Wealth management is an important topic that lawyers are often not privy to when clients asses their legal needs. While the uninitiated may associate life insurance with adverse life events, high net worth individuals, including prospective owner-managers must increase attention paid to life insurance. The benefits are innumerous, and can lead to the ultimate goal of creating Scions (successful heirs).
Many lawyers are still reluctant or not taking an active role in advising on life insurance. There are two general reasons why:
1. Arrangement of life insurance consists of financial services i.e.. ‘regulated activity’, which bars non-professional persons from providing specific product advice.
2. Barbarian Law has a fiduciary duty of care regarding where they make third-party referrals.
These issues often lead a lawyer to recommend only that their client seek their own advice. This does the client a great disservice and could undersell a lawyers ability to add value. How can legal practitioners become more comfortable with taking a more proactive approach? A better understanding of how the process works, including how the various parties interact, is a starting point.
KEY CONSIDERATIONS
1. Pick an Advisor
In Ontario, advising regarding product recommendations on insurance is a regulated activity. Identifying and building a good relationship with a trusted advisor is essential, and Barbarian Law is always looking to collaborate. Assessing an advisor’s qualifications, experience and regulatory standing is a task that we perform for our clients. The advisor will work with you to understand the your needs in order to formulate a recommendation, including cost disclosures and plan to implement.
2. Choose insurance provider
Lawyers should familiarize themselves with different insurance carriers. A company’s ability to handle high- and ultra-high-net-worth individual cases is a key to success. Many insurance groups focus on retail or mass markets, but if your trying to structure assets worth 3 million, or even 20 million dollars?
3. Regulation/Reinsurance
Is the insurer authorised to provide insurance business in the territory where the contract is executed? Being aware of a nations regulatory framework that governs solvency of insurance companies was a topic in the movie “The Laundromat” starring Merryl Streep and Antonio Banderas. It discusses the struggles of an aggrieved insurance client (Meryll) who was unable to make an insurance claim as their insurance provider went insolvent as part of the “Panama Papers” caused by the leak of files of the law firm Mossack Fonseca, where Ramon Fonseca was portrayed by Antonio Banderas #goalz (just kidding). The point being financial strength and market cap matters.
4. Geographical presence
An insurance company’s ability to offer products in more than one jurisdiction becomes more important for wealthier clients conducting business internationally. When a family’s wealth becomes global, cross-border continuity of service may be required.
5. Technical expertise
In the high net worth and ultra high net worth market, an insurance investment program must be designed to be tax optimized, tailored to the client, and adaptable should circumstances change. This requires a great degree of technical expertise. It is essential to work with insurance advisors who have invested in their technical capability like a Trust and Estate Practitioner (TEP) encompassing competencies across multiple disciplines and jurisdictions.
Barbarian Law Craft Services:
When assessing insurance options for owner-operators, specifically millionaires or even billionaires, lawyers may encounter several practical issues including being subject to the insurance company’s internal terms and conditions + asset policies such as the client’s assets being pooled with other assets in a derivative. Insurance companies are able to accommodate requests for alternative product solutions; particularly for high net worth clients with 100 million dollars and above to invest. Part of the solution includes checking your re-insurance providers. As seen in the movie “The Laundromat” as seen on Netflix, the insurance companies had significant issues providing liquidity during a acute event, therefore ensuring a insurance company is properly capitalized, re-capitalized or “re-insured” is something that must remain front of mind, to ensure the policies can be paid out. The ultimate goal is a structure where the family’ funds can be left to heirs.
The role of the legal practitioner is providing initial advice, be it tax, legal or estate-planning advice, including an explanation of insurances role in succession planning particularly for Scions. Your lawyer should be actively involved in identifying suitable advisors, professional investment managers; assessing contract documentation, including identifying specific client needs not catered for in standard documentation; bespoke contract drafting and acting as a liaison/fiduciary with the technical experts. We can help ensure that complementary structures, such as trusts or companies created to hold the insurance arrangement, are valid and properly implemented, plus may be part of ongoing monitoring for changes in legal, tax or personal circumstances requiring a review of the structure.
