Your Advisor Needs to Know About More Than Just Financial Things

For financial advisors, being able to adapt to the unique needs of clients is integral to deliver sound, relevant advice. Increasingly savvy clients with easy access to technology – online information, advice and investment tools – continue to challenge the financial industry to prove the value of professional, face-to-face advice.

At the same time, changing social and cultural norms are redefining certain needs advisors have historically associated with specific life stages and genders.

Each successive generation of Canadians is forcing us to reconsider our notions of things like wealth, marriage, homeownership and retirement.

Depending on your situation, finding an advisor who understands and can adapt to the evolving needs of different generations can be the key to realizing your financial goals.

Here are two groups of Canadians who are redefining societal norms and in doing so, challenging wealth management professionals to stay relevant.

Millennials

We have all read headlines like: “Millennials are killing the (blank) industry.” From diamonds to department stores, millennials have earned a reputation for rejecting industries and practices traditionally viewed as culturally important, even necessary.

Younger generations are approaching homeownership, marriage and divorce – key events when it comes to wealth management – differently than previous generations. When it comes to homeownership, many millennials are waiting longer to take the plunge: 30.6% of young adults aged 20-34 in 2001 lived with at least one parent whereas 34.7% did as of 2016.[1]

Younger adults are also putting off getting married and having children. This means when it comes to divorce, “Millennials tend to have fewer assets to divide, and they’re more likely to have similar incomes,” making spousal support a nonissue. Our society – advisors included – tends to view divorce as an event which should take a substantial financial toll on one or both partners.

When you combine inconsistent incomes due to freelance or “gig” work, high rates of student debt, and the cost of raising children, the reality is many married millennials can’t “afford to buy [their partner] out of the matrimonial home.”[2] Millennials’ finances are requiring them to be more frugal, even democratic, than previous generations and advisors should be prepared to accommodate their unconventional situations.

As the largest generation in Canada,[3] millennials have a huge impact on our economy and, despite their purported financial irresponsibility, spend a lot of time thinking about and managing their money. A 2019 report from BMO found, “millennials [are] outpacing [their] baby boomer counterparts” when it comes to retirement savings and “continue to hold higher amounts [in RRSPs] over time, accounting for the highest percentage increase with 87 percent since 2016 ($28,821 vs $15, 377 in 2016).”[4] Millennials may not be buying diamonds, but they are being mindful of their finances.

Women

Today, women account for approximately half of the labour force (up from less than a quarter in the 1950s[5]) and “directly control no less than $2.2 trillion of personal financial assets.” By 2028, that number is expected to rise to $3.8 trillion.[6]The archetypal investor – historically a man – is quickly changing to reflect the increased number of women, both married and unmarried, who are directly participating in the Canadian economy and making more household financial decisions.

In fact, a 2019 CIBC study found, “three-quarters (73 per cent) say they’re actively involved in their own long-term financial planning – a number that grows higher the older they get, rising to 82 per cent among women aged 55+.”[7]

Most Canadians need better-defined retirement plans (about 90% do not currently have an adequate one[8]) however, advisors should be prepared to provide advice which accurately reflects women’s needs, especially given their burgeoning control of financial assets.

Employed married women “in the core-working age demographic… now account for a record-high 47% of family income, almost double the share seen in the 1970s.”[9] Women also live, on average, four years longer than men[10] meaning many will likely inherit assets from their spouses later in life. 

Yet, despite women having more (control over) money, they are also more likely than men to forgo incomes and therefore pensions for the sake of their families. “Almost 1 in 3 (30 per cent) women say they’ve reduced or stopped saving as a direct consequence of childcare or eldercare responsibilities.”[11] A good financial plan will account for and work to minimize the impact these kinds of events have on women’s retirement savings.

Take Away

When it comes to wealth management, finding a professional who understands the unique situation and need of each individual client makes all the difference between stellar and just average financial advice. Millennials and women are two demographics frequently on the receiving end of stereotypes – most of which have the potential to impede their ability to achieve their financial goals if their advisor subscribes to them.

Advisors who approach common milestones like homeownership, marriage and divorce from an outdated standpoint and disregard the way social norms are changing, will likely have a harder time relating and remaining relevant to those clients whose circumstances challenge them to go above and beyond “business as usual.” Make sure your advisor is a fit for you.

Connect with us to learn how an advisor and a customized financial plan can benefit you.


[1] https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200-x/2016008/98-200-x2016008-eng.cfm

[2] https://www.advisor.ca/my-practice/conversations/offering-money-advice-when-millennials-divorce/

[3] https://www150.statcan.gc.ca/n1/pub/11-627-m/11-627-m2019029-eng.htm

[4] https://newsroom.bmo.com/2019-01-29-BMOs-Annual-RRSP-Study-National-Attitude-Shifts-On-Retirement-As-Average-Amount-Held-Increases-by-21-Per-Cent-Since-2016

[5] https://www150.statcan.gc.ca/n1/pub/89-503-x/2015001/article/14694-eng.htm

[6] https://www.advisor.ca/my-practice/conversations/womens-growing-share-of-assets-to-change-wealth-management/

[7] http://cibc.mediaroom.com/2019-02-21-7-in-10-women-make-significant-financial-sacrifices-for-the-sake-of-others-new-CIBC-study-finds

[8] http://cibc.mediaroom.com/2018-02-08-Am-I-saving-enough-to-retire-Vast-majority-of-Canadians-just-dont-know-CIBC-poll

[9] https://www.advisor.ca/my-practice/conversations/womens-growing-share-of-assets-to-change-wealth-management/

[10] https://www.cibc.com/en/personal-banking/advice-centre/women-and-wealth.html

[11] http://cibc.mediaroom.com/2019-02-21-7-in-10-women-make-significant-financial-sacrifices-for-the-sake-of-others-new-CIBC-study-finds

Will I have enough?

‘Plan for retirement.’ This phrase is something many of us have heard since the time we landed our first full-time job. But even now, as it was back then, it is a pretty vague directive.

When we are younger it translates to putting money away, likely into a registered account. And for anyone under 25 that’s a great first step. Sock away money and let compound interest work for you. Perfect. Done and done.

However, as you get older this approach to retirement planning should evolve and become more formal, with defined goals and a clear plan. A plan that can grow and change as we do, adapting to our lives and goals. This is when the question ‘will I have enough’ begins to become part of the discussion.

If we peel everything away, each of us faces the fear of NOT having enough saved by the time we retire to live out our retirement years in relative financial comfort and provide enough income to meet our lifestyle goals. For some, this fear can stop us from working with an advisor to build a plan. Check out our blog ‘There is No Time Like Now’ to learn more on this topic.

The easiest way to face any fear you have about the retirement nest egg you are building is to learn the facts. Work with a financial advisor to build a retirement plan based on both your current reality and your future goals.

One of the first considerations is the type of retirement you want. Do you hope to travel? Will you move into a different home? Do you or will you have a vacation property? How many vehicles will you have? All choices have an impact on your income needs during retirement.

Any company-based pension plans or savings plans and their income during retirement need to be considered, in addition to RRSPs, non-registered and TFSA savings you are putting aside for retirement. Company-based pension plans are less common today than in the past, but if you have one, the income they will generate during your retirement need to be factored in to your retirement income planning.

In addition, any government income you will be eligible for during your retirement need to be taken into account for retirement income planning. Old Age Security (OAS) and Canadian Pension Plan (CPP) are two common government benefits many of us look forward to receiving. There are some options in terms of when you can begin receiving these benefits. Your specific situation should be reviewed to know what is in your best interest. There are strategies available to ensure you maximize your income options and minimize annual taxes.

For many of us, the concept of retirement planning feels like a distant concern; one that ‘future me’ will be better equipped to deal with. In fact, the earlier you can start, the better. There’s a Chinese proverb that says, “The best time to plant a tree was 20 years ago, the next best time is right now”.

Find a financial advisor you trust and connect with them to help you build your retirement income plan.

A study of Canadians done by the Investment Fund Institute of Canada found households who worked with an advisor had as much as 2.73 times more assets after 15 years compared to identical non-advised households.

You will benefit in many ways from having a financial planner — an expert in your corner keeping your best interests as their priority. They will work with you on a customized plan, help you stay on track and modify as needed. To review your personal financial plan and projection for your retirement income, please feel free to connect with us.

Giving an Unexpected Gift

The holidays are upon us.

Annual holiday gift guides have been circulated. Wish lists have been compiled and shared. The annual review of gift-giving and the intentions connected to why we give gifts and to whom is well-underway.

For many of us, we give gifts to people who are important to us and try to focus on things they want or need. In today’s world, gifts tend to be geared towards instant gratification.

Rather than get caught up in the season’s hottest trend or coolest gadget, this year consider giving your children or grand-children a gift that will help them achieve future success.

Permanent life insurance and child critical illness may not be at the top of their wish lists, but they will be a gift much appreciated the older they get. Insurance is a wonderful foundation for them to build their dreams upon.

A child’s insurability will change with age and other factors, as will their insurance needs. One of the highlights of permanent life insurance and critical illness insurance for children is locking in insurance while the child is young.

When you purchase the policy, you can add on the ability to increase or extend coverage in the future even if insurability has changed. This option can prove very valuable should your child’s insurability become a factor as they go through life. Occupation, hobbies, travel and health issues can impact the ability to buy more insurance in the future.

Your child’s permanent life insurance policy contains a cash value that grows with time and can be accessed, allowing for opportunities that may have otherwise been financially difficult. This cash value can help with education costs, a down payment on a home or income when they need it.

Child critical illness insurance can include a return of premium option, if no claim is made it allows for premium payments to be paid back in a lump sum and to be used to support your child’s dreams and future plans.

Permanent life and critical illness insurance give you the opportunity to set your child or grandchild up for success and help them be prepared for unexpected events.

Learn how insurance can be one of the greatest gifts you give by connecting with us.

Are you protecting one of your most valuable assets?

We protect the things we find valuable – the things that are difficult or impossible to replace. We insure our homes and vehicles because most of us can’t afford to lose them.

Consider the average price of a new Canadian vehicle is $33,00011, the average price of a Canadian home is $437,6992 and the average earnings over a 30-year career is $2,008,1543.

Over a 30- or 40-year career, your accumulated income is likely to be far more valuable than any other asset you’ll own. It may be time to think about what you’re doing to protect your ability to earn a living.

Disabilities are a fact of life, one in four people4 will be disabled for 90 days or longer at least once before they turn 65. The average length of a disability is 5.75 years5 if it lasts longer than 90 days.

Questions to consider:

  • Could you maintain your lifestyle?
  • Could you continue to run your business?
  • Could you meet debt obligations?
  • Could you pay ongoing expenses?
  • Could you continue saving for retirement or a child’s education?
  • Could you take the time to recover?
  • Could you afford any additional expenses related to a disability?

Most of us don’t want to think about it, but it’s something to consider. Some of the most common causes of claims are due to disabilities we can’t plan for, injuries like: fractures, dislocations or sprains, depression and anxiety, heart attack or stroke and cancer.

The good news is there are ways to plan for the unexpected. You can keep your earnings uninterrupted with proper insurance planning. Proper plans will help you avoid having to use your savings, sell your assets or surrender RRSPs to meet your day-to-day living expenses. Disability insurance is a plan that works when you can’t. If an accident or illness prevents you from working, disability insurance provides monthly income to help pay ongoing expenses. It can replace a per cent of your earnings – short term or long term.

Two common types of disability insurance are group and individual. Group insurance is arranged by an employer, association or union to help financially protect its employees/members. It focuses on general coverage for all employees/members. Premiums are usually paid for by the employee, so any benefits can be received tax-free. Benefit coverage is generally based on a percentage of earnings and will typically last for two years if you cannot work at your own occupation but may be extended depending on the plan if you cannot work in any occupation. Premiums are not guaranteed and may change depending on the claims experience of the group of employees covered in the plan.

Individually owned disability insurance generally provides control and choice to help you financially protect what matters most. And it’s all about you:  you own it and you choose the products and options you want that are customized for your needs. You should consider individual disability insurance if your employer does not offer group insurance with disability coverage, you are self-employed, and/or a business owner. There are also circumstances where your group coverage does not provide adequate coverage. If you are not covered for bonuses or sales commissions, if you are drawing income in the form of dividends instead of salary or if the maximum monthly income coverage does not provide sufficient income replacement.

Together or on their own, individual or group disability insurance can help protect you, your family and your lifestyle should the unexpected happen.

Working with a financial advisor to review your coverage and ensure your earnings are properly protected lays the groundwork for you to continue meeting your financial goals and to maintain your lifestyle, even if a disability prevents you from working or running your business.

If you have any questions about your current insurance plans or how to find a financial advisor to work with you to develop your financial plan, connect with us.

 

1 Jeremy Cato, Savvy shoppers knock about $4,000 off car prices in Canada, The Globe and Mail, May 2014.

2 The Canadian Real Estate Association, July 2015, http://crea.ca/content/national-average-price-map.

3 Assuming annual income of $45,741 with a 2.5 per cent increase annually for 30 years. Peter Harris, So, how much are we earning? The average Canadian salaries by industry and region, Workopolis.com, February 2014.

4 Calculations prepared by Great-West Life using a blend of occupation classes, genders and age ranges based on data obtained from the Society of Actuaries – Individual Disability Experience Committee (IDEC), 2012 IDEC Claim Incidence Rate Table.

5 Canadian Institute of Actuaries (CIA) 86-92 Agreement Table & 2012 Society of Actuaries – Individual Disability Experience Committee Table.

 

There is No Time Like Now

“Do the best you can until you know better. Then when you know better, do better.” ~ Maya Angelou

There can be some unexpected emotions at play for those in the early stages of financial planning. Besides the normal ‘geez what DO I want my life to look like when I’m in retirement?’ confusion, people may find themselves grappling with more complex, uncomfortable feelings like guilt and shame.

Why do people feel guilt or shame? It may be because they feel like they should have ‘saved more by now’ or have a belief that ‘everyone is saving and planning better than I am’. It is important to remember that financial literacy is not “common sense” and figuring how and where to start building a plan can be overwhelming, even with professional guidance.

But here’s the thing. Establishing a financial plan is one of the most effective ways to replace guilty feelings toward money with a sense of control and empowerment. A recent study done in the U.S. shows a correlation between amount of savings (not necessarily income) and overall happiness; the more you have, the greater your sense of well-being. In other words, there is no point feeling guilty about what you have or haven’t done to date because it’s already done. So, let the guilt and shame go and commit to building a plan and taking steps forward.

You have likely heard the ‘rules of thumb’ when it comes to investing. “Save 10% of your income”, is one of the better known ‘rules’ and is often the one that can cause people the most anxiety. These ‘rules’ are actually more like ‘in ideal situations, it is best to’. For example, if saving 10% of your income is not possible for your lifestyle, then lower it. Even one per cent is better than zero. The earlier you can begin saving for your future, the more impact compound interest will have on your investments.

Selecting an experienced financial advisor will bring outside, unbiased insight into your current situation and determine the best road forward. A good financial advisor will work with you to move your plan towards where you want to be in the future. As life, circumstances, and demands on our resources change, a good advisor will review and modify your plan to keep you working towards your goals and ultimately, a sense of well-being.

Regardless of all the ‘rules’ of investing, they don’t apply equally to every investor and may not apply at all, in some cases. Your best bet is to work with a financial advisor to build your long-term plan, work on achieving it, and modify as needed.

Be kind to yourself. Financial planning reality is different for everyone and taking any steps in the right direction is a move forward.

Connect with us to learn how you can learn how to start today and ease your mind.

 

Sources

https://www.psychologytoday.com/ca/blog/changepower/201406/is-your-piggy-bank-source-happiness

 Ally Bank survey. “New Ally Bank Survey Links Money to Happiness”

What’s the Deal with Capital Gains and Cabins?

In the simplest terms, capital gains are ‘gains’ usually monetary, obtained from the sale of capital property. Capital property can be real estate or securities like shares and stocks. The gains are the positive difference between what you paid for the item and what you sold it for, minus any legitimate expenses connected to it and the sale of it.

In Canada capital gains are taxed based on your marginal tax rate, which varies by province. However, only 50% of the gains are taxable. For example, on a capital gain of $100,000, only $50,000 would be taxable. So, for a Canadian in a 33% tax bracket, a $50,000 taxable capital gain would result in $16,500 taxes owing. The remaining $83,500 is the sellor/investors’ take. (The Canadian Revenue Agency offers step-by-step instructions on how to calculate capital gains.)

When it comes to vacation properties like cabins, capital gains are the difference between the purchase price and the selling price, minus the cost of any enhancements (not including ongoing upkeep) made to the property.

For the sake of this discussion, let us consider:

  • A family cabin purchased for $100,000 and worth $500,000 today
  • The cabin is owned by a mature couple (parents) with two adult children

For this example, assume the parents’ will is set up to transfer their share of the cabin between the couple after the first of the pair dies and then to their adult children after the last parent dies.

In this case, the capital gains wouldn’t be triggered until the last parent dies and the cabin transfers to the adult children. The capital gains tax would be due immediately as the asset, cabin, is deemed to have been sold to the second generation once the remaining parent dies. So, capital gains would be calculated based on today’s $500,000 fair market price minus the original $100,000 purchase price, with 50% of the $400,000 capital gain taxable.

During the time the cabin was owned by the parents if any capital expenditures were done, outside regular maintenance, like an addition for example, the costs associated with that addition can be subtracted from the overall capital gains.

For the purpose of this example, an addition was done and cost $50,000, leaving $350,000 as the capital gains and $175,000 as the taxable portion of the capital gain. The capital gains tax will be payable by the estate at the marginal tax rate of the estate. If the estate is rich in property and low in investments or cash, a sale of one of the properties may be needed to pay the taxes.

There are many variables involved in transferring a cabin between generations. Some of these variables include: primary residence status, multi generational transfer with multiple kids, joint owners, blended families, and more. It is easy to see how important planning for the cabin’s transition is and how complex it can become – it is worth the time invested to ensure the family cabin is passed onto the next generation in the most tax efficient manner.

There is no way to avoid paying capital gains tax. However, there are ways to plan when to incur tax and be prepared to cover the cost. Connect with us to learn more about what you can do to prepare for your cabin’s future.

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