If you haven’t read Part 1 of this article, I highly encourage you to start there for context. Part 1 was all about breaking down the question of “is it worth it to pay for financial advice or am I better off with a digital platform?” Part 2 is going to focus on just some of the areas where a good financial security advisor can offer tremendous value that far outweighs the cost of advice. Areas such as:
- Estate Planning. Improper estate plans can cost a fortune. In a scenario as simplistic as our hypothetical $100,000 portfolio, a Financial Advisor has many avenues to help saving clients money. If the Advisor names a beneficiary that the robo-advisor misses, it could pay off in thousands of dollars in legal costs for clients without a will. Choosing the wrong beneficiary on registered money (RRSPs, LIRAs, etc…) could cause a client to miss out on a tax-free spousal rollover and trigger up to a maximum of 50.40% in taxes in Manitoba ($50,400 in hard dollars in our example). Naming minor beneficiaries without a trustee could also leave your heirs unable to access the money, or a return on their investment for years, costing untold thousands in opportunity cost of investing that inheritance.
- Tax Planning. Each dollar you invest for your financial future has a tax consequence associated with it. Choosing an RRSP over a TFSA, or vice versa, has immediate and long-term tax implications. Allocating tax-efficient holdings to non-registered accounts and tax-inefficient holdings to registered accounts reduces income tax erosion. With that top tax bracket in Manitoba hitting 50.40%, making a single, poor tax planning decision easily outpaces a 1% cost for advice on allocating and managing those funds!
- Retirement Income Planning. Now that you’ve accumulated your wealth, turning the taps on in the right order and at the right amounts for retirement is paramount to your financial success. A good Financial Advisor will project out the optimal sequence for you to help avoid having Old Age Security clawed back, paying higher deductibles for Pharmacare, incorrect CPP timing, enable unlocking of Pension funds, and more. Each one of these has significant long-term costs that almost certainly outpaces the cost of advice to avoid the wrong decision.
- Investor Behaviour. We all like to think of ourselves as rational human beings. But when it comes to our money and investing, rash, emotional decision-making is all-too-common. From January 1st, 2020 to March 23rd, 2020 the TSX lost nearly 35% of its value. Many investors were ready to push the panic button and move out of the market in the wake of so much volatility. This action, left unchecked, would have crystalized losses and made the damage real. Having a financial security advisor in your corner who can coach you through emotional decisions and stay on track for your goals can help avoid some of the costliest investing decisions that can be made.
These are just a handful of the direct, value-added services of working with a professional financial security advisor. There are far more areas to be accounted for (risk management, insurance planning, cash flow management, etc.) and even some indirect benefits too. Such as less time spent working on your finances and better organization. If you want to get more value from your money and improve your finances by more than 1%, consider hiring the right (human) person for the job.
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