Published on: Wednesday, March 12, 2025
I’m often left with the impression that people have a limited view of what I do for clients. People understand that I am a Portfolio Manager and that I handle my clients’ investments. But I am also a Financial Planner and that can entail many different things, depending on the client’s circumstances. I use the term “comprehensive” planning as a way to say that it can go well beyond determining if they have enough money to retire and can include many different aspects of their wealth.
If you have read other blogs I’ve written, you probably have noticed that I put as much emphasis on client’s emotions, values and priorities as I do on their money, their investments and the numbers behind them.
Here is an email exchange I had recently with clients that demonstrates that balance. I’ve made only minor edits to ensure their privacy. I think this is a great example of how I can add value by having a close relationship with clients where I understand not only the facts about them (their age, their income, their assets), but their history, their priorities, their family dynamics, their values and their sensibilities.
For context, the clients are a recently retired couple in their late sixties. Their financial plan is solid. They have mostly RRSP investments with me which are currently not needed to support their retirement income in a major way. Like a lot of my clients in their stage of life, there were times when they’ve been concerned about the state of the world and the state of the economy.
The clients asked…
We’d love your opinion on whether we should sell the duplex in 2025? Based on information from our Realtor, 2025 may be shaping up to being a “memorable” year for real estate in our area. The market value of the duplex is nearing previous highs. He expects a cooling off of real estate in our area later this year/next year. Your thoughts?
My response….
This is interesting. I would start by asking questions that don’t rely on present or future valuations of the property.
- Would selling free you up from work, worry or stress? Is owning the property and being a landlord a chore that you’d be happy to unload?
- Would this simplify your financial life in other ways? For example, does it make your estate plan more straightforward? Or, do you worry about having to deal with it as you age?
- Is there something else you’d like to do with the money besides invest it? For example, would you like to help your children or grandchildren in a way that you can’t with other money you have? Would you like to use the proceeds to purchase a vacation property or some other asset to help you enjoy your retirement? Would you like to give some money to charity?
Now the monetary considerations….
The income from the property is a big part of your retirement income. The mortgage on it will be cleared up in the near term and your income from it will be even higher. If you sell the building, we could replace that income using your RRSPs. What if we needed to supplement the RRSP income using the proceeds from the sale of the property? Would you be comfortable owning more securities like stocks/bonds/funds to generate that income?
Whether or not you need the income, would you be comfortable owning more stocks, bonds etc? Think back over the past 10 years; of all the ups and downs in the market and in the economy. Did you ever worry about the value of the real estate? It was an exceptional time to be in real estate perhaps. But even so, did you ever question whether it would be a good long-term investment or did you always feel pretty comfortable that your return from it would be good?
Have your feelings about real estate as an asset class changed? Do you think that you just got lucky for the past 10 years and maybe the next 10 or more won’t be so good?
There is the tax liability. But that is not much of a consideration in my view. I once heard an expression “don’t let the tax tail wag the investment dog”. You’ll have capital gains to pay sooner or later.
If there are other things that make you eager to sell, then it’s worth considering. I guess I would avoid selling only if it’s because you think the valuations might be right. That’s akin to timing the stock market. It’s very hard to do. And, if there is a drop in real estate values, it will not be forever. Or it might not occur. Or it might not be as big a drop as predicted. Or it might occur but happen two years later, etc. etc.
Think that over and we’ll chat.
That was really just the starting point; to help them decide whether they want to seriously consider this. If they concluded that selling was worth serious consideration, we’d dig deep into the numbers.
There would be a lot of things for me to figure out.
- What amount of tax would be payable on the sale?
- What would be the net proceeds after taxes and paying off the outstanding debt.
- What amount is available to invest after any other uses they may have for the money?
- What amount needs to come from their RRSPs to provide their required income now that they don’t have rental income?
- How would the value of those RRSPs hold up over time at this new withdrawal rate?
- What is required, if anything, from the “new” investment that came from the property sale?
- What types of securities and mix of investments should be in each of those accounts (RRSPs and new account) to manage risk and meet the goals of the respective accounts?
- What does their tax return look like going forward with new/changing forms of income?
- How does this change the value of their estate now and in the future? How does it change tax payable at death?
Of all these things, the most interesting and the most important is the first part. Let’s call it the non-financial part. It forms the foundation and sets the direction for good decision-making – determining what is really on their mind, what fears are they hoping to move away from and what are they trying to move toward? You have to get that right before the numbers even matter. Going beyond investments and including all aspects of their wealth and going beyond the numbers to include the non-financial issues are what make it “comprehensive planning”.