Help clients understand financial planning

Many clients may have heard the pitch: a financial plan can help you realize your financial goals. But not everyone understands how a plan can be designed to help them reach their objectives.

So, rather than waiting for your clients to recognize that they need a financial plan, you should be proactive in showing them how a plan can help them ensure a secure retirement and achieve other goals, says Evan Thompson, founder and business coach at Evan Thompson and Associates in Toronto.

Here are some tips on how you can help clients understand the value of a financial plan:

> Explain the difference between a financial plan and a budget
Your clients may not understand that a financial plan is the blueprint showing how they would reach their goals. The budget is a set of rules to live by, day to day, to help keep that plan in place, Thompson says.

“Many people think that budgeting is all that’s required to keep the wolf from the door,” he adds.

You can help your clients map out a financial plan, along with a budget that will help them stick to that plan. For example, you might advise them to make monthly deposits into a tax-free savings account, which would provide a cushion should unexpected expenses arise.

> Offer context
In a low interest-rate environment, in which credit is cheap, clients may be less motivated to develop and commit to a financial plan. Some clients may be inclined to borrow more than they will be able to handle when rates eventually rise, Thompson says, which could leave them in a precarious position.

Considering these circumstances, help clients understand how a financial plan can account for various economic conditions. For example, show projections of the amount they would have to pay in mortgage and other debt payments should the Bank of Canada raise interest rates by various amounts within the next few years.

> Talk about goals, not products
Basing the conversation on the many types of financial products — such as investment and insurance products — can be confusing to clients, who might fail to understand how those products would fit into their lives. Instead, the discussion should centre on your clients’ goals — what they want out of life.

Once that conversation kicks off, Thompson says, walk them through the ways in which certain products might apply to their various life stages.

Read: The changing face of financial advice

> Use visuals
Avoid telling cautionary stories about people who neglected to create a plan. Such scare tactics can turn clients off.

Thompson instead recommends using infographics to show the power of compounding and dollar-cost averaging over time. Show them how having a plan to save and invest can help them prepare for their children’s education, their retirement and other goals, while enabling them to weather the financial challenges that may occur along the way.

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