How advisors can guide clients through financial-planning pivots

IPC’s Sam Febbraro shares recent poll findings, why getting a ‘return on life’ matters, and the rising importance of life planning

How advisors can guide clients through financial-planning pivots

While the COVID-19 pandemic made its impact felt to households across the world over the past 18 months, it’s been more like an axe than a hammer. Rather than experiencing a uniformly negative effect, some families have seen improvements in their ability to save, while others have had to cut back on spending or take on additional debt as their ability to earn income took a hit.

A similar polarization is happening with respect to people’s financial goals, according to a new survey from Investment Planning Counsel. In a national poll of 1,001 Canadians, the firm found that while most Canadians are feeling confident in their ability to retire when they want, 29% of Canadians expressed concerns about achieving their life goals, compared to just 20% who shared those concerns in 2020. In line with that finding, four fifths of Canadians (78%) said that they’ve been reflecting on their priorities since the beginning of the pandemic.

“I think the positive trend is that Canadians are now encouraged to live their lives rather than saving for the future,” said Sam Febbraro, executive vice president at IPC, in an interview with Wealth Professional. “But there still needs to be a plan or a blueprint in place to understand what is required to design and build a secure retirement.”

As Febbraro stressed, retirement remains a fundamental element of any Canadian’s financial plan. That means clients and advisors should continue to consider questions around the size of the nest egg they’ll need, at what pace they should save to meet their needs for retirement income, the taxes they’ll need to account for, and what government entitlements and benefits they can take advantage of, to name just a few.

“Some of the good news is that we’ve found people are focused on securing their future, and over 60% of investors in the survey said they’ve diversified their portfolios,” he said. “At IPC, we believe investors should be confident that their investments can continue to grow while withstanding things like market volatility, which can help them generate sustainable income throughout their retirement.”

With interest rates at historic lows and the outlook for fixed income being mixed at best, Febbraro said retirees can no longer rely on income from bonds like they could 20 years ago. Now, they’ll need to consider diversified income streams as well from a blend of dividend-paying equities, traditional fixed income, and possibly even more unconstrained global strategies like emerging market debt to generate a more consistent and tenable flow of income.

On the other side of the equation, investors will also have to be mindful of how much they’ll need for retirement, which at its core means ensuring they don’t outlive the money they planned to use in their sunset years. However, he also stressed that retirees aren’t doing anyone, least of all themselves, any favours when they choose to live below their means.

“If someone has already built a nest egg and they have enough wealth, it's okay to focus on the short term. Everyone should try to enjoy their life every day,” he said. “The idea, and perhaps the challenge, is to do that without sacrificing their plans for retirement, leaving a legacy, and passing wealth along to future generations.”

For those who’ve developed a lifelong habit of saving, that could be difficult to do. While many investors have seen great returns on their investments, Febbraro noted that some have unfortunately diminished their return on life because they feel the need to continue saving.

More broadly, some Canadians have also admitted that the pandemic crisis has caused them to let go of a life goal. For the planning professionals that work with them, Febbraro said, it’s important to dig deeper into the reasons, and determine what baseline financial target their clients should hit based on their objectives.

“If they believe that the goal simply can’t be achieved, we have to verify that by considering the client’s retirement planning needs,” Febbraro said. “It’s too simplistic too suggest some clients need a consistent income stream of 4%, since others will need 5% or even 6% based on their needs and the size of their investment assets. Moreover, it also depends partly on the amount of longevity risk they’re confronting, which hinges more on their biological age than their chronological age; a 65-year-old client who’s lived a healthy life, for example, may be closer to 45 from a biological perspective, and hence will likely have to plan for a longer period in retirement.”

Then again, some clients may consider letting go of a life goal because they have other priorities. In those cases, he suggested that advisors build an inventory of all the client’s short- and long-term goals, and then collaborate with them to establish a proper order of operations based on the financial resources available.

That speaks to the evolution of the wealth management business over time. Rather than focusing solely on financial advice, Febbraro highlighted the fact that there’s now a greater emphasis on life planning, which includes understanding the client’s life story – their past experience, their present circumstances, and their future dreams.

“At IPC, we’re building out a process called Advice Your Way,” he said. “It's an approach where, through an engaged relationship with clients, our advisors can ensure that they truly know their clients and their personal needs, so they can deliver the depth and flexibility of advice the client requires.”

That approach isn’t meant to be a one-and-done exercise, either. According to Febbraro, every given client can go through roughly 65 life transitions, all of which will inform the process of adding and removing goals in a financial plan. One thing that’s helping to facilitate IPC advisors’ capability to explore different scenarios is IPC’s digital financial-planning platform created in partnership with Conquest Planning.

“We're finding in our research that more investors want to work with an advisor, so they can make those informed choices,” he said. “I think advisors who know their clients well, understands their personal and family circumstances, and cultivate strong relationships with a client are better able to tailor their advice and solutions to meet their client's needs.”