How successful Canadian Financial Advisors use financial planning to rapidly grow their

businesses in 2017

Pawel Brzeminski, MScFounder & CEO, Snap Projections

pawel@snapprojections.com

Advisors’ Conference, AdvocisApril 27, 2017

Edmonton

WHAT’S IN IT FOR ME (WIIFM)

• How do successful financial advisors use financial planning to grow their businesses?

• How do they incorporate planning into their practices?• What do they struggle with the most and what works

well for them?

• 13.6 million people who are 50 and older in Canada today• 48% of all Canadians in this segment (excl. 0-19 years old)• Regulatory changes are being rolled out (CRM2)• Fee compression forcing institutions to raise their minimums• Large institutions unable to effectively serve mass affluent

market• Mass affluent market ($100K - $800K of assets) is not the

primary target of larger financial advisory firms• Consumers have a lot of choice (ETF products, robo advisors)• Low interest rates force retirees to be more exposed to equity

Sources: Vanguard/SpectremGroup, Voice of the Investor, Statistics Canada. Table 051-0001 - Estimates of population, by age group and sex for July 1, Canada, provinces and territories, annual (persons unless otherwise noted)

CURRENT OPPORTUNITY

Source: FPSC, https://issuu.com/fpsc/docs/fpsc_definitions_en_web

The Competency Framework serves as the guiding construct for the knowledge, skills and abilities expected of Financial Planners.

Retirement Planning is often the starting point!

Source: FPSC, https://issuu.com/fpsc/docs/fpsc_definitions_en_web

1. How long will my money last? Am I going to be OK?2. How much can I spend so I won’t run out of money?3. When should I take my gov’t benefits CPP and OAS?4. Which of my assets should I spend first?5. I’m currently saving $XXX. Will it be enough?6. How much can I pass on to my children when I die?

WHAT CLIENTS WANT TO KNOW6 MOST COMMON FINANCIAL PLANNING QUESTIONS

THE PROBLEM

Initial Meeting, Info. Gathering & Goal Setting

Data Gathering

Draft Projections

Follow-up Meetings

Adjustments

Implement / Monitor /Adjust the Plan

PLANNING WORK-FLOW

Follow-up Meetings

Adjustments

CHALLENGES FACED BY ADVISORSInitial Meeting, Info.

Gathering & Goal Setting

Data Gathering

Draft Projections

Implement / Monitor /Adjust the Plan

“It takes me hours to develop financial projections”

“Data entry takes me too long!”

“I can’t run quick what-if scenarios with a client in my office”

“I need an easy-to-use, effective tool to educate my clients”

“Clients don’t understand 50-page reports (their eyes glaze over)”

CHALLENGE #1“DATA ENTRY TAKES ME TOO LONG”

• “Data entry is time consuming”• Most software products in the Canadian financial

services industry use outdated design and User Interface (UI) standards

Solution: Well-designed user interface allows to enter data quickly and efficiently.

CHALLENGE #2“IT TAKES ME HOURS TO DEVELOP PROJECTIONS”

• “Even updating existing projections takes me a long time”• Poor design makes software more difficult to use and

more difficult to learn

Solutions:• Software design should support development of

simple plans quickly (speed) and enable development of more complex plans if needed (flexibility)

• Full Financial Plan vs. Planning Memo

CHALLENGE #3“CLIENTS DON’T UNDERSTAND 50-PAGE REPORTS”

• “Their eyes glaze over”

Solution:In a research project with consumers we asked:“What do you want to see in your financial plan?” 1) Retirement cash-flow 2) Transparency (how did we arrive at the numbers?) 3) Personalized approach, tailored to my situation 4) Visuals / presentation of results that makes sense

CHALLENGE #4“I CAN’T RUN QUICK WHAT-IF SCENARIOS”

• “I need an easy-to-use, effective tool to educate my clients”

Solution:• Interactive what-if scenarios enable education• Educated clients are more satisfied, satisfied clients

become long-term, loyal clients who generate referrals• Technology needs to bridge the gap between the

advisor and the client

Source: Interactive Financial Planning – A Game Changer In The Client-Advisor Relationship, https://www.linkedin.com/pulse/interactive-financial-planning-game-changer-pawel-brzeminski

Diane Dekanic’s 10-month Case Study:1) Increased client retention by just over 100%2) Increased referral rate by close to 10%

Source: http://snapprojections.com/free-guide/

VALUE OF CLIENT EDUCATION

VALUE OF CLIENT EDUCATION

“Credo’s research found that the likelihood a client will provide a referral to his or her advisor gradually grows with that client’s increasing levels of financial literacy”.

“The takeaway is that spending time educating clients on financial matters is valuable and worthwhile because the more [clients] understand, the more likely they are to recommend you”.Brandon Bertelsen, Credo Consulting Inc., Financial Comfort Zone Study

Source: Investment Executive, February 2017, p.10, Advisors don’t impress young investors.

ADDRESSING 6 MOST COMMON FINANCIAL PLANNING QUESTIONS

OUR EXAMPLE• Jane and Brian are 57 (born 1960) / Projections run until they are 95• Goal: Retire at 65 in the province of Alberta• Assets / Sources of Income:

• Employment Income for Jane: $100,000, Brian: $70,000• Jane: $250,000 in RRSPs, Brian: $150,000• Jane: $45,000 in TFSA, Brian: $30,000• Jane: $125,000 in Non-registered, Brian: $125,000• House, approx. value of $600,000• Jane / Brian: CPP 80%, OAS 100%

• Liabilities:• Car Loan: $21,000

• Current Spending:• $96,000/year ($8,000/month)

Let’s find out with a simple approach:

1) Enter retirement assumptions (ret. date, inflation, RoRs)2) Enter their income, assets, debt, current spending3) Run a projection to obtain their projected cash-flow now and in retirement.We will use Snap Projections software to help us address these questions.

HOW LONG WILL MY MONEY LAST?

HOW LONG WILL MY MONEY LAST?• Current spending of $96,000/year

HOW LONG WILL MY MONEY LAST?• They run out of money at 84 years old

HOW LONG WILL MY MONEY LAST?

Well, it may not last as long as you want. Is 84 years old good enough?

• Now we can start a real conversation• What if you spend less? Or save more?• This approach illustrates the value of planning• Implicitly shows why using accurate data is important• Implicitly shows why the rates of return are key to

achieving their retirement goals

• Consumers have no idea if or when they can afford to retire

• Let’s find out the sustainable level of saving and spending for this couple, so they can retire at 65

HOW MUCH CAN I SPEND SO I WON’T RUN OUT OF MONEY?

HOW MUCH CAN I SPEND SO I WON’T RUN OUT OF MONEY?

HOW MUCH CAN I SPEND SO I WON’T RUN OUT OF MONEY?

• 50% science (numbers) and 50% client psychology• Most clients will do what they feel comfortable

doing, even though the numbers show they could be better off doing something else

• It’s important to show the trade offs• Try to avoid OAS clawback

WHEN SHOULD I TAKE MY GOV’T BENEFITS CPP AND OAS?

• CPP / OAS benefits starting at 70 (left) vs. 65 (right)

WHEN SHOULD I TAKE MY GOV’T BENEFITS CPP AND OAS?

• Avoiding OAS clawback

WHEN SHOULD I TAKE MY GOV’T BENEFITS CPP AND OAS?

WHICH OF MY ASSETS SHOULD I SPEND FIRST?

• Try making withdrawals in the most tax efficient way• Include Pension Income Splitting• Useful to base the minimum RRIF withdrawals on

the age of a younger spouse• Important to pay attention to:

• Effective tax rate• Asset mix and portfolio settings• OAS Clawback

WHICH OF MY ASSETS SHOULD I SPEND FIRST?• Spending order: Non-registered, TFSA, RRIF minimums

WHICH OF MY ASSETS SHOULD I SPEND FIRST?• What if we partially withdraw from RRIF before Non-Reg?

WHICH OF MY ASSETS SHOULD I SPEND FIRST?

• Partial withdrawals from RRIF before Non-Reg result in ~$125,000 gain on their estate

I’M CURRENTLY SAVING $XXX. WILL IT BE ENOUGH?

• How much do you save now?• What type of account do you contribute to (RRSP,

TFSA, Non-registered)?

I’M CURRENTLY SAVING $XXX. WILL IT BE ENOUGH?

• Enter their current contributions and review when their money runs out

I’M CURRENTLY SAVING $XXX. WILL IT BE ENOUGH?

• Point out a different approach to illustrate tax savings while contributing to an RRSP account

• RRSP contributions free up additional capital that can be invested in TFSA / Non-Registered

I’M CURRENTLY SAVING $XXX. WILL IT BE ENOUGH?

HOW MUCH CAN I PASS ON TO MY CHILDREN WHEN I DIE?

• Estate after tax• Tax on Estate at the end of projections• Tax on Estate throughout the projections• Complex estate planning (clients’ accountant / lawyer may

need to be involved)

• Can we help offset tax on Estate?

HOW MUCH CAN I PASS ON TO MY CHILDREN WHEN I DIE?

• Do they have sufficient insurance coverage?

HOW MUCH CAN I PASS ON TO MY CHILDREN WHEN I DIE?

• Get to know your clients (family circumstances, goals)• Use reasonable assumptions (FPSC assumption guidelines)• Planning is a process, perfect plans don’t exist, review

annually• Optimize for educating your clients and helping them

make better financial decisions

BEST PRACTICES

• Ignoring cash-flow (retirement planning is cash-flow driven)

• Ignoring or approximating tax• Ignoring Pension Income Splitting (it can lead to

substantial savings on tax)• Ignoring TFSA in retirement planning• Don’t oversimplify - If you oversimplify, you

risk making mistakes

BIGGEST MISTAKES

• Flexibility - minimize the risk for clients to be locked into an irrecoverable situation

• Optionality - never say to clients what they should be doing, give them options instead e.g.: “Thinking they way you think but knowing what I know, this is my recommended approach. But I’ll show you 2 other options so you can evaluate them as well.” Howard Dixon, Dixon, Davis & Company

• Education - add value by educating your clients, it will benefit your clients and your business

KEY PRINCIPLES

Thank You!Happy to answer your questions offline(Wednesday office hours between 2pm - 4pm MST)

Slideshttp://snapprojections.com/advocis2017slides