Even the best laid financial plans can go awry. That’s why it’s important to talk with clients about preparing for the unexpected.
“In today’s economy, we just don’t know what’s around the corner,” says Evan Hickey, a financial planner with RBC Financial Planning in Halifax. Whether it’s a sudden job loss or a personal crisis such as a health issue, clients should be prepared financially for an emergency.
Here are a few tips on talking to your clients about planning for the unexpected:
> Identify your clients’ priorities
Talk to your clients about what’s most important to them.
When you first meet with clients, talk to them about their values and priorities, Hickey says, whether it’s saving for retirement, buying a cottage or making sure their children’s education is funded.
“The last thing you would want an unexpected event to do,” he says, “is to jeopardize one of the top three things that are important to the clients.”
> Don’t make assumptions
Remember, every client has different priorities when it comes to saving.
Sometimes, advisors assume that saving for retirement is every client’s No. 1 priority, Hickey says. However, a client may be more concerned with protecting funds for a different situation, such as supporting a family member.
> Give examples
Particularly if clients are “spenders,” it can be difficult to get them to save for a rainy day. Use examples of clients’ experiences, says Hickey, to convince them of the importance of saving for the unexpected. (Remember to protect your clients’ confidentiality when telling their stories.)
Hickey often uses the example of a client who never saved much because he had a government job that provided a good salary and a good pension plan. When his government office was re-located to another city, that client found himself out of work.
Looking back at what he had earned over the years, Hickey says, that client saw how much he could have saved if he’d just put away a little money each month.
> Look at the situation
Every client’s circumstance is different, so find a strategy that works best for the individual.
While the general rule is to save three months’ expenses as an emergency fund, there’s always an exception. One client may not be able to save that much, says Hickey, whereas another client might be able to transfer a large lump sum to a savings account without thinking twice.
It’s important to look at each client’s resources and limitations, Hickey says, and consider what other options are available. For example, a client might have a large, unused line of credit that can act as a safety net when an unexpected expense arises.
> Stay on track
Talk to clients about how they can keep track of their plans.
Certain events and property can be protected by insurance, Hickey says. But in most cases, when planning for an unexpected event, the priority is setting up a savings plan and having the discipline to following that strategy.
Check on the progress of the plan at the annual review, Hickey says. Remember that staying on track with a plan doesn’t mean being unreasonably inflexible. Sometimes, a client will have to reduce or delay the savings amount to accommodate an unforeseen expense, such as fees for a child’s sports program.