The Smith Manoeuvre: Sidelined or star?
The boom days of the real estate market made the Smith Manoeuvre a darling of savvy advisors and clients, but has risk aversion sidelined this Canuck strategy? Or can it still deepen the relationship with your clients?
Video transcript below:
Reporter, Wealth Professional
Reporter: Remember the Smith Manoeuvre! It was a popular move during the real estate boom. But with Central Bank warnings over consumer debt and a precarious outlook for Canadian housing. Is it still useful? Advisors weigh in on WP.
Ed Rempel is one of Canada’s Smith Manoeuvre experts. He is a strong advocate of the tactic.
Ed Rempel, Ed Rempel & Associates and Armstrong & Quaile Associates
Ed Rempel: It’s one of the best long term wealth building strategies that you can do in Canada. So we are kind of building up for retirement and we find from experience that many Canadians are not able to save enough to have the retirement that they want. And what the Smith Manoeuvre does is allows you to use the equity in your home instead of your cash flow to invest for your retirement.
Reporter: But other advisors are less keen, suggesting that the move has had its day and that it’s overly risky to put a client’s biggest asset in jeopardy.
Sudhir Bhalla, G.N. Financial Group
Sudhir Bhalla: When you are borrowing money against your house, you are basically disturbing your safety net. The whole purpose of, for you to do a Smith Manoeuvre is a tax deductibility. So tax deductibility, you can go to any other Financial institution, borrow money from them, invest it wherever you want to invest and then you make the interest as a tax deduction. If something goes wrong and you are not in position, you have some financial difficulties, at least your home equity or your paid up mortgage, paid up house is still available. I would say that is more important than going to borrow money against your house.
Reporter: As with any advice whether it is good for a client will depend on their specific needs, financial goals and risk appetite.
Chris Karram, Safebridge Financial Group and Investment Planning Counsel
Chris Karram: So the strategy itself is a great strategy but what we do believe as a company at Safebridge is the simple fact that it is not a one size fits all and by no means is for every single client. And what we have seen over the last 10 to 12 years is the extremely strong real estate market and with recent fears that have come along, you know outside of the media and obviously just the reality of this tax that we’ve been hearing over last year end change.
You know it’s definitely changed the perspective of borrowing to invest, you know because everyone does that to buy their home. Yet to, you know, use that to grow your net worth specifically from an investment perspective changes the game a little bit.