Harvest cash-flow opportunities this fall

Sadly, while the industry often plays lip service to cash flow and debt management, there aren’t many financial professionals who offer clear services and advice in this area. Do you?

Look at your website, marketing and the appointment process you take clients through. Is it obvious to them that you can offer meaningful cash-flow advice? For most, the answer is no.

Don’t assume clients will bring up cash-flow concerns. They won’t, not until there’s major trouble. Meanwhile, opportunities to help clients get from good to great financial shape with a cash-flow plan are passing you by. You have to be the proactive one.

Here’s how to identify a client with a cash-flow issue.

1. Their retirement is underfunded

These clients are ideal cash-flow planning candidates. You can use behaviour-based strategies, and small but impactful changes to the way the client structures their bank accounts to create major positive shifts in their trajectory to a successful retirement.

How do you determine that a client’s retirement might be underfunded? In some cases, you’re already aware. But there may be more clients in that situation than you realize. Five indicators to watch for:

• They only have insurance with you. They have no pension, they haven’t started saving for retirement, yet they’ve got reliable income.
• You’ve calculated their retirement income need, and they have to save more than they can currently commit to.
• You aren’t 100% certain they will be debt-free in retirement.
• You’ve based their retirement income need on a percentage of pre-retirement income, or a retirement income goal they set. These methods can be inaccurate.
• The client has no pension, and they’re saving less than 10% of their income. Realistically, they should save far more than that. Most clients with a pension have 18% to 20% of their income going into their pension.

2. They are carrying debt

It’s always worth analyzing options for clients who are carrying debt, no matter what kind. Regardless of how you look at debt — good, bad or ugly — it impacts your client’s cash flow and their ability to save for retirement. Even good debt — an unpaid mortgage on a rental property, for example — should be discussed.

If you don’t ensure your clients are consistently on track to be debt-free by retirement, debt costs could erode their nest egg much faster than anticipated.

So where do you start? Some advisors don’t collect this data. Those who do may not get the full picture from their clients. Some may only tell you about their mortgage balance because that debt is more socially acceptable than consumer debt. It’s common for clients not to tell their advisor about credit card and line-of-credit balances.

This is a potential know-your-client issue. If your client is carrying debt or is not on-track to be debt-free in retirement, talk to them about it. Even if you never want to offer debt advice, you still need debt data.

Take care in the way you ask about it though. If you make your client feel judged or guilty, they are less likely to tell you anything.

Sometimes, this plays out in decisions you can watch for:

• They hesitate to maximize their retirement savings options.
• They don’t take all your insurance advice.
• They live in a home that they can’t afford to pay off before retirement.
• They don’t save for short-term goals, but they do spend on things that they can’t afford easily, like trips or recreational vehicles.

It’s unlikely that a large percentage of your clients have little or no consumer debt. The statistics are clear on this. The debt they do have has the potential to create gaps in your planning and risk for you and your clients.

3. They haven’t maxed out their TFSA

The TFSA is the only way to create a future tax-free income source for most clients. This powerful account still doesn’t seem to be getting its due in retirement planning the way it should. Let’s face it. The RRSP tax refund is a big carrot, but few people invest their refund. They just spend it.

Maximizing a TFSA shouldn’t be treated as a secondary long-term investment option. After all, no-one can predict what a client’s tax rate will be in retirement. No matter how low it is, tax-free income will always be better.

This opportunity is the easiest to spot, but you may not have your client relationship management (CRM) or other systems set up to identify it. You know when your client was old enough to open a TFSA. You know how much contribution room they’ve earned. Even if your client doesn’t have their TFSA with you, you need to know their current financial situation, which should include the balance of their TFSA, to make investment or insurance recommendations.

This sort of information is great to add as a custom field in your CRM so you can find these opportunities.

Once you’ve identified clients who could benefit from cash-flow advice, reach out to them. Let them know that you believe a cash-flow plan could help them fund their retirement more easily, ensure they retire their debt before they finish working or find the money to max out their TFSA. It should only take you both about 10–15 minutes to see if the process could help your clients improve their financial position with their retirement, debt or TFSA contributions.

There is hidden value among the clients you work with now. These are just a few criteria you can use to spot cash-flow planning opportunities.

September is like a second new year. People are ready for shifts and changes — take advantage of the fresh perspectives that come with the crispness in the air.