she notes, as that person may ultimately face your feelings of paranoia, stress and worry that can come with Alzheimer’s.

Everyone, especially high-net-worth individuals, must plan for incapacity, says Philip Renaud, a trust and estates lawyer and partner at Duncan Craig LLP. His clients are urged to make out wills, create enduring powers of attorney and personal directives for health care. These latter documents can vary by jurisdiction and be tailored to suit the individual or couple, for example covering specialized assets such as a family business or vacation property.

Here are steps to consider for financial planning in cognitive decline.

Form a relationship with a trusted person or people who will carry out your wishes.

Find someone in your family, or an accountant or professional adviser or lawyer who knows you and what your intentions are, who will manage your personal affairs and be your backstop, says Mr. McAlister. Many people choose their spouse for the role, he says, but a spouse can often have the same cognition decline or not be up to the job.

Mr. Renaud notes that in picking the right executor, trustee or attorney (the title given to someone who has power of attorney), beware of tension among family members. A legal representative may need specialized knowledge to deal with assets such as the family business or vacation property.

Some people hire a professional to be their executor or attorney, someone who has the right skills, is accountable and is a good record-keeper. This person could also be paired with a family member or personal friend, say, to get “the best of both worlds,” he says.

Draw up an investment policy statement and set markers for determining your competence.

This will ensure that your affairs can be picked up seamlessly and managed according to a program when the time comes.

Mr. McAlister says there are people with assets of $5-million or more who have no kind of financial plan in place and who also have outdated wills, powers of attorney and personal directives. “We have to know how all that money is going to be managed before we have to guess what your intentions are,” he says.

Setting rules up front is essential, Ms. Martin suggests. “The more that’s agreed upon ahead of time, when everybody’s thinking rationally and at their full capability, the easier it is later on.”

It’s essential to have a “test for capacity” in your power of attorney, Mr. Renaud notes. For example, the determination can be made by a doctor, a spouse or your children, although he warns that family members can have difficulty or conflicts in making such a determination.

Draw up a power of attorney that covers incapacity and ensure its rules and conditions work with your situation.

Most provinces allow for an immediate power of attorney, which applies instantly, as its name implies, and a “springing” power of attorney that can be invoked “if your memory starts to go,” Mr. Renaud says. “You’re still the boss and you call the shots as long as you’re still capable, but this enables your attorney to step in and help you manage, and, if necessary, take over.”

The wording of the power of attorney must cover special situations, he says, such as use of the family cottage or whether you want to keep donating to a charity. An attorney is typically bound by a “prudent investor rule” that might not suit a high-net-worth investor who prefers a riskier asset mix, say, or who owns a business, Mr. Renaud notes. “You can change the rules.”

Consider forming a trust that will allow you, or you and your spouse, to have your affairs managed competently by a trustee.

If you’re older than 65, turning all of your assets over to an alter ego trust will allow you to remain the beneficiary of all capital and income if you become incapacitated. A spousal trust works much the same way, says Mr. Renaud, noting that most people opt for trusts to avoid probate in the settlement of estates. He recommends that individuals consult with their lawyers about the advantages and disadvantages of powers of attorney and trusts in their situations.

“Think about potential problems and put in rules and systems,” he says. “This will take pressure off your executor or trustee – and ensure that your wishes and family order are maintained.”

Hold family meetings to disclose and discuss how your investments, banking and other affairs are being managed – and should be in the future.

“I’m a big believer that if moms and dads tell their kids what’s going on, that can allow a greater experience for everybody involved,” says Mr. McAlister.

Family members who are going to be responsible for managing your affairs through a power of attorney should be told your financial and investment wishes well ahead of time, Ms. Martin says, before cognitive decline brings on feelings of mistrust.

“You need to have a good, long, honest discussion so they’re not just entering into it blindly,” she says. “You have to say, ‘Here are my wishes now, you just do the best job, and don’t worry whether me in 20 years thinks you’re doing a good job.’”

Mary Gooderham

Special to The Globe and Mail

Published June 1, 2018 Updated June 5, 2018

 

Are ETFs The Better Tool For Investors?

While observing the current active/passive fund debate, one could get the impression that investors must make the decision of investing either passively or actively in their portfolios. The talking points of each type of investment are often praised as a kind of dogma. But this is obviously not the case, since investors can use ETFs even if they believe active managed funds are the superior products or the other way around.

Investors who prefer actively managed funds in their portfolios can still use ETFs as tactical investment tools to implement their asset allocation views. ETFs can give them direct access to an asset class that may not be available among actively managed funds or if their investment horizon is too short for an active manager to generate alpha - often achieved only over a longer period.

On the other hand, investors who prefer ETFs can use actively managed funds in segments where active management can add value. Or, they can invest in a fund that is managed by a portfolio manager who has been proven to generate outperformance in the past.

In this regard, investing in active or passive products is not an either/or decision; both fund types can add value to investors' portfolios. Active and passive funds are like two sides of the same coin - they belong together. Investors should always check which kind of product is most suitable for their respective investment purposes. From my point of view, the discussion about active/passive funds should be scaled back to the level where both kinds of products focus on their individual advantages and not on the dogma that a given product type is the best for all investors. That said, I strongly believe both kinds of products have a place in investors' portfolios, especially if used in combination. This also means investors must be aware of all the product features and need to take the responsibility of sticking to their personal risk tolerance in order to achieve their investment goals. 

By Detlef Glow

Financial Planning

A Comprehensive Financial Plan

FINANCIAL PLANNING
Financial planning is not just about what you want to do with your money, but what you want to do with your life. Sometimes it’s a very difficult balancing act between your current needs/desires and your future needs/desires. It’s about finding the right trade-offs that will work for you at every stage of your life. It includes investment planning, asset management and retirement planning of course, but it also includes personal risk management and insurance needs, estate planning, sound day-to-day, year-by-year money management, and sound income tax planning. Most importantly, it’s about how all of those pieces fit together to form the optimum financial plan to make your finances work best for you.

The Financial Planning Process

Financial planning consists of six fundamental components – Financial Management, Tax Planning, Asset Management, Risk Management, Retirement Planning and Estate Planning.
With financial planning, none of the above components are ever dealt with entirely in isolation– it is the integration and interdependencies among these components, as well as the need to analyze and synthesize information presented to formulate strategies, which distinguish financial planning from other forms of financial advice or financial intermediation.
Specific product recommendations or sales are not, in and of themselves, financial planning activities. While the process leading up to a specific product recommendation may well involve some financial planning activity, the actual product recommendation clearly falls outside the scope of financial planning.

The Six Step Process to Financial Planning

Establish the Engagement: Define the Terms of the Engagement

The client and MoneyValue Advisor will define and agree on the scope of the financial planning engagement (“engagement”). Details about each party’s responsibilities, the time frames of the engagement, compensation, and conflicts of interest should be set out in writing in a formal engagement letter or in a Letter of Understanding, signed by both parties.

Gather Client Data: Determine the Client's Goals, Needs and Priorities

MoneyValue Advisor will discuss the clients’ financial goals, needs and priorities with them before making and/or implementing any recommendations. The Advisor will then gather all quantitative and qualitative information relevant to the engagement. Sufficient information should be obtained from the client before making and/or implementing any recommendations.

Analyze the Client’s Financial Information: Analyze the Information with Respect to the Client's Goals, Needs and Priorities

MoneyValue Advisor will then analyze all information to determine the client's financial situation, and evaluate to what extent the client's goals, needs and priorities can be met under the current circumstances.

Develop and Present the Financial Plan: Identify and Evaluate the Financial Planning Strategies

MoneyValue Advisor will identify and evaluate financial planning strategies to achieve the client's stated goals, needs and priorities. Advisor will then develop recommendations to achieve the client's stated goals, needs and priorities, and should communicate these recommendations so that the client understands them.

Implementation of the Financial Plan: Agree on Implementation Action, Responsibilities and Time Frames

The client and MoneyValue Advisor  should agree on implementation action, responsibilities and timeframes. The client and the Advisor professional will then act to implement the approved recommendations.

Review the Financial Plan: Agree on Responsibilities and Time Frames for the Review and Re-Evaluation of the Financial Plan

The client and MoneyValue Advisor should agree on a time frame for monitoring and evaluating the financial plan. The client and the Advisor will then review the financial plan to assess its progress, to determine if it is still appropriate and to confirm any revisions mutually considered necessary.

In life, almost anything can happen to anyone, at anytime, anywhere. You can’t plan for it, but having a comprehensive financial plan can give you the security of knowing that you will still be able to look after the people you care about.
 
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The Canadian Institute of Financial Planners (CIFPs)