Wealth Manager

By Ivon T Hughes
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Why the Services of a Wealth Manager are Invaluable

A wealth manager can help you plan your entire financial life by coordinating different areas of expertise.

Retirement Planning

Will a guaranteed pension supplement your RRSP funds? Do you plan to work part-time or set up your home business after retirement? What are your lifestyle aspirations for your post-retirement years? Are there are family commitments that you expect to eat into your retirement nest egg? A wealth manager will draw up a retirement plan tailored to your unique financial situation.

Estate Planning

DIY estate planning with little or no professional assistance is often overwhelming, time-consuming and fraught with risks. A wealth manager's guidance can be vital in transferring your assets to intended beneficiaries in a hassle-free, tax-aware and cost effective way.

Investment Planning

In collaboration with your wealth manager, you can devise an investment plan that grows your assets, helps you preserve your wealth, creates sustainable income and opens up new and potentially rewarding investment opportunities before you.

Risk Management

Risk management is essential to any investment portfolio. Age is a major factor determining both risk and risk tolerance. If you're an investor in your 20s or 30s, stock market volatility is a major risk and concern. One way of handling it is to understand how long your money can grow before you need to cash in. If you're an older investor, interest rate and inflation risks predominate. The need to protect your principal while also guaranteeing a return by investing in fixed income investment products like annuities or certificates of deposit, assumes more importance than growing your principal. A wealth manager can help you assess risk and suggest ways to manage it effectively.

Identifying Insurance Requirements

Life insurance is an excellent estate planning tool. Based on an understanding of your life goals and financial situation, your wealth manager can help you pick the appropriate insurance products. From term life insurance to whole life insurance and finally to universal life insurance, you have a full choice of options and prices. Each product meets different needs at different times of your life and are flexible enough to meet those life changes.

Debt Management

A wealth manager can suggest a personalized and disciplined approach to paying off debt and directing your income in suitable investment products. You can also leverage good debt to increase your wealth and plan for retirement.

Handling Financial Windfalls

What are the different ways in which you can use a big bonus from your employer, an inheritance from a relative or a large lawsuit settlement amount? You may want to pay off outstanding debt, fund an account, set up regular distributions to a charity or allocate to your retirement savings, among several other options. A wealth manager can help you make the most of your financial windfall.

One of the most amazing things you see is the inability of those who receive unexpected amounts of money is their inability to handle it properly.

How many times have you read about a lottery winner, who within two months, has lost his/her money and their chance for a much improved and guaranteed income?

Philanthropic Planning

With philanthropic planning, you can save taxes while also promoting your family values and demonstrating your social responsibility. You can gift outright or set up a trust or family foundation. You must also decide the type of assets you want to gift, which can range from cash and real estate to securities, art and valuable collectibles. Your wealth manager can connect you to attorneys, accounts and tax advisers, who among other things, can guide you with paperwork and assist with decision-making. Don't postpone personal wealth management. The sooner you start planning your finances, the sooner you will realize your goals.

The Most Common Types of Debts

Debt is a part of life; most of us have some kind of debt obligation. Efficient debt management is essential to a secure financial future. You cannot carry debts all your life and after you retire. Every time you borrow, you must have a fixed plan to pay off the amount in a specific period of time. Debt management is a chief aspect of financial planning; depending on your debt profile and financial situation, your wealth manager can suggest a suitable debt repayment plan. Let's look at the most common debts that we tend to take on. Before that, here's a quick primer on the different debt categories. Secured debt, where you provide a collateral like a house or car. Examples : mortgage and auto loan.

Unsecured debt, where you don't need a collateral. Examples are credit cards and personal loans.

Fixed interest rate debt, where you make repayments on the basis of the same interest rate over the entire timeline of the loan (mortgage). Variable interest rate debt, where the interest rate may change over the lifetime of the loan (credit cards).

Debt with a fixed repayment term, where you're required to repay the loan within a stipulated date (student loan).

Debt with a variable repayment term, where there is no specific, agreed-upon date by which the debt must be repaid (credit cards).

Mortgage

Making a lump-sum payment is not viable for a majority of individuals planning to buy a home, and a mortgage becomes inevitable in such a scenario. Mortgages, not surprisingly, account for a majority of the household debt. As we generally tend to purchase a home every five to seven years, not a lot of time goes into understanding about the mortgage process, and there are often some misconceptions that interfere with informed decision-making.

It is best to get a 360 degree view of what taking out a mortgage entails. For instance, on the question of whether you should pay off your mortgage early, financial experts agree to disagree. Some recommend that you make mortgage repayment a priority, some suggest allocating 15% of your income towards retirement savings before tacking your mortgage, while others prefer a combined strategy where you reserve 10% of your income to retirement, 5% to mortgage repayment, and 5% for future aspirations. The perfect answer to this conundrum depends on your unique financial situation. A wealth manager, after careful analysis of your income, repayment ability, investment objectives and life goals, can suggest a suitable plan of action.

Student Loan

A student loan is an investment in your future. Government student loans are available at lower interest rates than private loans, and come with a number of repayment options that give borrowers a breather if they're unable to land a high-income job soon after graduating, or they lose their job for some reason.

How Does Debt Affect Estate Planning?

Debts die with the death of the individual. But it can eat into inheritance in a major way. When an individual dies, his/her assets are sold off to pay off as many debts as possible. Secured debts are first paid off, followed by unsecured debts, and then the inheritances specified in the will are accounted for. If, after selling the assets, debts still cannot be paid off in full, nobody is legally obligated to pay the debts and creditors accept the loss. Keep in mind that debt can be inherited in certain cases. If you have cosigned on a loan, you will be legally bound to repay your share of the debt. As a joint account holder, if you provided your income and credit history to obtain a loan or credit card, you will be legally bound to pay the joint debt. In some US states, widows and widowers living in a community property state will be liable to pay their deceased spouse's debt. To avoid making it difficult for the surviving spouse – especially if he/she does not earn any income – there are three steps you can take immediately :

How Do Debts Figure in Your Long-Term Investment Plan?

A common mistake that most people make is taking on substantial bad debt. Once debt has accumulated, the focus usually turns to leveraging assets to gain a good return on investment. Instead of trying to find the next superstar stock, it makes more sense to pay off a credit card charging a 15% interest. You are essentially earning a 15% investment return. Similarly you can use debt as a tool to fund your long-term investment goals. For instance, a home equity line of credit (HELOC) can fund an emergency expense and keep retirement funds intact. Mortgage refinancing can save you hundreds of dollars a year. A low interest loan can help you pay for college, own a property or start your business.

It is important to differentiate between good debt and bad debt. Any debt that enables you to leverage your assets to build wealth and offers tax advantages, is good debt (mortgage). Bad debt is any debt that depletes your wealth (high-interest credit cards). But good debt can turn into bad debt if you don't have a repayment plan to pay it off in full. To make debt repayment less challenging, consider the following tips: Seek out the best interest rates you can find.

When acquiring a credit card or unsecured loan, compare the rates and terms across several lenders to find the best possible deal. A competitive interest rate and flexible repayment terms can make it easier to both manage and eliminate debt less painfully. Researching lending rates should be a critical first step to ensure that you're not biting off more than you can chew.

Pay more than the minimum

By making only the minimum monthly payment, you only end up increasing the cost and length of your debt. A best practice to pay off credit card debt is to make more than the minimum payment, so you can get debt-free within two or three years instead of seven or ten.

Picture worst-case scenarios

What if you lose your job or a family member falls severely ill? It would be extremely challenging and stressful to pay off your debt. Imagining a worst-case scenario can help in prioritizing and taking action on debt repayment.

Six Steps to Freedom from Debt

  1. Assess your debt: To understand the impact that debt has on your finances, make a list of all outstanding balances, along with the interest rate and monthly payments. Find the total balance and examine how much each debt is costing you each month.
  2. Set a goal: The purpose of goal-setting is to stay focused on eliminating debt within a targeted time-frame. For instance, you must increase contributions to your retirement account over time or reallocate assets as you approach retirement.
  3. Similarly, you must remember to pay down as much of your credit card balance as you can, when you can. By setting and taking action on goals, you are more likely to achieve them than if you were to passively automate your credit card payments or not engaging actively with your RRSP.
  4. Prioritize payoffs: Forget calculations and online tools. Just look at debts with the highest interest rates and make as high a payment towards them as you can afford, while making minimum payments towards other loans. If there is little or no difference in interest rates, prioritize debts with the longest term or highest balance. Your ultimate objective should be to become debt-free by retirement, when you need to survive on a fixed income with the possibility that health-related expenses could rise.
  5. Keep a check on your expenses: When you sit down to assess your expenses, you're bound to discover some unnecessary ones that have been draining your money. Fees for services, memberships or even phones that you don't use, need to go immediately. A quarterly assessment of expenses can save you quite a bit of cash, which you can use for debt repayment.
  6. Create an emergency fund: Just as you take steps to reduce debt, set aside an emergency fund – such as a short-term savings account – for at least six months of living expenses. This liquidity can be helpful when you're faced with an unexpected expense, such as a medical or car repair bill. You don't have to rely on your credit card and rack up more debt, and your debt-reduction plan will also stay the course.
Ivon T Hughes

About the Author

Ivon T. Hughes

Ivon T Hughes is a leading expert in life annuities in Canada. His website LifeAnnuities.com is a recognized authority on annuities. He's also an established insurance and investment broker, through The Hughes Trustco Group since 1972. Recently, he's been redefining how annuities are sold in Canada.

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The Hughes Trustco Group | Website: LifeAnnuities.com | Email: info@trustco.ca | Toll Free: 877-842-3863