FP Canada recently released their annual 2020 Financial Stress Index. Save with SPP reached out to FP Canada’s consumer advocate Kelley Keehn, a noted financial author and educator, by email to find out about the survey’s results.

Q. Research shows money is number one worry, and that people worry about saving for retirement and debt. Is there a relationship between the two – like, if you are paying down debt you can’t save for retirement, and vice-versa? And maybe also did you find out what people think the consequences are of not having enough for retirement (working forever, a less exciting retirement, etc.)

Yes, money still is the #1 worry. FP Canada’s Financial Stress Index found yet again that people worry more about money than health, relationships or work.

The survey didn’t go into your exact questions, but I can anecdotally state that without a clear financial plan, it’s nearly impossible to figure out complex scenarios like paying down your debt vs. saving for an RRSP (or using the tax deduction to pay down on your debt), etc.  And you’re correct, that the consequences for not having saved enough for retirement means either living with less or working longer.  

Consistent with previous years, in 2020 money is the number one cause of stress for Canadians by a large margin. Money (38 per cent) outranks personal health (25 per cent), work (21 per cent) and relationships (16 per cent) as the top source of stress in Canadians’ lives. This is particularly significant given multitude of non-financial stresses related to the COVID-19 global pandemic.

The 2020 Financial Stress Index also reveals that as Canadians age, they feel less stressed about money – with 44 per cent of 18-to-34-year-olds listing money as their leading concern compared to one-in-four (25 per cent) of those aged 65+.

Q. Putting money aside for an emergency fund is a great idea – we would like to hear a bit more about this, if possible. Are people basically realizing they need to create one for the first time? Or are they moving from having a sort of contingency credit line to having actual savings? We guess it’s because of the pandemic that this is being considered more?

Before the crisis, many stats revealed that 50 per cent of Canadians were just $200 away from insolvency.  I don’t know the current numbers, but one could suggest that it’s much worse now.  And, many people don’t realize that the time to get a line of credit is when you don’t need it (i.e. not after you’ve lost your job). 

A recent Canadian Payroll Association survey revealed that it’s not the amount of income that you earn that reduces stress, it’s the financial buffer that you have.  The problem for younger Canadians is that they haven’t been in their career long enough to save (i.e. student loan debt, getting into a home). 

Q. The financial regrets part is fabulous. We wondered whether “having a better job” might refer to having a job with better benefits (or maybe just better money). We retirees sure wish we had had the brains to try and find a job with a good workplace pension earlier (this writer got such a job in his mid-30s). That sort of thing.

The survey didn’t dig deeper unfortunately.  But people really should think of their career as their fourth asset class. If you’re in a high-risk career like an entrepreneur, your investments should perhaps be less risky.  On the flip side, a professor with tenure likely takes less risk with their investments, but possibly should. It’s essential that your career is part of your financial plan (do you have a pension or not, benefits, etc.)

Q. The number one takeaway from the research – what results surprised you the most, and why?

That Canadians are still not reaching out for help and thus suffering sleepless nights.  We wouldn’t self-diagnose when it comes to our health, nor would we go on a new road trip without the help of Google maps on our phone.  Why do so many Canadians still not reach out to a financial pro like a Certified Financial Planner (CFP)?

We thank Kelley Keehn for taking the time to answer our questions, and her colleague Emma Ninham for setting things up.

Is the Saskatchewan Pension Plan part of your own financial plan? The SPP could serve as your personal defined contribution pension plan, a workplace pension or can supplement any workplace or government pension plans to which you belong. It’s a plan with a long history of successful investing returns at a very low management cost, and has averaged returns of more than eight per cent since inception. Consider checking out SPP as a way to help take the stress out of retirement saving.

Join the Wealthcare Revolution – follow SPP on Facebook!

Imagine reaching the end of a long, hard career and then finding that your workplace pension isn’t there for you. It happens more often than we might think with private sector pension plans. And that’s why Mike Powell and the Canadian Federation of Pensioners (CFP) are there to help.

The CFP, says Powell, was started in 2005 and now includes 20 member organizations. Those 20 organizations “represent about 200,000 people who mostly belong to private sector, defined benefit (DB) pension plans,” he explains.

DB plans pay pensions for life based on what members earned at work, and how long they were in the plan. While members contribute each payday, it is up to the employer – the plan sponsor – to ensure enough money is set aside to pay the future pensions.

Pensions can be dramatically reduced when companies run into financial trouble, notes Powell. This has happened “with Nortel, with Sears, so our organization is there to advocate for the pension rights of those plan members,” he explains.

In Ontario where the government recently reduced solvency requirements, the CFP has lobbied hard to improve the Pension Benefits Guarantee Fund (PBGF), a sort of pension insurance that kicks in when corporate plans are insolvent. Currently there are limits on what the PBGF pays out, and it does not top up retirees to 100 per cent of what they should have been receiving.

In addition to giving plan sponsors a break on solvency funding, Powell says, the government should also change the PBGF to fully cover pension loss funded by those same sponsors. That would mean retirees would be “made whole” in the case of an insolvency. The CFP hopes that if Ontario goes this route, the other provinces will follow.

At the federal level CFP wants pension plan members to become “super priority” creditors when companies go bankrupt. “That would move them from the back of the line to near the front,” he explains. “If they did this, pensions would be taken right out of the equation when a company is insolvent.”

Protecting pensions delivers retirement security, Powell explains. “If you can’t count on your pension, it creates a great deal of uncertainty,” he says. Affected retirees spend less on goods, services, and charities, and may have to rely more on taxpayer-funded social assistance. The fact that many seniors are retiring with debt can compound the problem, he explains. For more on the CFP, visit their website.

We thank Mike Powell and the CFP for speaking to us. Even if you have a workplace pension plan, additional saving for retirement via the Saskatchewan Pension Plan is a wise move. For more information, visit our website,

 

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

By Sheryl Smolkin

Today I’m interviewing Saskatchewan financial planner Chet Brothers for savewithspp.com. He formed Brothers and Company Financial, an independent planning and wealth management firm in 1994 after spending a number of years at the wealth management subsidiary of a large Canadian financial Institution. He’s experienced in all aspects of personal finance and wealth management.

Brothers has dedicated his professional career to educating the public and financial advisers about the importance of comprehensive financial planning. His professional qualifications include Certified Financial Planner and Registered Financial Planner designations. He also served his profession as past president of the Institute of Advanced Financial Planners and he is currently on the board of the Canadian Institute of Financial Planners.   He came to my attention as Wealth Professional Magazine recently named him one of only two Saskatchewan financial planners on their Canada’s Top 50 Advisers’ list in 2015.

Thank you so much for joining me today Chet.

You’re welcome.

Q. How did you get into the business of financial planning?
A: I started in investment sales and was looking for a career that offered lifetime learning opportunities. So I upgraded and moved into the financial planning area.

Q. How do you think Canadians can benefit from working with a financial planner?
A: I think a financial plan really makes the most efficient use of all the resources that an individual or a family has at hand to enable them to realize the hopes and dreams they have for themselves, their family, and their community.

Q. Are your clients typically close to retirement or do you work with a broad spectrum of clients developing financial plans?
A: I would say if you looked at the bell curve, the peak would be people either five years before or five years after retirement. But we do deal with the entire spectrum. Often as people get closer to retirement, the importance of financial planning becomes clear to them and they seek out advice.

Q. What should people who require financial planning services be looking for? What questions should they be asking?
A: First, I think you want to make sure you are dealing with an accredited person with a professional designation — either the CFP or RFP or hopefully both. You want to make sure that they have some experience. Let them practice on someone else. I started at a large financial institution, essentially apprenticing. They also need to have a defined and tested investment strategy and a comprehensive approach. If someone wants to talk to you just about your investments and hasn’t asked you about your will or your power of attorney, I’d run.

Q. Do you sell products like securities or insurance or are you an independent adviser?
A: I am an independent adviser who is licensed in securities and insurance. In order to implement a financial plan in this country, you need to be licensed to sell individual securities, mutual funds or insurance. So, we do implement plans and we are licensed.

 Q. How are you compensated? Do people pay a flat fee or an hourly rate to have a financial plan developed or are you on commission?
A: To develop a financial plan, we charge an hourly rate of $175/hour. At that point, the client can do what they want with the plan. If they choose to implement with us, then we will use the products and services available to us and we’ll offset that fee. If someone were to use our investment services, any revenue that we receive from the investments or insurance would offset the fees that they paid for the financial plan in first 18 months.

 Q. If a client has little knowledge of investment products how do you educate them or how can they educate themselves so they make wise investment choices?
A: Investing is not rocket science. There are two basics: ownership or “loanership.” After that, explaining how markets work is not all that complicated. I think the industry makes it unnecessarily complicated for people. Most people grasp pretty quickly that if they are buying a fraction of a business, they have to identify what are good businesses. It’s a lot harder to determine whether it’s the right price to pay or not.

Q. How important is asset allocation from a risk management perspective? In other words, what portion of a client’s portfolio should be stocks, bonds or other assets? How do you decide what split to recommend for a client?
A: It depends on the client’s situation. But it’s also important to know that, just moving around asset classes doesn’t necessarily reduce risk. You want to make sure that you reduce the risk at the source. Buying quality is the first step.

That is if you’re going to buy into the equity market you should be buying quality, profitable businesses that pay dividends. That will reduce your risk on the equity side. On the debt side, you want to make sure that you are buying quality debt obligations of borrowers who can pay you back. You also want to make sure that the duration is reasonable.

The next step would be to determine what asset mix is appropriate. I think in very few instances would it be appropriate to have 100% of your money in ownership of businesses, just because most people can’t handle the volatility. They wouldn’t stick with program, and they’d bail.

For most people, depending on age and stage and their experience, we would add more or less fixed income to a portfolio. There’s no exact formula. It’s determined through the financial plan, interviews and getting a sense of their ability to handle volatility.

 Q. When you are developing a financial plan or a retirement plan for a client do you consider the equity in the family home as a potential source of retirement income?
A: No. I generally wouldn’t.  In a financial plan sometimes we run the plan out beyond age 80 and there could be a short fall. Then it’s conceivable someone would sell their home and move into a rental, or a long term care facility.

But, your home is your home. Borrowing or taking equity out of the home makes no sense. The other argument is “We’ll downsize when the kids are gone.” However, in this market, condos cost almost as much as stand-alone homes or more. There’s no real way to get equity out, in my opinion.

Q. There’s an ongoing debate in the media and the financial industry about actively managed portfolios versus passive index products. What are your views on the subject?
A: I think it’s funny, because the stats show that only 20% or 25% percent of actively managed portfolios beat the index. But zero percent of passive investments beat the index!

The only index or benchmark that a person needs to  care about is the number that is in their financial plan. If you need five percent return on your investments over your lifetime to give you all of the things that you dreamed about for yourself, your family, and your community then, it’s irrelevant what the markets do as long as you get it.

Q. So, you are not an advocate necessarily of just an index or passive approach?
A: If you take an index or passive approach the problem is, which index? You’re making a market call. It’s incredibly risky. People who do so have made a huge call based on zero or little if not knowledge.

Q. Congratulations. I see you’ve been named one of Canada’s Top 50 Advisers in 2014. Tell me how this process took place and how you were ultimately named to the list?
A: Wealth Professional Magazine does an annual survey. We took part in 2014 and 2015. They base their decision on the number of clients, growth of client assets under management and other factors. And we were fortunate for two years in a row that we made the list.

It’s an honour to be on the list. But it’s certainly not how we measure our success. We measure the success of this business by the success or our clients. What we focus on is their results which we monitor and measure.

Q. The Saskatchewan Pension Plan’s Balance Fund in which non-retired members are invested earned 9.1% in 2014 and an average of 8.16% over the plan’s 29 year history. Do you think that participating in SPP can form a valuable part of an individual’s overall investment strategy?
A: Yes. Those are reasonable returns. I think that the hardest thing is accumulating the money in the first place. If you’re not doing anything else, the Saskatchewan Pension Plan makes it very easy to accumulate money at a reasonable price. Putting money into that pension plan on regular basis is a great starting spot. If you have more significant assets or a more sophisticated situation, or you are a more sophisticated investor, there may be other places to look. But, for a vast majority of people it is a place to start because SPP does some of the heavy lifting to help you save money.

Q. Thank you Chet. I really appreciate talking to you . It was a pleasure to speak to you today.
A:  My pleasure.

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This is an edited version of a podcast interview recorded on April 15, 2015.