With the traditional RRSP-deadline rush over, now is a good time to look at your clients’ long-term financial objectives and make sure their plans remain in line with their needs.

This process may involve reviewing clients’ financial plans, re-examining their asset mix, making adjustments to accommodate short-term changes and unanticipated life events, and putting measures in place to avoid the annual “pain” of having to make next year’s RRSP contribution before the deadline.

“Client needs vary,” says Jack Bergmans, a certified financial planner (CFP) and senior advisor with Bequest Insurance in Toronto, “depending on what stage of life they’re at or their individual financial circumstances.”

So, this is a good time to review those needs to find out if they have changed and if your clients’ plans still reflect their needs.

Regular activity

Heather Holjevac, a CFP and advisor with TriDelta Financial Partners Inc. in Oakville, Ont., says reviewing clients’ financial plans – either once or twice a year – should be part of your regular activity for all clients.

“This allows you to ensure that clients are on track with their goals,” Holjevac says, “and to make adjustments, such as increasing or decreasing their RRSP contributions, if necessary.”

For example, she adds, your client might need to top up his or her RRSP contributions to achieve his or her retirement objectives.

As part of the post-RRSP season financial-plan review, Holjevac looks at life changes that her clients might anticipate during the coming year, such as the birth of a child or grandchild, or children heading off to college or university. Holjevac performs a cash-flow analysis to help her to determine if there is a need for “saving beyond their RRSPs.” This saving might include contributing to a tax-free savings account (TFSA), which she considers “one of the most intelligent ways of saving.”

Tax strategies

Dean Paley, an independent financial planner and certified general accountant in Burlington, Ont., focuses on understanding his clients’ day-to-day finances relative to their level and sources of income. This approach allows Paley to determine tax-minimization strategies and how much his clients should contribute next year to either their RRSP or TFSA.

Paley also reviews his clients’ risk tolerance in relation to their retirement-income projections.

Bergmans recommends reviewing insurance coverage but cautions that assessing insurance should not be based on the time of year. A change in insurance needs, he says, typically is driven by life events and often is tied to the client’s financial capacity to acquire more coverage if required. It is, however, important to ensure that your clients have adequate insurance coverage at all times or, at least, make them aware of any shortfalls.

In addition to reviewing clients’ financial plans, Prem Malik, a chartered accountant and financial advisor with Queensbury Securities Inc. in Toronto, says it is necessary to review your clients’ asset mix, especially if new money was invested in the client’s RRSP just before deadline. Some clients simply invest a lump sum in order to get a tax receipt.

Proper allocation

“This money,” Malik says, “must be properly allocated to assets in keeping with the client’s risk tolerance and investment objectives. You also want to make sure clients have the cash flow to repay any loans taken to make a lump-sum RRSP contribution and determine whether their cash flow can allow them to make regular contributions without having to take a loan.”

Recognizing that borrowing is unavoidable for some clients, Malik educates them about the pros and cons of borrowing. For example, he makes these clients aware that the interest on RRSP loans is not tax-deductible and that return on the investment in the RRSP must be greater than or equal to the interest they are paying on the borrowed funds. Otherwise, it doesn’t make sense to borrow for this purpose.

Although some clients are disciplined enough to use their tax refunds to repay their RRSP loans, Malik says, the refund alone is not sufficient to offset the loan, further draining the client’s cash flow and leaving him or her with the same problem – having to find money to make the following year’s contribution.

Automatic withdrawal

Accordingly, Bergmans recommends that his clients set up an automatic withdrawal deposit (AWD) plan from their bank account to make their RRSP contributions throughout the year. By using this method, clients can avoid the rush of making contributions at the deadline.

“An AWD still requires cash but is like forced savings,” Malik says, “which clients eventually become accustomed to.”

The RRSP season should be a non-event, Holjevac says, because clients should be making regular contributions throughout the year.

“If you are always trying to catch up,” she says, “you will never get ahead.”

© 2014 Investment Executive. All rights reserved.