Three reasons the great wealth transfer might not be so great

The largest wealth transfer in history will continue to roll out over the next few years, but it may not be as big as expected. Advisors who don’t insert themselves into client decision-making risk missing out. Those are the key findings of a study conducted by PMG Intelligence.

We found multiple reasons why the impact of wealth transfers is being diluted. They include transfer amounts (most will be less than $100,000), a lack of preparedness and confidence among clients in how their wealth will be transferred and a failure by some advisors to engage clients and their adult children in detailed conversations about estate planning.

Transfer amounts are disappointing

Our study suggests that 66% of wealth transfers will be less than $100,000. Only 5% of transfers will be greater than $500,000.

Compare that to the fact that 45% of pre-retirees believe they will inherit more than $100,000, and 17% who believe they will inherit more than $500,000.

	Value of inheritances expected	Value of inheritances received
$500,000+	17%	5%
$300,000–<$500,000	7%	4%
$100,000–<$300,000	21%	26%
$50,000–<$100,000	22%	22%
$25,000–<$50,000	11%	13%
<$25,000	23%	30%

This is problematic for two reasons.

First, because the great wealth transfer has been so widely discussed, Canadians may be making spending decisions based on false assumptions about their financial future. Inheritance expectations are often unrealistic. This will come as a big disappointment to the one in four pre-retirees counting on a will to support their retirement income.

Second, there is some serious mental accounting underway — a cognitive bias in which people view inheritances as free money that they can spend in the short term, without understanding the impact those funds could have in the long term.

Canadians aren’t ready

Only 55% of Canadians feel prepared to transfer their wealth, according to our research. Two-thirds (66%) of those 65 and older feel prepared. About half (52%) under 35 say the same. And 48% between the ages of 35 and 55 feel prepared.

Household wealth has an effect too. Three-quarters (77%) of people with $500,000 or more in assets feel prepared, compared to 64% of those with $100,000–$500,000, 58% of those with $50,000–$100,000 and 41% of those with less than $50,000 in assets.

What makes the difference? Working with an advisor.

Two-thirds (66%) of Canadians who work with an advisor feel prepared, while just 43% of Canadians who don’t say the same.

Calling all advisors

Fewer than half (40%) of retirees told us that they’ve discussed their estate plan with a financial advisor. Another 14% said they plan to do so. About half (52%) have talked with their kids about their estate plan, and 20% are planning to. The results are predictably lower for pre-retirees.

Advisors need to insert themselves into these discussions.

They need to ask for introductions to client’s adult children too. Just 21% of retirees have introduced beneficiaries to their advisors, and only another 6% plan to.

The numbers are better among retirees with more than $500,000 in assets — 39% have connected their advisor and beneficiaries, and 11% plan to. Those results are still too low though.

By getting directly involved and influencing wealth transfers, you’ll be a help to clients and their beneficiaries. You can make sure that even small inheritances aren’t squandered and that client wishes are fulfilled.

Effective estate planning demands a hands-on, concerted effort that includes advisors, their clients and beneficiaries. Without action, the great wealth transfer we keep talking about may be lost.