Why this advisor insulates his clients’ financial plans from their home values

There’s something of a convention in Canadian financial planning, where many of the significant expenses that come very late in life — such as the cost of long-term care — are meant to be covered by the sale of the retirees’ home. It’s certainly not the case for every client or financial plan, but as home values tend to represent the single largest asset that many Canadians hold, tapping the value of that asset remains an important tool for managing the rising cost of retirement. As home prices rose dramatically across Canada over the past decade, those home values have come to play larger and larger roles in the financial plans of many Canadians.

Evan Inglis, however, tries to keep the value of his clients’ homes somewhat insulated from their overall financial plan. The Executive Financial Consultant at IG Wealth Management in Calgary explained that in the planning models he builds for clients, he keeps home price appreciation well below the rate of inflation. Rather than projecting annualized growth, he’ll update the home value once per year to better demonstrate how that value can fluctuate and where the client’s plan is at excepting that house price. As the pace of house price appreciation appears to slow across Canada, and many older Canadians are electing to age in place or live intergenerationally, Inglis’ says his approach fits more neatly with the role homes are now playing for many Canadians.

“Clients will look at this really large asset as something that's distinct from anything else that they've accumulated, be it through retirement savings, through work savings, and otherwise,” Inglis says. “I do my best within our client relationships to illustrate to them the impact of what this home can be for their plan. The home is going to be sold in most cases. But part of the conversation is in in trying to determine, from a client's perspective, how they feel about this property.”

Inglis explains that many of his clients are determined to age in place, while others expect that their home can be used to offer them greater flexibility in retirement. Overall, however, he finds more clients view the home through an emotional rather than financial lens. Annual reassessments of property value, therefore, help reconcile emotional ideas of a home with financial realities of a piece of real estate.

The decision to do annual reassessments, rather than projected growth, is also a product of the somewhat uncertain nature of modern Canadian property markets. In a place like Calgary, it’s not uncommon to see property values rise by double digit per centages within a year, but that doesn’t necessarily mean that growth will be sustained. It also keeps clients focused on the other investments and aspects of their plan that come with less emotional connotations and greater liquidity. It also opens up conversations about choices like aging in place or passing the home on to the next generation at a time when first home buying is very difficult.

“I don't want the retirement prognosis for a client, or the ability to achieve certain goals or metrics from a client perspective, to hinge upon what the City of Calgary decides their home is valued at,” Inglis says. “Or to hinge upon the fact that we have a massive rush or flood into housing, and then all of a sudden we start to see that slowdown.”

For many Canadians, given how much real estate prices have appreciated by in the past decade and a half, the idea that growth might slow or even turn negative is particularly touchy. Inglis says that planning for a possible housing slowdown is a ‘kid gloves conversation.’ It’s one he approaches with clear evidence demonstrating the diversification of their net worth and the other assets in place to support their retirement goals. He can show them that if their home value flatlines, there is still a route to achieving their goals.

For younger clients who may want to own a home, but who see current house price instability as a threat to the guarantee of home ownership as a wealth builder Inglis offers a clear-eyed analysis. He shows them how costs may differ and that home ownership can often be more expensive upfront than renting, especially at today’s prices. He ensures that their decision to own a home is informed by goals beyond just the accrual of wealth in one asset.

When clients who have either recently become homeowners or who have already enjoyed outsized returns express concern about the housing market and its impact on their retirement plans, Inglis is quick to demonstrate what they’ve built, what they can expect, and how even a dramatic fall might impact the state of their overall plan.

“Much as we would talk about any kind of back testing, it’s important to be able to show a client what happens if their home doesn't appreciate the way it has appreciated for the last decade if they’re going to be okay and if they’re going to be able to meet their retirement goals,” Inglis says. “A lot of that is being able to say to a client, for instance, it's not realistic to set a four per cent growth rate, it's realistic that we revisit this every year, and if your home's gone up in value, we'll be able to illustrate that as part of our retirement calculations but if your home goes down in value the next year, we're also able to illustrate that.”