Myriad distractions — from the economy to buying a new car or giving money to the kids — can derail a client’s savings plan. But financial advisors say that helping clients keep an eye on the prize and giving them the occasional nudge will keep them focused on their goals.
Clients are faced with several challenges that can put a crimp into their savings, says Vicken Kazazian, senior vice president of the career sales force at Waterloo, Ont.-based Sun Life Financial (Canada) Inc. Clients tend to procrastinate and are faced with competing priorities, including buying a house, the latest electronic gadget or a trip. On top of that, he says, there is a conflict between the instant gratification of buying something now vs planning on a retirement that might be 20 or 30 years away.
Advisors say they’ve found success in helping clients stay fixed on both their short- and long-term goals by pointing out the realistic facts and figures on costs, then breaking down those high numbers into manageable pieces clients can understand.
Step 1, says Kazazian, is to build a financial plan that aligns with your client’s goals and aspirations. Step 2 — which is critical to your client — is helping him or her make the decisions on how to get there.
Evan Hickey, a financial planner in Halifax with Toronto-based Royal Bank of Canada, offers the example of a couple he saw recently who wanted to help fund their children’s university degrees. So, Hickey took the latest figures available regarding how much it would cost to fund an undergraduate degree in 2030 for a child born in 2012. It turned out that tuition alone is estimated to be $72,000.
“After we picked them up off the floor when they saw the cost, it really put things into perspective,” says Hickey. Once the goal was known, the investment vehicle chosen was a registered education savings plan with its accompanying 20% government grant. They now contributes on a practical, biweekly basis. “This is not only paying yourself first,” he says, “it’s paying yourself more often and making it fit into your cash flow.”
You also should remind your clients, Kazazian suggests, about the power of compounding and the importance of saving now instead of waiting 10 or 15 years. People also like to see how numbers affect them now, so he recommends showing clients how much they can save in taxes by investing in an RRSP today and how they can use the savings to put aside money for other goals.
Strategies such as automatic withdrawal plans and clients paying themselves first are the most common methods of saving — whether it’s for a home, a car, an education, retirement or one of those unexpected life emergencies that pop up. Most advisors say once clients are used to these plans, they really don’t miss the money and are even prepared to increase the amount when they get a raise or promotion.
And although some clients may balk at the idea of putting money away a little at a time, some may just need a little reality nudge, says Jeanette Brox, a senior financial planner with Winnipeg-based Investors Group Inc. So, she suggests clients sit down and work out a budget, keeping receipts for every single cappuccino, lunch and lottery ticket they buy. “People have to be aware of what they’re spending,” she says. “[They] have to be accountable and figure out where the money is going.”
Once all the wheels are set in motion, clients have to continue with it, and it’s up to you to nudge your clients back on track if necessary. Says Brox: “We monitor [clients’] goals a minimum of once a year. But I call my clients periodically throughout the year just to find out how things are and what’s new. I have clients who are really committed and take pride in the results of a review and how far they’ve gone.”
Hickey says he did have some clients who were not happy with putting in money every month during the financial crisis of 2008-09 while the market seemingly continued to tumble. “But if you show them the benefits of long-term investing through dollar-cost averaging and getting in when the market is low,” he says, “if they stick with their saving strategy, it will only work out better for them in the long run.”
There are clients who simply can’t be nudged into year-round saving, Hickey concedes: “It may be that they don’t have a regular cash flow because they’re self-employed, or they’ll put in a lump sum at the end of the year.” However, he adds, about 80% of his clients save for their RRSPs through automatic withdrawal plans.
Overall, advisors need to be like doctors and have their clients in for regular checkups, Kazazian says: “Financial planning needs to be a dynamic process. So, you see a person once and put together a plan. But then life happens and plans have to change according to the situation.” IE