ESTATE PLAN

Ensuring things have been properly planned for our end of life can not only save large amounts of money but can also make the process so much less complex for those left behind.
Wills, trusts, beneficiary designations, power of attorneys, and representation agreements all need to be reviewed and utilized where appropriate to ensure the transfer at the end of life happens in the best way possible.
For those with philanthropic desires planning for how to contribute to charities directly or through a foundation should also be explored.

TAX PLAN

Minimizing the amount of income tax paid should also be part of each financial plan. It is completely legal to try to avoid paying tax through various measures like RRSP deductions, interest deductions, using tax free savings accounts, etc. Tax evasion is illegal and could result in serious legal issues.
As income from various sources can be taxed at different levels it is important to structure investments and holdings in the most tax efficient way.

Long-term planning is also needed when assets are to be sold in the future that have large embedded capital gains. There may be ways to reduce or defer the income tax on these larger items with proper tax planning.

INSURANCE PLAN

Insurance is important in providing protection for families as well as protecting the wealth that is accumulated. Insurance can also be used to enhance the maximization of wealth especially due to insurance death benefits being paid out on a tax-free basis if structured properly.

A needs analysis should be part of a financial plan to determine what types of insurance are needed and whether existing plans are the most appropriate. This should encompass looking at the life insurance, disability insurance, critical illness and long-term care insurance needs.

REAL ESTATE PLAN

Real estate is one of the largest portions of wealth in Canada and is an important component of many Canadians wealth.

Having a plan for the accumulation of real estate is important whether this is just a principal residence or multiple properties. Building the equity in real estate is important as it provides options for other opportunities.

Rental revenue for many Canadians is an important source of income.

CHILDREN’S SAVINGS PLAN

Saving for children is very common for Canadians and different options exist. Most commonly used is the Registered Education Savings Plan but there are also informal trust accounts and open savings accounts.

Depending on the amount being saved strategic use of these plans should be made to maximize the grants and free money available from the government as well as other tax implications of saving for children.

PENSION PLAN

Pensions are a significant part of many Canadians financial plans and these pensions including private and government pensions need to be factored into the financial plan and their value maximized.
Plans around when to retire and what options to take in private pensions can be complex and need careful consideration and exploration. In some cases, it may also be advantageous to explore taking the commuted value of a private pension plan and transferring this to a locked-in RRSP or LIRA.
Similarly, with the Old Age Pension and Canada Pension options exist as to when to begin these pensions which should be assessed.

FEE PLAN

It should be clear in the financial plan what the fee levels will be for the work being provided by the financial planner as well as the products that are being used as part of the financial plan.
Ideally the financial planner will be able to demonstrate that by paying these fees the client is better off than having not paid these fees. The client should feel that the package of services being provided by the financial planner are well worth the fees being paid as evidenced through good rates of return, a sense of progress towards goals and a feeling of security in knowing that each area of the financial plan has been addressed and is being monitored.

INVESTMENT PLAN

The investment plan will look at what type of investments to use, the appropriate risk levels, the types of plans to use (RRSPs, RIFs, TFSAs, Open or Taxable accounts, etc)
Investments outside of real estate (see real estate plan) are an important part of a financial plan. Real estate is a more illiquid investment as it can be more difficult to sell in a shorter time frame. Other investments can provide more liquidity.
The investment plan should also provide a goal rate of return for the investments that can be measured against the actual performance and an agreed upon market benchmark return.

MORTGAGE PLAN

Mortgages have proven very useful to many Canadians by allowing them to invest in personal use properties, rental properties, recreational properties and commercial properties. Significant wealth has been built up especially over the last 20 years in Canada by investing in real estate.
As with other debt there are strategies and methods that can be utilized to assist in paying down mortgage debt in a more efficient manner and these should be explored in this part of the financial plan.
As equity is built up many people have used this equity to allow them to purchase additional real estate. Therefore, it is advantageous from many perspectives to try to build up the equity in real estate as efficiently as possible.

DEBT PLAN

Having a plan to pay down consumer debt and unsecured lines of credit is also very important. In Canada we have an obsession with debt which has been fueled by low interest rates for the last decade. Many peoples monthly credit card, car loans, and other installment loans and unsecured lines of credit payments are large portions of their monthly take home pay. Until these debts are under control and eventually paid down it is very difficult for many people to save at the levels, they need to in order to hit a meaningful financial independence number.
Various strategies and methods can be used to assist in paying down debt in a more efficient and methodical way. Of course, having a plan to stop building up debt is crucial and having a plan to eventually be out of consumer debt is the goal.

BUDGETING / CASHFLOW PLAN

Having a budgeting and cashflow plan is important for those that would like to maximize their savings and the accumulation and maximization of their wealth.
For most people it does take discipline to save and build wealth and starting with a budget and then monitoring the income and expenses against the budget brings clarity to the monthly actual financial situation. This then allows for spending adjustments to be made to allow the savings to occur at the necessary level to reach the financial independence goal.
As David Chilton described in the Wealth Barber it may be simpler and more advantageous for many people to turn the budgeting process upside down and start the budget with allocating between 10% to 20% of the gross income for savings (RRSP, TFSA and open accounts) and then live on the balance. In this way the saving component is prioritized similar to how a mortgage payment is usually prioritized. Unfortunately, most people budget the other way which is to deduct the various expenses from the income and then see if there is anything left over to save which many times is very little to nothing. Saving off the top and living on the balance is a great way to approach budgeting.

FINANCIAL INDEPENDENCE PLAN

Fundamental to a comprehensive financial plan is knowing what the target is or what is the amount of money needed for a person or couple to be financially independent. Sometimes we can equate retirement with financial independence, but it does not need to be the same thing. Some people do not plan to retire ever or until a much later age. Financial independence is a point where there is sufficient wealth accumulated to last for the projected life and also satisfy any transfers to heirs or philanthropic desires.
It is better to plan for a financial independence date rather than planning to never retire or to retire at a much later age. Life is unpredictable and even though the plan may be never to retire health and other issues can disrupt these plans and so it is better to have enough wealth accumulated at a reasonable age to then allow more flexibility around when retirement may occur.
Establishing an amount that is needed to be financially independent then allows us to determine how much needs to be saved on a regular basis to reach the financial independence goal.
Most important is to revisit this part of the plan every 6 months to a year to assess the progress towards the financial independence goal and make revisions if necessary.

The Planwell Difference

At Planwell we take a much different approach to each of the issues mentioned below, as we take a holistic financial planning approach and believe that a regularly updated financial plan is the cornerstone to ensuring that our clients’ interests are the first priority.

We set out clear objectives at the outset and clear benchmarks so we all know how well we are progressing and how well we are doing our job. We are upfront about our fees and encourage an open discussion about the fees and review them along with the full package of services that are being provided.

We do not use in-house products, so there is no conflict of interest and we preserve our objectivity. We hold ourselves to high levels of educational requirements, licensing and certification so that we can provide a wide array of products and services that our clients require. We have a clear process for constructing and changing the Planwell Net Return portfolios. We regularly review with all of our clients each component of the financial plan as well as ensuring the risk levels are still at the appropriate levels.

Based on interviews with incoming clients, prospective clients and other advisors we realize the following:

Many people using financial advisors do not know how much money they need to save to reach their retirement goal, or if they are in retirement already how long their money will last.
Many people using financial advisors don’t know how much they have actually earned on their investments over the last year, 5 years, 10 years or since the inception of dealing with the advisor.
Many people using financial advisors don’t know what the “goal” rate of return is for their financial plan to be successful. As a result, many people don’t know whether they are earning less than or more than the goal rate of return, and therefore don’t know whether their financial advisor is assisting them to be on track.
Many people don’t know what the appropriate benchmark return is that their portfolio should be compared against. As a result, they don’t know whether their advisor is helping them or hurting them by their recommendations as they don’t know how they are performing against the applicable benchmark.
Many people do not know how much in total they are paying in fees for the advisor to oversee the management of their investments. Total fees include the manufacturer’s fees to manage the money (i.e. mutual fund or EFT management fees) plus the fees paid to the brokerage where the advisor works.
Many people don’t know how much of their portfolios are in products that are manufactured in house by the brokerage or the dealer they are using. As a result, there could be a conflict of interest if another product is actually better but would mean having to sell out of the in-house product, which could be harmful to the brokerage or dealer. Also there may be a reluctance to sell out of in-house products.
Many people had a financial plan done years ago, but it has not been updated on a regular basis. Therefore, many people don’t know whether they are still on track with their financial plan.
Many people are dealing with advisors that are only licensed to deal with insurance or mutual funds and therefore are only holding insurance type investments (segregated funds) or mutual funds due to the licensing restrictions of their advisor. As a result, they may not be benefitting from what a full-service advisor may be able to offer.
Many people with outdated financial plans also have outdated or inadequate insurance plans, estate plans and other plans essential to their long-term financial planning success. As a result, many people may be at risk of not achieving their financial plans and may be at risk in the case of an illness, disability, incapacitation or death.
Many people have investment plans with an inappropriate level of risk. This could be a result of the risk level assessment not being updated, or just a poor process for assessing risk. Risk level is very important in constructing the appropriate portfolio allocation, which is one of the most important determinants in long term portfolio returns.
Many advisors have minimum account sizes that they will take on. Frequently we see advisors only allowing those with at least $250,000 to $1 million to be welcomed by them. We have no minimum account size, as we welcome the opportunity to assist everyone with the four aspects of their wealth: accumulating, maximizing, protecting and ultimately transferring their wealth. We believe that most people can become wealthy if they are working and have enough time. As much as we enjoy working with those who have already established their wealth, we love to be able to assist those that otherwise may not be able to become wealthy.