Shelley Streit, advisor, Guiding Light Financial, Stettler, AB.
Pat White, executive director, Credit Counselling Canada, Toronto.
Walter and Anne are in their late 50s and live in calgary. Walter owns a medium-sized business and Anne works full-time in human resources. their combined monthly net income is $8,000. they want to retire when Anne reaches age 60 and is eligible for her full pension—Walter will be 62.
Walter and Anne have difficulty making their minimum monthly expense payments. Both habitually use credit cards for most spending because of the reward points, and Anne has been off work for the last six months due to a medical condition that will require surgery.
Walter’s trucking business, which in past years benefited from a low Canadian dollar, has further suffered from the economic downturn. Yet the two haven’t adjusted spending in response to the decreased cash flow.
Client balance sheet
|RRSPs $750,000 combined|
|Non-registered investments $125,000|
|Pension Anne has a defined-benefit plan; Walter has none|
|Mortgage $100,000 remaining, $1,236 monthly payment|
|Line of Credit $38,000 from financing new roof and required home renovations|
|Credit Cards $40,000|
Degree of difficulty
7 out of 10. An advisor must provide solutions to cut spending, work with professionals to develop a succession plan for Walter’s business, and develop new short-and long-term budgeting and financial strategies.
“The advisor should be prepared for an open discussion about where the client is financially, rather than how they got there,” says Streit. Ask open-ended questions such as, “Is there something you would like to change with respect to cash flow or your personal debt?” Leave judgments out; instead, reassure clients you’ll provide the tools to succeed.
Walter and Anne aren’t willing to sell the cottage; it’s winterized and they want to retire there. Also, their children and grandchildren visit there often.
The bank isn’t willing to finance a consolidation loan; it’s concerned Walter’s business isn’t viable due to his age and lack of succession plan. The house’s value may also depreciate.
Their credit card and line of credit payments are late, and the bank’s threatened to demand immediate payment in full on the line of credit. The couple considered a consumer proposal, but if it’s not accepted by all creditors, they could be forced into bankruptcy and have to liquidate assets.
Streit notes high-net-worth clients often look good on paper because “credit card balances and lines of credit may not be disclosed. Without all the information, the advisor could end up making recommendations that aren’t suitable.”
*Walter and Anne are composites of clients of Credit Counselling Canada member agencies.