Advisors forced to revise client financial plans

Advisors forced to revise client financial plans

Advisors forced to revise client financial plans The quality of jobs, full-time or part-time, continue to get worse according to the latest Canadian Employment Quality Index. Do your clients’ financial plans take this into consideration?

The CIBCs EQI, which measures part-time vs. full-time jobs, self-employment vs. paid employment and the compensation ranking of full-time paid employment in more than 100 industry groups, suggests things have never been worse when it comes to the quality of jobs in Canada.

If that’s the case the financial plans of many Canadians might not be worth the paper they’re written on because the cash flow assumptions used to achieve a client’s objectives 20 or 30 years down the road might be completely unrealistic.

CIBC deputy chief economist Benjamin Tal indicates the economy in Canada isn’t nearly as healthy as some people think. “The Bank of Canada continues to warn us that the headline unemployment rate is not as rosy as perceived,” says Tal “and, in fact, according to the Bank's new and improved measure of labour market activity, labour slack is still significant."

That’s economist speak for it’s a lousy time to be looking for a job.

But worse than this is the prospect that this situation might never get better; people with bad jobs today might have positions in 10 years from now that are actually worse, both in terms of enjoyment and pay.

Financial planners can discount their assumptions made to take into consideration the possible blips in the income and asset gathering process but surely there are better ways to safeguard a client from financial meltdown due to poor job prospects.

"The damage caused to full-time employment during each recession was, in many ways, permanent,” says Tal. “That is, full-time job creation was unable to accelerate fast enough during the recovery to recover lost ground. The good news is that for the past year, the number of full-time jobs rose twice as fast as the number of part-time jobs—a factor that worked to offset some of the recent softening in our index."

WP asked B.C. CFP Anne Brandt if there is anything she does when putting together a client’s financial plan to accommodate for insufficient income due to poor job quality.

“I don’t incorporate someone losing their job [into the financial plan] unless that’s something they specifically want me to do,” says Brandt. “Some people I know who’ve been downsized a number of times do want to know they have some sort of fund available in case it happens again.”

In this situation Brandt’s talking about an emergency fund where six to twelve months of savings are set aside for the client to cover expenses in case of something unexpected. She’s not talking about a permanent impairment due to poor job quality.

Which brings us back to Tal.

"Over the year ending January 2015, the job creation gap between low and high-paying jobs has widened with the number of low-paying full-time paid positions rising twice as fast as the number of high-paying jobs. Those trajectories are largely behind the softening in our measure of employment quality over the past two decades."

In the light of this information you might want to adjust your client’s assumptions.