My family doctor would make a fantastic financial advisor. He tells me what I need to hear, not what I want to hear. That’s what most clients want from their financial advisors. Here are the top 5 must-have conversations :
Save this much for retirement
In our financial plans we first learn how clients envision retirement. Then we see what dollar amount they’ll need at retirement to fund that lifestyle. Finally, we calculate how much they need to save each month to reach that goal. Often that number will be higher than the client expects. It’s tempting to increase the projected rate of return (ROR) to make the numbers jive, but we don’t. It means telling clients they need to save more, work longer or expect less. But we also show the positive impact small changes can make and encourage clients to stay on track with a Client Dashboard. When clients understand we genuinely care about achieving their goals, they take the bad with the good.
Pay yourself first
Unless a client is making barrels of money, planning to drop $20,000 into an RRSP every February won’t happen. Saving a more manageable amount automatically every paycheque will meet their annual saving goal. As long as they sock away that amount regularly, they can feel comfortable spending the rest of their income.
Your investments won’t go up every year
When I first started out, I used software to illustrate that a portfolio’s expected return might be 6%, +/- 12%, for example. Over time, I’ve found those types of reports don’t help clients understand that a 6% expected return doesn’t mean that they’ll achieve 6% every year. In fact, I tell them chances are very low that they’ll ever get exactly 6%. More likely, it will be +20%, -15%, +8%, etc.
You can’t get high returns with low volatility
At times a client will say “at this stage I don’t want to lose money.” However, considering even bonds can go down, well over 80% of their portfolio would need to be in GICs. In these cases we explain the impact of inflation and taxes on purchasing power, which are the main risks to a GIC portfolio. As an alternative, we find that having a cash/GIC buffer of 2-5 years worth of income will often allow clients to invest the balance of their portfolio longer term while riding out the bears.
During their working years, disability, critical illness and life insurance protect a client’s most important asset: their ability to earn an income. Later in life, insurance can offset final taxes, pay funeral expenses and create a legacy. Unless insurance is your sole specialty, discussing insurance doesn’t come naturally to most advisors. It may not be much fun, , but having the insurance talk with clients is one of the most important pieces of advice a financial advisor can ever provide.
Each time I go outside my comfort zone and tell a client what they need to hear instead of what they want to hear, I find it gets easier. And experience tells me they appreciate the honesty.