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Written by: Evan Barrows
One of the most challenging situations an advisor can face is the death of a client. The death of any individual is a sad and stressful event for the decedent's family, and one where emotions often run raw. A client’s passing can affect us both personally and professionally, and while death is surely a topic we’d all rather avoid, it is an undeniable facet of the human experience.
In the midst of this challenging time, an Advisor must continue to do their fiduciary duty, and act in the clients best interest. But the death of a client creates additional hurdles to this, and can pose a risk to your practice. By creating and following clear policies and procedures, an Advisor can process the orderly transfer of a client’s assets to their heirs, and meet their fiduciary obligations to their clients for a final time.
Best Practice - Have a conversation with your senior clients about their estate plans, and their goals for the transfer of their accounts. While this can be an unpleasant topic to broach with clients, clear planning can mitigate future problems.
Who owns the Assets?
Upon the death of a client, the legal right to their assets transfers. It is essential that advisors determine which party owns and has rights to a deceased client’s accounts before taking any actions. Depending on how the account is titled, legal title may pass directly to a named individual beneficiary, trust, or joint account holder, or it may become part of the decedent’s estate. The executor of the client’s estate will be responsible for directing the distribution of the estate assets according to the client’s will, if one exists. Remember, a power of attorney expires upon the death of a client. Control over a deceased client’s account passes to the executor of the estate, who may or may not be the same person.What Steps Should You Take
When an advisor or supervised person of a firm learns of the death of a client they must take steps to initiate the transfer of that account to the client’s heirs. These include, but are not limited to:- Contact the custodian and any other applicable third parties to freeze the accounts
- Obtain a copy of the client’s death certificate
- Identify the executor and obtain copies of documents to evidence their authority
- Repaper and transfer accounts to the new owners
Management of a deceased client’s account during transfer
When a family member passes, often the last thing on anyone's mind is the transfer of investment accounts. This often leaves Advisors in a state of limbo, as they remain responsible for the management of a client’s account until the transfer of assets is completed. Advisors should review their Investment Management contracts, to determine whether or not a contract continues following the death of a client. One challenge in particular that Advisors face, is the ability to place trades. Without discretionary trading authorization, an advisor may not be able to place trades in the client’s account. Depending on the time it takes to have an executor appointed, and assets transferred, an account may be orphaned for a significant period of time. In addition to this, the Advisor may face withdrawal, or transfer requests from family members. If the client’s accounts are frozen, it may not be possible to honor these requests. In addition, Advisors should be cautious, and ensure the requesting parties are entitled to receive the decedent's funds. In all cases, the Advisor should remember to always act in the best interest of their client, and to thoroughly document what they are doing, and why. The passing of a client is an emotionally fraught time for their families, and it is not uncommon for Advisors to be caught in the middle of arguments over the disposition of a client’s assets. Best Practice - Proceed with caution! Review your contracts and fee agreements. Do not take trade or withdrawal instruction from anyone unless you are sure they are properly authorized to give those instructions.CCO Best Practices
- Have clear and consistent policies for the treatment of client accounts following the death of a client.
- Ensure your supervised persons have been trained on the procedures to follow in the event of a client’s death.
- Following the death of a client, review the account to determine if any fees need to be rebated or debited prior to transferring the assets.
- As part of your review of senior and vulnerable clients, review to see if your Investment Advisor Representatives have discussed estate planning strategies.
- Document, Document and Document. This is a common refrain, but proper documentation is especially important when it comes to handling special client situations.