The value of knowing your personal situation

After moving our offices and taking some time off, I am back with another article that I hope you will find informative and helpful.

In April, I wrote about the value of true advice, and if I may, I would like to expand on that subject.

Recently, a client (we’ll call him Tim) was telling me about an experience that he had at a bank.  While he was performing his banking, the teller, as they do, asked him about his finances, specifically, his RRSP.

Tim answered the questions and he mentioned to the teller that his kids and not his spouse were the beneficiaries of his RRSP.  The teller explained to Tim that this will cause a larger tax bill than necessary when he passed away and suggested that the RRSP be moved to the bank where they can help him avoid taxes by naming his spouse as the beneficiary.

Tim and I had a meeting shortly after and he asked about what the teller told him.  Now most people want to avoid taxes and the teller was absolutely correct.  If Tim names his spouse as his beneficiary, his RRSPs and later his RRIFS will rollover to his spouse with out any taxes.

There is, however, a crucial piece of information that the teller did not know.  This information comes from getting to know clients and building a relationship while understanding their whole financial and personal situation.  It unlikely that the teller would have discovered the information during such a transactional interchange while trying to meet sales quotas.

What the teller did not know is that Tim is on his second marriage.  Tim wants his children from his first marriage to get the proceeds of his investments.  Not that he doesn’t love or trust his spouse, but if he named his spouse as the beneficiary, there is no guarantee or obligation that his spouse will pass on any of his RRSP money to his children.  Although the teller’s advice was technically correct, in this situation it was not in the client’s best interests or wishes and could have caused family discord and could potentially cost more than the taxes if a legal dispute results.

In my mind, it is important to find an advisor that will take the time to understand a client’s personal as well as financial situation.  An advisor needs to not only understand the best practices of investing, insurance, and planning, but must be able to recognize when these practices may not work in particular circumstances.   The goal and importance of financial planning, investing, and insurance goes beyond investment returns and taxes.  It is about your family’s security and piece of mind, perhaps over multiple generations.  Make sure you have an advisor that understands this and can bring this value to the table.