The Next Step for Money Architect Financial Planning
A Recap
Almost four years ago, I left a career in the investment industry that began in 2005, working for the online brokerage of one of the big banks. For the first several years, I was licensed to serve U.S. investors, or more commonly, active traders who had a penchant for trading options or rapidly getting in and out of stocks, including very low-priced penny stocks. When the Great Financial Crisis of 2008-09 came along, many of these active traders, who also tended to employ lots of leverage by borrowing to invest, lost a lot of money.
The Value of Disability Insurance Experienced Firsthand
Over a 2-year interlude from mid-2014 to the end of 2016, I was off work on a disability leave as a consequence of kidney failure and dialysis followed by recovery from a transplant received through a living donor on July 29, 2016. As well as a good example of the value of having disability insurance, it was a good time to reflect on the work I was doing. I learned about advice-only or fee-for-service financial planning, an offering that did not involve selling financial products. When I returned to work in 2017, I learned that we were moving away from serving U.S. clients to Canadians. That meant a new licensing exam; I decided at that time to push on to complete courses in the financial planning area, even though that was not what my employment at the time was about.
The Need for Comprehensive Advice-Only Financial Planning
Those years of being deep in the investing/trading world had shown me that many investors needed to put their investment practices into a more comprehensive context, which is where financial planning comes in. In September 2019, I left the discount brokerage world and launched my advice-only financial planning service, Money Architect Financial Planning.
My Average Clients
Although I started with client couples in their 30s, over time my clients have trended older so that the average couple is now in their late 50s. I use couple deliberately, as well. All of my clients but one has been married, with the exception of a single widowed person. While the categories of financial planning are the same, each client has their own particular needs and purposes for their money.
Fears Around Money
Sometimes those needs include overcoming fears about money. Most often it has to do with whether they will have enough money to retire when they want to and whether the combination of assets, employment-based retirement savings, and government-established resources (Canada Pension Plan and Old Age Security) will sustain them with a reasonable degree of contentment for the remainder of their lives.
Giving with a Warm Hand
Perhaps it is the nature of my clientele, but relatively few have expressed much concern about leaving substantial assets for their heirs. If anything, there is a tendency to provide more support now. For example, younger couples want to know about Registered Education Savings Plans, while older couples wonder whether they can help with a house down payment.
The Next Chapter
Overcoming Inefficiency
One of the things I discovered about the financial planning process for my clients is that I am inefficient in what I do. In my opinion, I do a thorough review and seek to cover all areas of a financial plan so that it can truly be comprehensive. However, despite some solid and widely used financial planning software, my process has not been very efficient. It has probably resulted in me taking longer than necessary to deliver a plan to my clients and perhaps resulted in a plan that has more in it than it needs to provide helpful guidance.
Providing Ongoing Support
Another issue that I have felt has not worked as well is in providing ongoing support to my clients. My approach has been to provide a kind of “one-and-done” financial plan. Although a one-time plan has its value in getting the basics dealt with: setting up an investment plan, highlighting some risks that insurance can address, reviewing the terms of the will – if there is one! – so that gaps are addressed, etc., it has become increasingly apparent to me that financial planning is an ongoing process and not – or not just – a point in time. This is a gap in service that I plan to fix.
The New Platform
Fortunately, a fellow financial planner has developed financial planning software and an accompanying system that overcomes these issues. If you regularly read the blog posts on my website, you may notice something new in the upper right of the page. There are links to Login (for existing clients) or Sign Up (for new clients) to this new platform. When new clients sign up, they get access to a 14-day trial during which time they can input their information. If they wish to pursue a full plan with me, they can book a “Discovery Call” to assess our fitness to work with each other.
Ongoing Support
The greatest thing about this new platform is that it is designed to provide ongoing support. My goal has always been about making financial planning accessible to people across the wealth spectrum. To that end, I have charged as little as a shade over $1,000 to as much as $3,000 for a full plan, based on household income and net worth. That pattern continues, although it will now be based on five different fee tiers divided into three equal monthly payments, automatically charged to the client’s credit card.
After that, the client still has the option of a single plan that terminates at the point of delivery plus one follow-up meeting in six months. The default, however, is a retainer-like fee for ongoing support at rates of $75 or $100 per month, depending on the fee tier. If the client feels that is not necessary at this stage, they can choose a maintenance-level option at $25 per month. This gives clients ongoing access to the platform so that they can make adjustments based on new information but access to me is limited to an annual meeting. This also allows clients to switch up to the retainer level if they feel they need more support.
What do you get?
I created a composite of the average couple in their late 50s, mentioned above, and put together some sample information that may give you a sense of what clients receive when they sign up for a plan with Money Architect Financial Planning.
Cash Flow
After a client has input their income and expenses, a picture of their cash flow, that is, how the client’s income is distributed every month, is generated. Gaps are often identified, such as income that has not been allocated to an expense, such as savings. At other times, the calculation will measure spending in one area relative to overall spending. Has the client adequately identified transportation or leisure expenses, for example?
Deft Payoff Plan
An average client household has a little over $90,000 in mortgage debt. This is a remarkable tool. If you identify several forms of debt, for example, a line of credit at 9% while your mortgage is at 5.5%, this section can set it so that any debts that have an interest charge over 6% (see the third field identified as “Extra Payment Interest Threshold”) are prioritized for extra monthly payments. This strategy directs extra payments to the costliest debt first.
CPP & OAS Estimate
Part of the input process involves the client getting information on CPP contributions from their Service Canada account. This is then used to estimate the annual CPP that would be available if starting CPP at a given age. As for OAS (Old Age Security), the main input is the years of residency in Canada between the ages of 18 and 65. Anyone with 40 years or more will receive full OAS, excluding consideration of a clawback in this example.
Final Plan: Income
Final Plan: Spending
Final Plan: Net Worth
Final Plan: Success Rate
These charts provide a summary projection of various categories over the estimated lifespan of the clients. Note that in the upper right of each chart, there is a reference to “Today’s Dollars.” This is also known as “real” dollars versus “nominal” dollars. In nominal dollars, the amounts spent, for example, will gradually increase due to inflation. In real dollars, inflation is accounted for.
The colour coding shows where the income, expenses, and net worth come from. For example, the third chart, for net worth, shows that the “real” asset in dark orange, the house in this case, holds relatively steady in value, while the registered accounts in light orange decrease. This is because of the requirement that retirees above age 71 withdraw increasing percentages from their RRIF accounts. In contrast, the non-registered accounts (green) and TFSAs (light blue) increase in size, indicating that they are unused, which means a fairly sizeable inheritance is building up. That “warm hand” idea, above, begins to make sense in this kind of context.
I want to highlight the last chart in particular. This presents the results of a “Monte Carlo Analysis.” This tool runs multiple scenarios using standard deviations from long-term expected returns. If there were 100 different scenarios, the 10th worst scenario for net worth anywhere along the continuum shows up in the light blue line at the bottom. The mid-point, the 50th percentile, or average outcome is reflected in the medium-blue line. And finally, the 90th percentile is presented with the dark blue line. Note that at the bottom right, the analysis indicates a 100% rate of success.
A 100% success rate is probably not the norm, but even something like a 75% success rate doesn’t mean that a client will have to cut their spending by 25% to make it; it simply means that in 25% of cases, a change of some sort may be required. This is also a helpful tool for ongoing financial planning needs because it allows for the opportunity to see how the probability of success changes over time. Adjustments can potentially be made earlier and in smaller increments to get back on course.
I am excited about the prospects that this new platform holds and look forward to providing even better services to my clients in the coming months.
This is the 200th blog post for Russ Writes, first published on 2023-06-05
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.