Kevin Greenard: How a Portfolio Manager helps families

Kevin Greenard

It is becoming more and more commonplace for Portfolio Managers to work with multiple generations within the same family – even when they live in different households. Going back 10 or even 20 years ago, this wasn’t the case and we mostly received referrals from colleagues, friends and neighbours. Today, we have seen an increasing number of our clients introduce family members such as their parents, children, grandchildren, and siblings to us. Below we have outlined the many benefits of linking family investment accounts. Let’s first start off by talking about our new investors.

In today’s day and age, technology and information from an infinite number of sources can make it easy to trade, and to speculate, but difficult to discern what information is accurate and true. With speculative investing you are effectively rolling the dice and trying your luck with a stock. Recent events of speculative trading arising from Reddit Forums may have left some new investors with various outcomes. The volatile nature of speculative trading is one of the many reasons why we choose to stay away from speculative stocks. Instead, we focus on growing wealthy over time, rather than a ‘get-rich-quick’ scheme. Our clients who introduce their family members to us know that their loved ones will benefit from a full-service investment firm. It can also provide comfort knowing their children or grandchildren are on the right path and not doing any speculative trading with either gifted funds or their own hard-earned dollars.

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Within financial services, the term family is referred to as a “Household.” The definition of a household in the typical sense is defined as those people who reside at the same address. In financial services today, the term household extends beyond a single physical address and includes members of the same family, even if they live in different residences. Families that work together with one Portfolio Manager team can leverage the Portfolio Manager’s knowledge of the family as a whole and obtain several benefits. These advantages range from immediate short-term benefits, such as lower investment counsel fees, all the way to long-term benefits such as estate planning and inter-generational wealth transfer.

As mentioned above, there is a growing trend where multiple generations of a family/household are working together with one Portfolio Manager – we refer to this as “householding.” To illustrate, we will divide up a larger family into four generations by age. Generation one may be in the age group 75 to 100; the second generation may be in the age group 50 to 74; the third generation may be 25 to 49; and the fourth generation may be one to 24. Each of these different age groups have different goals.

The first generation (75 to 100) may want to pass on some of their wealth to the other generations either immediately, over time, or as part of an estate plan. When the family accounts are all linked, this process is considerably easier. As an example, the first generation may want to gift financial investments to the second generation to pay off debt, top up their Tax Free Savings Accounts (TFSA), or to help with retirement. The first generation may also want to help the third generation with a down payment on a home, or to set up Registered Education Savings Plans (RESP) for the fourth generation family members.

Generation two (50 to 74) is often assisting both the first generation and the third generation. Helping aging parents can be significantly easier when the financial accounts are held at the same financial institution as theirs. We often encourage the first generation to ensure that a trusted member of the second generation has power of attorney.

The third generation (25 to 49) may be just starting to invest and want to work with a qualified Portfolio Manager. Most established full-service investment firms have minimum account sizes for new clients. For some Portfolio Managers this may be $250,000, $500,000 or $1,000,000. By linking family accounts, the minimum asset requirements for the younger generations can be met. The third and fourth generations can often only get access to a Portfolio Manager at a full-service investment firm by linking family accounts.

Generation four (one to 24) may be the beneficiary of a RESP or have some savings from employment towards the later years of this life phase. Within Canada, the minimum age you can open an investment account is determined provincially. In British Columbia, you can open an investment account at age 19. TFSA room, however, begins accumulating in the year you turn 18. What this means is British Columbians turning 19 have $12,000 in TFSA contribution room immediately (based on annual TFSA contribution limits of $6,000 in both 2021 and 2020). The fourth generation can benefit from householding their accounts with generations one, two and three as they receive access to a full-service brokerage and begin compounded growth of their investments at a young age.

With householding, family accounts are linked for fee and planning purposes, but the individual investment details are kept separate unless there is a power of attorney in place. Prior to needing a power of attorney, we encourage our clients to bring other generations into meetings. These meetings help educate them about non-registered, RRSP and TFSA accounts. Open communication and being exposed to financial knowledge are two areas that we help facilitate if the generations all consent. One of the best gifts you can give future generations is to assist in this educational process and to introduce them to a qualified Portfolio Manager who helps set them on the correct long-term path.

Another benefit of families working together is that they can lower their investment counsel fees. The greater the amount of assets a family has with one Portfolio Manager, the lower the fee can be as a percentage. The fees can fluctuate by Portfolio Manager, and as an example, a Portfolio Manager may charge 1.50 per cent for accounts between $250,000 to $499,999, 1.25 per cent from $500,000 to $999,999, one per cent between $1,000,000 to $1,999,999, 0.90 per cent from $2,000,000 to $2,999,999, 0.80 per cent from $3,000,00 to $3,999,999, 0.70 per cent between $4,000,000 to $4,999,999, and 0.60 per cent over $5,000,000. The fees as a percentage continue to decrease as the household value increases.

To illustrate, we will assume three generations have investments with three different financial institutions. The first generation has $1,300,000 and would normally have fees at 1.0 per cent (or $13,000 annually). The second generation has $475,000 and would normally have fees at 1.50 per cent (or $7,125 annually). The third generation has $245,000 and is currently investing in mutual funds with an average Management Expense Ratio (MER) at 2.46 per cent (or $6,027 annually). Combined, this family has $2,020,000 in investments and is currently paying $26,152 annually.

However, if the family met with one Portfolio Manager, then the combined household could lower their annual fees by 30 per cent to $18,180 (or savings of $7,972 annually). Each generation would have their fees decreased to 0.90 per cent based on the above fee schedule.

Householding investment accounts enables all members and generations of the family to benefit from lower fees. It helps the younger generations through enhanced communication and provides introductions to qualified Portfolio Managers to get them started on the right path as early as possible. It also helps the older generation by greatly simplifying the estate planning process and providing peace of mind that everything is in place. Lastly, linking family accounts enables the Portfolio Manager to provide you and your family the best advice after having reviewed both the family goals and each generation’s overall goals.

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250.389.2138, email greenard.group@scotiawealth.com, and visit greenardgroup.com.

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