Financial Planning for the Unexpected (and Expected)

COVID-19 forced most of us to adapt to new realities by revisiting our daily habits and financial priorities. For some, this meant tightening budgets or postponing big-ticket purchases. For others, the pandemic triggered the need to revisit estate plans or, at the very least, update wills. As we step into 2021, we share recommendations to best prepare for both the expected and unexpected when planning your financial future.

Recommendation #1: Align Your Plan and Strategy with Intended Outcomes

The pandemic affected people differently. While some families’ finances were only minimally impacted, others faced significant challenges. It’s no surprise, then, that since the beginning of the pandemic, one in three investors increased their frequency of communication with their advisor. Meanwhile, 74% agreed that they’ll need to continue seeking advice to be financially successful in the future.

The varying effects of COVID-19 underscore the importance of tailored advice. For example, while the state of the markets may concern you if you’re relying on your investments for income, if you’re one who’s saving for retirement, market downturns can also provide the opportunity for growth.

One advisor shared a story of a new client who – prior to the start of the pandemic – had wanted to ensure his portfolio was set up to produce the long-term outcomes he was looking for. As it turned out, the advisor uncovered, his investments were mismatched to his age, tolerance for risk, and, ultimately, not optimized to achieve his intended outcomes.

The advisor recommended changing the portfolio’s allocation to increase the risk to capture the higher returns expected from investing in equities over the long-term. When the markets dropped in the early days of the pandemic, the advisor tactically took advantage of the opportunity to move the client’s funds into equities more quickly than initially planned, providing a boost to the portfolio’s performance from buying equities at lower prices.

Working with your advisor to fully articulate your objectives and understand your opportunities can help you move forward with your investment strategy more effectively.

Recommendation #2: Get Real-Time Advice for Critical Life Moments 

The value of having a strong relationship with your advisor becomes most apparent when your life, and not the markets, changes unexpectedly. That’s why the detailed information advisors gather about you and your family when developing your comprehensive financial plan is so important.

Whether you’re planning to buy your first house or “moving up” from an existing home, saving for a child’s education, or planning for major goals like buying a second property, choosing your retirement date, or preparing your next of kin to inherit from you, an advisor can provide real-time advice to meet the financial challenges you encounter along the way.

For example, when an advisor works closely with both partners in a relationship to create a financial plan, managing one’s finances becomes far less stressful if one member of the couple becomes ill or passes away.  Close communication, coupled with in-depth planning, means that when clients are faced with unexpected challenges – such as the death of a partner - they can “know with confidence” what will happen next. As one advisor explained, “we make sure we know exactly what you want to happen when things go wrong so you don’t need to make decisions when you’re under duress and grieving.”

Including the extended family in estate planning can help to ensure the final wishes are known and executed when the time comes.

We found only 35% of people we polled were “completely prepared” when it came to estate planning. This finding suggests there’s a large gap to be closed to help Canadians prepare their next generation to inherit their wealth. 

The pandemic has propelled advisors and their clients to take advantage of technology to increase their communication frequency and efficacy while also making it more convenient to facilitate estate planning conversations with family members who are separated geographically. This enhanced communication, paired with a focus on in-depth financial planning means advisors can add value for their clients by responding in a more timely and expedient manner.

Recommendation #3: Get a well-crafted, yet adaptable plan to weather the storm

When people are faced with the unexpected, they need a plan of action. Having a financial plan – that you can adjust when necessary – allows you to be much more prepared for whatever life throws your way.

Since the pandemic began, 48% of Canadians polled report that the stability of income, short-term cash flow, and the health of their retirement savings have become more critical.  

This suggests shorter planning cycles is now more necessary as financial conditions change frequently or to help Canadians plan for more near-term goals. Without the benefit of financial advice, these challenges can become overwhelming, leaving many to struggle with how best to solve them on their own.

In one example, an advisor we spoke to has worked with clients in or approaching retirement, to create financial plans that will protect their income for the next 18 months to two years from market fluctuations. The result is confidence their short-term income needs will be met during the pandemic, while their longer-term needs for continued growth will be governed by a financial plan that can account for market fluctuations.

Planning starts with a conversation

A financial plan isn’t only valuable during times of global upheaval or in retirement. Instead, working with the right advisor to create a comprehensive financial plan can ensure you’re fully prepared to face financial challenges at every life stage.