Monthly Archive: January 2016

“Prescription Before Diagnosis, is Malpractice”

Back in 2012, I attended an education conference in Las Vegas.  Frankly, I was disappointed at how little product and tax education that was being provided.  Instead of education, it seemed that the entire conference was focused on sales strategies (ie. increase sales, increase production, etc. etc.).  Honestly, I was having a really hard time sticking around.

On the second day of the conference, there was a speaker who during his ‘sales-focused’ session, used the phrase, “Prescription before diagnosis, is malpractice.” For those who do not know, I spent the first 8 years of my career working directly with physicians, so I started thinking really hard about what that expression meant in the context of my business (insurance/planning).

This was my conclusion……… my opinion, the reason so many people hate talking to insurance agents (investment advisors aren’t too far behind), is that traditionally, insurance agents “prescribed” insurance products to their clients.  No time or effort was used to diagnose what insurance (if any) a person/family needed (often, the only insurance discussed was mortgage insurance).  Worse still, professionals have never been required by their governing body for a needs analysis or plan before “prescribing” their insurance and/or investment product to make sure the client was well educated and informed (although things have been changing in recent years).

In the Financial Planning industry, “diagnosis” comes in the form of a financial plan and tax planning.  I rephrased the old expression to read, “Insurance and/or investment products that are sold, before a financial plan and tax planning, is non-compliant”.

My point is simple… should not be “prescribed” until a financial plan or needs analysis has been complete.  The case studies in this blog are examples of detailed “diagnosis”.

If you have never gone through the financial planning process, or have never had an insurance needs analysis completed, I strongly recommend reaching out to your financial advisor and book a meeting.

How Much Life Term Insurance do I Need? Let’s find out!

For the past several years I have met with hundreds of advisors.  Some of these advisors have a difficult time having the “insurance discussion” with their clients.  Others are only comfortable with the idea of using life insurance instead of mortgage/creditor insurance with their local bank.

There is a very simple method of going through a life insurance needs analysis.  There are two distinct steps:

  1. Do the Math
  2. Do you care?

Do the Math

There are 3 main factors that determine a term life insurance needs analysis.  Never forget these three:

  1. Debt Elimination (mortgage included): This number is very easy.  How much debt do you currently have as a family?  If one spouse were to pre-decease the other, ideally, this expense would be eliminated
  2. Education Costs for Children: The question I ask to every family is, “how much do you think education will cost for your children?” — there is no ‘right’ answer, but based on the education cost calculator provided by MacKenzie Financial, for 4 years of school plus living expenses, based on Ontario costs and inflation rates, will cost approximately $80-100,000/child (present value).
  3. Income Replacement to your Family/Surviving Spouse: Let’s assume that after death, your surviving spouse has no more debt, no need to save for education AND a family without a spouse/parent.  Things are much different. To me, you should want to calculate a certain level of income for as long as the children live in the house (let’s say age 20).  Below is a table that I created many years ago.  The top row is the number of years to replace income and the column to the left is the after-tax amount of income provided.    I literally print this table and allow client(s) pick their own number.


Let’s do an example:

Bob and Susan have a $500,000 mortgage and two young children (2 & 4).  Susan stays home with the kids and Bob earns approximately $100,000/yr gross (after-tax $70,000/yr).  What happens if Bob dies prematurely:

  • Debt: $500,000
  • Education: $200,000
  • Income Replacement ($40,000/yr for 20 years – see table): $676,000
  • Less: Current Insurance
  • Less: Current RESP’s

Make sense?

Do you Care?

As a professional, my job is to show the math and explain where life insurance fits.

However, as a client, you may not “care”.  You would be surprised how many times I’ve been told that, “we’ll just sell the house”.  My response to that specific objection is, “let’s me get this straight…Dad dies, mom has no husband, there is no more paycheques and the solution is to uproot the family from their home?  Really?”

My job is to make sure we have this awkward conversation and for me to challenge these conventional objections and help better educate.  Not everybody has to be a believer, but ALL advisors should have this conversation with their clients.

A Collaborative Conversation with an Old Friend

Last week an old friend and former colleague of mine (John Cruise) had one of those ‘random and unexpected’ great telephone conversations.  I was driving from a meeting and called John to shoot-the-breeze.  45 minutes, later, I arrived at the office and felt invigorated about our conversation and wanted to share.

By way of background, John is a CFA (Chartered Financial Analyst) and does the same type of advanced financial planning that I do (  We were talking about client situations and John asked me the following question:

“When you look at a specific client situation and you had to rank the importance of the following 5 planning items, how would you rank them?  Those 5 items are: Tax Planning, Goal Setting, Investment Selection/Allocation, understanding the behaviour(s) of the client and developing a financial plan?”

There was only one difference between John’s answer and mine, but that’s what made this conversation so thought-provoking.  John told me that his list, ranked most important to least important was:

  1. Goal Setting
  2. Create a Financial Plan
  3. Understanding the Behaviour(s) of the client
  4. Tax Planning
  5. Investment Selection/Allocation

My ranking was as follows:

  1. Understanding the Behaviour(s) of the client
  2. Create a Financial Plan
  3. Goal Setting
  4. Tax Planning
  5. Investment Selection/Allocation

In just about every introductory financial planning meeting that I’ve had, when I ask the client about their financial goals, they always tend to be the same; “I want to have enough money to retire”, “pay off debt”, or “travel more” (in fact, most financial planning questionnaire’s include these as pre-populated answers).  These goals are not only predictable, but they are not specific enough for me to provide any expertise or clarity.  There is no emotion and absolutely no substance or rationale to help me develop a plan.

Instead, my goal for the first meeting is to learn the behaviour(s) of my client and try to understand the psychology of “why” have they amassed a certain level of wealth.  I try to figure out “why” they want to retire (I’ve learned that most don’t want to stop working, but rather work less).  I challenge business owners.  “Who’s going to buy your business?  How much is it worth?”

My goal is to ask a lot of pointed, personal, strange, engaging and otherwise ‘different’ questions to inspire discussion and get reactions (ie. Do they roll their eyes?  Do they get excited/angry?  Do they noticeably pause before answering specific questions?).

My point?  I use the information and emotions that I collected from the first meeting to develop the first draft of their financial plan.  When we have our next meeting, we have a new, more powerful and engaging conversation.  Better questions are asked, more clarity arises and “presto”, we start developing more specific goals based on the financial context to our conversation (ie. they see where their cash flow will come from.  I demonstrate what impact this has on the money left to their heirs, etc.).  The plan often needs to be revised/tweaked, but by then, the solution(s) start to become more obvious (ie. investment selection, tax planning, etc.).

Thoughts?  Please provide some comments.

My Friend Lisa…..Group Disability Claim

Several years ago (2009), before I owned my own firm, I worked with a wonderful woman named Lisa.  She was a mother of 4 boys and an active rep hockey/lacrosse mom.  Her husband was a homicide detective on the local Regional Police.

At the time, our employer had group life insurance which paid 60% of our earnings.  Employees had the premiums deducted from their paycheque to make sure that the proceeds of the insurance (if needed) would be paid tax-free.

The Incident

One unassuming day, Lisa came to work and announced that her doctor has ordered her to stay home from work.  She explained that she was diagnosed with “Intestinal perforation” (ie. this condition causes the contents of the intestines to leak into the abdominal cavity).  This condition is caused by Chrones Disease and made worse by stress (which 4 boys and a husband who works shifts can cause).  What made things more complicated was when the infection spreads throughout the body, it can cause “Sepsis”, which is very serious and can cause death.

Over the next 11-13 months, the doctors had a difficult time managing the correct dosages of medication.  Once the medication started to work, Lisa fell into a depression.  She was no longer able to participate in her children’s sports, she couldn’t work and overall her life was turned upside down.

Recently (ie. 3 months ago), Lisa finally returned to work….she lasted 4 hours and never returned.

How did the Group Long Term Disability Help?

The group disability policy had been paying Lisa a monthly tax-free benefit after she satisfied the 120 day waiting period.  It continued to pay for over 3 years.  After 3 years, the insurance company acknowledged that she was considered “totally disabled” and wrote a lump sum cheque for the full amount owing to her age 65.

Employers and individuals needs to recognize the financial risks of not being able to work.  Thankfully, our former employer implemented a group long term disability plan.  It protected Lisa from having to sell their home and they were able to modify their lifestyle despite her condition.