By Jade Hemeon
National Post
FP Investing
Monday, January 17, 2005
Advisors and clients alike can minimize stress of contribution deadlines by planning.
As soon as the holiday season ends, advisors must plunge into an even busier time of year -- the RRSP season. Not only are energy reserves slightly depleted from the holidays, but many clients are facing empty wallets and overloaded credit cards.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, "I make RRSP season a year-round affair, and that involves conditioning the client. Most of my clients are actually ahead of the game, and we're now dealing with contributions for 2005.”
Naturally, most people would rather think about going away on vacation to escape the winter blahs than about forking out for ever-increasing contributions to their registered retirement savings plans.
Experienced advisors have found ways to make it to the RRSP deadline with a minimum of stress. They involve early planning, delegation, and strategic communication with clients to persuade them procrastination is not in their best interests.
"I make RRSP season a year-round affair, and that involves conditioning the client," says Adrian Mastracci, an advisor with KCM Wealth Management Inc. in Vancouver. "Every client already knows what they need to contribute to their RRSP to reach their goals, as it's been mapped out in their written financial plan. I show them in financial terms that it's an advantage to contribute early. Most of my clients are actually ahead of the game, and we're now dealing with contributions for 2005."
Mastracci's calculations show if $10,000 is invested in an RRSP every year for 25 years and makes a return of 5% a year, the person who contributes at the beginning of the year -- that is someone who made their 2004 contribution last January instead of waiting till now -- would accumulate about $501,000 in 25 years. The procrastinator who is always a year behind would make $477,200, almost $24,000 less.
Peter Andreana, a CFP, sends out a newsletter in early January reminding clients the RRSP contribution deadline is drawing near. He then divides his client list among his assistants, who make calls to book appointments.
Some clients simply send a cheque in, deferring their detailed planning till later when advisors can spend more time with them. As long as the contribution is made in time, funds can be parked temporarily in cash until there's time for more thoughtful allocations.
"A lot of clients are short of funds, and I encourage them to invest what they can now, and then start an automatic contribution plan going forward, so money comes out of their bank account automatically," Mr. Andreana says. "Monthly contributions make a lot of sense when people are faced with the difficulty of coming up with large sums."
A regular monthly contribution also results in "dollar-cost averaging," which smoothes out ups and downs and removes market-timing from the decision-making process.
At today's low interest rates, borrowing can make a lot of sense, some advisors say. A one-year RRSP loan at the prime rate of 4.5%, works out to an average interest cost of 0.38% a month, and the tax refund will, at least partially, pay back the loan after a few months.
Other advisors feel borrowing for RRSPs can set up a repetitive pattern whereby each year at this time the client will just be finishing paying off the loan, and once again won't have money to invest. They prefer to seek opportunities throughout the year to make significant RRSP contributions, taking advantage of tax refunds or company bonuses, or the maturation of a bond or cashing of a stock outside a registered plan.
"With RRSP limits at $15,500 for 2004 and $16,500 for 2005, clients are not finding these amounts in the petty-cash drawer," says Warren Baldwin, regional vice-president. With the rising RRSP contribution limits, the size of tax refunds is also getting larger, and can be ploughed back into plans.
Unfortunately, humans tend to be deadline oriented by nature, and many will continue to wait until they feel the pressure of time running out.
Many advisors work evenings and weekends near the end of the RRSP contribution season, and some hire temporary staff to assist with answering phones, writing letters and doing routine administrative work. Others prefer to ask regular staff to work longer hours, and give the time back to them in the summer when business is slower.
Many advisors minimize personal obligations in January and February, and find ways to counteract their stress such as physical exercise or booking a massage every couple of weeks.
Office hours are typically extended into the evenings in February, and some advisors find it helps to have a healthy meal delivered to the office during busy times, either by family members or a good takeout service.
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