According to a recent CIBC annual survey of Canadians’ financial priorities, almost 50% of Canadians took the time to meet with a financial advisor, but only six percent thought to raise the issue of debt reduction during the discussion. Yet, the survey noted that paying down debt was a Number One priority for these Canadians. So why the disconnect?
Canadians obviously see the benefit of speaking with a financial advisor but apparently do not feel comfortable enough to talk to these trusted advisors about their main financial priority: Reducing their debt. This is a shame. And the result can be negative long term consequences for individuals.
For example, we see many people who have cashed in their RRSPs in the hope of solving their debt problems. Their RRSPs are gone, but they have not solved their financial problems. If these people had spoken with their advisor about their debts, or if the financial advisor had asked more questions about why the RRSPs were being cashed, retirement savings could have been protected.
Under the Bankruptcy Insolvency Act, with the exception of contributions within the previous 12 months, RRSPs are protected in a bankruptcy. That’s right — you can file for bankruptcy AND protect your RRSP. A Consumer Proposal is another solution that can significantly reduce your debts, while fully protecting your RRSP.
Many people, including financial advisers, are not aware that RRSPs are protected under Canadian insolvency legislation. Canadians need to understand that speaking to a Trustee does not = bankruptcy. Trustees have an ethical responsibility to review all options with individuals. Most of the people I see do not need to file a bankruptcy, and in many cases, we are able to make suggestions on how to deal with the debt that do not involve a formal filing with us.
Financial advisors need to ask more questions when RRSPs are being cashed and they need to have a Trustee on speed dial to get quick advice that can help their clients. Individuals need to feel more comfortable talking to a Trustee and need not feel offended if their financial advisor refers them to a Trustee.
Just like a doctor will refer you to a specialist to deal with your health issues, a financial advisor should feel comfortable referring someone to a Trustee, who is a specialist in reducing debt.