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Heir apparent

Credit unions are beginning to capitalize upon the estimated $1 trillion in personal wealth being transferred to younger generations.

We are living through a historic decade-long event that began in 2016 — and most of us are blissfully unaware of it or its effects. This is the transfer of an estimated $1 trillion in personal wealth between Canadian generations. About 70 percent of this wealth, states Toronto-based research firm Strategic Insight, will be in the form of financial assets.

This is a mind-boggling figure. And the mechanics of transferring that wealth are equally daunting. Is
this an opportunity for credit unions to step in and help? “Absolutely it is,” says Reg Marrinier, senior vice-president of retail and business banking at BlueShore Financial Credit Union (44,000 members, $5.6 billion in assets). “All credit unions in our system are dealing with wealth transfer,” Marrinier says. “We might have different strategies and capabilities but wealth transfer is an inevitable part of life.”

Demographics highlight how timely it is for credit unions to build and refine their transfer of wealth services. An Ipsos Reid banking survey shows that the average Canadian credit union member is between 50 and 60 years of age. Most of these are baby boomers, who started retiring in 2011. This entire cohort of 9.6 million will reach 65 in just 12 years, according to Statistics Canada. There is
a tremendous opportunity for credit unions to assist these boomers, along with Generation X, millennials and post-millennial Gen Zs who will require financial planning services related to this $1 trillion windfall.

Wealth transfer starts with financial planning, which means it’s more than simply determining what credit union members want to leave their heirs. It starts with establishing the objectives for retirement, says Marinnier.

Little wonder that many people delay retirement and estate planning. “The financial complexity — thinking about your own passing — can be daunting,” says Kim Thompson, senior vice-president, head of credit union wealth management at Aviso Wealth.

These objectives are complicated by such issues as extended families. The tax implications can also be confusing. For example, different kinds of assets are subject to different tax rules, says Thompson. The more important issue, however — and the first step — is for members to get their financial affairs in order. Qualified advisers in credit unions are experienced in negotiating the most complicated financial labyrinth, thus ensuring that an estate is handled according to the member’s wishes following their death while making the transfer of wealth as painless as possible for heirs.

This requires thoughtful conversations, layers of planning and the development of a personalized plan that reflects the unique needs of the members and their families. A financial adviser will also coordinate with other professionals in the financial planning field, such as a member’s lawyer, accountant or insurance provider, Thompson says.

Loud and clear

Thompson stresses open and clear communication when it comes to wealth transfer.

“Dialogue and transparency among family members are so important. Without clear communication, instructions and intentions in the will may not be clear to family members and beneficiaries,” she says. Marrinier also warns that “a will is a good starting point but it doesn’t cover all.” At BlueShore, he says, advisers are increasingly seeing variations in wills.

The transfer presents an opportunity for credit unions not only to secure the wishes of the older generation but nurture relations with the younger generation.

Thompson says that Aviso works with its credit union partners to promote long-term relationships between advisers and members. Managing money is just one part of the equation and perhaps not even the most significant. The best intergenerational plans involve not only understanding the goals of a member and building a retirement and estate plan around that but engaging with other family members. This ensures that everyone understands the goals and how they connect to the next generation.

There are some obvious questions related to retirement planning, says Thompson. Do baby boomers know what they want to do in their retirement? Do they want to travel or sell the house? Do they have boomerang children, who are coming back to live at home?

“Blurred retirement” is also a growing trend — the idea that retirement is not a set date but a gradual transition. Planning for a blurred retirement is more nuanced than planning for a set-date retirement. Future health issues must also be considered, as well as members’ different risk tolerance to investments.

Insurance solutions

Only when these questions are answered and the financial plan for retirement is firmed up should members then start looking into estate planning. Thompson says that when it comes to leaving a legacy, advisers need to ask boomers how much wealth they want to leave to the next generation. For example, for boomers who are concerned they may not have sufficient retirement funds to leave a legacy to heirs, there is a range of insurance solutions that can be considered. In many cases it makes sense to consider life insurance strategies to fund a legacy, provide for expenses or even assist with a family business
succession plan in a much more tax-efficient manner. Smart estate planning using insurance options can also simplify the work of the executor in dividing the estate and distributing proceeds as well as alleviating the tax burden on beneficiaries.

Marrinier says that advisers recommend to members that they have realistic expectations of what they can leave their heirs. People often believe their pension or income stream will cover the cost of their retirement and expect there will be some left to pass on. However, an effective portfolio that meets all expectations also has rainy-day funds for unexpected events. “Realistically,” says Marrinier, “there are some major factors such as healthcare costs for drugs, assisted living or potentially full-time home care. You might need to modify your home depending on your health situation. All these are unexpected costs.”

It’s not clear what piece of that $1 trillion intergenerational-transfer pie will be apportioned to credit unions. Thompson says that the big banks have a massive footprint in the wealth management business. Still, this is a perfect time for credit unions to build a stronger offering in wealth services, with high-quality advice and access to industry-leading digital solutions, a broader offering of funds and insurance solutions. Credit unions can provide financial planning and investment advice. They can also provide separately managed mandates and more customized planning for high net worth clients, which includes estate and insurance planning. Thompson adds that Aviso Wealth also offers online brokerage and digital advice services.

The transfer presents an opportunity for credit unions not only to secure the wishes of the older generation but nurture relations with the younger generations, ultimately helping to ensure that the wealth stays within the system. Marrinier says that BlueShore focuses on securing and maintaining the trust of members and their families, including heirs. And that trust building, especially with millennials, means BlueShore and other credit unions have to leverage digital platforms. At BlueShore this includes a full spectrum of digital and mobile technology to reduce geographical constraints, making sure that advisers can still engage members who live outside the direct area of operation or even outside the province.

Thompson also highlights the importance of leveraging technology. “It’s a flexible continuum of services ranging from digital saving and investing options like robo-advice and online brokerage, which are popular with younger investors. It’s important for credit unions to take advantage of opportunities created by inter-generational wealth transfer to build relationships and demonstrate their ability to deliver personalized advice and customized solutions,” she says.

Credit unions across Canada are constantly working to attract younger Canadians to the system. To that end, intergenerational wealth transfer is a once-in-a-lifetime opportunity for credit unions to capitalize upon. ◊