As gulf between high and low earners grow, advisors can make a difference and improve their practices by serving clients outside of traditional wealthier brackets
Income inequality remains a massive factor in Canada’s economy. According to the latest data release from Statistics Canada, inequality continued to grow in Q3 of 2023 as higher mortgage costs and the rising cost of living hit the bottom 40 per cent of earners disproportionately harder. As lower earners fall further behind, saving for retirement and building wealth falls out of reach.
As the below graph shows, in Q3 of 2023 the highest 20 per cent of earners saved an average of $16,130. The bottom 20 per cent had to draw down $8,527. Lower income earners are losing what little wealth they have.
Chad Harmer believes advisors need to be paying attention to this gap. The managing director & senior advisor at Harmer Wealth Management explained some of why this gap is currently growing, and the challenges it poses for Canadians as they try to save towards their goals. He highlighted some of the strategies and solutions he uses with lower-income clients to ensure they can begin to build wealth and made a clear case as to why advisors should consider taking on some lower-income clients.
“Insufficient income early in life makes the financial planning process challenging, because it limits our ability to save and invest for the future,” Harmer says. “When you’re just making enough to cover basic needs like rent, food, or transportation, there’s often little that’s left over to put into savings or retirement accounts. If they don’t start early, these individuals are missing out on the benefits of compound returns. Starting the process later in life means there’s less time for the investments to grow and, ultimately, that impacts financial security in the long-term.”
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Myriad factors have contributed to the current state of income inequality, but Harmer highlights key trends that may make the gap even worse. That includes automation and AI, which have replaced many of the jobs that were once considered solid middle-class livelihoods. There is also a growing education and skills gap, and coming from a lower income family means you’re less likely to be able to afford education and — therefore — won’t have access to the same opportunities. A similar gap is growing between rural and urban areas as more jobs have concentrated in cities. Harmer notes that government policy and taxation has exacerbated problems, with more tax structures favouring the wealthy and high skilled over lower-income wage earners.
Demographically, younger Canadians tend to be more acutely divided by income than their older compatriots. Millennials are struggling with high housing costs, either in the form of rent or their mortgage. Visible minorities have also struggled more, according to Harmer, and are disproportionately on the wrong side of the wealth gap.
But why should advisors help? Given the nature of the advisory business, it is more profitable for an advisor to work with wealthier clients. In addition to larger asset pools, those clients often come with unique and challenging issues to solve, which can be rewarding for an advisor. The work involved with lower income clients is usually more focused on budgeting and cashflow management, which may not be as exciting. Nevertheless, Harmer believes advisors need to do this work within their practices.
Harmer likens these clients to the pro-bono cases many lawyers take on alongside their more lucrative clients. He acknowledges that the advisory business incentivises asset chasing, but sees long-term benefit in helping more low- income clients. For one, many of those clients may be lower income, but if they are younger they could be on the receiving end of a significant inheritance. When those assets do come, an advisor can benefit from a strong existing relationship.
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On a more fundamental level, though, Harmer sees this work as simply the right thing to do. Advisors have a knowledge base and skillset that can help a population with an acute need. In doing so, they introduce more diversity into their practice, which can both be rewarding and deeply informative. Working with different kinds of people can help an advisor hone many of the interpersonal and problem solving skills they need to use with their highest net worth clients as well.
Within his own practice, Harmer has an open door policy and offers services that can meet the needs of a wide range of income categories. He offers educational seminars, online sessions, and events that can help move the needle for a large number of people. When he works with his clients he takes a holistic approach, integrating areas like mortgage and insurance advice into his practice. In doing so, he has built a rewarding practice that can grow and serve many of the people who need his services most.
“It makes you a better advisor,” Harmer says of his work with lower income clients. “We're constantly learning as advisors, not just what's happening in the economy and in the market, but also in the interactions that we have with our clientele. And working with a diverse clientele just helps us learn us expand and grow as a profession.”
