What You Should Expect From Your Financial Advisor

What You Should Expect From Your Financial Advisor

As consumers, we are hearing a lack of service placed squarely on the shoulders of COVID -19 and “supply chain demand.” Still, this sentiment seems to have permeated even the financial services industry. Today on ThinkSmart with TMFG Financial Advisors Rob McClelland and Mike Connon go through what they believe you should be looking for in an Advisor.

 

Transcription

Rob:

Hello, this is Rob and Mike from The McClelland Financial Group of Assante Capital Management. And this is Think Smart with TMFG. Today on Think Smart with TMFG, Mike and I will be discussing, what should you expect from your financial advisor?

Mike, expectations are interesting today after COVID. I think most businesses have dramatically dropped their deliverables and client expectations are way down. And it doesn’t matter where we go, what service product we purchase today or use, the service we’re receiving to me, is atrocious. And their excuse is always COVID. Now some of them, granted, it’s right, but some of it’s wrong.

And it’s interesting, last night I was at… yesterday I was playing in a charity golf tournament. And at dinner, I got to sit with two executives from Delta Airlines. And we were talking about the airline business, obviously a good topic of conversation. And I asked them how they were doing. And they basically said that they were doing very well. And they were slowly building their business back. And they weren’t having any of the deliverable issues that a lot of the other airlines have had because they didn’t book too many flights. And so, they’ve been able to staff their flights and everything else. And yet, we know of some airlines in this country that over-delivered, put every route up full force, and having to cancel routes because their service was so atrocious.

So, I thought it’d be interesting today to explore, what’s our opinion of what financial advisors should be doing? So let’s start with some of the basics, what you should expect. Let’s start with the goals. Very first thing you should try and figure out or what’s the individual trying to accomplish? So if you’re an advisor, what is your client try… Are they saving for retirement or they want to pass on a big estate to their children or their grandchildren? Or they want to pay for their kids’ education, save for cottage? What are their primary goals? What are their secondary goals? And then we’re going to review those maybe every two or three years, just to make sure they haven’t changed. What comes after the goals, Mike? What’s the next big thing that you need?

Mike:

You need a financial plan, and you need to take those goals and have an action plan to make those goals work. Goals are great pie-in-the-sky ideas is what I want to achieve, but that doesn’t mean you’re going to achieve it. So the next thing comes a financial plan, which all relates into, here are the goals that you want to get to and here is the way we’re going to get there. So, that’s a direction.

Rob:

So is the financial plan just like written statements, or is it the numbers?

Mike:

It’s got to go in the numbers. It’s got to be cashflow-based. They used to have two things. They had goal-based financial plans and cashflow-based financial plans. And the simpler firms would work on a goal-based. And goal-based was, “I want to have a $100,000 a year when I’m 65 and go and work on that. What do I need to do to get there?” And they would tell you what you need to do to get there.

The problem with goal-based plans is, they didn’t see if you had the ability to get there. They just told you what you need to do to… This is how much you have to save to be able to take a million dollars when you’re 65. They had nothing to do with what you’re making right now, if you have that cashflow, if you have kids you have to put through university, all the problems and bumps that are going to go along the way.

A cashflow-based plan deals with all those other things that are going to come along the way. I got to buy a car in five years. I need to save for my kids’ education. I want to go and buy a cottage at this point. How am I going to afford this? My job situation has changed, tax rules have changed. So, all that has to be built in the financial plan.

Rob:

So, you got to plan now. You’ve got your goals, you’ve got plan. The next thing you’re probably going to do is, you’re going to put together a portfolio. So reasonable expectations, whether you’re using, we’ve talked about individual stocks, so I wouldn’t recommend that, but some people like to go that route. You could use exchange traded funds, you could use mutual funds. There’re many ways to build a globally diversified portfolio.

Mike:

I guess what we have to get in here is, no matter what you do, we use what we call, an investment policy statement. And that’s basically a blueprint of how your portfolio is going to be run. And the important thing, it gives you expectations, return expectations and risk expectations. So you need both those built into there, because their important part… If you’re going to relate this back to the financial plan, you need to put some numbers in there. And you can’t pick random numbers, put in your financial plan, and say, “How’s this going to work out? Well I’m going to get a 12% return, so I don’t need to save much because everything’s going to go great.” Well, is that realistic with your portfolio?

So you start to put a portfolio, that’s going to go be a more realistic number of what to expect out of returns. And you also have to go and include the risk that you have taken to get that rate of return. Again, a four or 5% rate of return has a lot less volatility in it than trying to get an 8% rate of return. So if you’re going to shoot for that 8% rate of return, there’s a good chance you’ll have a high standard deviation. An easy way to put that, a high chance of not achieving that on a year-to-year basis because it’s going to have more ups and downs in it. And that has to be built in the financial plan too, because if you have a bunch of bad years, that financial plan is not going to work that well.

Rob:

So, we talked in investment policy statement. As we’ve discussed before, I’m building this cottage or rebuilding this cottage. We’ve got a blueprint. And it’s interesting, we had a blueprint for how they’re going to build the cottage, where everything’s going, the roof, all these lines, and all calculated out. What’s interesting, it’s not perfect. You have to adjust along the way. At one point, we had this air duct going right through where our dining room table was. So, I that wasn’t going to work. So even though you got a plan, you got to adjust that plan along the way. Most investors don’t have an investment policy statement.

Mike:

Yeah. And you need that. When you’re building your house, you’re building up north, the snow load is heavy. Right? It’s not the same as building a house in Florida. It’s got a different scenario. So when you design that, it’s got to be designed for your needs and where it’s being built. And same with a portfolio. You have to design your portfolio. Portfolio for a 20 year old with no money is very different than a 65 year old that’s going to have to live off their income and they have nothing else to support them. Two different portfolios.

Rob:

My thoughts are some basics on the portfolio side. Number one, it should be extremely diversified. Number two, it should be global, should cover the world. And number three, it probably needs a mix of stocks, bonds, real estate, maybe a few other things. And it should be relatively low fee, at least it should be a reasonable fee for what you’re delivering to the client. Is it a reasonable fee? So, where do we go after we got the portfolio? We’ve got a plan, we’ve got our goals, we’ve got a plan, we’ve got a portfolio. What’s next?

Mike:

We live in Canada. So living in Canada, we’re not a tax-free nation, which means you got to worry about how much you’re going to give to the government. And depending on how you design things, if you have poorly designed portfolios and a poorly designed financial plan, you can give a lot more to the government that’s necessary. And you don’t want do that. You want to keep that in your portfolio and make sure it’s growing. And that’s a matter of allocation of where your assets are.

In Canada, different assets are taxed differently. Bonds are taxed very different than stocks. And stocks that pay dividends, they’re taxed very different than stocks that pay capital gains. Foreign stocks are taxed very differently than Canadian stocks. So, everyone thinks this is very simple. It’s not as simple. When you go and try to design a portfolio, you got to make sure you’re looking at what accounts are RSPs, what accounts are tax-free savings accounts, what’s open, what’s in your corporate accounts, and put those all together and decide which asset belongs in which part of the portfolio.

Rob:

So I like to think taxes, you’re going to pay some taxes. But if you can save taxes on an annual basis from the way you structure things, you can save taxes from when one spouse passes away. And you can save taxes when your estate is left behind for your beneficiaries. Those are all good things to do.

Mike:

If you want to give money away, give it to charities. Instead of having the government decide where that extra money is going to give away, give it to charities and you decide where it’s going to go.

Rob:

So we’ve now got a tax plan, and you do that by looking at clients’ tax returns, incorporating the tax documents with the financial plan. I touched on estate plan. Why should an advisor… Shouldn’t a lawyer do an estate plan? Why would a financial advisor, a financial planner, worry about an estate plan?

Mike:

Lawyers do a good job at the legalities behind doing wills, powers attorney. They do an excellent job making sure everything’s covered. What they miss sometimes is how it should be set up. And that’s where a financial planner comes in, to give yourself some direction on what assets should go through the will. If you can designate beneficiaries on certain assets, you can actually have them not pass through the will. You can use insurance policies that don’t pass through the will.

So passing on an estate is not… the will is one portion of it, but only a portion of it. There’s a lot of assets that should go and bypass that, just to save taxes, save probate, save things like that. The will is definitely an important part of this whole estate plan, but there’s got to be a financial advisor involved in it too.

Rob:

So, we now put the estate plan together. And often, we’ll request copy of the will, copy of the power of attorney from our clients. And they’re frustrated with us asking for it, and we are asking them to keep it relatively current, and you need to go update it. And we’re giving them homework to do. But it helps to pull the whole thing together.

Mike:

We’ve also done something in our office called, a will schematic. And I think it’s one of the better things we’ve done. And when we take a will, we actually put it into a visual format where it can see where everything’s going. And the lawyer’s job is to make sure everything’s covered from a legal point of view. Ours is to make sure you understand what’s going to happen to your assets when you die. And that’s our point to take the will and put it into a format where you can understand what’s actually going to happen.

Rob:

So the last thing I’ll touch on with what you do expect from a financial advisor, is your financial advisor actively trying to help your family and friends? Are they recommending that they work with your children? Are they recommending that maybe they work with your siblings or your parents or friends? If you’re getting a good experience, wouldn’t you want them to work and get the similar good experience? Do you want their kids to get a good head start?

Often, advisors won’t necessarily work with the kids because they might be too small. Kids’ account may only have $20,000 in it, $50,000, and they may have to meet with that child. So, do they offer a service where that child can also receive good financial advice?

Mike:

I wish a lot of our clients… I went out to eat in Aurora last night, had a good experience. I think I told three people about it today. Where’d it go? I wish everyone that had met with us and had a good experience and brag to three people and say what a great experience it was. I know it’s more difficult with finance than having a meal out, but it’s something I’ve always found. Whenever I get a good experience in a place, I like to tell people about it because they get to share that experience.

Rob:

So we’ve got everything that we recommend that you should get from an advisor, and let’s just cover some of the basics. They should be meeting with you anywhere from two to four times per year, at a minimum. They should be doing meeting notes. If you call in, you should be able to get a response that day to your question. So, they need to have a service team behind them. Those are all basic expectations that advisors should be delivering. If you’re not getting those from your advisor, you should be talking to someone else’s advisor.

Mike:

I think we’re one of the few businesses left that have someone actually pick up and answer a phone where you’re not talking to an answer service first. I think my mechanic might be the only other person that picks up the phone. I know that puts us where the mechanic is, but that’s the only other business I can think that where I call and I actually get to talk to someone.

Rob:

Long and the short of it is, getting good service, getting great service, sometimes we don’t even know if we’re really getting poor service. But in this industry, I know what good service looks like. I think we do a pretty good job at providing it. I just want to make sure other people are getting good service. I want to make sure my friends, my family member from whatever they’re doing, are getting good financial service and good financial advice.

That brings us to the end of another week. Thank you for joining us. This is Rob and Mike with Think Smart from The McClelland Financial Group of Assante Capital Management reminding you to live the life that makes you happy.

Assante Capital Management:

You’ve been listening to The McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund, and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Incorporated. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources. However, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information, please make sure to see a professional advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Capital Management Limited.

 

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