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When doing a review of clients’ financial plans, advisors should begin by asking open-ended questions about changes in their clients lives that might have a financial impact – either directly or indirectly.courtneyk/iStockPhoto / Getty Images

The arrival of a new year – and a new decade in particular – is a time for people to reassess their lives, including their diet, health, relationships and financial status. It’s also a great time for financial advisors to ensure their clients’ financial plans are on track to meet their goals, or if they need to be amended to reflect any changes.

To do that properly, advisors need to make it a priority to check in with their clients as the new year gets under way to see what life changes they might be experiencing – from a new job or retirement, to a divorce or health issues. That requires advisors to ask clients a lot of personal questions to draw out the answers they need.

“Financial advisors have to know their clients – and not just in the traditional financial sense like risk tolerance and asset allocation,” says Laurence Booth, professor of finance at the University of Toronto’s Rotman School of Management. “They have to be familiar enough in terms of their [clients’] jobs, careers and their families.”

The challenge is that clients can sometimes be uncomfortable sharing certain personal or financial information, and Mr. Booth says it’s up to advisors to try to make them feel comfortable.

“The advisor, ultimately, has to be a confidant,” he says, “somebody who [clients] can confide with about things they may not even discuss with people in their own family.”

The more information advisors can gather, the better advice they can provide.

“An advisor can only advise based on the information available to them,” Mr. Booth says.

Kathryn Del Greco, vice-president and investment advisor with Del Greco Wealth Management at TD Wealth Private Investment Advice in Toronto, says meetings with clients should focus more on their lives and goals and less on advisors discussing market activity and statistics.

“You have to talk to clients from a place of compassion, empathy and listening,” Ms. Del Greco says. “We are here to help clients go through all of their various [life] stages … and milestones, and to help them navigate through circumstances that can have a real financial impact. If we are the only ones talking, we are going to miss out on all of the important elements of understanding our clients.”

She recommends advisors begin by asking clients open-ended questions about changes in their lives that might have a financial impact, either directly or indirectly.

For example, a client may hint they have a health issue, which could mean additional health-care expenses or taking a leave from work that could reduce their income. Or, a client might mention their child is having trouble landing a job, which could mean withdrawing funds to help support them, at least in the near term.

Even if the client’s life change isn’t related to finances directly, there’s the emotional impact to consider, Ms. Del Greco says.

“We know that investment decisions are very much influenced by emotional behaviour. It can have a big impact on their willingness to tolerate risk,” she says. “If any of those factors have changed, their risk tolerance could have decreased. We need to know that and adjust the portfolio accordingly.”

A portfolio review also includes a look at the client’s asset allocation to ensure it still aligns with the financial plan, Ms. Del Greco says. For example, the stock markets were strong in 2019, which means some clients may need to rebalance their mix of equities and bonds.

“[A portfolio review] makes sure [clients] are true to their risk-tolerance level,” Ms. Del Greco says. “By rebalancing, you are going to smooth out the portfolio returns ... and avoid an overconcentration risk or being overly exposed to one particular sector or stock.”

Doug Nelson, president and senior financial planner at Nelson Financial Planning Corp. in Winnipeg, says the start of a new year is also a good time to review a client’s overall net worth. That includes property, such as a home and cottage; investments, such as stocks and bonds; and maybe their businesses.

“The [concern] is if [clients are] top-heavy in one area and underrepresented in others,” Mr. Nelson says. “When we’re looking at the net worth statement, it’s about, ‘How do we evaluate where we’re at,’ based on a client’s needs and goals.”

Mr. Nelson also likes to talk to clients about what he calls the “five great killers of wealth:” taxes, investment fees, long-term debt costs, market volatility and inflation.

“The extent to which we can manage each of those in some small way over long periods of time are ways in which you can [help clients] accumulate more wealth over time,” Mr. Nelson says.

He also likes to ask clients what their perfect financial plan looks like in the years ahead, and then discuss what factors might derail it, such as a job loss or health issue. Putting numbers around those different scenarios also helps clients see what the future could look like.

“In general terms, if people can see the numbers, it tends to be much more meaningful for them. [That helps to] build confidence not only with the advisor, but in their financial plan,” Mr. Nelson says.

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