The decline of the probate valuation specialist

With the investment industry evolving towards discretionary investment management, Neil Jones, investment manager at Hargreave Hale, assesses why the probate services offering is in decline.

Probate has recently been identified as a source of heated debate for lawyers and accountants, with both sides voicing reasons why they are best suited to handle uncontested work. While both professions are adept at many aspects of estate management, lawyers and accountants regularly rely on the investment industry to value certificated holdings, such as equities and bonds.

Lawyers and accountants have traditionally turned to stockbrokers to provide these services, but as the industry evolves away from the archaic brokerage model and towards discretionary investment management, the provision of lower margin probate work is in decline.

Discretionary investment management, whereby a professional manager takes responsibility for investing a client’s portfolio, is charged for in a different way to paper intensive, admin heavy probate work. As a result, more and more investment managers are deciding probate is not profitable enough to continue offering.

A major headache

In 20 years’ time, certificated shareholdings could be a thing of the past. Increasingly, today’s investors are using low cost providers such as investment platforms to buy and administer their shareholdings, or have purchased unit trusts directly from asset managers.

However, ownership of certificated shareholdings remains widespread, particularly among older generations, so determining values for probate purposes can create a major headache for executors of a will.

In the past it was normal for physical certificates to be issued whenever anyone bought shares in a company. Such shares were not usually in bearer form, so rather than the certificate representing the actual value of the share, it provided a record of ownership that could be found in a company’s register of shareholders. Despite these records, the value of a shareholding can still be extremely hard to assess. Executors are faced with the administrative challenge of determining share ownership and value, despite in all likelihood having no previous knowledge of the holdings. Problems typically arise when individuals move property or marry without updating their details with the share registrar. These issues can culminate in an audit trail which is, at best, incomplete and, at worst, non-existent. Probate is extremely difficult to achieve without records confirming share purchases, so it is often in these situations that investment managers providing share dealing and stockbroking services can assist accountants.

The probate service deficit

The process for determining the true value of a legacy can be quite involved from an administrative standpoint. Investment managers are generally well equipped to support accountants with tasks such as checking the validity of shareholdings, identifying missing certificates and providing a summary of the values as at the date of death. Unfortunately, the number of investment managers providing this service has declined over the years, with many focussing on more mainstream investment business.

The investment industry is prolific in its ability to generate paperwork and companies complicate the record keeping challenge by changing name, merging and getting taken over. Scrip dividends, whereby additional shares are received in lieu of cash dividends, potentially complicate matters further. Some companies pay these quarterly, so the build-up of paperwork and records over a 30 to 40-year period could be significant. It is little wonder many investors are unsure what constitutes a valid share certificate.

Investment managers can play a vital role in helping beneficiaries suitably manage the proceeds from an estate, at a time where the absence of appropriate financial guidance could result in ill-advised decisions.

Beneficiaries may also need to address the potential impact of inheritance tax payable on inherited assets. Probate cannot be granted until this is settled, yet a significant part of an estate may be from a property, which is not only an illiquid asset, but may have emotional ties for the beneficiary. An investment manager can assist by selling shareholdings on the behalf of a beneficiary to provide a readily accessible source of funds to pay any tax due and facilitate the swift winding up of an estate.

So whilst the valuation of investments for probate purposes will become less complicated as the investment industry evolves, the same cannot be said for holdings held in certificated form. With fewer investment managers now providing this service, accountants will have to do more to find specialists with the necessary expertise in this area to complement their own work.

Neil Jones is an investment manager at Hargreave Hale.


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