Financial Planning - Ugh!
Does the thought of financial planning cause you to panic and look for the closest door? Don’t worry, you are not alone! In fact, less than 45% of working Canadians have an indication of how much they need to save for retirement. Many also struggle to plan for shorter term goals, like purchasing a house. According to a recent CIBC poll, only 14% of people surveyed aged 18-37 who intend to buy a house in the next five years have 75% or more of their downpayment saved.
Why is this the case?
Part of the problem is that financial planning is stuck in the past. If you try to get advice today, you will likely be asked to take a lot of time out of your busy schedule to meet an advisor in person. Then you spend hours filling out a mountain of paperwork (yes, still with physical paper), and at the end of the process, you receive a hard to understand (paper) financial plan that quickly becomes outdated. You might talk to your advisor once a year, but otherwise you are left on your own, not knowing if you are making the right financial decisions on a regular basis.
The traditional financial planning model is also expensive. The system caters to those that already have a high net worth and can afford to pay for advice as either a percentage of their assets, or as a flat fee that typically costs over $4,000. Some of this cost is a function of the archaic paper based model, which is a time sink for the client and the advisor. Some advisors may feel the need to demonstrate their success with impressive offices spaces, and these high overhead costs are ultimately covered by the client.
Getting financial advice can also be scary. Have you ever gone to a bank for one thing and before you know it, you are getting sold on a totally unrelated product that isn’t in your best financial interest? The 'free' advice that banks dole out isn't truly unbiased advice - they are trying to sell you a product that earns them money. When you can’t turn to your bank for advice, it is hard to know what to do.
For all of these reasons it's easy to understand why financial planning takes a back seat for Canadians. This is unfortunate for both the young and old. Younger Canadians that don't implement proper saving and investing strategies early in life miss out on the power of compound interest. For baby-boomers entering retirement, many will not know when they can retire, how they should withdraw funds, or how much they can afford to spend.
What's the solution?
The good news is that innovation is catching up with the industry. For instance, with budgeting tools like Mint and YNAB, you can better see where you are spending your money. Robo-advisors like Wealthsimple and Nest Wealth can also help you automate the investment management process with much lower fees than most mutual funds.
Despite these advancements in budgeting and investing, there still needs to be more innovation in the larger financial planning industry. With currently available technology, you should be able to see all of your relevant financial information in one place, quickly model the impact of certain decisions, and easily communicate with a professional planner who isn’t trying to sell products. You should be able to know if you can afford to buy a house in three years, go on your dream vacation, retire at 57, or fund your child’s education. When you change jobs, move cities, or get married, your financial plan should automatically update and make appropriate recommendations. With future innovations in machine learning, certain financial advice can be tested and continuously improved on.
Canadians are living longer, traveling more, and are changing careers more frequently. Technology is rapidly evolving and other industries have been quick to adapt and improve. It's time to start asking for affordable, non-sales focused, and flexible financial services. As Bob Dylan said "the times they are a changing" - Frame is happy to be a part of this journey!