Your retired, 65-year-old client is terrified of losing his capital and stubbornly insists on investing solely in GICs. The strategy won’t keep up with inflation and isn’t diversified, so it isn’t in the client’s best interest. You’ve discussed the situation thoroughly, but the client won’t listen.
investment advisor and portfolio manager, Canaccord Genuity Wealth Management, Edmonton
All investment advice should be based on evidence from a financial plan. By following a plan created in calm times, the client can avoid knee-jerk, irrational decisions. Financial plans got my clients through the 2008 financial crisis.
A client who won’t listen to advice isn’t a client for an advisor. An advisor who continues to try to serve such a client and collect fees and commissions is doing the client a disservice. The advisor could also be held responsible for the client running out of money in retirement.
Before letting the client go, however, I’d try to keep them engaged with their plan, and document my efforts.
I’d ask the client if their goals had changed: Are they still looking to draw a certain amount at retirement and do we have the correct asset allocation for that? (A retired client who relies entirely on their financial assets will already have part of their portfolio in GICs or cash-type investments.)
With retirement potentially lasting another 20 years or so, I’d show the client visually how their expenses grow with inflation, and how their portfolio won’t keep up if it’s fully invested in GICs.
I’d also show the client how long the cash they currently have in their portfolio will cover their expenses. Depending on how long that is, I can reassure them that their portfolio has time to recover from a downturn.
If the client won’t listen, I’d let them go, considering my fiduciary duty as I did so — I wouldn’t leave them on their own, deep into a bear market. I’d also inform them that they can get GICs at a bank.
president, Tasman Financial Services, Ottawa
When clients panic, it helps to remind them of the rationale behind their plans.
When I create a plan, I test it using five to 20 scenarios showing outcomes to age 110, including permanent portfolio losses. The client can then see the numbers and make better decisions.
Using an expected return rate for GICs, I can show this client their sustainable spending rate and estate outcome. After inflation and tax, they may lose 1.5% annually. I would also discuss risks, including longevity and the potential for increased expenses such as healthcare.
Some clients never forget their portfolio losers. If such a client has equity exposure, they’ll probably bail at the wrong time, which can have worse consequences than low returns. If the client spends little, a conservative portfolio can work.
If a client wants to pull out during a downturn, I ask them about their plan to get back in. A pre-set decision helps, such as when the market reaches a certain level.
I update plans annually and, over the years, clients see that one good or bad year doesn’t much affect their plans in the long run.
The CSA’s suggested practices for engaging older or vulnerable clients, issued in 2019, include updating KYC information frequently to identify changes that could affect finances, such as increased healthcare expenses or a spouse’s death.