IF YOU’RE LIKE MOST FINANCIAL advisors, you would like nothing more than to fill your book with seven-figure clients. But to do so, you would have to follow your own advice and employ some long-term planning. Today’s young couples, for example – complete with their student loans and huge mortgages – could be tomorrow’s millionaires.
“Most of our million-dollar clients didn’t start off like that,” says David Bluteau, an investment advisor with Montreal-based National Bank Financial Ltd. in Halifax.
In fact, you should have a full range of clients – young, middle-aged and senior – in order for your business to be sustainable in the long term.
“No matter how good an advisor you are,” Bluteau says, “it doesn’t necessarily mean you’ll deal with the children of your clients. They could have their own advisors or they could live out of the country. You have to make sure you’re replenishing the clients you’re losing [through death].”
Starting adult life under a mountain of debt and obligations can be daunting. But, according to Bluteau, good financial advice and old-fashioned discipline can go a long way toward reducing anxiety for these clients and help them to flourish over the long term.
These clients can become million-dollar clients, Bluteau says, if they have the right savings habits.
Myron Knodel, director of tax and estate planning with Investors Group Inc. in Winnipeg, agrees that heavy debts and a mortgage, coupled with lower earnings early in a career, can make it extremely difficult for young couples to stick to a savings plan.
That’s why it’s so crucial that these clients get started on a financial plan as early as possible. It’s never too early to use financial planning software, Knodel says, to do projections about how much money these clients will need in the future.
What they can control
“Sometimes,” Knodel says, “the hardest thing to do is get started and develop the concept in your mind of ‘pay yourself first’.”
Bluteau often tells his clients that what the market makes is out of their control. “They should be focusing on the things that they can control,” he says, “such as how long they work, how much they spend and how much they save.”
One of the first orders of business with young couples is to conduct a risk-tolerance questionnaire with the both partners to help determine what types of investments are suitable for them.
In general, Bluteau says, men tend to be slightly more aggressive while women are typically more conservative.
To help your young clients understand risk, show them how equities historically have provided superior returns when the money is in the market for 30 or 40 years.
Knodel says he often recommends young couples put non-registered money into corporate-class fund investments. This allows clients to move their capital from one fund to another without having to pay taxes on a capital gain. The taxes on a capital gain kicks in only when the clients remove the money from the investment itself.
“That can result in significant tax deferral,” Knodel says. “When you do redeem, it’s taxed in the form of a capital gain, which is tax-preferred.”
You also should discuss the couple’s need to reduce debt, formulate an income plan and set them up with insurance – life, disability and critical illness insurance are recommended – particularly if only one spouse is working.
Bluteau says he prefers to meet with both members of the couple at the same time.
Occasionally, however, one spouse may feel he or she can’t discuss certain issues in front of the other.
“It’s critical that you hear both parties,” Bluteau says. “They could have different objectives. If you’re a trusted advisor, they’ll use you as a sounding board and ask, ‘Is this reasonable?'”
Many times, however, advisors are caught in the middle if, for example, one spouse wants to do a house renovation while the other says they can’t afford it.
“If they’re both reasonable people,” Bluteau says, “you can find common ground. If they’re not reasonable, then you have to watch out. Listen to them and make sure you understand the issue and why they’re feeling a certain way. Then, you have to have further discussions.”
Keeping up with the Joneses
It’s often not enough just to give financial advice to young couples. Advisors often find themselves in parental or advisory roles, as they pass on life lessons and provide perspective on their young clients’ financial and other situations. One burning desire among young clients that you must try to curb, Bluteau says, is “keeping up with the Joneses.”
He reminds his clients that the neighbours with the fancy cars could well be drowning in debt. People who live in the most beautiful houses, he tells them, often have the least money to invest.
“It’s about striking that balance,” he says, “and setting goals that are realistic and important to them.”
© 2012 Investment Executive. All rights reserved.