There is often a sense of nervousness when you have your first meeting with a new financial planner or advisor. How should you approach the meeting? What and how much should you tell them? What results do you expect from the meeting and from any future interactions?
Generally speaking, there are typically two approaches prospective clients take when dealing with a new advisor. The first approach is to have the advisor review everything in the hopes that he/she will tell them that everything is going to be fine, with some minor adjustments.
The second approach is for the advisor to review their current situation and make recommendations that will require changes. For the prospective client, this is often the harder route to take. Consider the following case study as an example.
A couple wanted help with their finances. They are both in their early 40’s and are professionals who earn incomes in the top 10% of Canadians. As far as cash flow management is concerned, they spend almost everything they earn. In addition, they wish to buy a bigger home now that their two children are teenagers. This would require additional mortgage debt of about $250,000. They have combined employer Group RRSPs of about $60,000 and some life insurance in place, but they have no Wills or emergency savings.
Over the past decade, their best friend has been their mortgage broker. She has helped them refinance their debt three times to consolidate credit cards and lines of credit into their mortgage principal. Their house value has risen nicely since they bought it 15 years ago and they expect the new house to appreciate strongly in the coming years.
During the initial interview they admitted to enjoying their annual family vacations and were not prepared to give them up in order to save for retirement through RRSPs. They asked if they could afford the new house and still maintain their current lifestyle without going further into debt in the future.
In response, the advisor stated that they would need to make some behavioural and tactical changes to secure their financial future. The first area was a discussion about the need to sell the new, larger house in 15 years once the children were in university; the couple would need to downsize and pay off any remaining mortgage balance. The assumption that house values would continue to appreciate at the same rate they have in the past ten years is doubtful, if Canadian real estate corrects in the next few years. Finally, any remaining capital would ideally be applied to retirement savings.
At this point, the couple would be in their late 50’s with little money saved for retirement and only a few earning years left to do so.
Based on the above case study, the dilemma for the advisor is how to properly advise this couple, who are saving no money towards retirement and are unwilling to make the lifestyle changes necessary to secure their future years.
The start of a new year is a great time to review your finances. Call us today at (289) 235-9223 for an appointment.
Tom
