How to help clients build financial resilience to deal with inflation

While advisors can't control rising prices, they can help investors control behaviour with a robust financial plan

How to help clients build financial resilience to deal with inflation

While inflation in some quarters is slowing, clients are certainly not seeing the end yet. Advisors, therefore, need to help them buttress their personal situations with central banks expected to keep pushing up interest rates.

“There wasn’t really any surprise in yesterday’s [Canada inflation] announcement. You just have to go to the gas pump or see your grocery bill and it’s pretty obvious the prices are going up,” Paul McQueen, vice president of wealth and the advisor who oversees advisors for Libro Credit Union in London, Ontario, told Wealth Professional.

“Obviously your typical Canadian can’t really control any of that themselves. All they can do is control their own behaviour and activities. And some of that’s easier than others. If gas prices are really high, they can make a conscious effort to drive less or be a bit more strategic in their daily trips to get the most mileage out of their tank. But, people are feeling a lot of pressure from food prices. They can’t stop eating. Single income families are going to feel the pinch a lot sooner than others.

“So, as an advisor, it really comes down to helping them think about this and plan, and really installing a level of financial resilience in your clients so they can deal with this as it continues.”

Statistics Canada yesterday announced that Canada’s annual inflation rate held steady in October, rising 6.9% since last October, which matched the September increase. Faster price growth for gas and mortgage interest costs were moderated by slowing price growth for food. But, as McQueen noted, that still indicated costs were rising, not falling, and the higher new prices have embedded.

“Inflation will end eventually, but right now there is still inflation in the system. Some job numbers have been quite good. You’re seeing wages rise, but not quite as fast as inflation. I think the Bank of Canada will likely raise rates to slow the economy. So, you’re probably looking at either a 25 or 50 basis point hike in December, which just makes things more expensive,” he said.

McQueen said advisors can help clients by having individual conversations with them since each person’s situation is different. If they owe money, which many Canadians do, and are carrying it on a variable rate or line of credit versus a fixed rate mortgage, they could try to pay it down faster. If they have discretionary costs, such as streaming, music, or movie services or gym memberships, they can pare what they’re not getting value from.

They should also ensure they have an emergency fund – cash, not a line of credit – and shore that up, especially if there’s any danger there may lose their jobs or face a work slowdown.

What are the things that your clients can actually control? It’s their debt, their spending, and their backstop of emergency savings or insurance coverage to cover what they can’t necessarily predict, but which can certainly throw a wrench into their financial plans,” he said.

While he noted that all Canadians are seeing the upward pressure on their wallets, particularly since wages are not growing as fast as inflation, there may be a point where some will feel pinched.

“Some people can just ride it out,” said McQueen. “But, for many Canadians, there’s probably a point where they’ve got to make some tactical decisions on their spending and their debt and other things to have a more solid financial future going forward.”

It’s also important to talk to clients about what assets are in their investment portfolios and how those are doing as well as how they can hedge against inflation.

“The conversations are so different,” said McQueen. “They have to be personalized to the individual, but driven by the big picture impacts that most of us don’t really control.”