Advisor shares insights on how to better prepare clients of every generation for the end of their professional life
Advisors need to reframe how they talk about retirement. That’s the word from Faisal Karmali. The first vice-president, portfolio manager and investment advisor at Popowich Karmali Advisory Group at CIBC Wood Gundy, has spent a career preparing Canadians for retirement, and he’s amazed at how little the ordinary Canadian knows about their income streams.
A recent study commissioned by Mackenzie Investments showed that around six tenths of Canadians want to know more about their retirement. It also showed that less than a quarter were familiar with how the CPP works. In Karmali’s mind, advisors need to do a better job to remedy this.
“I think that number is pretty generous, actually,” Karmali told WP. “I think more Canadians don't really understand the different income streams that they're receiving. They don't know if they qualify for them. They don't know where to get the information if they qualify, or how much they will receive.”
When Karmali sits down with clients, he’ll ask them "do you know this information?’" The lion’s share don’t; they don’t even know where to turn having Googled “CPP” or “retirement” once or twice only to be met by a wall of confusing text, facts, figures, and misinformation. He thinks it’s up to an advisor to cut through that noise.
“We need to educate,” Karmali said. “There are key points in people's lives where they start to think about their future. And I think the days that your children leave the home and are now independent, is a good point in time for the advisor to start to reach out to their clients say, ‘you know what the next phase of your life is going to look like, here's what the information you need to think about. Let's start that process.’”
Moments like that, or when a client hits those magic numbers – 55 or 65 years old – are when an advisor can really break through and educate. Taking those opportunities to educate will result in much higher success rates. It’s also a chance to show clients that they don’t need as much money as they think, in order to retire.
Karmali sees clients who think they need to save a lot of money for a certain lifestyle. But it’s a lifestyle that’s hard to quantify. He thinks that some of the old rules of thumb, like the need to generate something like 70% of your working income, aren’t accurate. He thinks Canadians overestimate how much they need, and don’t truly understand the expenses they have. Telling a nervous client that they actually have the means to retire, though, is a tough conversation.
“You have to understand their fears,” Karmali said. “We tend to start going down the mathematical analysis and start showing them numbers and throwing data at our clients. That's not the right thing to do. The right thing to do is understand what the clients fear is first, and [ask] why they are in that mindset, because it's generally it's not always the financial issue. It's the emotional side. Something's triggered them to have that emotional reaction. We as advisors need to find out what's the trigger.”
Understanding your clients is even more important when you move past boomers and start talking to Gen X or even millennials about retirement. They might not be at the traditional life-stages yet, but Karmali thinks a reframed conversation can get them planning.
He thinks, for those generations, the old idea of retirement is dead. Millennials and Gen Xers don’t want to sit on a porch, doing nothing. They want freedom to engage with the world, do something different, take risks that they couldn’t take before.
“Let's change the terminology, from ‘retirement’ to ‘financial independence,’ Karmali said. “At some point, you want to be financially independent so you can do the things that are most important to you. You don't have to continue to work in something you may not be enjoying. But you're financially independent. I think we as an industry need to change the terminology from retirement to financial independence. And that will be the key where we'll be able to connect with millennials and Gen Xers to plan for the future.”
