Inflation is persisting, how one advisor is helping his clients

Lessons of the recent past help Rising Star advisor plan and prepare for what might be a long haul

Inflation is persisting, how one advisor is helping his clients

John Iaconetti has been an advisor for a little more than five years. In those five years he’s seen a global pandemic, the lowest interest rates in history, a bull run, a bear market, an extremely rapid rate hiking cycle, and the highest rate of inflation in 40 years. The financial advisor at the McClelland Financial Group has developed a knack for learning from—and preparing his clients for—rapidly changing circumstances.

Based on last-month’s higher than expected inflation print, Canada’s cost of living crisis seems far from over, and clients will continue to feel the pinch. Iaconetti explained that over the past 18 months he’s seen inflation impact his clients in different waves. It started with grocery bills and gas prices, before central banks started ratcheting up interest rates. Now Iaconetti’s clients are facing much higher mortgage payments and a greater sense of financial uncertainty.

Iaconetti has learned a great deal helping his clients through the past 18 months of high inflation, and he’s using those lessons now to help them.

“One thing we’ve always preached in our office is controlling what we can control,” Iaconetti says. “We’re in a difficult economic environment and we’re in a difficult market, but as much as we’d like to change inflation rates or interest rates we can’t. Our main priority is to work with our clients to control what we can at a grassroots level and focus on that going forward.”

Budgeting is key to Iaconetti’s practice. He usually sits down with clients to plan budgets every 18 to 24 months. However, as economic conditions change, that meeting cadence may be sped up. The meetings involve probing questions and a clear discussion about where clients’ money has been going in recent times. Iaconetti looks for frivolous spending to be cut, so his clients can cope more easily with a rising cost of living or better prepare for their long-term financial wellbeing.  

He admits that a budgeting conversation isn’t always easy. Nobody likes to be told they’re spending frivolously. By giving his clients tools to track their spending independently, though, Iaconetti can have a more objective conversation. Those tools can make the budgeting process more automated, easier to track, and easier for clients to follow.

While day to day expenses have skyrocketed, clients have also faced market turmoil brought on by rising interest rates. Though equity markets have been somewhat stop-star, and some fixed income products look more attractive, Iaconetti tries to situate fixed income returns in the context of the rising cost of living.

“When interest rates go up, and stock markets react accordingly, people see this carrot dangling in front of them—which are the GICs or other short-term investments, where people tend to flock for their guaranteed return,” Iaconetti says. “But they can get lured into a trap. Because when a GIC is paying you 5%, but the cost of living is going up 5% on an annualized basis, you’re pretty much guaranteeing that you won’t grow your wealth above the rate of expenses.”

Iaconetti will often remind clients with longer time horizons that while fixed income can play a role, the short-term fluctuations of equity markets aggregate out to growth in the long haul. By working with clients to budget for short-term increases in the cost of living, he can help them think about the long-term when it comes to asset allocation.

One client set, Iaconetti says, can really benefit from the rising yields on fixed income: retirees. Those in or approaching retirement should already have a heavier allocation to fixed income, and getting better yields from GICs and other high interest investments can give these older clients an advantage.

On the other side, Iaconetti’s younger clients are feeling a harder pinch from inflation. Young families, who might have overextended themselves in recent years to break into the housing market, are now struggling with higher mortgage costs, the prospect of education savings, and the cost of living. Beyond budgeting for the short-term and allocating assets for the long-term, Iaconetti’s approach is to listen to those clients, hear their concerns, and find novel solutions for them.

“By the sounds of things, we’ll be in this position for a little bit longer,” Iaconetti says. “So if advisors haven’t been reaching out to their clients yet, now is the time to do so. When we see a shift in the market, or a difficult economy ahead, that’s when we should be speaking with every client we have, following recommendations and providing action items.

“Experience is the best teacher, in my opinion. I saw that with COVID, when I learned firsthand how quickly markets and the economy can change. But I find that by studying how markets have moved in the past, we can understand that nothing is really new, and we need to go back to our matra: control what you can control.”