Do Your Clients Have Good Debt or Bad Debt?

Canadian household debt hit a record in the second quarter of this year, at $1.68 of debt for every dollar of income. As interest rates increase and debt levels soar, your clients run the risk of much greater uncertainty about their financial security.

Advisors can add value to their relationships with clients by expanding the topics of conversation in family wealth management to include the need for long-term debt management decisions. That’s why Family Debt Management is a subject of professional development at this November’s CE Summits.

Advisors can do much to properly prepare clients for a more expensive future due to rising interest rates. At the CE Summits, being held in four cities (Winnipeg, Calgary, Vancouver and Toronto), Marcia Elaschuk, DFA-Business Services Specialist, will teach advisors how to incorporate new professional advice on this critical topic in 2017, integrating a planning approach to both “good debt” and “bad debt.” Specifically, the following topics will be discussed:

• Managing Debt through Life Milestones – Finding new money to pay down debt is going to be a challenge, especially since after-tax dollars are shrinking for many taxpayers. What are the life milestones that trigger a debt management problem? How can you be pro-active in providing financial assessments to ward off financial crisis? How can you use tax strategies, including contributions to RRSPs and TFSAs, to manage debt and minimize risk? 
   
• Managing Consumer Debt – For families, consolidation of lines of credit, student loans and credit cards to finance life events is a key ingredient to solvency and savings. The advisor should be instrumental in helping clients choose the right debt and achieving better credit scores. More important, the advisor needs to discuss repayment strategies and options before debt is assumed.
   
• Active and Working Cash Flow – Identify fixed and variable costs in a typical family balance sheet when things change. How the difference between active and working cash flow used to grow family wealth is important. How do we add in life insurance, disability and critical illness insurance to manage risk to assets and debt? Tools: Financial Assessment Calculator
   
• Presenting Debt Management Solutions – How to consolidate debt in various stages of life cycles: Students, Families and Seniors. Tools: Debt Reduction Solutions Calculator
   

Specific types of debt will also be discussed:

• Tax Debt:  It’s potentially the worst kind. CRA doesn’t like to wait for money and the daily compounding of interest on outstanding balances and penalties is very expensive. Professional advisors can help.
   
• Mortgages: How to build a better mortgage reduction plan. How much is affordable, what to do when it’s unaffordable, what should your debt to asset ratio be? When to borrow against equity: converting non-deductible debt to deductible debt. Tapping into equity in retirement. The popularity of home equity loans:  what are the pros and cons?
   
• Vehicle Loans & Leasing: Should you own or rent? This is an important question all advisors need to answer for their clients. The after-tax results are a critical piece of the puzzle. Understand hidden fees, and add-ons at purchase and on disposition. Tools: Income Tax Estimator, Take Home Pay Calculator
   
• Business Debt: Understanding the cash flow statement of a business and what lenders look for in assessing creditworthiness of a business. What ratios are important for a business to maintain; Debt Ratio, Debt Service Coverage Ratio, Current Ratio, Quick Ratio and Receivable Turnover.

Knowledge Bureau’s CE Summits, touring this fall, will provide you with the tools and education necessary to effectively prepare your clients during this time of great uncertainty. You are eligible for discounted registration rates if you enroll prior to our October 31^st deadline. Learn more about the cities we’ll be visiting and the curriculum we’ll be focusing on via our CE Summit Agenda. 
 

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