Distributors who invest

The financial goals of these clients continue to evolve. They’re not set in stone just because they’re retired. So, advisors still need to develop strategies for them, including accumulation strategies,” Beauvais says. You need to continue to invest during the payout period because you need to generate returns to meet the client’s goals and adjust to the ups and downs of the financial markets. This is especially true because the payout period can last a long time.

In fact, the life expectancy of people reaching retirement age continues to increase. Already in 2018, Retraite Québec estimated that a 65-year-old man had a three-in-four chance of reaching 80 and a one-in-four chance of making it to 92. Women, on the other hand, had a three-in-four chance of reaching 84 and a one-in-four chance of making it to 94.

So, it is a bit of a leap to suggest that these clients are necessarily becoming “less valuable”. On the other hand, the lawyer also cautions that professional responsibilities remain exactly the same whether clients are in a period of accumulation or disbursement.

For example, the CSF recommends an annual “know-your-client” information review because a client’s life can change suddenly. This update is necessary even after the client has retired and begun to withdraw assets, and applies to both members who sell insurance and those who provide investments.

This frequent updating is especially important for aging clients, as it also helps to identify more quickly if they are in a vulnerable situation. Of course, the advisor should also check whether the client’s situation or objectives have changed before each transaction, except in the case of systematic investment plans.

A thorough job

Financial planner and security advisor André Lacasse confirms that responsibilities do not diminish when an existing client goes into payout mode. ”If my client has $50,000 in a RRIF, I have no choice but to develop a financial plan for her,” he says. ”It doesn’t matter if it’s fee-based or not. But it can penalize some savers. For example, someone with a small portfolio who has never had an advisor may have difficulty finding one when it comes time to pay out.”

André Lacasse adds that, as with any type of client, the amount of work can vary between those who are in payout. Some will require more meetings, others less. The complexity of situations and the amount of assets under management can also vary greatly.

”For a financial planner, it’s not really about the amount of money to invest,” he says. Our job is to first diagnose the client’s situation, take stock of their needs, and come up with a financial plan that works for them. That’s what takes time. Investments come much later.

Sources of income

“In terms of compensation, it should not be an issue,” says Geneviève Beauvais. Group savings products, insurance and annuities all have some kind of commission or fee that repays the advisor.

Nancy Lachance, MICA’s chief compliance officer, says her advisors are not really complaining that their retired clients are becoming less lucrative. Rather, it’s the younger, more junior advisors who have been suffering since the end of commissions.

“Older advisors often serve older clients with larger assets under management,” she says. So, advisors make a reasonable amount of trailer fee income. They also sometimes complete fewer transactions for these clients.

She adds that retiring clients regularly recommend their advisor to younger clients, whether they are their children or grandchildren. “That also adds to the advisor’s income, so they don’t see their aging client as a low-paying client,” says the chief compliance officer.

MICA advisors also appear to be in no rush to change their compensation method from commissions to fees, a trend that might have accompanied the aging of the client base. ”We have 8% of our compensation in fees,” Lachance says. That’s four times more than two years ago, but it’s still marginal.

Jacinthe St-Onge, financial planner and financial security consultant at Planif-Globale, agrees. “These clients are not necessarily paying less because they have significant assets under management and are still buying products.” She adds that if outflows are roughly equal to the return on assets under management, advisors aren’t losing much. Of course, it’s a different story in a year like 2022, when the markets are driving the losses.

A complex job

However, clients in a disbursement period require a lot of work. While some software programs are available to help with disbursement strategies, there are so many factors to consider and so many possible scenarios that they are not always helpful. ”You have to work with your own knowledge, based on the client’s needs and expectations, because every payout strategy is different,” says Jacinthe St-Onge. This is where advice really comes into its own.

The sequence of withdrawals is an important element of these strategies. It will vary from client to client, depending on the source and amount of income, as well as tax considerations. Is it better to start with the TFSA since this income will not increase taxes? At what age should I start receiving income from the Quebec Pension Plan (QPP) or Old Age Security (OAS)? A retiree who takes his or her QPP pension at age 65 will receive 56% more than someone who takes it at age 60, but 42% less than someone who takes it at age 70. It’s an interesting question... and one that retirees don’t always think about unless they seek professional advice.

These are just a few of the questions that arise. Not to mention the fact that there are decisions that can make a big difference in cash flow planning. “For example, whether to keep or sell your home can significantly change a client’s financial picture,” says Jacinthe St-Onge. She adds that there are also questions to be asked about the necessary insurance coverage. For instance, will the client’s heirs have to pay capital gains tax or taxes when the client dies?

“These are complex and often sensitive issues that require you to know yo

Paying attention to vulnerabilities

As you can see, clients in the payout phase do not necessarily require less work. Especially since advisors need to pay even more attention to their vulnerabilities. “Clients in payout naturally tend to be aging clients, which require increased vigilance on the part of advisors,” Beauvais says.

Their role during this time is not strictly financial. “They need to be even more alert and attentive to these clients, especially to ensure that they remain capable of making financial decisions and that they are not being financially abused,” notes Lachance.

“Advisors are becoming more aware of this. The responsibility is great because we are often the first to notice a client’s cognitive decline,” says Jacinthe St-Onge. Even spouses sometimes don’t notice because they see the person every day and don’t really see the change. It’s often up to us to raise the alarm.

Advisors have new tools to help at-risk clients. Since 2021, Regulation 31-103 of the Securities Act requires advisors to offer to designate a support person for their clients. They can then contact that person to alert them if they suspect financial abuse or if their client shows symptoms of cognitive decline.

The Autorité des marchés financiers (AMF) has also published a guide entitled “Protecting a client in a vulnerable situation” to assist advisors in these situations. The InfoDéonto section of the CSF’s website also includes a subsection on elderly clients and a guide on how to recognize and deal with signs of vulnerability in clients.

The Quebec Public Curator has also recently introduced an assistance measure that allows a client to formally appoint a relative to assist them in making certain decisions or managing his or her assets.