A 360° view
“For us, the objective of wealth management is to have a big picture view of the complete financial situation of an individual or a family,” explains Jean-François Bousquet, Investment Advisor and Portfolio Manager at National Bank Financial.
Beyond monthly savings that can cover unforeseen expenses or go towards a vacation, it’s crucial to know exactly what you have—and what you don’t have.
In wealth management, you have to make sure that all of the financial data is interrelated. Every aspect of an assessment must take into account what is going on elsewhere in the life of the person who is investing. The procedure begins with an in-depth evaluation of the investor’s personal, familial and professional situation.
“Once we have all of the data in hand, it’s easier, for instance, to come up with a retirement plan.” – Jean-François Bousquet
To help you prepare, here are four subjects that will no doubt come up when you consult a wealth manager.
Taxation
Let’s take the example of an investor that is only concerned with performance. “A lot of people only look at the growth of their portfolio without asking if they have the right securities from a financial standpoint,” says Mr. Bousquet.
It’s important to note that not all securities are the same from a fiscal standpoint. After examining a client’s specific situation, it is not uncommon to be able to find tax savings simply by reorganizing their portfolios. “Only by doing a detailed analysis of a client’s assets and objectives can we put together a coherent strategy from a fiscal point of view.”
Assets
You have investments, but how do they interact with each other? It is important to analyze the correlation of your securities to ensure that they won’t respond « to stock market fluctuations in the same way. This results in a more balanced portfolio.
That said, a market downturn isn’t the only risk out there.
If you invest in foreign securities, have you considered how your portfolio will react to fluctuations in currency? An exchange loss can quickly wipe out the return on an investment.
Is your portfolio of fixed income investments subject to a sharp correction in the event of rising interest rates? With the Bank of Canada hiking up its interest rate several times over the past few months, this is a significant concern.
When it comes to your assets, do you have some liquid investments in the mix that that can be easily sold if you need quick access to funds in the event of an emergency? This section of your portfolio can prevent you from having to sell investments at an inopportune time.
Have you taken into account the value of your residence in the management of your assets? Often this important asset for any family also yields a return: Its increase in value could provide leverage, in the form of a home equity line of credit, to finance other investments.
“Diversifying your investments is one of the most important pillars in building your portfolio, and only a wealth management approach will enable you to answer these kinds of questions,” says Mr. Bousquet.
Liabilities
This is the other element that is often neglected and that wealth management tackles head on. Here again, not taking “both sides of the assessment” into account can lead to unpleasant surprises.
“For example, if you only focus on your portfolio, you won’t see that there is a line of credit that hasn’t been reimbursed,” explains Mr. Bousquet. However, once this debt is integrated into the overall plan, we can manage it.
“That’s a very common question actually: Should I pay off one debt before another?” Mr. Bousquet says. The answer is yes: As a general rule, reimburse the one with the highest interest rate first.
Once again, managing liabilities will be influenced by your complete financial situation.
For example, should you pay debt X before starting to pay debt Y? It’s all a question of interest rates: If the anticipated return is higher than the cost of the debt, you’d adopt a different strategy than one where the debt is more costly than the return.
Insurance
How you protect your wealth will be different depending where you are in your life. When you have a young family, you need protection from unfortunate twists of fate. When you start to hold significant assets, like a residence, you have to protect your ability to pay for them.
During your prosperous professional years, it can be reassuring to take out employment or critical illness insurance so that you can maintain your income in case of bad luck.
Or if you don’t have access to a pension fund, you can purchase an annuity or contribute to an insurance product in exchange for retirement income.
“The only way to answer these questions is to have a comprehensive plan,” says Jean-François Bousquet. And the best way to have a comprehensive plan that takes all of these factors into consideration is to engage in wealth management.
