The importance of contingency planning as you age

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The Law Society of Ontario has a new requirement for lawyers and paralegals in private practice. As of January 1, 2025, they must have a formal contingency plan for their clients for “preserving, carrying on, or winding up their professional business.” The requirement highlights the importance of contingency planning for all trusted advisers, for self-directed investors without advisers, and for everyone generally as they age.

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I had two separate conversations with clients recently where they asked me about my own retirement plans and encouraged me to keep working for a long time. At first, I was self-conscious that it might be because my beard is much whiter these days but decided to take it as a compliment instead.

Whether you have an adviser, or you are self-directed, there are reasons you should have a contingency plan, too.

Contingency for advisers

If you work with a bank or with an independent portfolio manager, your adviser will want to maintain continuity for you when they retire. They will have personal and professional reasons, of course, as well as a financial one.

There is always the risk of disability or death for anyone at any age, though this certainly increases as we get older. If your adviser does not have a clear succession plan, or you are worried about this, you should ask them.

I can tell you that within the wealth management community, there is a lot of discussion, particularly for high-net-worth investors, about how to keep managing those assets once they pass to the next generation. A considerable proportion of inherited assets end up moving elsewhere as children and grandchildren become beneficiaries.

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If advisers are all talking about what will happen with your money when you die, they should certainly be able to tell you what happens to your money if you live and they die (or become disabled or retire). Myself included.

Self-directed investor

We are noticing a trend of self-directed baby boomer investors with varying levels of intention to pass along the management of their investments at some point. This deserves some discussion.

TD Green Line was the first bank-owned self-directed brokerage in Canada. This TD Direct Investing predecessor began operating in 1984. Self-directed investing gained momentum in the 1990s and 2000s, as trading costs decreased, the Internet evolved and exchange traded funds made it easier for non-professional investors to invest professionally at a modest cost.

As a result, there are lots of savvy 70-somethings with DIY brokerage accounts who may well be managing them in their 80s or 90s, but the earlier they can think about a back-up plan, the better. It gets harder to make financial decisions as we age, and typically one spouse takes the reigns with a self-directed account. If they lose capacity or pass away first, it can leave the survivor in a precarious position.

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Some people think their children will take over their portfolio as they get older. In reality, many of those children come to us when a parent loses capacity, and they have no interest in or ability to manage the investments themselves. So, a self-directed investor who is trying to avoid paying fees to an adviser may end up paying them someday whether they like it or not. A candid conversation with kids or a search for a suitable adviser, even if it is a few years early, is a better plan for everyone involved.

Replacement attorneys

The recent Law Society of Ontario initiative highlights the risk of clients whose legal professionals are aging as well. But this is not the “attorney” in question in this case. A lawyer who drafts your will does not need to be the lawyer who settles your estate.

One attorney to think about is the person or people named in your power of attorney or similar estate documents like personal directives, representation agreements or mandates, which vary by province. These are the people you trust to manage your finances or make your health care decisions if you are incapacitated but still alive. The executor named in your will then takes over upon your death.

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Estate planning is sometimes a checkbox that people forget to check back on as they and their loved ones get older. If you named your parents as your attorneys or executors, as they get older, they may no longer be the right choice. If your selections are as old as you, as is often the case, you should consider naming someone a generation younger. If there is not a suitable choice amongst family members or friends, a trust company can be considered.

Trusted contact person

In 2021, the Canadian Securities Administrators (CSA) enhanced the “know your client” requirements to introduce the concept of a Trusted Contact Person (TCP). Registrants were required to take reasonable steps to obtain the name and contact information of a TCP who could be contacted over “concerns about possible financial exploitation of a client who is vulnerable or about the client’s mental capacity to make decisions involving financial matters.”

In 2024, FP Canada began to require Certified Financial Planners (CFPs) like me to do the same.

A TCP cannot make financial decisions on behalf of a client, nor are they a substitute for a power of attorney. They complement them and provide an added layer of protection.

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Takeaways

If you are a self-directed investor, particularly one who is aging, a contingency plan for your investments is like preparing a will for your beneficiaries. It is something you can do to make things easier for your loved ones in the future.

Revisit the positions of responsibility in your estate planning documents because everyone else is getting older along with you. Consider providing a trusted contact person as a safeguard to the professionals you work with for your investment management and financial planning.

Advisers get old, too. My increasingly white beard is a reminder of that to me as well as my clients. Regardless of whether someone has a regulatory obligation to have a contingency plan, like Ontario lawyers and paralegals, there is a professional obligation to the people who trust us to acknowledge our own mortality.

Jason Heath is a fee-only, advice-only certified financial planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever. He can be reached at jheath@objectivecfp.com.

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