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“Do you or any close family members have any drug, alcohol or other types of addictions?”
That question is a conversation stopper in almost any scenario. In a discussion between a financial advisor and client, it might also trigger an angry, none-of-your-business response that could jeopardize a relationship of trust.
Yet, given the financial impact of addiction, broaching the subject with clients is more than an advisor’s business. It’s their responsibility.
A joint study by the Canadian Centre on Substance Use and Addiction and the Canadian Institute for Substance Use Research released in 2020 pegged the overall, national cost of substance abuse at $46-billion annually, a total that took lost productivity as well as health care and criminal justice costs into account.
Budgets get blown when the substances in question involve the “hard stuff” like heroin, methamphetamine, or cocaine. There’s also the common likelihood of multiple substance abuse, usually involving a combination of drugs and alcohol.
And it’s more common than you might think. About one in five Canadians (21 per cent) will meet the criteria for addiction in their lifetime, according to the Canadian Mental Health Association. This addiction may involve substances such as drugs or alcohol, or an out-of-control activity such as gambling.
Advisors need to take a realistic and holistic approach that factors in current or potential problems with substance abuse or addiction. Just as advisors and their clients plan for age- and health-related events, such as a serious illness or a move into assisted living, they need to plan for addiction when it makes sense to do so.
As a starting point, the best way to find out if addiction or substance abuse is a problem for clients is to ask. If the answer is yes, probe deeper, with questions about how long the addiction has existed, if it’s likely to be an ongoing issue, how much the addiction costs annually, and if there’s the possibility of seeking professional help with cessation and rehabilitation.
Clients might be shocked initially when asked these questions. But after they’re told the advisor is not there to judge and that it’s useless to build a financial plan based on incomplete information, they usually open up.
For some clients it’s an emotional discussion; for others it’s a weary recounting of a longstanding problem. But everyone feels relieved at the thought that, while they may not be able to solve the problem right away, they can at least build a plan around it with solutions designed to address the situations they’re likely to face in the future.
Depending on the client’s situation, building the cost of therapy or rehabilitation into their financial plan could be an option. As addiction is typically a long-term, progressive problem, it’s important to review clients’ situation regularly and update their financial plan to reflect their latest reality.
Did their latest attempt at rehab fail and are they now looking at a different program? Or maybe rehab is out of the question for a while and the money allocated for that purpose should be put to work elsewhere.
How to safeguard the transition of wealth
In certain cases, a client’s financial plan can be derailed because too much money is going toward substance abuse.
While curbing a client’s addiction isn’t part of an advisor’s job, presenting a factual financial picture that shows how substance abuse has affected the client’s financial plan is very much what advisors can and should do.
For clients dealing with children who have substance abuse or addiction issues, it’s critical to talk about how they can “bulletproof” their transition of wealth and protect their vulnerable heirs.
The last thing anyone wants to do is hand over an inheritance to someone who will likely use it to continue feeding an addiction. That’s simply dangerous – and irresponsible.
For these clients, setting up an annuity or a laddered delivery of funds for an heir with substance abuse issues could work. This helps preserve the estate but, most important, it provides a measure of protection for the addicted heir.
Talking about substance abuse and addiction isn’t easy. But this prevalent problem is a fact of life for many Canadians – one that wields a financial impact too significant to ignore.
Advisors have the knowledge, skills and experience to help clients mitigate, if not eliminate, this impact.
Elke Rubach is principal at Rubach Wealth Holistic Family Advisors in Toronto.
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