Chances are we all know at least one small business owner, either in a personal or professional capacity, who’s often wearing multiple hats to ensure that their business succeeds. The last thing they need or want to worry about, on top of everything else, is their financial needs. That’s where you come in. There is an abundance of opportunity to build and sustain long-term, beneficial relationships with small business owners—people who need your professional expertise to help guide them toward their financial goals. But one foundational piece must be in place before a successful relationship can ensue: trust, the subject of the 2014 Manulife Small Business Research Report.
As you’ll read in these pages, we went right to the heart of the topic, asking over 1,000 small business owners across the country questions that looked at how much of a role trust played in their decision to work with an advisor; how much they value trust in their relationship with their advisor; and what their reaction is if that trust is broken. These owners also indicated how much opportunity they are willing to give advisors who prove themselves and invest time and effort into earning their trust. Through the survey, we learned most small business owners are concerned first and foremost with their personal financial needs, followed by their business needs and then the needs of their employees. This
translates into three different entry points for an advisor—and tremendous potential for substantial cross-selling, once you have their trust.
Better late than never to get good advice
A teacher who was widowed at age 40 with two pre-teen children, Lily followed the advice of an acquaintance at her credit union and read widely to understand at least something of the world of money management.
While she had some assets, her financial knowledge seemed only to make her anxious. She bounced through five financial planners in a remote part of British Columbia. Then came the tech-stock meltdown of the early 2000s, which increased her discomfort. “They were moving my money around, but I wasn’t getting their full attention,” she says. “I just felt very confused.”
Eventually, Lily moved south to Parksville, B.C., on Vancouver Island. There, at age 51, she was referred through a friend of a friend to Cliff Broetz, a financial advisor with Manulife Securities Investment. And so began her first real experience with financial planning. Five years later, she retired. Today, at age 60, Lily gardens and lives anxiety-free knowing that her financial future is well cared for.
“I don’t feel like I need to comb through my statements every month,” she says. “I just never felt I could let go of things and relax before.”
Broetz says people can have a variety of reasons for leaving their financial planning until late in their careers, but the need for help is invariably present. “Sometimes they have a collection of investments, and the overall assortment is lacking an overall plan, has duplication, has too many fees, is not cohesive.”
Marvin, 66, waited even longer than Lily to come to an advisor. The tech crash of 12 years ago that so unnerved Lily knocked him right out of the game. “I pulled out completely,” he says. “I said, ‘Enough of that.’”
An executive with an engineering company, Marvin and his wife had a company pension, Canada Savings Bonds and their RRSPs, but no real plan. “I thought we should tie it together,” he says. “It came to the point where we knew we should be investing in some way to try to get some growth with minimal risk.”
So at age 64, they interviewed three advisors and settled on Jennifer Black and Janet Baccarani, partners and financial advisors in Dedicated Financial Solutions and Manulife Securities Investment in Toronto. Two years later, he is “officially retired” but picking up some part-time contracts to stay busy.
Black says this scenario of late-career conversion to financial planning is actually quite common in her practice. “From the early 50s and onwards, people start to think seriously for the first time about retirement.”
Lily says it was vital for her to find someone who listened to what she wanted to do, suggesting alternatives rather than pushing her toward something she didn’t want. While she wasn’t an experienced investor, she had some financial knowledge. Nine years into their relationship, she and Broetz still good-naturedly debate ratios of foreign to domestic holdings and fixed-income versus equities. She also insists on an ethical portfolio.
“I don’t feel like he’s pressuring me,” she says. “He definitely listens to me. He gives me as much information as I want without overwhelming me.”
Marvin is pleased with the growth that Black and Baccarani have been able to find, as well as the feeling of responsiveness. “They’re very enthusiastic, very attentive and quite proactive,” he says, noting that they have led him to do estate planning, a necessary task that often gets put off.
While there are always benefits to be reaped by finding a good financial advisor, the benefits are greater if you do it earlier, Broetz says.
“I think people have trust issues committing to one advisor,” he reflects. “But if you find the right one, you ought to go all-in and adhere to a plan. A committed and caring advisor can make a huge impact, but we can’t perform miracles. The longer you delay, the harder it becomes. Getting rich slow is easy. It just happens to be dull. Procrastination is the number one evil.”
What an advisor will ask you: How to prepare
When you first meet with a financial advisor, the advisor will want to get to know you. Not just the “financial you” but also the personal you, because that affects how your finances should be managed. So by all means bring the facts and figures of your financial information with you, then relax and settle in to talk a little about yourself. After all, you’re embarking on a relationship that should last for many years.
From an advisor’s point of view, the questions fall under a few general categories, although there will be some overlap: financial circumstances including personal responsibilities, financial and retirement goals, risk tolerance and service expectations.
What are your financial circumstances?
This question is more likely to be asked as a series of questions. Simply put, your advisor may first ask what you own and what you owe. You may own a house, a cottage, a car and a business, but don’t forget your RRSP, TFSAs, an RESP for your children, perhaps a whole life policy, and any other investments or property. Then think about what you owe: your mortgage or line of credit, a car loan and any balances you are carrying on a credit card.
The next question will likely be about your income and expenses. Income is your salary or what you draw from your business, income from rental properties or investments and any other regular payments you receive, such as disability, support or alimony payments. How secure is this income? Could a downturn in the economy or competitive changes in your industry affect your income?
Now list your expenses – utilities, mortgage, car payments and groceries but also lifestyle expenses such as travel, dining out and entertainment. Dividing up your expenses into wants and needs is always useful as a way of outlining what is important to you. Boat maintenance or golf club memberships are luxuries to some, necessities to others.
Your advisor may also ask about any personal responsibilities – perhaps a disabled child or relative or elderly parents. Your plan will have to take these responsibilities into account. However, your advisor may also ask whether you expect to come into any inheritances, as this can obviously affect your planning as well.
What kind of retirement would you like to have?
The answer to this question sets the goals for your retirement plan. Retirements are not all alike. Nirvana for some may be nightmare for others. So what would you like to do when you retire? You could live in your paid-off home and travel to Florida for a month or two each winter. You could sell your home and live in Florida half the year. You could sell the home, buy a condo and travel frequently. Or you could move lock, stock and barrel to southern Spain. And there are many other options: a part-time job, a small business, living with family, and the list continues.
Your financial advisor will have several follow-up questions based on your current place in life. Do you want to take on more financial responsibilities before retirement, such as pay for a child’s university education, or pay off your responsibilities as soon as possible so that you can retire? Your advisor will take the financial circumstances you have already described and try to determine whether you will need to ramp up your savings, alter your investments or reduce your responsibilities in order to have the retirement you envision within the timeline you are setting.
Can you put up with financial risk?
Again, your financial advisor is likely to ask a series of questions aimed at uncovering your risk tolerance. You saying “I can tolerate a lot of risk” will not end the discussion. There’s a lot more to it. For example, your advisor will probably ask how much you have invested up to now, and what you have invested in. This will help reveal your level of experience with investing. Typically, experienced investors understand more complex instruments and may (not will, necessarily) have more risk tolerance.
Often, risk tolerance is also affected by your timeline – which is why your advisor will ask when you wish to retire. The sooner you stop working and need access to your money, the less resistant you are to market downturns. Whether you already depend on your investments for your personal cash flow is also a factor. If you need some of your investment proceeds to meet your current expenses, you will not want to take on much risk.
There is another factor that your advisor will probe: your personal makeup. Do you lose sleep, suffer symptoms of stress, or become emotional when your investments lose value, even temporarily? Your advisor will ask this question, because some people cannot tolerate downturns and need much more security than others, regardless of their other financial circumstances.
Just as you should be asking questions about what service your financial advisor provides, your advisor should ask about your preferences and expectations of that service. For example, an advisor needs your input to create and maintain a financial plan. The question “How can I reach you when I need to speak with you?” is a good one. The annual (or more frequent) review is extremely important, so the advisor may ask “I will be in touch at least once or twice a year to review your portfolio, but would you like me to contact you more often with updates?”
Finally, the advisor will seek your reaction to suggestions put forward in your meeting. “Do you have questions about the investment approach I am recommending, or about any of the individual investments?”
And finally, you should expect to be asked whether you understand the fees you will be paying. The explanation of fees should be clear to you, and you should ask questions – on the spot or later if something else occurs to you – if you do not understand. It is your money and you have the right and obligation to know what you are spending, what you are saving and what you are investing in.
When it comes to planning your retirement, advice from a financial advisor can go a long way. And reaching out for professional help shouldn’t be intimidating or stressful. That’s why we’ve put together some information about working with an advisor. Explore this section to see just how much value they can add to your retirement plan.
How to Interview an Advisor: 10 Good Questions
How to Interview an Advisor: 10 Good Questions
You’re about to sit down with an advisor who – you hope – will look after your financial welfare and guide you toward a comfortable retirement.
Even if you don’t know much about investments, investing strategies or financial matters in general, you should not feel intimidated. After all, financial advisors themselves will tell you that you should treat it like a job interview – and you are making the hiring decision.
If you were hiring, say, a tour guide, you would want to know some basics. What qualifies this person to guide you around this unknown place? What kind of service will they provide in terms of transportation, information, commentary and side trips? Do they typically guide 20-somethings along mountain trails with ziplines or busloads of seniors to viewing platforms? Will the person you are speaking to guide the tour or will it be someone else and – if it’s someone else – do they speak your language? How much will all this cost, and how will you pay? And of course, if this is a long tour, you might want to get a feel for how compatible you are with this tour guide. Can you get along?
Perhaps surprisingly, it’s not all that much different interviewing a potential advisor.
Before you make any decision about a potential advisor, satisfy yourself that this person is qualified and registered – as is required – with your provincial or territorial securities regulator. Go to the Canadian Securities Administrators website (www.securities-administrators.ca) and follow the instructions for checking registration, disciplinary history and Internet news sources for any items that could be red flags or trails you may wish to investigate further.
Once that’s out of the way, you’re ready for the meat of an interview. As suggested by Sandra Foster in her book Who’s Minding Your Money? Financial Intelligence for Canadian Investors (John Wiley & Sons), let’s divide the questions into categories.
First, just as you would with the tour guide, ask about the service you will get.
- As an advisor, what kind of advice do you give?
In planning for retirement, you will want a comprehensive financial plan. With your active input, your advisor should expect to create a comprehensive investment portfolio, recommending an investment mix and component investments that fit your needs in terms of your financial situation, life circumstances, personal and financial responsibilities, and personal and retirement goals. Your advisor should also expect to recommend adjustments to your portfolio – buying and selling opportunities – with changes in the marketplace and your circumstances.
- How often will we review the plan?
Your retirement plan should be reviewed at least once a year, and more often when your circumstances change and in the last five to 10 years before you expect to retire. However, your advisor may contact you in other circumstances as well. Find out how often this advisor expects to contact you.
- Who will I be dealing with when I call or arrive for my financial review meeting?
You may be surprised to find that the firm you are establishing this long-term relationship with considers you to be forming that relationship with their “team,” not an individual. Better to know in advance.
- Do you provide a summary of our meetings?
Some advisors rely on their firms’ monthly statements to summarize what was discussed and the actions taken. Others will provide you with a short summary of issues discussed, decisions taken and actionable items. This is an important point as some firms move toward “self-service” and less face time with clients. Next on the agenda are the relationship questions. Just as you want a tour guide who goes places and plans activities that are right for your age and interests, you want an advisor who deals with people in your circumstances and who can relate to your situation in life.
- What is the profile of your typical client, age-wise and financially?
Ask the advisor to describe the age, life stage, financial status and retirement expectations of their average client. Determine whether your portfolio will be larger or smaller than the typical one. If the advisor has clients who are like you, ask how the advisor helped them to improve their outlook and to achieve their investment and retirement goals.
- What is the risk profile of your typical client?
Ask about the typical investment mix and, specifically, some common investments. If most clients are in investments that have more risk than you are comfortable with, you may have to ask whether the advisor is used to dealing with people who are wealthier or have more disposable income than you have, or whether the advisor may be directing them toward riskier investments. No hiring interview would be complete without answering the cost questions. So let’s get down to dollars and cents.
- How will you get paid?
This is a key question because of the possibility that advice may follow the money. Some advisors get paid directly through commissions on your trades, fee for service or through a company salary, or a combination of these methods. Others get paid indirectly through deferred charges or trailer fees. Trailer fees are paid by a mutual fund manager to a salesperson – in this case, the advisor – annually for as long as the investor holds the fund. This could create a conflict of interest. Be sure you are comfortable with potential incentives to run up trading costs or channel your investments toward certain securities. Also, find out if there is a minimum annual fee.
- What annual cost do you estimate for someone with my needs and my portfolio size?
Compare the answer to this question with the estimated average gain in your portfolio. Your estimated return minus the fees and costs should be commensurate with the investment risk you are taking. Finally, we arrive at the compatibility questions. This is going to be a long-term relationship measured, ideally, in decades and not just years. Find out whether you want to go on a long journey with this financial tour guide.
- What is your investment philosophy?
The answer may be difficult for you to assess if you are not an experienced investor, but listen carefully. Does the advisor explain in terms you understand? Does it make sense? Your advisor should be very comfortable answering this question and should be able to hit it out of the park.
- What problems and opportunities can you identify in my portfolio?
An advisor’s answer will tell you a lot. If you haven’t already discussed your life circumstances, financial situation, responsibilities and retirement goals, the advisor should ask before going further. If you have discussed these things, the answer should refer to them. Try to get a feel for whether the advisor is putting your interests front and centre. It’s your money, so it should be all about you.
Homeowners indicate they are more comfortable with debt than their parents were, Manulife Bank of Canada survey shows
Waterloo – Four in ten homeowners (39 per cent) indicate they’re more comfortable with debt compared to their parents, versus just one in eight (13 per cent) who feel they’re less comfortable. The perceived gap in comfort level was greatest among homeowners in their fifties, who were five times more likely to indicate a greater degree of comfort than their parents, compared to those in their twenties and thirties, who were only twice as likely. Read more
About Manulife Bank’s Debt Research
Manulife Bank believes that, by managing debt more effectively, many people could save money, become debt-free sooner and achieve more of their financial goals.
Effective debt management is a key contributor to financial health and, by conducting surveys and research into debt management, we’d like to:
- Inform and encourage a public discussion of consumer debt, in a way that helps people understand the role that debt plays in their financial health.
- Educate Canadian consumers on effective debt management by providing information and insights.
- Encourage Canadians to discuss debt management with their families and financial advisors and look for ways to manage their debt more effectively.
Today’s banking: complicated and expensive
The traditional approach to money management means that each month, millions of people across Canada go through financial hoops to meet all their expenses, pay their bills, cover borrowing costs and (try to) put something away into savings accounts and investments.
Does your month look something like this?
Traditional banking has you managing daily finances by depositing your income into chequing and savings accounts while borrowing through mortgages, lines of credit, loans and credit cards. Unfortunately, you usually receive little or no interest on the money you deposit and pay higher interest on the money you borrow.
Manulife One: simple and sensible
With a non-traditional flexible account like Manulife One, things are different. You have an all-in-one borrowing and chequing
account with a borrowing limit that is based on the value of your home.
All of your debt, or as much as possible, is consolidated into this account at a competitive low rate(s). Your income and savings are deposited into your account. When that happens, your balance immediately drops – and you pay interest on that lower amount until you spend your money. Live out of the account. Pay your living expenses with cheques, a debit card, through Interac® e-Transfer, or via Internet and telephone banking. Make your investment deposits through cheques, through Interac e-Transfer or pre-authorized withdrawals. Your account is a consolidation of your debts so there are no multiple loan payments. No “tight” times in the month. You can access the money in your account at any time (up to your borrowing limit). Interest is calculated daily. At the end of each month,
you are charged the accumulated interest for the month – you only pay interest on what you owe on any given day. That’s it. Manulife One saves you thousands by putting your money to work…for you. Can it get any simpler? Ask your financial advisor for a Manulife One referral today.
There are a variety of ways to reduce the amount of income tax you pay and keep more of your money at tax time. By taking advantage of all possible tax deductions and credits, you’ll free up more money to put towards your investments, your emergency savings, or other important goals.
Federal income tax rules provide you with a number of potential tax credits and deductions. You must claim them when filing a tax return. Note that the Canada Revenue Agency (CRA) will not inform you if you miss a deduction that you could be eligible for.
Tax deductions will reduce your taxable income so the reduction will be reflected at your marginal tax rate. Non-refundable tax credits can also reduce your tax owing, but are generally calculated at the lowest tax rate. Each year’s federal budget introduces at least a few new deductions as well as tax credits for taxpayers. Familiarize yourself with these so that you can claim any that are applicable to your situation.
Filing your tax return
We all have to pay income tax, but there are ways to minimize the taxes we pay. Here are a few of the things to keep in mind when preparing to file your annual income tax return:
- Any income earned in a Registered Retirement Savings Plan (RRSP) is exempt from tax as long as the funds remain in the plan.
- RRSP contributions have to be reported on your tax return, but do not have to be deducted in the year they are made. You can carry forward your contribution indefinitely and use it when you like – for example, when you’re in a higher income bracket and need the deduction.
- Don’t skip filing a tax return, even if your income is low. Filing assists CRA in tracking your RRSP contribution room, which can be carried forward indefinitely and used in the future when needed.
- The income earned in a Tax Free Savings Account (TFSA) is tax exempt. However, over contributions in a year will be subject to tax consequences assessed by the CRA.
- Capital losses from selling shares in a non-registered investment (except your TFSA) can be applied to any of the previous three years or carried forward indefinitely. These can be applied against any capital gains, reducing your total income.
- Carrying costs incurred to earn income on your investments can be deducted from your income. Fees paid for managing your investments, other than commissions, are also eligible.
- Single parents receiving child care benefits could be eligible for additional tax benefits.
- Do you regularly travel to work by bus, train, subway or ferry? You or your spouse1 may be able to claim the cost of your transit passes to take advantage of the public transit tax credit.
- Are you self-employed? You could benefit from a number of tax deductions.
1Includes a spouse or common-law partner as defined by the Income Tax Act (Canada).
Are you missing out on tax deductions and tax credits?
If any of the following situations apply to you, you could be eligible for certain tax deductions and tax credits when filing your return – consult a tax professional for advice.
- You made RRSP contributions in the current tax year, or within the first 60 days of the following year
- You paid union dues or payments to a professional organization
- You had payments for childcare, including after school programs
- You made payments for alimony or spousal support
- You supported dependents at any time during the year
- You or your spouse or partner1 are age 65 or older
- You or your spouse or partner receive a pension income
- You or your spouse or partner have dependents that are disabled
- You paid interest on a student loan or paid tuition fees
- You made donations to a registered charity or political party
- You borrowed money for investment purposes and paid interest on the loan
- You paid a professional a fee to manage your investments
- You bought investments and sold them at a loss
- You changed employment and moved closer to your work
- You used your personal vehicle for your work or received an allowance from your employer for work related expenses
- You had a home office, or paid for office supplies or other work expenses as part of your work arrangement
- You were paid in full or in part by commissions
- You paid legal fees to enforce payment of any support payments, or to defend an employment contract
- You paid for medical expenses or made payments to a health plan at work or privately
- You lived in a same sex relationship, were married, or living common law
- You are self-employed
- You have deductions carried forward from prior years such as RRSP contributions, charitable donations, student loan interest, home office expenses, or capital losses
Consult your tax consultant for further information and professional advice on how best to reduce your taxes by utilizing all available deductions and tax credits.
1Includes a spouse or common-law partner as defined by the Income Tax Act (Canada).
It’s a good idea to be pro-active when it comes to reducing your income taxes. A little advance planning early in the year could shave a significant amount off your annual tax bill.
Would you feel better knowing you were on track for your retirement or
ready for any emergency? And would it comfort you to know that, if you died
unexpectedly, your family would be well cared for? One of the most important
things you can do now to protect your family is to make sure you have
adequate insurance for their needs.
You can’t expect to get the results high performers do, if you don’t adopt the habits high performers have. When you look at the successful people of the world, don’t neglect to consider the hours of work, the multiple failures, and the daily sacrifices they made to get there. If you are serious about taking your performance to the next level you’ve got to leave the ways of mediocrity behind to develop a new and improved you.
Here are 10 high performance habits that may require you to go against the grain but will aid you in reaching success like the pros: