While many clients are on survival mode, financial advisors must stay alert to incoming long-term opportunities
It’s probably too much to say that the COVID-19 pandemic has spelled an end to the world as we know it. But considering the massive systemic changes that have happened and all the predictions that have been overturned because of it, that’s not exactly wrong.
Take the broad-based shift to the virtual that has happened in the past weeks, for instance. While many wealth-management firms might have recognized the reality of remote work as an inevitability, few would have guessed how soon it would become the new normal.
“We were fortunate as a company to have made the technology investments that we did over the years,” said Jack Courtney, vice president for Advanced Financial Planning at IG Wealth Management. “Because of that, we’ve been able to transition to having our financial advisors working from home very, very quickly.”
Adjusting so rapidly to an alternative work setup can be challenging for even the best wealth firms. Aside from ensuring that remote workers have proper technical support to ensure unimpeded access to critical systems, to maintaining the normal flow of communication and information, and ensuring that proper precautions are taken to ensure the security of data, there is a whole host of challenges to address and issues to unpack.
But as many financial professionals are discovering, challenges often turn out to be just opportunities in disguise.
“One of our top advisors shared how this has really forced him to adopt video conferencing technology,” Courtney said. “And he realized that through this channel, he’s been able to have much more meaningful conversations with many of his clients. He’s also been able to get in touch with more clients and generally get some efficiencies in his day.”
With financial markets the way they are right now, clients’ investment portfolios must be discussed, with reviews of risk tolerance and rebalancing of asset allocations among the most basic orders of business. But even beyond those issues, advisors with the right expertise and awareness of their clients’ circumstances may consider other investment-planning possibilities.
“Some may consider tax-loss selling strategies to unlock tax refunds for their clients next year,” Courtney said. “And some senior clients may be in good shape in terms of liquidity, but have been forced to comply with minimum-withdrawal requirements from their RRIFs, in which case we can come in and help them take advantage of the RRIF minimum reductions.”
And given the Bank of Canada’s recent rate-cutting spree as well as the current position of short-term interest rates, Courtney said his department anticipates that a 1% prescribed rate by the CRA is likely to come in July, which can open up different tax-planning strategies.
“I think the advisor just has to be aware of their client’s circumstances,” Courtney stressed. “Many are helping clients in survival mode, but we also need to be watching out for the planning opportunities that are coming to the fore.”
One example relevant for business owners, particularly those who want to transition it to the next generation, is the possibility of executing an estate freeze.
“As much as possible, you want to cap the potential tax on the death of the first generation and reduce the value of the business lost to tax friction,” Courtney said. “If the business has good long-term potential but its valuation is depressed because of the current conditions, maybe now’s a good time to look at that kind of strategy.”
Those types of considerations will likely be outside the radar of clients, particularly as they contend with unfamiliar stresses imposed by the coronavirus. For some, there may even be an understandable temptation to put off making such decisions until things get back to some semblance of normal.
But as many advisors will tell them, long-term wealth planning opportunities can have paradoxically short shelf lives.
“Hopefully, advisors are reaching out and having those conversations with their clients,” Courtney said. “I’d also encourage clients to talk to their advisors and ask directly: ‘Should I be revisiting my plan? Is there an opportunity we’re missing that we should be taking advantage of?’ And in many cases, the answer is yes.”
