The 7 Dangerous Financial Planning Mistakes

Continuing Education for Financial Service Professionals

The 7 Dangerous Financial Planning Mistakes

The 7 Dangerous Financial Planning Mistakes Copyright 2013 Centre for Life Insurance and Financial Education All rights reserved. Any reproduction of parts or all of this book and its contents by any means electronic or mechanical is prohibited. & The 7 DangerousFinancial Planning Mistakes is relevant to all those who work in the financial services industry or in association with life insurers. The information in the course is provided for educational purposes only; it should not be construed or interpreted as providing advice. Agents and advisors should always seek guidance from their principals and compliance experts in regards to informing themselves and others about details of the products they sell and other considerations of their business.

& We welcome all feedback and suggestions for additions to the course. Please send your comments to info@clifece.ca.

CLIFE INC. 1595 Sixteenth Avenue Suite 301 Richmond Hill, ON L4B 3N9 www.clifece.ca The 7 Dangerous Financial Planning Mistakes continuing education credits for life agents, CFPs, and accident and sickness agents is provided upon satisfactory completion of an online test. Please see the website for details or email info@clifece.ca.

The 7 Dangerous Financial PlanningMistakes Overview This continuing education course is an overview of some common errors in thinking made by consumers of financial planning products and services.

Undoubtedly you will identify prospects or clients who have made or continue to make some of these mistakes. The information provided in this course can help you to help them change the error of their ways.

These mistakes are our opinions based on research; there may be more that could be added. Please let us know at info@clifece.ca if we should supplement this information with your personal experiences.

Mistake No. 1: “I don’t need a plan.”

What is a financial plan?

There is no hard and fast rule for what constitutes a financial plan. A financial plan is both a picture of present-day finances and a stab at what the future could be, based on an actionable set of recommendations.

Generally, it is agreed that a financial plan includes current assets and liabilities to determine net worth, and includes a provision for tax owing.

One factor that is true of all financial plans is that they are written document; they do not exist in the mind alone.

That may sound obvious but it isn’t when you consider how many people think they budget successfully in their head, or keep track of their bank account balances in their head. The brain can be very deceptive! It forgets and it can play wishful-thinking games on its owner.

Therefore, to be of any worth the financial plan must commit to paper the following: -

current household income;

-

current household assets including type and value of company pension plans;

-

current household liabilities, including tax owing;

-

investments in registered plans: amounts and allocation;

-

investments in non-registered plans: amounts and allocation;

-

insurance in place: types, amount of coverage, who is covered.

All told, this information should show how an individual’s money is being put to work. Is the money being used effectively and efficiently for savings, investing, and debt? Since most people do not have money to waste, the picture that results from putting these numbers together in one place can provide a significant motivator for a plan to be formulated.

The Purpose of a Plan

Knowing that the purpose of a financial plan is to try and improve the future for the client makes it difficult for a person to deny its need.

Open to Interpretation Because there is no hard and fast rule for a plan and no definitive template for what a financial plan looks like, the idea of what makes a financial plan is rather tentative. This makes it easy for clients to deny their need for a plan.

Some people are visual learners: they learn by watching. Show them a plan you have prepared for someone else (keeping it anonymous) and how the information in the plan led to recommendations, and the results of those recommendations.

Keeping a plan simple is an excellent strategy. Pie-charts, diagrams, projections, and jargon can be intimidating and off-putting. It has been said that "You have to know something very, very well in order to explain it very, very simply.� Be the person whose depth and breadth of knowledge allows you to simplify the complexity that could be overwhelming to a person who is developing a plan for the first time.

Greater Accuracy in Short-term Plans A financial plan can plan for short-term needs and circumstances, and take a stab at the long-term. The long term is tricky because things change and events cannot be predicted. If a client denies the need for a plan because he or she correctly points that the future is uncertain, focus on getting the short term, say a three to five-year period, as detailed and accurate as possible.

Doing a rough cut on the long term at least commits the individual to thinking about what they want and when, and can begin a savings and/or investing strategy for the long term that can become more focussed with time. Retirement, for instance, would be a long-term goal for an

individual who is 41 years’ old; it is impossible to say exactly how much money will be needed because no one can says exactly how the money will be used. But starting to save for the eventuality takes advantage of compounding over the coming years and makes a commitment towards the goal.

The Need for Upkeep A financial plan must be monitored and changed according to changing circumstances. These circumstances may be personal, such as loss of a job or an increase in earnings, or economic, such as an increase in interest rates.

Also, dates may arise that demand action. For instance, if a term insurance policy is coming up for renewal, you would be remiss to allow the date to pass without determining the client’s need for the insurance and future insurance plans.

An astonishing number of people do not realize they can mature their RRSP into a RRIF or annuity; many believe it must be cashed out at maturity. As your client approaches retirement or reaches 71, make sure you have the discussion about plans for the account.

Other subject matter covered in this course includes; • Mistake No. 2: “I don’t need to set goals.”

• Mistake No. 3: “Time is my friend.”

• Mistake No. 4: “Where others go, I follow.”

• Mistake No. 5: “I know it all.”

• Mistake No. 6: “What’s mine is mine.”

• Mistake No. 7: “I don’t need a financial advisor.”

CLICK HERE TO ORDER