Advisors as executors?

Advisors as executors? It's a question that is increasingly coming up as baby boomers finalize their own estate planning. But should advisors cede to such a request -- is it even possible? WP takes up the question.

Video transcript below:

Reporter:  Looking ahead is a Financial Planner’s job, but tunnel vision means they don’t always see past the client’s retirement on to the end.   It’s Estate Planning and Executorships on WP TV.

As the go to person on finances, taking on the role of executor may be tempting, perhaps even natural.  Clients may even hand pick you for the role, but is it in your best interests to take it on.  Is it even possible?

Mark O’Farrell, President at the Canadian Institute of Certified Executor Advisors
Mark O’Farrell:
 I think people that are choosing an executor might think that the Advisor is suitable because they have a good knowledge of financial issues, tax and so forth and personally I think it’s a big mistake.  I don’t think a financial advisors are suited to act as executor.  For one thing, both IROC and MFDA prohibit it, which means the advisor has to remove themselves as the Advisor before they can become the executor and I think that sends very confusing messages to the heirs if they have an interest in maintaining the assets after they pass.  

We advocate that the advisor should stay in the financial advisor role and advise the executor as a certified executor advisor in order to facilitate and help them execute their duties. Guiding them away from making mistakes, steering them towards the professionals that can help them.  

Tom Junkin, Senior Vice President, Personal Trust Services and Operations, Fiduciary Trust, Canada
Tom Junkin:
 Be careful what you look for, because being an executor as I mentioned is a time consuming job that will consume you for about a year and you can charge fees for doing that, but you will very likely find that it’s not as lucrative as your main role which is investment advising.  The other thing that I would say right off the bat is it’s very likely that your dealership probably has rules about you accepting an appointment as executor and most dealers would prohibit you from doing that, simply because it would be perceived to be a conflict of interest.  And finally we haven’t touched yet on the liabilities that go with being an executor, but I think you would need to ask yourself, do I want to risk my assets, my personal assets in the event that something goes wrong in the administration of this estate.

Myron G. Neufeld, President, ERAssure, Estate Risk Protection Plan Inc.
Myron Neufeld:
 Advisors do take on the role with some regularity and what we would suggest to them is a number of things.  Obviously make sure that there is clarity within the plan, that they have access to third parties such as all the tax advising, accounting advising, you know the professional advice that any executor should have.  They should also absolutely be very clear on separating investment handling from their activities as an executor because of the fact of the conflict and bring in a third party to manage the investments.  

They should absolutely outline and clarify an investment policy specific to the estate and it doesn’t happen all the time and there is, it’s one of the big challenges that the lay executive faces is that they have investments but they don’t address the fact that the investments that are in the estate need to be handled differently for an estate than they may have for the decedent and the needs and the desires that the decedent had.  

So those are of the things that they should absolutely be paying attention to and the fourth one would make, making sure if they do take on that role that they’ve got access to an insurance protection.

Reporter:  Talking back is awkward at the best of times.  It’s no different for financial advisors.  But knowing what plans if any are in place is paramount to protecting your client’s best interests and their legacies.

Mark O’Farrell:  I think if they don’t broach the topic they are doing a disservice to their client.  I think that they should be getting that information out on the table because ultimately what they want to do is make sure the executor understands what they are ultimately going to take on and to engage and dialogue with the testator to facilitate that knowledge.  So I would point out things like if the financial advisor asks about inheritances, that’s a very common opening where you are doing a KYC and you are looking at you know what are the assets, what are the future assets and so forth.  And you say what about inheritances and the person may say, well I don’t really want to talk about that.

I would take that back and I would say, here’s my issue, 40% of Canadians are anticipating an inheritance.  The average Canadian is anticipating 10% of the retirement income to come from inheritances.  If we don’t talk about this, I am not doing my job, so I am sorry this may be uncomfortable, but it’s important and I think if you put it that way to people, then they will be happy to discuss it.

Reporter:  How much or how little you choose to be involved in the estate planning process is really upto you, the advisor, regardless of the role you play, it’s important to stay upto date and informed.  Keep an open mind as there may be opportunities you don’t want to miss further down the road.  

Scot Dalton, CEO, ERAssure, Estate Risk Protection Plan Inc.
Scot Dalton:
 What we would call a lay executor, a person that steps into the role with no experience which is most people, they should know everything that’s going on legislatively so that they are compliant with what the rules are, but I can tell you that the rules have changed so much that unless you are Wealth & Estate Practitioner that specialises in that area, it’s difficult for even a probably a generalist lawyer to stay on top of all the legislative changes that are going on.

Myron G. Neufeld:  The financial advisor might have a great handle on Mum and Dad’s assets and liabilities, but they may have zero understanding of the relationships of all the siblings and the two and three separated families that are below that and the drug addiction of the one kid that’s having a significant impact of the loans that are out there that weren’t disclosed and you know the list goes on.  So assuming that they know everything about what’s going on is a very very inappropriate assumption to make and quite frankly a very dangerous one.

Tom Junkin:  Your goal after all is to retain assets, the reason why you built these relationships with the client is in order to have a lifelong relationship with that client.  You may want to extend that relationship to the next generation.  You might want to work for their children or their spouse after they are gone.  Be aware that if you take on the role being executor, you might have to make some hard decisions, you might not be everyone’s best friend by the time you have finished administering the estate and that may actually get in the way of your main goal, which to continue the relationship with your client or their family.