* Advisers often focus on client investments, not debt
* Many advisers lack training, confidence in debt management
* Increased fee transparency may make debt management a must
By Andrea Hopkins
TORONTO, April 4 A common misconception among
Canadian wealth managers is that their best clients don't have
debt, but with more households carrying red ink into retirement,
advisers now need to look at both sides of the balance sheet.
Canadians have embraced credit. The ratio of household debt
to personal disposable income reached a record high 165 percent
in 2012 - up from 66 percent in 1980, according to Statistics
Canada. This means that, in aggregate, households owed C$1.65
for every dollar of disposable income.
Financial advisers are trained to sell insurance and
investments, and they often don't know where to begin with debt
management, and prefer to believe clients don't need that kind
"The most common reason advisers stay away from debt
management is because they are under the illusion that many of
their clients, who are buying investments or insurance with
them, must not need any debt management," said Stephanie
Holmes-Winton, who specializes in teaching advisers about debt
management in her Money Finder training program.
"They tell themselves that to feel better: 'If I don't look
at it, it is not there.' But statistics show that 76 percent of
average Canadians have debt, and 59 percent of retired Canadians
have debt. So they are fooling themselves," Holmes-Winton, a
Dartmouth, Nova Scotia-based financial adviser, added.
A 2012 study by Statistics Canada showed the same people who
were most likely to consult financial advisers, with the highest
incomes and highest standards of financial literacy, often
carried the highest debt load.
The rationale is simple: People with high incomes are more
likely to qualify for loans, from mortgages to lines of credit.
"It is consistent with the idea if you have more income you
have more capacity to take on debt," said RBC economist David
While the prevalence of indebtedness should be motivation
enough for advisers looking to expand their client base,
industry veterans say a looming rise in standards for fee
transparency in the industry may force the hand of advisers who
have relied on sales to make a living.
A shift to published fees may make Canadians aware that
fee-based advisers - often those with the certified financial
planner designation - may be offering a better level of service
than commission-based advisers, who make a living from selling
mutual funds and other products.
"At some point all of the fees are going to be transparent,
and if advisers are not doing financial planning, at a certain
point clients are going to see what are they earning, and they
are going to ask about the C$10,000 in fees," said Robert
Abboud, an Ottawa-based certified financial planner and
co-founder of AdvisorPractice.com.
"Advisers, if they want to keep the assets, need to focus on
helping the client right from the get-go with the debt, because
at some point clients are going to say 'I need help with this
and (my current adviser) can't do anything about it'."
But training is lacking. The typical financial adviser may
be licensed to sell mutual funds. Some have trained to be
financial planners, which broadens their mandate. But many don't
know where to start with debt management.
Holmes-Winton said the goal for advisers is to help clients
with cash flow in a bid to not only eliminate debt, but also
find more money to invest, benefiting both the client and
The first hurdle is training. Holmes-Winton has taught 227
advisers about structured debt management, but she knows that
hardly scratches the surface, and convincing advisers to invest
in their own education can be a hard sell.
Once trained, however, adding the service to an adviser's
practice comes down to boosting the information gathered from
all new clients to identify those who need help with debt.
Approaching existing clients about debt management can be
tougher. Since the question was never asked in the first place,
clients may fear being judged because of their debt.
Holmes-Winton suggests sending a survey to a handful of clients
at a time, teasing out who needs help with debt, and who will
bring in the most new cash flow from the service.
"It means a little more time investment upfront, but it
tends to generate new revenue that is buried in your book of
business and you didn't even know it was there," she said. "It
is not uncommon for advisers to find C$50,000, C$60,000,
C$70,000 in revenues that can be generated in the first six
months (of surveying clients)."
Abboud said all clients who come through his door get a
financial plan - which may take 15 hours for an adviser to
complete. The service comes with an upfront cost to clients,
which can be hard to sell when a client just wants to invest
money, not spend it on a plan. But Abboud said it is worth it.
"It will solidify the relationship for life because you are
helping them with something that is a big deal - more than the
markets going up and down," Abboud said.