Advisors failing clients when it comes to household debt

Advisors failing clients when it comes to household debt

Advisors failing clients when it comes to household debt New report from leading management consultant paints a very unhealthy picture of Canadian household finances. A good financial plan can help. Are you doing enough?

The McKinsey Global Institute released Debt and (not much) deleveraging this morning. The report explores debt in 22 advanced and 25 developing countries. Its findings aren’t very promising.

That’s especially true for Canada.

Between 2007 and Q2 2014, we had the second-biggest jump in household debt-to-income, higher than 45 other countries in the study with only Greece doing worse.

McKinsey picked out seven countries – Canada, Netherlands, South Korea, Sweden, Australia, Malaysia and Thailand – that are extremely vulnerable to financial instability and reduced consumer spending.

McKinsey partner Susan Lund on the subject of Canada and the other six countries:

“What the financial crisis showed us is that when you have rising real-estate prices and rising household debt, it can be a deadly mix. You have to manage each carefully. “

This shouldn’t come as a surprise to advisors.

The Bank of Canada has been warning Canadians about household debt for some time now. Surveys by both Manulife and CIBC suggest Canadians are aware of this but seem to be doing nothing about it.

Declining oil prices certainly don’t help.

With more money in our pockets the average Canadian likely believes he or she is wealthier due to higher short-term cash flow – but that’s fleeting. Hence, McKinsey and the Bank of Canada’s warnings.

So what are advisors doing with clients when it comes to debt management? Apparently, not enough.

Since 2007, Canadians have increased household debt by 15 percent compared to an 8 percent and 18 percent decrease in the U.K. and U.S. respectively. This is no coincidence given housing prices kept rising in Canada over the last seven years while they declined elsewhere.

With the implementation of CRM2 along with the possible elimination of embedded compensation, a financial plan is going to be an absolute must if financial advisors want to earn their keep in the future.

At the top of that financial plan – some serious debt and expense reduction ideas.

Your clients will thank you. 

  • Fraser McDowell CFP 2015-02-05 8:24:48 PM
    Seriously?? The author feels it is financial advisors failing that Canadians have accumulated too much debt. Has it occurred to you that the vast majority of people in the statistics DON'T have advisors?
    Post a reply
  • Will Ashworth 2015-02-06 12:46:21 PM
    Good point, Fraser. However, this article wasn't meant to chastise advisors, but simply is a reminder that you continue to fight the good fight on debt reduction - like many as you suggest, are already doing.
    Post a reply
  • Fraser McDowell 2015-02-06 5:04:51 PM
    Yes fair enough but we now have a steady diet of articles every single day suggesting that Canadians biggest problem is related to fees and/or comisions for financial advice. It is just possible that a bigger problem would be LACK of financial advice and making poor decisions. I dont think too many people were advised to accumulate an out of control amount of debt. They got there on their own. I would say this is a great example of the value of advice.
    Post a reply