By Cora Pettipas
A recent conversation I had with an acquaintance (let’s call him John) got me thinking about the role of the Independent Advisor. The conversation started off about the joy of having their first baby, which led to their “urgent need” to buy a home, which then led to finances. This family in their early thirties are professionals and currently making around the Canadian average household income. They also have over $100,000 in debt. It is split into almost even thirds between student loans, car loans, and credit card debt. John spoke to a (predatory) credit consultation company toting themselves as a government affiliated organization. His family was offered a 15% interest consolidation loan on his 19% interest credit card debt to ‘help’ him get in the position to buy a home. He asked me if he should take it.
I asked why John and his wife did not go to a bank, he said they did, but the bank was “rude and laughed at us.” What was the greatest concern to me was that John did not seem at all concerned with the debt they were carrying, it apparently only became an issue when they wanted more debt to buy a family home. John’s decisions are putting his young family at extensive risk, and limiting their future quality of life. This kind of complete financial ignorance in ‘educated’ people is frightening.
Based on their current situation, John’s family will probably never be private investors in our space, so why discuss them in an exempt market publication? Because maybe they could be. There has been many industry strides over the past few years to democratize private investing and give average people more options to help them build their wealth, like the upcoming OM Exemption in Ontario slated for this fall. The problem is that as long as individuals are an asset on the bank’s balance sheet, they cannot build assets for themselves. And this is before the influence of trends in which Tom Baltzis speaks about in his article, A Changing Landscape.
John’s situation is not uncommon, and demonstrates a greater problem: that many Canadians will never get themselves into a financially healthy position where they can be proactive and build wealth by saving and investing. When families are saddled with debt, they do not have the extra cash flow needed when the waves of fate (good and bad) create other unexpected expenses; and they will never get ahead (but have to manage paying out over $10,000 a year in dead weight interest). Until they get help, families like John’s will never be investors, not because of lack of income or ability, but because of pure financial ignorance.
Advisors are imperative to filling this need so that people like John can become better with their finances and get into a position where they are getting paid interest and not the other way around. Banks are not filling this role. The education system is not filling this role. And unfortunately, most parents are not filling this role.
An Advisor like Maria Lizak, featured in our Member’s Profile can improve the financial health of a person like John in one meeting by preventing him from making a bad decision (like the 15% consultation loan) and giving him direction on how to attack his debt to attain cash flow to save, and set up a proper risk management plan for his family. Whether he is a potential client, or family of an existing client, he would greatly benefit from speaking with an Advisor, and would possibly eventually make a great client for life.
Some Advisors fear that the designation and regulation categories inhibit them from giving families like John general advice. I know of Advisors that have the CFP Financial Planning designation that still will not give holistic advice because of the potential liability. These are important concerns, and Advisors do need to discuss them with their CCO, and then possibly partner with Advisors of other specialities.
However, it concerns me that Advisors are shying away from giving even the most basic advice when there are so many people being taken advantage of, in desperate need of help, and cannot seem to find the information anywhere else. In the suitability process, Advisors learn about the client’s situation, this is a great opportunity to treat the client and their family holistically. They will thank you for it.
This issue is dedicated to Advisor-related issues: from succession planning, TFSAs, to the importance of having a will, along with information on NEMA’s excellent E&O program. Hotly debated industry-related issues like multi-jurisdictional exempt market distribution and the disclosure model are also addressed. We hope you enjoy the magazine, and continue to communicate your ideas to us, as NEMA is the voice of the Exempt Market.