Financial Facts & Money Matters: Financial Disaster Planning
Beyond Numbers · November 2003
By Thane Stenner, CIM, FCSI
Editor: This summer saw fires raging in the Okanagan and a power outage on the East Coast. (In next month's Cover Story, several Kelowna CAs will share their stories.) Even those of us fortunate enough to not be directly affected were forced to consider our own emergency preparedness and wonder: "What would I do?"
While financial ruin may not be as life-threatening as a natural disaster, it can have a devastating impact on anyone's life, so in this month's FF&MM we look at emergency preparedness as it relates to finances.
Securing the future
A successful business owner is too busy running his business to tell anyone about his plans for succession. A retired executive fails to see the need for a formal financial plan when she already has "enough." A wealthy heir thinks he's too young to need a will. Any one of these examples could be a disaster in the making.
Thankfully, BC's accountants and other financial professionals are working hard to bring "disaster planning" to the top of the financial agenda with their clients. By taking steps now to prevent worst-case scenarios from destroying client wealth, these professionals are helping to secure the future of both individuals and businesses across the province.
A recipe for disaster
As an estate planning specialist with 25 years in the industry, David Temple, TEP, of CIBC Wood Gundy, has seen his fair share of financial disasters, and it no longer surprises him to meet wealthy clients who haven't prepared for the worst. "Some of them just have an estate plan in their head-but nobody else knows it," he says. "And of those who say they do have a plan, often what they consider to be their plan is just their will."
Temple points out that this problem is particularly common among business owners. An owner might have considered the topic of estate planning, for instance, but that's usually as far as it goes. "It's one of those things," Temple says. "People say, 'Someday I'll get around to it,' but it just never happens."
Larry Bisaro, CA, a principal with D & H Group in Vancouver, agrees that business owners seem especially vulnerable when it comes to financial disasters. Why? Bisaro attributes the problem to the way owners think about business growth. "People think incrementally: 'Let's get the business started; let's get it up and going; let's have some success," he explains. "Only after they've been successful do they move on to the next step."
Bisaro cautions that this kind of approach can lead to problems later on: "You have to plan [for succession] early and continuously throughout the life of a business. Often people aren't doing that."
Jack Arnold, CA, a principal with MacKay LLP in Surrey, thinks the complacency with regard to disaster planning stems in part from the way owners perceive disaster. Arnold explains his position by talking about insurance. "You don't need insurance until you need it," he says. "That's the problem with insurance: you spend the money and it's gone, and you have nothing tangible unless there's a disaster."
This can be a major barrier for some clients-particularly those with a frugal mindset. As Arnold points out, many owners seem willing to accept more risk than they should, to avoid paying for something they will likely never need.
To the rescue
Obviously, overcoming such resistance presents a serious challenge for financial professionals, which is why Temple is a firm believer in making disaster planning a top priority at client meetings. "Probably nine out of ten clients, once they've done a plan, are quite satisfied that they've finally accomplished it," he offers.
But as the saying goes, the devil is in the details. Melanie Frers, CA, sole-proprietor of Meyer, Frers & Co in Burnaby, points out that when it comes to communicating the benefits of disaster planning, professionals must use the art of gentle persuasion. "You have to show the client the value in [disaster planning]-what's in it for them," she says.
One method that has worked well for Frers is focusing on the positive. Pointing out everything the client is doing right makes it a lot easier to focus on those issues that still need work. "Once you've said a few [positive] things they relax," she explains. "They feel good about themselves. They're more able to listen to you."
Bisaro agrees that disaster planning requires special consideration from professionals, and that professionals need to develop a deep understanding of client goals and a strong relationship with the client-a relationship that goes beyond business. "You're talking about life issues: life, death, marriage, family," he relates. "Those issues aren't something you talk about with someone you meet once a year."
But even then there's no guarantee this approach will result in a formal disaster plan. "We've had clients who we've sat down and given a really good plan, and then a couple of months later they bring up the same problem," Frers admits. "You present the problem, and you offer a solution. You say: 'This is what I would do.' Then it's up to them to decide."
The process can be frustrating, but for Arnold, this frustration is all part of the job. "It's [the client's] decision ultimately. They're looking to you to give them advice, but they're the ones who have to make the final decision." When push comes to shove, Arnold doesn't think professionals should force the issue of disaster planning. "We're dealing with adults here," he says, "not with children."
Perhaps professionals won't have to deal with this kind of resistance for much longer. Temple, for one, believes change is in the air when it comes to disaster planning-particularly as it relates to estate planning. "There's a demographic reality here in Canada," he notes. "Because there are more people facing these issues, it's going to get more play in the media." According to Temple, as the issue becomes commonplace, clients should become more aware of what they need to do to avoid estate problems and other financial disasters.
Bisaro sees things a little differently. He believes disaster planning will always be a part of the professional's job. "We'll always have to deal with it," he argues. If anything, Bisaro believes the issue will only become more pronounced in the years to come: "The world's much more complex today than it was 25 years ago, and the potential for disaster now is also much greater."
There's one thing, however, all four professionals agree on: Disaster planning is an excellent way to prove your worth to clients. By bringing up the topic of financial disasters and focusing on what it will take to protect both the clients and their businesses, professionals can demonstrate their alignment with clients' goals. That should make the professional's value obvious to clients, whether or not disaster ever strikes.
Thane Stenner, CIM, FCSI, is a First Vice-President and Investment Advisor with The Stenner Group of CIBC Wood Gundy. The views of Thane Stenner do not necessarily reflect those of CIBC World Markets Inc. This article is for information only. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of Canadian Imperial Bank of Commerce and member CIPF.