Did you know that 41% of Canadians ranked money as their greatest stress, and that 51% are embarrassed about their financial situation? Although financial planning can help with these issues, many Canadians feel that they can't or shouldn't develop a financial plan because they are not currently wealthy enough.
Despite this common sentiment, financial planning can often benefit those who aren't wealthy more than those who are. By creating a goals-based financial plan that lays out saving, investing, and insurance strategies, anyone can significantly improve their financial well-being.
The financial advice industry has historically targeted the wealthy
Financial planning, and financial advice in general, has been traditionally marketed to high-net-worth individuals and their families ($1 million+ in investable assets). Historically, there are a couple of ways that individuals have obtained a financial plan. In one scenario, an investment advisor would create a 30+ page financial plan for a potential high-net-worth client to help win them over. In this case, the advisor makes money from client assets that they manage. In a situation where a client with $1 million in assets is working with an advisor who charges a 1% fee, the advisor would receive $10,000 a year; you can see why the advisor is more than happy to spend the time developing a financial plan! In another scenario, a client would seek out an independent fee-for-service financial planner to create a stand-alone financial plan for a set price (usually more than $3,000). These requirements and costs place traditional financial planning approaches out of reach for many Canadians.
This isn't to say that advisors and planners are intentionally ignoring non-high-net-worth individuals; they have a business to run after all, and developing a financial plan is time and resource intensive. Advisors have initial client meetings to gather relevant information and documents, followed by modelling out and presenting complex scenarios that factor in cash-flow, taxes, insurance needs, estate planning, and investments.
Unfortunately, all of this means that average Canadians have to make their own financial decisions with limited guidance. Furthermore, when looking for advice from a bank, these individuals are often pressured into financial products that might not be in their best interest (more on that here and here).
The value of a financial plan
For the wealthy, financial planning usually focuses on complex tax strategies, estate planning, and wealth preservation. Although these are important elements, for the majority of Canadians a financial plan can mainly help them understand their current financial situation and lay out how they can best achieve their future goals. This type of plan should help with debt reduction, protecting income and assets, and a strategy to automate saving and investing.
A financial plan is arguably more important for someone who isn't currently high-net-worth, since making smart decisions around buying a house, paying off debt, getting proper insurance, and investing wisely, can have a meaningful and positive impact on their quality of life.
It's important to note that receiving one-off financial advice isn't the same as creating a financial plan. There are many individuals that might give some form of unique financial advice, such as mortgage brokers, insurance agents, investment advisors, accountants, and lawyers. Most of this advice is useful, but a structured financial plan will help bring all of these elements together under one unified strategy.
What's the solution?
Technology can play a major role in helping Canadians access financial planning. Frame has developed an online platform that let's anyone build a free custom financial plan in minutes with the option to virtually review their plan with a financial planner. With this software, members can set goals and see how contributing monthly savings into RRSP, TFSA, and non-registered investment accounts impacts their ability to achieve those goals.
Although this might not be the optimal solution for those with very complex planning needs, it levels the playing field and opens up financial planning to every Canadian.
Finally, financial planning isn't just for the wealthy!