Thursday, September 24, 2015

“Don’t Just Listen to Me...”

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When I meet with clients, I tell them they don’t have to listen to anything I say.  Here’s the proof.  The terms of our Financial Planning Engagement Agreement read:

“You are under no obligation to follow either wholly or partially any of the recommendations or advice provided to you in or during the course of preparation of the financial plan.  You are solely responsible for making all decisions relating to such recommendations, advice, or suggestions.”

There you have it – the pressure is off.  Now you can breathe and easily approach what I have to say next with an open mind.

The one piece of advice I strongly encourage my clients to follow is: to pick one advisor who you trust and can help you make reliable, solid financial decisions.

People are generally known for chasing the best investment and loan rates regardless of the bank, credit union or investment firm.  If this sounds like you, realize you are doing yourself a disservice. You are not simplifying your life; doing this only complicates it. 

Choosing investments in isolation does not allow the advisor who is working with you to do their best on your behalf. You need an advisor who completely knows and understands your goals, dreams, and aspirations. To willy-nilly entrust your investments with different advisors is gambling with your future. With no deliberate action plan, you have no assurance of achieving your goals. 

The benefit of having one advisor is that it allows him to see your whole financial picture. As you build your wealth, you require assistance in arranging your investments according to your risk tolerance and time horizons.   What you might not realize is you are also building leveraging power.  When you deal exclusively with one financial institution, you may negotiate a preferred rate for your guaranteed investments and loans.  The deeper your relationship is with your financial institution, the stronger their commitment is to serve you and meet your needs.   

During your retirement years, when it’s time to layer your retirement income, having one advisor makes the most sense.   You need someone who structures your mutual fund investments to create a “cash wedge” to fund your lifestyle. 

Once withdrawals begin from your RRIF (Registered Retirement Income Fund), funds should be withdrawn from only one registered plan (or an oil well, as I call it.)  Imagine the dilemma of having RRSPs (Registered Retirement Savings Plans) with various financial institutions. At the mandatory age of 71, you are required to convert these investments to a RRIF.  You are then obligated to withdraw the minimum amount annually from each registered plan. Little trickles of cash flowing from different plans is a haphazard way of handling your investments.

If you are solely a GIC (Guaranteed Investment Certificate) investor, over the years you’ve made the effort to effectively ladder your investments to capture interest rates over different terms. The most appropriate and logical strategy is then to withdraw from the retirement investments with the lowest interest rate.  A banking system is designed to do this and can only occur if the investments are held with the same financial institution.

Another important reason for having all your investments with one advisor is to simplify your estate for your executor.  Can you imagine the confusion your executor faces if your dealings are held at different financial institutions?  Investments may even be overlooked simply because your executor is unaware of your dealings. 

Another point is a matter of convenience. Seeing all your investments appear on one consolidated statement helps you to see the whole financial picture. Gauging your progress will be easier to monitor.  

I use my personal experience to help you understand that multiple advisors don’t work in your favor.  A contentious issue is conflicting advice from different sources. Have you ever asked someone their opinion about the vehicle you should buy, about which restaurant is the best, or which direction to take in your career? If you ask ten different people, you most likely will receive ten different responses. You may be more confused than if you never asked.  Put yourself in the same position with different financial advisors.  Can someone who doesn’t know your story provide you with the best advice? So again, I say to you, “Don’t’ just listen to me.”  Daryl Diamond, an advisor, author, and educator on the subject of retirement planning, witnesses the confusion conflicting advice causes.  Read his views in the article, Conflicting Advice – and How to Avoid It.

You’ve been handed a serving of pros and cons about having one advisor versus multiple advisors.  What will be your decision?  Will you reap the benefits that your “one go-to-person” has to offer? The choice will always be yours to make. Like I said, you don’t you have to listen to anything I say, nevertheless, I secretly hope you do.   My intentions are to always steer you in the right direction.

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