What sixtysomethings expect from their advisors

Client expectation:

Why would I use an advisor? Are they worth their fees, or are they simply shills for the market?

– William Beach, 65, triple dipper (pension, OAS and CPP), grandfather extraordinaire, Edmonton

Advisor solution:

Terry Ritchie

director of cross-border wealth services at Cardinal Point Capital Management, Calgary

Investors with advisors report greater confidence, more certainty in the ability to retire and larger emergency funds, says a 2012 report from the Investment Funds Institute of Canada (IFIC).

Vanguard Investments Canada research from 2015 shows the value of working with an advisor is roughly 3% per year, which is compelling over time.

This potential added value (below, in parentheses) breaks into different categories:

• Coaching, providing discipline and maintaining a long-term perspective (1.5%).
• Applying tax-efficient asset allocation strategies (up to 0.42%).
• Using cost-effective investments (1.31%), rebalancing portfolios (0.47%) and implementing spending strategies (up to 0.41%).

One important consideration for William, as a triple dipper, is taxes. We would ensure tax-efficient portfolio income [to avoid] OAS clawback, for example. Commensurate with his overall risk profile, we’d use income from interest, dividends, capital gains and capital distribution.

Client expectation:

How can a low-risk investor like me maximize returns? Also, how should I save for my grandchildren’s education?

– Cathy Porter, 61, retired grandmother of six, Grand Bay, N.B.

Advisor solution:

Darren Coleman

portfolio manager at Coleman Wealth, Raymond James, Toronto

Many clients wrongly fear market fluctuations. I’d explain to Cathy that the price of her home, for example, also changes continually, but that doesn’t make it a risky investment. With quality investments, the downs are temporary and the ups can be permanent.

To maximize returns, Cathy must understand whether she’s a saver or an investor: Does she want to protect a dollar, or protect what a dollar buys? The risk for a saver is running out of money; for an investor, it’s not being able to afford a future lifestyle.

At 61, she could have 30 years ahead, necessitating the approach of an investor.

Together, we’d figure out how much monthly income she needs, her time horizon, the estimated return rate and inflation projections. I’d build an appropriate portfolio (including, for instance, dividend-paying stock) to address her risk as an investor.

For the grandkids, nothing beats helping out with annual RESP contributions. That way, each child receives the basic [grant], which is a maximum of $500 for a contribution of $2,500—a 20% guaranteed rate of return.

Client expectation:

I’ve saved all my life. I expect my advisor to show me how I can now spend while making my savings last.

– Ali Cunliffe, 66, widow, would-be world traveller, potential spendthrift, Toronto

Advisor solution:

Bev Moir

associate director of wealth management at Scotia Wealth Management, Toronto

To give Ali confidence in her spending, she needs an accurate yearly spending amount as revealed by a financial plan.

First, I’d ask her to gather all income, assets and expected expenses, such as healthcare or a new car. We’d go through her responses together, and we’d also identify priorities.

For instance, say travelling is important to her. Associated costs include travel insurance, which varies by plan and may have age and length-of-stay cut-offs, as well as healthcare exclusions.

I’d ask what else is important, like whether she wants to leave a bequest to her children or a favourite charity.

Using the information, I’d model various cash flow scenarios over her estimated lifespan; it’s common to use age 95, but it depends on her health. If extra money is needed, selling property is an option. Asset mix can also be balanced toward growth, if appropriate.

I’d also develop a tax-efficient blueprint for drawing down her assets [while] minimizing OAS clawback.

Client expectation:

I make more when I watch my possible losses as well as my gains. How does an advisor protect me when markets are falling or at highs?

– Newman Mallon, 63, retired communications professional, active stock trader, Toronto

Advisor solution:

Beth Hamilton-Keen

director of private wealth management at Mawer Investment Management, Calgary

We don’t trade on highs and lows. That’s betting on a short-term impression of a company’s value rather than on its long-term value.

We buy and hold, and continually reassess: Does the earnings outlook still fit our philosophy? Is management performance on track?

That assessment allows us to leverage volatility. In the near term, we might buy more if valuations present an opportunity, or trim if valuations are on the higher end. Exiting wholesale on price movement? That’s speculative, especially if you like a company long term.

Events like Brexit or the U.S. election tend to be emotionally driven. Such events don’t alter the near-term profitability of, say, General Electric. And investors who didn’t hold after Brexit completely missed the recovery, which happened quickly. Because we look at a company’s foundation, I can reassure Newman of his portfolio’s long-term success.

Client expectation:

Each year, my bank calculates my monthly RRIF payments. Are the payments automatically calibrated to exhaust my RRIF by the time I turn 90?

– Susan X., 65, rambunctious retiree, Toronto

Advisor solution:

David Chalmers

advisor at Nicola Wealth Management, Vancouver

When first introduced, RRIFs had to be exhausted by age 90. Now, a minimum withdrawal amount is calculated each year, based on the January 1 balance.

[If you start at] age 65, the minimum withdrawal amount is 4%, but you don’t have to start RRIF income until the year you turn 72 (minimum withdrawal: 5.4%).

If your spouse or partner is younger, their age can be used to determine the minimum.

There are circumstances where it makes sense to draw more [than the minimum]. For example, if you also have non-registered savings or a life insurance policy, we might reduce your RRIF balance now (considering your current marginal tax rate) and build up assets that can pass more tax-effectively to your estate, because the residual balance of a RRIF is taxable at death.