How do you talk to clients about their debt? How to take the conversation from just a recitation and recording of their current debts and change it into something more meaningful?
At a recent M3 event, brokers learned how to shift their thinking about how to approach client debt, and conversations around it.
First, it helps to understand how comfortable Canadians are with their existing debt load. Clients need to know that they’re not alone in their debt burden. Misery loves company, and plenty of Canadians rank financial anxiety high on their list of things that keep them up at night. The truth is, so many people are carrying debt, that the conversation is inevitable anyway.
Nearly half of Canadians have had an unexpected financial situation during the past year that affected their ability to meet their financial obligations. Stuff happens, and people generally don’t have ample emergency funds. What does that tell brokers? If brokers wait until near the end of a mortgage term to reach out to these clients, they’ll miss many points where those clients could’ve been helped.
A lot of brokers do an annual mortgage wellness check, but looking at this data, a twice-yearly check-in could be a better option. This way the borrower understands that their broker isn’t only helping them to get a mortgage, but helping them through some of their financial difficulties and changes with advice on how to handle credit, and how to structure that credit in order to afford a home. These are big opportunities to stay in touch with your clients, review their portfolios, and do a full mortgage check up, so that a broker is the person they turn to when they do hit that tough spot.
Not only is this a conversation with past clients, but it can also be a chance to have the conversation right off the bat with the mortgage application. Rather than simply asking ‘what do you owe?’ the question could be, ‘how long have you carried that debt? Maybe we can get rid of some of the smaller ones to help you get out of debt faster.’
The most recent Manulife Debt survey revealed that spending is increasing faster than income. When discussing debt with clients, however, it’s worth noting the generational nuances.
Debt isn’t just about money that people owe; it’s about how those payments affect peoples’ ability to build wealth in the future. For the generation known as the silent generation, Manulife found, debt peaked when people were in their mid-30s and wealth peaked in their early 60s. At that time, people were paying down their debt and then growing wealth.
For the baby boomers, debt peak moved to their early 50s. In other words, they spend almost 20 more years of their lives in debt compared to the previous generation. Their wealth peaked in the late 60s, which means they had a much shorter time between building debt and being able to amass wealth.
This trend is clearly shifting even later, as millennials are expected to hit their debt peak in their late 50s, which means that they’re going to have to work even longer. People need help in being able to get out of debt faster, because if you’re still in debt until your late 50s and you want to retire at 60, there’s not much time to prepare. Wealth peak for millennials isn’t expected to hit until their early 70s.
Given the shift in both debt and wealth peaks, there are generational differences in how people feel about debt. Forty-one percent of respondents said they didn’t believe they’ll ever be debt free. Because of this, it can be an uncomfortable conversation for them to have. The good news is that while 40% of survey respondents are uncomfortable with current levels of debt, only 18% are uncomfortable with their mortgage payments specifically, and even fewer are uncomfortable with the amount of money that they owe on their mortgage.
People are looking to get out of debt in various ways: low interest credit options for debt consolidation, debt management courses, having a written financial plan, or technology available that they can use to manage their debt. Info on debt management and courses that are available locally or online are an easy inclusion into presentations or conversations with clients.
Somehow, regardless of their debt load, 78% of people are optimistic about their financial future.
Brokers may have more opportunities for business by helping existing clients better manage their debt versus having to chase new clients who are looking for a mortgage. For the people who think they’ll never get out of debt, brokers can really effect a change in their mindset and their lives in a positive way.
Brokers who own the debt conversation will own their clients for life.