At some point in the relationship between a financial advisor and a client, a great deal of time can be spent discussing plans for the distribution of assets, whether it be done through an estate plan or establishing a trust or any other official vehicle.
The wisdom of such conversations is clear: everybody dies. And there is wisdom in assisting a wealthy client in determining how the client’s assets are going to be distributed when that happens.
The inevitability of death makes such conversations vital.
However, there are occasions when a wealthy person becomes incapable of having such conversations due to extreme illness or physical disability. In such cases, decisions about financial matters can often become confused and complicated and eventually litigious.
Which is why financial advisors should consider prompting their wealthy clients to designate a financial power of attorney. In a similar vein, designating a medical power of attorney is also wise.
A financial power of attorney authorizes someone to act on the behalf of another in financial matters when the grantor is unable to make financial decisions themselves. It is often a protection carried out in cases when a person begins to suffer from diseases such as Alzheimer’s. But there are cases where a person suffers a sudden loss of mental capability, and having determined a financial power of attorney would protect that person’s family and friends from a storm of conflicts and confusion.
A medical power of attorney serves the same purpose in regard to medical decisions, including termination of life-preserving treatment.
For advisors, prompting a conversation about a financial power of attorney indicates a willingness to consider protections in a client’s best interests. One can grant that position to anyone, although it is often offered to a trusted family member or friend.
There is no benefit to an advisor for a client to have a financial power of attorney other than to share the comfort of knowing the client’s assets will not be victim to the confusion that would come if the client becomes unable to make his or her own decisions without someone designated to handle those affairs.
However, it is important for an advisor to know who a client grants financial power of attorney to. When a client becomes incapacitated, the person who has financial power of attorney can pull assets from their advisory account, and creating a relationship with the person with power of attorney could allow the advisor to maintain management of the assets.
Spectrem’s new study on financial plans for the end of life indicate that many investors have not followed the wisdom of granting a financial power of attorney. Down to the Last Detail surveyed investors who have had some level of involvement with the finances of a family member who has died or currently has some level of involvement with a family member in anticipation of that person passing away.
Of those investors who had some involvement in the financial plans of a family member who has passed away, only 53 percent have arranged for a financial power of attorney, while 22 percent expressed intentions to do so in the future. Interestingly, only 6 percent of those who have granted a financial power of attorney did so as a result of working on the financial matters of the relative who passed away.
It is fair to estimate that half of your clients have not yet assigned financial power of attorney. If you have the kind of relationship that allows you to do so, it might behoove that relationship to bring up the topic in your next meeting.
©2019 Spectrem Group
Keywords: power of attorney, investors, advisors, Spectrem, wealth transfer, estate planning