Last month, statistics canada reported that more than half of Canadians are overweight or obese. Imagine a cardiologist claiming there is no weight crisis and that consuming fatty foods is great for personal health.

Economists report that the current low personal savings rate and heavy debt loads are not “unhealthy” for economic growth. TD Consumer Pulse, a semi-annual publication that tracks consumer activity, reports that Canadians are spending 113% of their disposable incomes and that the personal savings rate fell to zero for the third quarter of 2004. Economists may be correct in saying the economy will grow, but there is a real danger that advisors could bear the cost, jeopardizing their financial and professional future.

The generation that survived the Great Depression and the Second World War had an attitude toward personal finances based on frugality, thriftiness and the avoidance of debt. In 2003, Statistics Canada reported the 40-year national savings rate averaged 10%.
Disposable income in this period was allocated to emergency funds, investments and family protection. Financial security was given top priority and aggressive saving boosted the financial services industry in the 1980s and ’90s. Advisors profited from retirement, estate, tax, security and investment planning.

Unfortunately, succeeding generations do not share these values. Recent reports mark the deterioration of Canadians’ financial behaviour. One-third do not have RRSPs; 50% of RRSP contributions in 2003 were less than $2,600; premature RRSP withdrawals increased at more than three times the pace of contributions; total debt is more than 100% of after-tax income; 75% of Canadians have less than three months of their incomes saved. All are clear indicators of an iceberg ahead. Sixty-nine per cent of those surveyed by Ipsos-Reid said they intended “to make small changes to their spending habits.” Good intentions notwithstanding, there is no evidence that
Canadians are equipped to combat a multi-billion-dollar marketing industry that encourages poor financial behaviour.

In 1998, Montreal economist Martin Coiteux suggested a 1.5% savings rate was not a problem because Canadians were getting great investment returns, but a 2001 study indicates otherwise. Over a 20-year period, the average equity investor realized nearly 11% less than the S&P 500. Similarly, rising real estate prices do not compensate for increased debt loads. When emergencies and spending impulses arise, people do not cash in their homes; rather, they cash in their RRSPs and borrow more.

Practices that serve only high net-worth clients fuel the public perception that advisors are not interested in working with “average Canadians.” Building a client base with $50 RRSP contributions is no longer promoted by the industry; rather, planners are encouraged to work with the affluent.
Advisors need to be the public’s choice for financial wisdom or risk losing future prospects to growth industries such as bankruptcy and credit counsellors.

Nick Murray, a New York financial planner and the author of several books for financial services professionals, has stated, “Wealth accumulation is not a function of investment performance but of investors’ behaviour.” A profit-driven marketing industry is designed to undermine the principles of healthy financial behaviour, promoting debt as the vehicle to attain a certain lifestyle.
“Cradle-to-grave” marketing increasingly
targets children and young adults, creating “loyal” spenders for life. These strategies undermine the financial planning industry’s future business.

To better understand the barriers Canadians face in developing positive financial habits, advisors need to educate themselves about the extent of this consumer-focused culture. Books such as Consuming Kids (by Susan Linn, New Press, 2004) provide valuable insight.
Advisors’ participation in education is vital.
Just as cigarette firms do not give health classes, financial professionals cannot allow VISA, MasterCard and Wal-Mart Corp.
to take on financial education.

There are three areas in which advisors can guide their clients’ financial education.
Advisors can look for opportunities to present seminars at local schools and universities. They can host financial presentations or retreats for their clients.
And they can make concerted efforts to include young people in their client base; a practice in which 20% of clients is under the age of 35 would allow an advisor to promote healthy financial habits at a critical stage in clients’ lives and create long-term partnerships based on solid foundations.

The future of advisors’ businesses lies in the ability to restore the national savings rate to historical levels and bring back the attitudes toward savings held by past generations. The financial planning pyramid is only as solid as the base on which it is built. Credit card shopping sprees, impulse buying and aggressive marketing schemes are eroding clients’ financial future.

@page_break@Building a strong base may not be glamorous work, but it is essential to our industry’s financial and professional future. IE

Chad Viminitz is a financial planner and associate at RTR Advisory Group in Edmonton.