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Funds Fail to Address Wealth Transfer

While mutual fund companies focus on the upcoming wave of the nation's 77 million retiring Baby Boomers and how to capture that business, they're overlooking another inevitable seismic event.

Those Baby Boomers will bequeath an estimated $41 trillion to the next generation by 2055-the largest intergenerational wealth transfer in history, according to the Boston College Center on Wealth and Philanthropy-but they, and the financial advisers who serve them, are not getting the help that they need from mutual fund firms.

This is according to a report from Corporate Insight of New York, "Intergenerational Wealth Transfer: Fund Companies, Baby Boomers Poised for Asset Shift." Corporate Insight noted that while in the past, estate planning was a concern reserved for the very wealthy, the shift from pensions to defined contribution plans has moved control of much of the nation's retirement wealth from institutions to individuals, and they will need help in planning what to do with the money they leave behind.

Corporate Insight analyzed the estate planning tools offered by 16 of the top 25 fund companies and found that less than a third provide adequate information on leaving an inheritance. Six of the companies do not offer clients any information on estate planning, beneficiaries, charitable trusts, qualified terminable-interest property trusts, family foundations, stretch IRA products or other legacy-related issues. Of the remaining 10 that touch on the subject, only five offer helpful information, tools and collateral materials in an accessible area of their websites, according to Corporate Insight.

And only one fund company offers educational courses to teach financial advisers how to preserve assets after a client's death. The course explains to financial advisers all of the aspects involved with wealth transfer and what products and issues to focus on with clients.

"This is a good opportunity for asset managers to get more involved, as more than 20% of a financial adviser's business is spent on estate planning and they are a critical element of the estate team," said Lauren Lisher, a consultant with kasina. Fund companies have the potential to become a central part of the wealth transfer process, as well, she said.

"Middle- and upper-class individuals will have funds left over, and people need to decide what to do with their money," said Alan Maginn, a senior analyst with Corporate Insight and author of the report.

Every fund company offers something a little different than the next, so it is difficult to draw conclusions on comparable products and tools they are offering, Maginn said. Nonetheless, fund companies need to start thinking about the upcoming transfer of wealth and develop a strategy, he said.

The first step for fund companies is to begin educating financial advisers, many of whom are focused on helping Baby Boomers accumulate assets for retirement and are just now beginning to plan for retirees' income distribution phase.

Fund companies can provide financial advisers with general estate planning information and strategies. Hypothetical models and informational tools that advisers could use to demonstrate tax effects and other wealth transfer issues would be useful, Lisher said.

Half the battle is getting clients to talk about planning their estates. Providing advisers with marketing materials they could mail to clients would be one useful way to begin a dialogue on the topic, said Thomas Tate, a financial adviser at Oppenheimer & Co., based in Boston. Clients usually don't want to talk about wealth transfer, and many people think they will live forever, Tate said. "It's similar to people not wanting to pick out their casket."

Nonetheless, the issue is on investor's minds, whether they are talking about it or not. Individuals may not want to talk about their own mortality, as it is too morbid, but "this is possibly one of the most important topics for individuals, and people need to be realistic," Lisher said.

From a psychological standpoint, many people may find it hard to overcome planning for their death, said Kevin Seibert, a managing director at the International Foundation for Retirement Education in Chicago. It is important that individuals plan to make sure their money will go where they want it to. Also, from a family point of view, it is important that family relationships remain intact and arguments do not occur over money, he said.

As for those Baby Boomers who fear their savings pot won't last them the rest of their lives and make the mistake of not planning their estates, even they need to address the issue. Unexpected events happen in life and investors should always be prepared and have a plan, experts said.

Oftentimes financial advisers have clients that have been with them for their entire life and, by helping an investor plan their estate, they build a bridge to possibly continue that relationship with the investor's children or other heirs, Maginn said. Tate makes sure he knows his clients' children and plants seeds for the future to keep intergenerational assets.

"If your clients' children know you and recognize the great job you have done for their parents, you most likely will not lose those assets when a parent dies," he said. In turn, asset management firms that partner with financial advisers on estate planning also have the potential to forge relationships that span generations, Maginn said.

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