One important lesson from the COVID-19 upheaval of the past year is just how ill-prepared many Canadians are for any disruption to their finances. That has opened up a significant opportunity for the financial advisory industry to enhance its relevance and value by adopting a more holistic approach to financial planning and ensuring investors consider all aspects of their financial well-being.
The pandemic has revealed just how tenuous Canadians’ financial security can be. In fact, according to a recent survey conducted by Pollara Strategic Insights on behalf of IG Wealth Management*, only 20 per cent of Canadians said they have a good sense of their current level of financial well-being. In addition, almost three-quarters say they’re not managing debt well, few stick to a budget, and less than half feel they have the right retirement investing approach and tax strategies in place.
Everything that happens in our clients’ lives affects their financial well-being, which includes the health of their finances and ability to achieve their life goals. Getting sick or injured, losing a job, ending a marriage, funding a university education, or taking in an elderly parent are just a few examples of the changes in life situations that can have a significant impact on their finances.
Then, of course, there are those life goals – purchasing a home, having a family, travelling, or realizing an ideal retirement lifestyle, to name a few – that are unlikely to be achieved without planning. And many Canadians aren’t doing that.
That’s where advisors come into play. Any advisor who wants to set their clients up for success must develop a holistic approach to financial planning. That includes incorporating various components such as helping clients manage their cash flow and daily spending, planning for major expenditures, preparing for the unexpected, optimizing taxes and retirement savings, sharing wealth through estate planning and, for entrepreneurs, maximizing business success.
Advisors must take the lead on working with Canadians to change their approach to managing finances. In short, we must evolve. Many financial professionals are still too focused on investing. While it’s important, it’s only one component of overall financial health. Stock markets will go up and down, but a good financial plan keeps clients on course to reach their goals in good times or bad.
We must think more broadly about finances and consider how connected all of our clients’ actions are to their financial futures. We must also put a premium on life planning. Why? Because “financial leakage” can occur in a client’s personal situation.
This refers to all the money clients lose by spending, or spending more than they need to, because they’re either too busy to pay attention or too poorly informed to make the most cost-effective decisions. That can be paying too much taxes, paying too much interest to carry too much debt, paying for things they don’t use (such as subscriptions or memberships), and generally not really knowing where their money goes.
Investment returns can be nice and do play an important role. But if your clients are paying too much in taxes, interest charges, and fees that they don’t have to, or are paying too much for the wrong insurance, they won’t have the dollars to invest in the first place.
So, when you meet with a prospective or existing client, resist the urge to focus solely on portfolio management strategy and returns. Use every opportunity to broaden the discussion to learn more about their lives and their goals. Talk about the importance of tax strategy, retirement readiness, estate planning, and how they’re all interrelated to both their current and future financial well-being. Above all, ensure you emphasize the important role a financial plan can play in achieving future goals.
The pandemic has caused hardship and personal loss for far too many people. It has taught us much about the needs of society, family, and individuals that will stay with us long after COVID-19 is just a bad memory. If part of its legacy can be that we have learned how to better secure our clients’ future financial well-being, that, at least, will have been positive.
*Damon Murchison is president and chief executive officer at Winnipeg-based IG Wealth Management.