The last article we write every year is dedicated to financial literacy for the younger generation. Essentially, we are hoping to provide tips that parents and grand parents can pass along and share.
This year’s article is based on why we ask our clients to provide a family tree. The additional information assists us with having deeper discussions. Lastly, at the end of the article we highlight the benefits of families working together — what we refer to as householding.
Professional checklist
We provide all new clients a professional checklist to take home and complete either electronically or on paper.
The information that we request includes details of the professionals that they are currently working with (for example, accountant, lawyer and so on) and those of important documents you have in place, such as your will, power of attorney, insurance policies, health care directives, and other documents such as marriage contracts.
This information is helpful in establishing a baseline of where our new clients are currently at.
Family tree
On the second page of our professional checklist, we ask all new clients to complete a section that relates to their family and pets, if applicable.
We ask each client to begin the process by writing down the names of their parents, siblings, spouse, ex-spouse, children, grandchildren and great-grandchildren. Below is an example of a format that we share with clients. At least once a year we ask all clients to review the family tree information we have on file and provide any updates (such as deaths, births, marriages, separations, divorces, capacity changes, etc).
Family tree — illustration
At a minimum we like to obtain details of each immediate family member, along with the year of birth and date of death, if applicable.
For couples, we ask each to fill in the details and to provide details of any children from previous relationships and current relationships.
Client — Mr. Barry Wilson 1943 -______
Father: John Wilson (1916 - 1979)
Mother: Janine Wilson (1920 - 2015)
Spouse: Brenda Wilson (1940 - )
Brother: Thomas Wilson (1943 - )
Brother: Charles Wilson (1945 – 2002)
Sister: Sonja Wilson (1947 - )
Client — Mrs. Brenda Wilson (nee Jones) 1940 -______
Father: William Jones (1920 - 2002)
Mother: Cindy Jones (1920 - 2011)
Spouse: Barry Wilson (1943 - )
Sister: Barbara Jones (1940 - )
Sister: Nancy Baker (nee Wilson) (1943 - )
Brother: John Jones (1946 – )
Sister: Sandra Anderson (nee Wilson) (1948 - )
Mr. Barry Wilson and Mrs. Brenda Wilson
Son: Michael Wilson (1967 - ) children are Naomi and Tiana
Daughter: Lisa McIver (nee Wilson) (1970 - ), children are Brian and Tyler
Granddaughter: Naomi Wilson (1999 - )
Granddaughter: Tiana Wilson (2008 - )
Grandson: Brian McIver (2012 - )
Grandson: Tyler McIver (2015 - )
Family tree baseline
Once we have the family tree returned, we will dedicate a portion of the next meeting to specifically discuss the family. We will gather additional information regarding family information.
Using Barry and Brenda’s children and grandchildren as examples, we made the following observations:
• Michael (son) is divorced, has a job with the municipality, has two daughters part time, and is currently renting an apartment in Calgary.
• Lisa (daughter) is married to John McIver, works as a legal secretary, has two sons who both live at home. They couple own a home in Victoria; John has his own construction company.
• Tiana has a disability and requires both ongoing financial support and emotional support.
• Naomi is in the third year of university and is working part time.
• Brian is currently in Grade 6.
• Tyler is in currently in Grade 3.
• Barry and Brenda have already provided Lisa $50,000 to assist her in purchasing the home with John.
• Barry’s father passed away at 63 of a heart attack and Barry’s brother Charles passed away at 57, also of a heart attack.
• Brenda mentioned that prior to meeting Barry she had a child that was put up for adoption.
• Neither Barry nor Brenda are expecting any inheritances.
• They have a French Bulldog named Spike who is five years old.
Given the above information, there are a host of additional discussion items that come to mind that could add significant value outside of the selection of individual investments. Every client situation is unique, and solutions need to be tailored to each family we work with.
Genetic footprint
Many financial decisions are based on projections, one of which is life expectancy.
Depending on what you read, genetics is one of the main factors that determine longevity (25 per cent to 40 per cent). Looking at your family history as well as your own lifestyle and health can provide some guidance for decision-making.
Many of our clients want to know that they will be OK financially, for the duration of their life, prior to gifting money to other family members or younger generations.
If the decision is uncertain, or if other non-immediate family members are involved (for example, a common-law spouse, or a new relationship) ,we always recommend structuring the financial support as a loan, with proper legal documentation, for protection.
Proactive advice
The more information that we have regarding our clients and their immediate family, the more proactive we can be with the advice we provide. Not all solutions are good for all people. Our team focuses on providing tailored financial planning advise for each family we work with.
Barry and Brenda do not have any living parents. In many cases, our clients have one or more aging parents. They may need guidance on how to assist them and discuss planning related items.
We encourage couples to come in together for all meetings and for them to have discussions with their children about finances. We also encourage our clients to discuss with their family the benefits of householding which we cover below.
Once our clients’ children and grandchildren have reached the age of majority, we recommend that they either bring their family members in for a meeting or pass on our contact information to them so they can reach out when they need assistance.
Building financial literacy
In today’s day and age, technology, and ease of access to information from an infinite number of sources can make it easy to trade, and to speculate, but difficult to discern what information is accurate and true. With speculative investing you are effectively rolling the dice and trying your luck with a stock.
Recent events of speculative trading arising from online forums have left some new investors with various outcomes. The volatile nature of speculative trading is one of the many reasons why we choose to stay away from speculative stocks. Instead, we focus on growing wealthy over time, rather than a “get-rich-quick” scheme.
Our clients who introduce their family members to us know that their loved ones will benefit from a full-service investment firm. It can also provide comfort knowing their children or grandchildren are on the right path and have the proper guidance of how to manage gifted funds or their own hard-earned dollars.
We have worked with many families over the years. One thing that stands out is that those families who talk about finances with their children often have children who are more financially knowledgeable. Every day has learning moments when it comes to learning about finances.
We have always offered to assist our clients that have family members who are just getting started. We also encourage our clients to talk to their children about finances. Success is often ensuring your children and grandchildren do not make big financial mistakes.
It can be daunting to try to figure out what types of accounts to open and what types of investments to purchase within each investment account. Building financially literate and financially resilient children could be the greatest gift you give them.
Householding family members
Within financial services, the term family is referred to as a “household.” The definition of a household in the typical sense is defined as those people who reside at the same address. In financial services today, the term household extends beyond a single physical address and includes members of the same family, even if they live in different residences.
Families that work together with one portfolio manager team can leverage the portfolio manager’s knowledge of the family as a whole and obtain several benefits. These advantages range from immediate short-term benefits, such as lower investment counsel fees, all the way to long-term benefits such as estate planning and inter-generational wealth transfer.
As mentioned above, there is a growing trend where multiple generations of a family/household are working together with one portfolio manager — we refer to this as “householding.”
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; and the fourth generation may be one to 24. Each of these different age groups has different goals.
The first generation (75 to 100) may want to pass on some of their 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 their Tax Free Savings Accounts (TFSA), or to help with retirement. The first generation may also want to help the third generation with a down payment on a home, or to set up Registered Education Savings Plans (RESP) for the fourth generation family members.
Generation two (50 to 74) is often assisting both the first generation and the third generation. Helping aging parents can be significantly easier when the financial accounts are held at the same financial institution as theirs.
We often encourage the first generation to ensure that a trusted member of the second generation has power of attorney or is listed as a trusted contact person. Maximizing registered account contributions, such as Registered Retirement Savings Plans (RRSP) between ages 50 and 71 is often a goal and then transitioning these accounts to Registered Retirement Income Funds at age 71, or earlier.
The third generation (25 to 49) may be just starting to invest and want to work with a qualified portfolio manager. Most established full-service investment firms have minimum account sizes for new clients.
For some portfolio managers, this may be $250,000, $500,000 or $1,000,000. By linking family accounts, the minimum asset requirements for the younger generations can be met. The third and fourth generations can often only get access to a portfolio manager at a full-service investment firm by linking family accounts.
Often this age group is contributing to multiple registered accounts, including the First Home Savings Account (FHSA), Tax Free Savings Account (TFSA), and Registered Retirement Savings Plan (RRSP).
Generation four (one to 24) may be the beneficiary of a RESP or have some savings from employment towards the later years of this life phase.
Within Canada, the minimum age you can open an investment account is determined provincially. In British Columbia, you can open an investment account at age 19. TFSA room, however, begins accumulating in the year you turn 18. What this means is British Columbians turning 19 in 2024 will have $13,500 in TFSA contribution room immediately (based on annual TFSA contribution limits of $6,500 in 2023 and $7,000 in 2024).
The fourth generation can benefit from householding their accounts with generations one, two and three in order to receive access to a full-service brokerage and begin compounded growth of their investments at a young age.
With householding, family accounts are linked for fee and planning purposes, but the individual investment details are kept separate unless there is a power of attorney in place.
Prior to needing a power of attorney, we encourage our clients to bring other generations into meetings. These meetings help educate them about the various types of non-registered and registered accounts. We will also review the different types of investment options that are most suitable at that point in time given risk tolerance, investment objectives, and time horizon.
Open communication and being exposed to financial knowledge are two areas that we help facilitate if the generations all consent. Again, one of the best gifts you can give future generations is to assist in their educational process and introduce them to a qualified portfolio manager who will help 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 portfolio manager, the lower the fee can be as a percentage. The fees can fluctuate by portfolio manager.
As an example, a portfolio manager may charge 1.50 per cent for accounts between $250,000 to $499,999, 1.25 per cent from $500,000 to $999,999, one per cent between $1,000,000 to $1,999,999, 0.90 per cent from $2,000,000 to $2,999,999, 0.80 per cent from $3,000,00 to $3,999,999, 0.70 per cent between $4,000,000 to $4,999,999, and 0.60 per cent over $5,000,000. The fees as a percentage continue to decrease as the household value increases.
To illustrate, we will assume three generations have investments with three different financial institutions. The first generation has $1,300,000 and would normally have fees at 1.0 per cent (or $13,000 annually). The second generation has $475,000 and would normally have fees at 1.50 per cent (or $7,125 annually). The third generation has $245,000 and is currently investing in mutual funds with an average Management Expense Ratio (MER) at 2.46 per cent (or $6,027 annually). Combined, this family has $2,020,000 in investments and is currently paying $26,152 annually.
However, if the family consolidated with one portfolio manager, then the combined household could lower their annual fees by 30 per cent to $18,180 (or a savings of $7,972 annually). Each generation would have their fees decreased to 0.90 per cent based on the above fee schedule.
Householding investment accounts enables all members and generations of the family to benefit from lower fees. It helps the younger generations through enhanced communication and provides introductions to qualified portfolio managers to get them started on the right path as early as possible. It also helps the older generation by greatly simplifying the estate planning process and providing peace of mind that everything is in place.
Lastly, linking family accounts enables the portfolio manager to provide you and your family the best advice after having reviewed both the family goals and each generation’s overall goals.
Most of our clients are workers, meaning that they worked hard for the money they earned. They worked hard so they wouldn’t be reliant on others to have financial contentment. Many also want to help their family members. These types of discussions have the benefit of family income splitting to also reduce taxes paid to Canada Revenue Agency over your lifetime.
Improving performance, lowering fees, and increasing knowledge for all family members is one of the greatest long-term gifts!
Kevin Greenard CPA CA FMA CFP CIM is a Senior Wealth Advisor and portfolio manager, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email [email protected], or visit .
