Wealth management and the “I” word

Insurance can complement a high net worth client’s ability to achieve goals in a cost effective, tax-efficient manner

For high net worth clients wanting to protect the success they have spent their entire lives building, insurance can play an integral role in creating a comprehensive wealth management plan.

“Clients are looking to us to properly manage their wealth, so our advice must extend beyond investments to include how insurance can be a ‘cost effective, tax-efficient’ strategy to help prepare for the future,” says Jeff Fray, Richardson GMP’s Vice President of Insurance Services.

Traditionally, the insurance business has been about filling a “need,” but Fray says when dealing with high net worth individuals, insurance is more of a “want.”

“For a 30-year old with a young family and a half-million dollar mortgage, insurance will take care of their family and pay off the mortgage in the event of a catastrophe. That’s the ‘need’ end of the business and it’s very important,” he says.

“However, most of our clients are over the age of 55 and have substantial assets, including business, investments or properties. They already have enough money to pay the bills. They don’t need insurance, per se, but what they want is to keep that family business intact, to create a philanthropic legacy, to be in a better position to pay taxes on capital gains realized or to offset estate settlement expenses. Insurance is often the most ‘cost effective, tax efficient’ best solution to accomplish these goals and objectives.”

Insurance is a nuance, not a hard sell

Opening the door to have a frank discussion about insurance is not always easy. That’s because most of us have had a less-than-favourable experience with what Fray amusingly calls “the ‘I’ word.”

“Everyone has a story about the brother-in-law or uncle who sold them a $10,000 death benefit policy and then 10 years later, a smooth-talking salesperson told them, ‘You did it all wrong. Cancel that policy and buy this one instead.’ That might have left a bad taste or trigger a predisposition to say, ‘No thanks, I don’t need insurance.’”

Fray says a discovery meeting between a client and their Investment Advisor Wealth team presents the opportunity to begin introducing insurance as one of the financial tools available to address their unique goals and objectives. Better understanding by the team results in better advice.

“The initial discovery meeting involves a conversation about what the client wants. Do they have a will? Does it provide instruction on executing their affairs in the manner of their choosing? Do they have a business structure? A shareholders’ agreement? A holding company? These are very important questions to ask high net worth individuals, who often have concerns surrounding business succession or vacation property succession and tax implications for the next generation.”

During these discovery meetings, the Advisor may invite Richardson GMP’s in-house experts in Estate and Tax Planning, Legal Affairs, as well as Insurance, to better understand what makes the client tick before being able to offer the client suitable and sound wealth management advice.

“My objective is to listen to their long-term financial goals and concerns, whether it is providing for the care of a disabled child or managing illiquid assets with major tax implications. Of course, insurance is not a panacea for every problem, but it is a creative solution that can complement or help achieve a client’s goal(s),” Fray says, adding that for most high net worth clients, insurance is also a key consideration to safeguard the legacy they intend to leave.

“There are many generous Canadians who seek professional advice for increasing the amount of their charitable donations,” he says. “If philanthropy is a top priority for the client, we can explain the difference between giving an annual gift to charity in perpetuity and utilizing an insurance strategy to turn one dollar of capital into five or seven dollars as a bequest from their estate. The latter will not only support their financial goals, it can buy a brand new MRI machine at the hospital.”

Fray emphasizes that it is essential for insurance to remain a nuance or an advice piece – not a hard sell – when part of creating a sound wealth management plan.

“This is much bigger than providing insurance. It’s about providing advice. Insurance may or may not be part of a creative solution,” he says. “It all starts with the client discussing with us what they want and then giving the best advice to address those wants in the most cost effective, tax-efficient manner possible.”