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CONSIDER TESTAMENTARY TRUSTS
If you wait until the estate planning
stage to make a connection with a
client’s kids, you’ll have less time to
build a lasting relationship. So, you’ll need
a strategy to quickly establish yourself as the family’s advisor.
Sajjad Hussain, vice-president, private wealth counsellor with Fiduciary Trust Canada, says one way to do this is by suggesting the parents create a testamentary trust for the kids.
With such a trust, “if the parents want to be able to control their assets from the grave and don’t know their children’s spouses or future spouses yet, in case of [a child’s] marriage breakdown, those assets don’t leave the family line.” A trust is also beneficial “if their child has a spending problem or disabilities, and they want to guide- line when the child can have access to this money.”
Once you’ve determined with the client that a testamentary trust fits her needs, you can employ the next step of Hussain’s strategy.
“When the trust structure is recommended, those assets will have to be managed by somebody; we [suggest putting] the advisor’s name in the will so they can be the advisor for the trust.”
While the children aren’t yet your clients, they are the benefici- aries of the trust that you’ll manage. “The advisor now has the ability to meet with the children on an annual basis. You give them an over- view of the assets, but, more importantly, the advisor is now able to build a relationship with the [children] and have a chance [to be the] children’s advisor,” Hussain says.
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Connecting with young kids
While it’s important to build rapport with adult children, making a connection with younger
kids can be beneficial for future business, says Ty Cooke, vice-president and portfolio manager with Orlic Harding Cooke Wealth Management.
Cooke has helped children younger than 10, as well as teenagers and those in their early twenties. “If the second generation has seen what successes or what experiences their parents have had with their advisor, the children feel a lot more com- fortable.” His strategy to get to know the second generation starts with asking their parents about them. “Every parent likes to talk about their children. It’s a natural progression from learning more about the clients’ children, and what they’re doing, to being able to help them.”
He recommends finding common ground based on the child’s age. For example, Cooke’s colleague and a client both have daughters who are about 10 years old. “They were talking about something that was completely off topic, and then they real- ized [the two girls] liked the same things, and that the client’s daughter had an account [made up of] gifts from grandparents or birthdays.
“It progressed to saying, ‘Are there certain companies she’d like to invest in?’ ‘Yes, she likes Lululemon and she likes Disney.’ We opened
an informal trust account.” Since the child is a minor, the account is in her mother’s name. The mother also signs paperwork, though the account is tracked using the daughter’s SIN.
Cooke’s team set up a formal meeting in the boardroom with the 10-year-old and her parents to discuss the trust’s asset allocation. Choices were based fully on the daughter’s interests, with input from Cooke. “We try to use terminology that [the daughter] would understand and clarify it all the time,” says Cooke. For instance, instead of using words like “standard deviation” and “volatility,” Cooke would use “risk” because she’d understand what that meant. He’d also use “down” and “up” versus “increases” and “decreases.”
And, he encouraged the child to ask questions. To boost her comprehension, he created charts
of her favourite companies. “A lot of investors, regardless of age, are visual. We can put up the chart of what the company looked like and you [can] see where it went up and down,” he says.
In this case, the daughter and her parents pay commission on a trade-by-trade basis, but Cooke says every family will have a different compensa- tion scheme, depending on total assets invested.
He and his team keep in regular communica- tion with young clients through phone and email. “We know how electronically minded all children are these days.”
But Cooke cautions that, if the child is under 18, the parent must also be present for the conver- sation—whether on speakerphone, another line or in person. He says conference call updates may last 15 minutes, while in-person account overviews can last between 30 and 90 minutes, depending on the child’s age and the topics covered.
During those conversations, Cooke will update the child on the progress of the account. “We perform a current snapshot picture. You can go through it line by line with them to put a little more colour behind it.” Though the report will include details such as dividend earnings, earnings per share and current share value, he finds most children—and adults—focus on the bottom line.
He estimates between 10% and 15% of his book of business is second- and third-generation clients. “Intergenerational wealth transfer is going to be
a big part of [work done by] investment advisory teams going forward,” he says. “Make sure you have a strong relationship with families from top to bottom.” AE
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