For the most part, estate planning has been an untapped market for financial advisers, because it is traditionally seen within the domain of the legal profession.
As a result, most financial planners merely footnote estate planning discussions with their clients, usually with a recommendation in a statement of advice that the client discusses their testamentary wishes with their lawyer.
However, the reality is that most lawyers are not qualified nor experienced to deal with a holistic range of estate planning issues that planners often see within their clients’ affairs. For example, most lawyers are not capable of navigating superannuation death benefits post the 2017 reforms, particularly with SMSFs with pension and accumulation balances, nor Centrelink, aged care or taxation issues arising on death.
It is no wonder that there is a massive disconnect between the growing need for estate planning services, driven by an ageing population, progressive increases in dementia rates and blended families, and access by clients to cost effective holistic estate planning advice, particularly in regional areas.
Most planners perceive that estate planning services constitute “legal advice” and therefore off-limits as a service opportunity. However in practice, nothing could be further from the truth and more creative financial planners are exploring the benefits of delivering estate planning facilitation services within their practices, not only to provide a supplementary income but as a means of strengthening their client relationships, building a bridge to the client’s family beneficiaries and cross-selling existing financial planning and allied services.
Under the legal profession uniform law in each state, the definition of “engaging in legal practice” and the provision of “legal advice” includes the practice of law and providing legal services. This has typically meant the creation of a legal document ( e.g. will) and the provision of advice about the legal consequences of a client’s affairs. However, such “advice”, in the context of estate planning, is the conclusion of a detailed fact-finding process that in itself is not a legal activity.
A lawyer who undertakes estate planning activities spends most of their time with clients, engaged in this fact-finding process with the result that the bulk of their fees are charged for activities that do not constitute “legal advice”. For example, the following discussions between lawyers and their clients do not constitute legal advice:
• the appointment and selection of an executor, substitute executor or alternative executor;
• executor’s remuneration;
• choice and selection of guardians and trust appointors,
• identification of beneficiaries and their special needs or circumstances;
• successor beneficiaries;
• the distribution and control of assets to beneficiaries;
• vesting ages;
• the identification of the client’s assets, ownership structures and the entities that control those assets;
• superannuation interests;
• family relationship conflicts;
• potential relationship breakdowns, financial solvency and asset protection issues; and
• possible incapacity, etc.
Financial planners, in particular, are typically in the best position to navigate these issues because much of this information is usually within their files as part of their “know your client” duty. Because estate planning conversations are about events at a future point in time, the estate planning process is very much within the paradigm of the financial planning process. That is, it is directed towards developing a documented strategy of achieving the client’s long-term future goals relating to the happening of an inevitable future event – disability and death!
The most common misconceptions and barriers raised by planners entering this market are that an estate planning service is either a legal activity that affords limited participation, that they are not skilled at having estate planning conversations with their clients or that there are no revenue opportunities available. As a result, the traditional relationship between the planner, lawyer and client is at best a collaborative arrangement with limited revenue opportunity or at worst a mere referral to a lawyer with no financial benefit or reward to the planner.
In contrast, estate planning facilitation is a carefully prepared and orchestrated process of the adviser project managing and co-ordinating the entire estate planning process directly with their clients and in their offices for which they charge either a separate fee for that service or which is incorporated into a composite annual service fee, charged to their clients. The primary object of this process is not to give advice, but to search out and identify estate planning issues and to motivate clients to embark upon the journey of solving those issues with collaborative legal advice and documentation.
There are a number of online estate planning service models currently in the market. However, they primarily focused on allowing advisers to create and purchase online wills and powers of attorney with the limited opportunity to connect with a lawyer for advice. In reality, these models draw the adviser and their client into the control and domain of the lawyer. Few online systems allow the adviser to navigate and control estate planning conversations in a truly holistic manner from concept to completion and with the ability to uncover unmet estate planning needs within their clients’ affairs.
Those advisers who have moved into the arena of estate planning facilitation have reported charging upfront estate planning fees of between $2,000 and $8,000 per client together with an annual review fee of around $500 per client per annum. In addition, they have reported greater client engagement with the added benefit of picking up new work from family members and business associates who are often brought into the succession and estate planning facilitation process.
Many advisers have also reported better work satisfaction because estate planning facilitation carries no administration or compliance burden, nominal upfront costs to introduce within their practice and no legal responsibility if managed correctly with a competent estate planning lawyer.
In the current, post-Hayne royal commission environment there is growing drive to press clients away from financial planners and into the arms of institutional investment houses, particularly for non-strategic investment advice. Estate planning facilitation provides the opportunity for advisers to combat this drive and to re-position themselves as truly independent, professional and focused on meeting the best interests of all of their clients’ affairs as part of their wealth management.
Chris Hill, director, Hill Legal
This approach has been taught since the first edition of the Perkins & Monahan Estate Planning text in 2004 and is taught at the Universities supporting that text such as Deakin University.
The problem in my experience is advisor business models and the resulting lack of focus on care or relationship based models of professional practice.
Find the business model innovators and you will find professionals doing well from this approach producing happy, sticky clients.
Excellent article Chris. It should also be noted that there is a huge opportunity for advisers to be involved in the implementation of the estate plan after death, including assisting the lawyer with the process of obtaining the grant of probate of the Will in preparing the statement of assets and liabilities, and in the establishment and ongoing management of any testamentary trusts and the investments thereof for the client’s beneficiaries – who may become new clients of the adviser.
[quote=Chris Hill]thank you anonymous for your comments below. We are working hard to get more advisers into this mindsetwith our online estate planning tools and systems but the process is slow. To answer Bob’s question below there is no formal training requirements required for this activity other than a willingness to learn. For our part we provide education and support to those advisers who wanting to all embarked upon the estate planning facilitation process.I can’t speak for others however[/quote][quote=Chris Hill]thank you anonymous for your comments below. We are working hard to get more advisers into this mindsetwith our online estate planning tools and systems but the process is slow. To answer Bob’s question below there is no formal training requirements required for this activity other than a willingness to learn. For our part we provide education and support to those advisers who wanting to all embarked upon the estate planning facilitation process.I can’t speak for others however[/quote]
Thank you for the answer and great to hear that this is definitely something that advisers who will need to undergo new study may take the option of integrating into their business so as maintain an income during the periods of study.
thank you anonymous for your comments below. We are working hard to get more advisers into this mindsetwith our online estate planning tools and systems but the process is slow. To answer Bob’s question below there is no formal training requirements required for this activity other than a willingness to learn. For our part we provide education and support to those advisers who wanting to all embarked upon the estate planning facilitation process.I can’t speak for others however
Excellent article Chris. When this idea is fully thought through, effective financial planning is a comprehensive and fully complete form of estate planning as it should deal with the whole person or even the whole family with the essential components of objective setting, establishing opportunities and constraints, creating a strategy (or strategies) that specifies, among other things, the required metrics of contributions and rates of investment returns. All strategies must be reviewed for achievements, changes in circumstances, changes in objectives etc and these are the subject of annual reviews. The advisers’ value is there intellectual capital, people management and organizational skills and the ability to create networks of professionals whose skills are required to implement strategies.
Chris has mentioned many things advisers can identify, manage or orchestrate their management so the adviser becomes the ‘go to’ person for all a client’s needs and concerns rather than being the butler who only reacts to clients’ requests.
I implemented this methodology with some clients before I retired and I became the inhouse estate planning strategist. Many clients are only too willing to talk about howo they can ensure their assets will be properly passed on to their preferred beneficiaries and protected from vulnerable kids or capricious partners etc through structuring, delegations etc. In fact, if done properly and in a timely fashion nothing really needs to change when someone dies as all the work is already done.
It is not hard to do but for some advisers it will require a significant change in mindset and dedicated efforts to make the change.
In this current environment of change and uncertainty advisers – individually and as a whole – need to demonstrate that their value, and the value of advice is not in a presume ability to pick winning investments, but in their ability to assist clients of all ages and stages to identify their life objectives and to achieve them – they become the proactive client manager and a properly educated client will acknowledge it.
Now is the time for advisers to grasp the nettle and make these important changes to their lives and those of their clients.
So what FARSEA qualifications do you need for this one?