Top 10 Questions People ask Financial Advisors

With over 350 clients Adam and I are consistently asked a number of key financial questions that we thought all of you would appreciate reading.

Here is the Top 10 list of the most frequently asked questions:

#10 – What is a realistic amount of life insurance to own?

Answer: At a bare bone’s minimum, carry enough to pay off all your debts which include mortgages or Lines of Credit, credit cards, unpaid income taxes, last expenses including funeral costs.

For those wishing for a more detailed summary of their needs, our office uses a Capital Needs Analysis software program to customize exact recommendations.

#9 – If I have no debts, do I still need life insurance?

Answer: If your spouse/partner or children are relying on your monthly pay cheque to keep the same standard of living, then yes, we recommended that you own life insurance. Also, remember your OAS ends upon your death and CPP survivor rights are limited, thus your spouse may experience an income reduction at retirement.

#8 – Why do I need life insurance if I am young, single, and have neither dependent nor debts?

Answer: Because statistically your situation will change as you age and securing a life insurance policy while young and healthy, locks in a favourable rate. It also means if your hobbies, health, and lifestyle change in the future the policy can not be amended to your detriment by the Insurer.

#7 – What is the difference between traditional Disability policies and Critical Illness policies?

Answer: Disability policies pay out a monthly benefit up to 67% of one’s gross income after a waiting period of between 14 – 180 days. Payments end either when the individual goes back to work, or the end of the Benefit Period which can be from 1 year to age 65.

Critical Illness policies pay out a tax-free lump sum after a 30-day waiting period, upon diagnosis of up to 24 covered conditions.

Both are solid products but ensure you discuss the differences with your advisor

#6 – I’m in good health, exercise regularly and don’t smoke, so why do I need Disability or Critical Illness Insurance?

Answer: If you are self employed or work for an organization that does not provide a traditional group insurance package, you are very vulnerable to financial risk should you have an illness, accident, or mental health condition, which doesn’t allow you to work full time.

In 1980 when I started working in the industry, the odds of developing cancer in our lifetime were 1 in 3 Canadians. Today it is 1 in 2 Canadians who will experience cancer in their lifetime.

#5 – Which is better for me to have – a RRSP or a TFSA?

Answer: There is not one answer applicable to all. The general rule of thumb is that if you are in the lowest tax bracket with net income less than $50,000, a TFSA is better than an RRSP. For those in a higher tax bracket, especially those without an employer sponsored pension program, the RRSP is superior.

#4 – All Mutual & Segregated Funds have management fees, should I make my decision on who charges the lowest fee?

Answer: While several online trading platforms like Qtrade, WealthSimple and Quest Trade advertise the lowest possible management fee, they tend to make it up in other opaque transaction costs. Some trading platforms charge front end or back-end fees on trades or transfers and many of my clients have shockingly discovered they were charged up to $275 per account to close and transfer their assets elsewhere.

As with everything in life, there is no free lunch, so ask tough questions before buying any financial product

#3 – Why do I need to pay a higher management fee in my investment fund for information I can research myself?

Answer: Many DIYers manage their portfolios successfully without an advisor and have figured things out on their own. My experience over the last 42 years is that our clients like to have one trusted advisor that they can ask any financial question without fear of getting a pricey product pushed on them. They want honesty, plus professionalism shown to them in a timely manner, without having to deal with a call center representative in eastern Canada.

#2 – What other value do you as the advisor bring to the table that I can’t get from doing my own research?

Answer: While some DIYers can successfully craft a portfolio while they are alive, many times this reality is quite different for their surviving spouse or beneficiaries. I have had close to 90 clients pass away over the years (Both suddenly and expected) and each time the surviving spouse/partner or child has appreciated how I guide them through the process of settling an estate. Dealing with a call center or figuring out an online platform that the DIY may have used, is not for everyone, especially for those still dealing with the grief of having a loved one pass away unexpectedly

 #1 – How much money do I need at retirement and if I want to retire early?

Answer: This is probably the toughest question to answer because of the extreme discrepancies people have of the amount of income actually needed at retirement. One individual who has a modest lifestyle, can live on $2,000/month while another needs $20,000/month.

The rate of return the portfolio generates is particularly important, along with the rate of inflation. Those using a conservative 2% – 3% RoR are experiencing inflation shock in 2021 – ‘22 as we hit a 7% Consumer Price Index. What about saving money for income taxes and emergencies? Are travel and other high-ticket expenses important to you?

For those looking at early retirement, ensure you have an indexed company pension plan at the bare minimum to start the process.

Having a trusted and knowledgeable advisor also helps in determining what is realistic for your retirement needs