the broken typewriter

By Brad Brain

Recently I connected the dots on a series of apparently unrelated events.

The first event was when my wife, who was in Vancouver at the time, went into the bank to transfer some money to me back home in Fort St John. She was advised by the bank clerk to do this by wire transfer. This is shockingly bad advice.

As a financial advisor, I move money around for clients all the time, under all sorts of circumstances. In my lifetime I have done exactly one wire transfer, and that was by necessity.

The reason that people don’t use wire transfers very much any more is because they are expensive, and they take a long time. Of all the ways that spouses can transfer money to each other, a wire transfer is probably the least desirable. Nonetheless, that was the bank clerk’s proposed solution.

The next event was when my daughter, who has started her second year at the University of Alberta, texted me that she has paid her tuition but still needs money for rent, and can I send her some money from her Registered Education Savings Plan.

The part that I took notice of is that she didn’t just say “Dad, send money”, but rather she specifically asked for funds from her RESP.

The third event was when I was speaking with a life insurance advisor, who was proposing a permanent life insurance solution for a particular situation where other solutions were potentially a better fit for the client. It was unclear to me whether these clients were looking for protection and security, or if they wanted a pure investment.

What struck me is that, while these events are independent of each other, there is a common theme. Using the right tool for the job.

It brings to mind the expression, “To the man with only a hammer, everything looks like a nail.” What this means is that if all you have is a hammer, then you are forced to try to use that to solve every problem you tackle, even when the hammer is not a good fit.

Have you ever smashed in a screw with a hammer? Sure, you can eventually get the screw into the wood, but you are likely going to make a mess of things and it’s probably not going to do the job as well as you want it to. Better instead to go find the right tools. You can find a nail for the hammer, or you can find a screwdriver for the screw. Just don’t attempt one-size-fits-all approaches when that is not a good fit for the situation.

In the days before Registered Education Savings Plans, some financial advisors proposed life insurance as a tool for education funding. I never did like that idea, but if that was the only thing that those advisors had to work with, then that’s what the clients heard about.

I was pleased when my kid asked for funds to pay for school and used her Registered Education Savings Plan by name. I have been preparing for this day for 18 years. RESPs are the right tool for the job.

Don’t get me wrong, I am a big believer in life insurance, and coincidentally I was concurrently proposing a permanent life insurance solution for some of my own clients. But – importantly – my client’s objective is estate planning.

Life insurance can be a great solution for estate planning. You can get tax free growth, a tax-free transfer of assets to the next generation, avoid probate fees, and never worry about the Wills Variation Act. In this case it’s the right tool for the job.

But I still would not use life insurance for education funding.

The takeaway for you to consider is this. How many tools are in your advisors toolkit? Is your advisor trying to solve all problems with a hammer? Or do they have the ability to use the right tool for the job?

There are a number of ways that advisors can be limited in what they can do for you. Maybe they are only pushing their employer’s agenda. Maybe they are limited in the products they can offer. Maybe their circle of competence is not great.

And, to be fair, this isn’t always bad. If all you want is to get a nail into a piece of wood, then you don’t need anything more sophisticated than the hammer.

But it is worth your time to give some thought to how big your advisor’s toolkit is. The alternative is paying fifty bucks in wire transfer fees and waiting three to five business days to move money between spouses.

Even if it might work, it’s like pounding in a screw with a hammer.

Brad Brain. CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.