Why RRSP season should open the door to deeper plans

RBC Wealth Management VP explains why this time of year can be an entryway to the in-depth planning work that clients need now

Why RRSP season should open the door to deeper plans

Making RRSP contributions, even maxing out RRSP room, can’t be the be all and end all for a client’s financial plan. That’s the core message Howard Kabot, VP of financial planning specialists at RBC Wealth Management, wants to leave advisors with. Even during RRSP season, when the registered accounts occupy an outsized place in the minds of advisors and clients, there are opportunities to discuss more nuanced aspects of financial planning. RRSPs can play a key role in those plans but in today’s complex environment, clients need more than a one-stop solution.

“We often see clients making an RRSP contribution in isolation at the last minute, without thinking of it as a long-term proposition for retirement, where there needs to be some planning done,” Kabot says. “That’s financial planning, which takes into account more than just retirement, it considers tax planning, estate planning, and any other outlying issues. RRSP season is the perfect time for advisors to talk to clients and say, ‘we need to do a plan for you, we need to see what this contribution means in the context of an overall plan.’”

Kabot believes that the plan needs to consider more than just retirement because of the multifaceted factors that will impact a client before they even get to retirement. Goals, objectives, earning potential, and investment risk tolerance all need to be considered and checked in on over time before the retirement conversation can begin.

Advisors and their clients can use registered accounts like RRSPs, RESPs, and TFSAs to move those plans forward, but Kabot highlights the importance of discipline in using those accounts. Long-term savings and investment tools like these registered accounts can feel less important than the short-term desire for a vacation, a new car, or a renovation. Kabot believes that advisors need to maintain that discipline for their clients and emphasize the long-term benefit of these tools and savings. The financial plan, Kabot says, is key to keeping clients on the right track.

If an advisor has taken the client through the difficult and often time-consuming work of building a plan, they have built a touchstone that can be used to drive home the importance of saving and investing each month. That planning work involves the client at every stage, so when the client wants to deviate from the plan, advisors can highlight what they’ve already agreed and committed to. Even if they insist on making the short-term decision, advisors can use the plan to demonstrate exactly what the long-term impact of the decision will be.

Kabot accepts that it’s easy to be theoretical about that plan and its utility. He says that it’s advisors who are the ones on the ground working to ensure their clients strike the right balance in life. They see the challenges their clients face and the various obligations pulling at their paycheques. Nevertheless, aspects of a financial plan like a Pre Authorized Contribution (PAC) plan can automate some of those obligations, leaving the client with less active decisions and a significant overall long-term benefit.

RRSP season is a typically busy time for Canadian advisors, a moment when their time is stretched thin. Nevertheless, Kabot thinks that advisors should be making the extra effort at this time of year to turn a single decision with limited implications into a significant long-term plan. In the case of some practices, RRSP season may be one of very few touchpoints each year, meaning it’s one of very few opportunities to widen the relationship into a full financial plan. That doesn’t mean the plan needs to be completed this RRSP season, but Kabot believes this is the time to open the door to a plan, because it will help clients manage all the complexity in their lives now.

“Life is very complicated investments are very complicated. Financial planning can be a stressful thing, we need the client to be involved and to take the time to think about their income and expenses and, and what they're spending and what they want out of their life, their goals and objectives,” Kabot says. “That can put a lot of stress on someone. Part of the job of the advisor is to try to de stress and to make things simple and the plan gets you there.”