Death and Taxes: A Conversation We Must Have

It's time for advisers to make uncomfortable topics mainstream

May 30, 2018

By  Steve Gresham

With apologies for the dog-eared title, I had to follow up my last column about the importance of the wealth management ecosystem by calling out the importance of a really good human adviser. And there's no better place to start than with the basics: All of your clients are going to die and most all of them are doomed to pay more taxes. And as an industry, we're not doing enough to help.

Death is the runaway No. 1 on my list of uncomfortable adviser topics, or UATs. We know from client research that the death of a spouse or partner is the most stressful life event — and life events trigger client engagement in planning with advisers. 

So how many financial advisers are comfortable discussing death? We need to get there. The wealth management industry is dominated by aging baby boomers and the silent generation (born 1928-1945) — and will be for the next 20 years. 

The median age for wealth management clients is about 65. People who are 65 think about death. They think about it because they have faced it with aging parents and relatives and — increasingly — with friends and college classmates. They think about it, but most haven't done enough to prepare. They need help.

Death has many implications for planning and goals-based investing. One critical aspect is longevity, which is the key stat we need to complete any retirement income calculation. Will our client live to 69, like Margot Kidder — or 92, like Barbara Bush? How do we know? How do we plug that number into our plans today?

The next question is about health care costs. How do we know about our clients' health care needs in retirement? Do we accept some scientific wild-ass guess from a national survey or dig deeper? My father died of pancreatic cancer after four months, while my mother-in-law suffered from Alzheimer's for more than six years — and paid a lot more bills. 

The path to death is loaded with changes and transitions that require navigation and counsel. Investment News 2018 Innovator Carolyn McClanahan spoke recently about helping clients maintain their "resiliency" as they age — the importance of having plans to handle changing requirements of health care and lifestyle. 

Retirement is an initial, generally positive life transition that soon gives way to additional transitions that aren't so welcome. How many client couples have thought about the three stages of retirement — living first robustly together, then one doing better than another, then one living alone? How do we help clients plan for the day they can no longer manage their finances? It's easy to pop in the name of a "trusted contact" when you're a robust 60-year-old, but will you still support that choice when your appointed guardian tries to take away your "financial keys"? (And talk about an uncomfortable spot to be in as an adviser.) By the way, how do we know when those keys should be taken away? How does the client know?

We are sorely lacking in precision about aging and death. Of course the topic is uncomfortable, but that discomfort alone should indicate we likely haven't done enough work. Advisers, salespeople — really most people — don't like to talk about death, and they don't. But just as an oncologist whose dedication to healing people involves helping them face and fight their illness, we have to shake off our discomfort and engage. The oncologist bears the bad news, but also provides the path to remediation and the professional bearing that drives patient confidence. The best docs are those who have clearly "been there" before — and have a plan.

Great advisers — like Carolyn — plan for death. They use thoughtful and creative tactics for helping clients engage. Even the most confident advisers tread lightly here, with specialized knowledge and supportive tools to better manage the interactions. 

Most baby boomers can be drawn into a longevity discussion by referencing aging parents, relatives and friends. "When you think about people close to you who aged and died, what do you most want to avoid — and how would you make it better?" Most advisers use anecdotes based on their clientele and describe the wide range of outcomes based on the clients' level of preparedness. There are many lessons to be learned from those experiences, and they should be shared.

Every great wealth management solution is the product of a partnership between client and advisor. In my frictionless, utopian world of advice, clients are candid and thoughtful while advisers are supportive and insightful. Together they work as a team to tackle tough issues and address the trade-offs required to achieve the client's objective. That's the essence of wealth management. 

The Death Talk opens the door to working the broader plan. The good news is that once we break the ice on death, the rest of the life plan is on more solid ground — and easier to refine. Estate issues, wealth transfer, business succession all start falling in place one by one after you expose the underlying topic. And then there are taxes, but that will have to wait 'til next time!

Steve Gresham is former head of the Private Client Group at Fidelity Investments, an adjunct lecturer in public policy at Brown University and principal at The Gresham Co.