You may wonder if a financial plan is something you can create yourself, perhaps using an online investing program. DIY is always possible, but studies have shown there’s value in having a financial advisor to guide you—especially when markets are as bumpy as they’ve been this year.
“The advisor role starts before [clients] even contemplate a financial plan,” says Susan Latremoille, wealth advisor and director of wealth management at the Latremoille Group, Richardson GMP in Toronto. “The client might not even be aware they need a financial plan. Many aren’t—they just have questions about money and their lives.”
Monique Madan, principal at Monique Madan Consulting in Toronto, describes her typical clients as good earners with decisions to make. “They can’t necessarily afford to do everything,” she says, from aggressively paying down mortgages to maximizing registered accounts.
Though she’s confident the financial planning process will provide insight required for clients to make decisions, she’s also sensitive to clients being overwhelmed. “Because they earn well, they’re inundated with solicitation,” she says of her clients.
She favourably juxtaposes herself with the herd by telling clients up front that she won’t impose on them; rather, her door is open when they need her.
Latremoille tells clients that the financial planning process will provide answers to the questions they have, as well as provide insight to identify needs, goals and aspirations.
Asking the right questions
Many financial decisions don’t necessarily have a right or wrong answer, says Ron Fox, CEO at Glidepath Portfolio Services in Toronto. Instead, the right answer comes from understanding a client’s values. When values inform the financial plan, it’s easier to follow that plan, he explains.
Qualitative characteristics, such as motivations and attitude toward debt, are just as important as quantitative ones, he adds.
Likewise, Latremoille says, “The quality of the plan is all about the conversation, and not just about the numbers.” Understanding a client’s values helps with legacy planning, for example, she says.
Madan asks for clients’ raw data in advance so that she can let clients speak freely and address whatever issues are important to them. “It’s a lot of listening,” she says.
Latremoille says she guides clients through a conversation about goals, obstacles and opportunities. For clients who have a spouse, this process often highlights the differences between them, she says.
Madan finds a way to make both spouses comfortable with decisions. For example, she describes a couple in which one spouse invests relatively aggressively, to the other’s consternation. She puts each spouse’s feelings in context, verbalizing how each feels. She then makes suggestions to bridge the gap, such as implementing a stop-loss rule. It’s about making both feel better, she says.
Going live with the plan
After a financial plan is created, if it isn’t implemented, it’s a dead document, says Latremoille. The best plan is both implemented and communicated, she adds. She offers to facilitate multi-generational meetings, so the senior generation can share their values, desires and estate plans, thereby avoiding surprises later on.
Typically, the plan will include action steps and strategy that require monitoring. Objectives range from getting organized to meeting with referrals as required—for example, getting legal counsel when updates are required to wills and powers of attorney.
Monitoring and updating is part of the financial planning process, says Madan. “It’s in my letter of engagement.” She generally meets with clients annually—unless life happens. Having told clients she’s available when needed, they re-engage as necessary.
“People will reach out to me when they have to make a fairly large financial commitment,” like renegotiating a mortgage, she says. “They re-engage anytime something is going to affect their cash flow.”
Going forward, it’s relatively easy to put subsequent decisions in context and deal quickly with client questions, Madan says.
Case study: the February 2018 drop
How did advisors handle the sudden market drops in February 2018?
Marie DeLauretis, financial planner at DeLauretis Wealth Management in Calgary, proactively phoned two clients who would be most concerned—one is retired and typically asks lots of investing questions, and one has recently been given retirement projections.
If a client is worried, she typically stresses the importance of their personal situation: “The last thing [a client] needs to be worrying about is the reaction of the stock market. [… Maybe] what they should be worried about is their personal debt,” she says, or their lack of disability insurance.
She also helps clients identify what’s truly bothering them. Clients might blame their negative reactions on the stock market, but the root cause is deeper—”something within their life,” she says. For example, she has clients transitioning away from the oil industry into different careers. “Currents in the market might be feeding other things that they’ve already been stressed out about,” she says. What they really want to know is that they’re going to be OK financially, she adds.
George Biggar, owner of Biggar Wealth Management and advisor at Aligned Capital Partners in Fonthill, Ont., sent clients a communiqué explaining the sudden drop (for example, there were rising inflation expectations following strong U.S. wage data), as well as how healthy economic indicators and corporate profits continue to bode well for equities. He also sends regular investment newsletters weekly.
Jason Pereira, senior financial consultant at Woodgate Financial and IPC Securities Corp. in Toronto, called the February volatility “business as usual.” He’d been telling clients that the outsized returns of the past few years weren’t typical. And, since his clients have well-diversified portfolios with proper asset allocation—including a healthy exposure to bonds—“over time, the clients learn that the market is not their portfolio,” he says.
Steve Barban, principal and senior financial advisor at Gentry Capital and Manulife Securities in Ottawa, says he’s been reminding clients about the cyclical nature of markets “at every opportunity”—in person and in regular, quarterly communications. Clients need to know their accounts will regularly go down, he says.
He says the drop is ultimately a good thing since it “takes out some of the mania of the market,” effectively separating the wheat from the chaff.
“There are too many people who think this is really easy—this investing business,” he says. In an extended bull run, people enter the market and try their hand at stock picking. But the key to making money in the market is “time in, not timing,” he says. Good advisors provide “patient, long-term wealth creation.”