It Ought To Be A Snap!

David Ensor

Many, if not all, of Canadian MoneySaver readers do not have the luxury of being so wealthy that they can: a) not be concerned about their financial future and retirement; nor, b) pay a team of advisers to focus on wealth preservation, tax and estate planning. In other words, they are hard-working Canadians who worry about outliving their resources and about how to plan and optimize across various potential scenarios.

Of course, they can go to their bank or talk to their broker for advice; or employ a financial planner—preferably someone who is fee-for-service, not commission-based. However, many of the tools and techniques that such people use are “proprietary”, opaque or somewhat generic in that they try to “fit” an individual into pre-determined categories, risk appetites and tolerances. They are better than nothing but they are not optimal.

So, in an ideal world what would an individual or couple wish to be able to do and see when they seek financial advice?

Here is a non-exhaustive list of what I believe each of us would wish for in being provided with advice that will help determine our financial future and help us achieve our goals:

It should be impartial; and based upon what I would term the “fiduciary mindset”, i.e., the adviser should only have his or her clients’ interests in mind, not the financial reward that might come from any particular outcome;

The process should be customized and tailored to the individual’s exact circumstances, including age, taxation and stated goals;

It should be intuitive and “real-time”, so that scenarios and assumptions can be changed, updated and immediately provided;
It should be graphical, as well as verbal and numerical, i.e., outcomes should be produced in ways that enable the reader to grasp immediately the implications of a particular scenario;
As well as answering questions, it should raise further ones and challenge both adviser and client to think more deeply;
It should encompass all Canadian provinces and territories, and take account of federal and provincial tax rates, CPP and OAS;
It should be able to distinguish between registered and non-registered investment accounts, as well as Defined Benefit, Defined Contribution and Employer-sponsored pension plans;
While inflation may not be a topic of particular concern for Canadians right now, being able to make assumptions and see the difference between real and nominal outcomes is crucial;
We should be able to adjust expected returns by asset class, e.g., cash, fixed income and equities;
Many will wish to “downsize” and adjust their level of accommodation, so we should be able to make assumptions not only about the future value of property and the repayment of mortgage debt, but also about the impact of a future sale and then re-purchase;
It should cover business or rental income, as well as that from employment. In addition, other sources of income should be integrated easily, e.g., rental income or income ownership or investment in a business;
It should also enable us to test different strategies for capital accumulation and/or make withdrawals to maximize wealth;
We may well wish to be able to leave a legacy and so wish to “solve” how we could manage our expenses and capital in order to do so, taking into account estate taxes;
We should be able to understand what level of nominal income we will need to maintain our purchasing power in real terms;
As many of us live longer, we may wish to see whether, if we live to be 100 or even longer, we may outlive our resources, and how making changes to our expectations will produce more sustainable outcomes;
Ideally, we should be shown both how to test different investing strategies, as well as how to draw down on income and capital in pursuit of the most tax-efficient alternatives;
We should be “nudged” to make rational, rather than emotional or sub-optimal decisions, while being free to decide for ourselves.

I am sure I could go on, and that readers can think of other factors which I have overlooked. As I said, the list is not meant to be exhaustive.

In an ideal world, we would be able to work with a trusted adviser to define our goals, create scenarios, view outcomes, and make informed decisions.

It ought to be a snap because conceptually such a framework and system should exist and be available to an individual Canadian or couple, given the now virtually unlimited availability of on-demand computing power and inexpensive data storage, and continuing enhancements to algorithms capable of fulfilling many tasks.

However, much if not most of the existing software is either not sufficiently comprehensive, is too “broad brush”, has non-intuitive design, or makes it difficult for adviser and client to change assumptions and inputs and be sure that the outcome is coherent and consistent.

Is it possible to find such user-friendly, customisable, real-time resources that would allow your adviser to provide you with advice that meets a fiduciary standard and allows you to work in partnership to design a financial plan that meets your goals and needs, rather than those of some standardized category?

That, Dear Reader, is for a further article. Suffice it to say, that I believe that there is at least one plausible candidate

David Ensor- Risk Management Consultant- david.ensor@btinternet.com