Sanity, children and order, pick 2.

Like most people with careers and kids, mine is a busy family. This lifestyle involves the relentless tasks of homework, housework, yard work, pickups, drop offs, and of course the most unceasing of all...keeping everyone fed!

Don't underestimate the mental drain

• Feeding one's family takes time and energy. But even more than that, it takes up constant mental space. It might look a bit like this:
• You wake in the morning, have your tea/coffee/breakfast and wonder, 'what will we eat tonight?'
• Midday, while eating your food court lunch, you try to remember what's in the fridge that could somehow become an edible meal.
• Your workday draws to a close and it's on your mind again. You still have to have more deciding, defrosting and chopping to do in the tiny space between work and mealtime.
• You miraculously get a meal on the table and hear, 'What, chicken...again?!'
• You draw on all your remaining energy reserves to keep your cool.

This was our family's ritual for years. Once in a while we would commit to some version of meal planning but after a month, we'd be back to having last-minute spaghetti under a jar of sauce.

It's easy to see why families use alternatives like Skip the Dishes, fast food or subscribing to a meal delivery service. Paying a premium for prepared food adds up quickly though, and depending on your order may not be as healthy as you'd like. But it gets to the point where there just doesn't seem to be another way to make it all work.

We found an alternative. (starter tool is below)

Keep your meal planning ultrasimple.

In January 2018, we started with a one-week meal plan. Our family sat together for 10 minutes and came up with five nutritious and easy meal ideas that we all liked, to be eaten Monday through Friday. Spaghetti, tacos, stir-fry, butter chicken and pork chops if I remember correctly. Every week consisted of those same meals. And every week, the grocery list was the same too.No deciding, no worrying, no stress.

We'd mix it up on the weekends for variety. Even so, the one-week meal plans got old after a couple of months. We now have a 3-week rotation; that's 15 meals that we all like that are easy to prepare.

This system has meaningfully streamlined our lives. If you are looking to lighten your mental load, it is worth trying. Here's a simple template to get you started. Remember, if three weeks feels like too much, start with one week and build from there.

Looking for some simple ideas to get started? Check out Calgary Co-op's well-designed recipe website that allows you to filter by skill level (I'm a big fan of 'easy'!), course, and category.

Do you have a meal hack you'd like to share? Let us know in the comments below.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

In the past year I have fortunately been diagnosed with celiac disease and moderate hearing loss. I say 'fortunately' because these afflictions are relatively easy to treat with a strict diet and hearing aids, respectively.Also fortunate is that this tax season, I will become personally acquainted with the medical tax credit. As a planner, it is gratifying to have first-hand experience on the same issues our clients may experience.

What is the medical expense tax credit (METC)?

The medical expense tax credit is a non-refundable credit*. Non-refundable means that you can receive a credit only to the point where your taxes are reduced to zero. It's like having a coupon for Tide. If you buy the Tide, you get money back equal to the value of the coupon. If you do not buy the Tide, the coupon is worthless. Similarly, non-refundable tax credits are of no value to a taxpayer once there are no taxes owing.

Non-refundable tax credits reduce your federal tax owing by 15% of the claimed amount. Provincial tax credits usually also apply. The amount varies across the provinces.

Who can you claim the METC for?

You will use line 330 or 331 of your tax return to claim eligible medical expenses.

Line 330 - Combined medical expenses for self, spouse/common-law partner and dependant children under 18

Line 331 - Medical expenses for 'other dependants' who depended on your or your spouse/common-law partner for support. Other dependants include:

• children 18 or over, grandchildren, parents, grandparents, siblings, aunts, uncles, nieces or nephews*

What can be claimed?

All eligible medical expenses can be claimed, even if they are incurred outside of Canada. However, you can only claim the part of the expense that you or someone else have not been and will not be reimbursed for.

Some common examples are:

• Dentist
• Prescription drugs
• Eyeglasses

Some eligible costs may pleasantly surprise you, such as in reproductive technology programs, laser eye surgery and private health services plans.

CRA provides a common list of searchable eligible medical expenses here, and a more exhaustive list here.

Health care services such as massage, acupuncture or chiropractor may or may not qualify for the METC depending on your province. Find out which health care services are covered in your province, here.For those of you in Quebec, you may be interested to know that yours is the only province in which a marriage therapist and sexologist both qualify for the METC!

Note for you Celiacs out there - Gluten-free food is eligible as long as you have a Celiac diagnosis and a doctor's note. It's a bit of work however. First, only the incremental cost of the GF food is claimable. For example, if regular bread costs $3, and GF bread costs $7, you can claim the $4 difference. Secondly, you have to track these incremental costs and keep your receipts in case you are ever audited. For tracking, a simple spreadsheet like this one will do.

For what time period can you claim?

You can claim medical expenses for any time frame within any 12-month period ending in the current tax year, and which have not been claimed in the prior tax year. For example, if you are claiming medical expenses on your 2018 taxes, your time period of expenses could be:

• March 2017 - February 2018
• September 2017 - August 2018
• January 2018 - December 2018
• Etc.

The point is that the ending month must be within 2018, and the period cannot include any previously claimed expenses.

How do you calculate it?

Step 1 - Add up the total amount paid in eligible medical expenses

Step 2 - Calculate the lesser of the following amounts:

• 3% of your net income (line 236)
  or
• $2,302

Step 3 - Subtract step 2 from the amount on step 1. This is your claim amount.

Example:

Whose expenses can I combine?

While line 300 allows you to combine expenses for yourself, your spouse/common-law partner and your children under age 18, the same cannot be said for 'other dependants' on line 331. For these dependants, you must make the calculation separately for each person; expenses cannot be combined in any way**.

Can either partner claim the METC?

Yes! It is usually better for the partner with the lower net income to claim the eligible medical expense.

In summary, calculating your medical expense tax credit can take some time, research and organization. Your accountant or financial planner can provide you with guidance. Come tax time, you'll be glad of your efforts.

*A refundable medical expense supplement is available to working individuals with low incomes and high medical expenses.

**Ontario and Northwest Territories have maximum claimable amounts with regards to line 331 dependants.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc.assumes no responsibility or liability.

~Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.

Ronald Reagan

Imagine that you had $40,000 cash, and you decided to stuff it under your mattress (something we don't recommend by the way!) Almost every year, prices increase due to inflation. What's the effect of inflation on your purchasing power over time?

*assuming 2.5% inflation rate

After 25 years, you are able to buy only about half of what you used to.

The general inflation rate in Canada is measured by the Consumer Price Index (CPI). CPI reflects the rate of price change for goods and service bought by Canadian consumers.

Statistics Canada says that 'CPI is relevant to all those who earn and spend money'...in case that wasn't obvious!

Here's where things get interesting though. Not everyone's inflation rate is the same. CPI is based on a particular basket of goods and services. Because each of us consumes goods and services differently, we will each have our own personalized inflation rate.

For example, within the Food category, CPI includes over 70 items including:

• Meat
• Cheese
• Nuts
• Coffee
• Confectionary

If you are a vegan with a nut allergy who is trying to kick your sugar and caffeine habits, then your inflation rate for food may be quite different than the CPI calculation.

A recent article outlined the cost differences in specific categories since last year. Compared to 12 months earlier, Canadians paid:

• 14.2% less for gasoline
• 3.2% less for computer devices
• 13.2% more for fresh vegetables
• 5.2% more for restaurant food

Therefore, someone who shops organic fresh groceries, doesn't drive, and lives in a condo without rent control has a much higher inflation rate than a car driving, tech loving, rent controlled individual.

CPI measures an average basket of goods for 36 million Canadians. There's a low chance that anyone's spending exactly mirrors how the CPI is measured. This doesn't mean that CPI is useless but it does have limits to its applicability to individuals.

Inflation is a significant factor in your financial plan, especially during retirement when your ability to generate income is reduced. Make sure that your financial planner takes a responsible approach to account for inflation (one that doesn't involve stuffing cash under your mattress)!

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

If you belong to a defined benefit pension plan, you will eventually need to make a choice between:

1. Guaranteed monthly payments from your employer and
2. A lump sum, or 'commuted value', that you invest to provide a retirement income stream.

In the first case, the risk is born by the employer to pay the guaranteed amount for as long as you live, no matter the market conditions.

In the second, the pensioner bears the risk but also potential rewards of market performance.

The choice can be difficult. The pensioner must not only crunch the numbers, but also consider a number of uncertainties and intangibles.

Making the choice

Did you know that from an actuarial standpoint, taking a monthly pension is equivalent to the commuted value? That's because the commuted value already takes into account your gender, average life expectancy, expected interest rates, age gap between spouses, inflation and more.

So while that may take some of the pressure off, the key is to view your situation in light of those factors, as well as others.

Here are some typical considerations when making the 'leave or stay' decision:

1. Tax implications - When you take the commuted value, sometimes a portion of the funds are not eligible to be transferred to a tax-sheltered account. Instead, this portion would be taxable in the year received. Depending on the amount and your tax rate, the tax payable could be substantial.
2. Longevity - Do you or your spouse have longevity in your family? If so, you may have a better chance of 'winning' the pension game by collecting long beyond the average life expectancy.
3. Simplicity - Some retirees may enjoy the comfort and simplicity of a life-long guaranteed income that is hands-off and requires little decision making. Pensioners can spend right up to the last dollar each month without worrying the money will run out.
4. Risk tolerance - Conservative investors may lean toward a pension, while more risk tolerant investors may feel they can achieve a higher retirement lifestyle by managing their own investments.
5. Other assets - Your financial plan may show that you already have enough assets and/or guaranteed income to achieve your retirement objectives, without the need for a defined benefit pension payment.
6. Pension splitting - Pension income can be split between spouses prior to age 65. Income derived from a commuted value can be split as well, but not until after age 65.
7. Legacy goals - Since a pension generally dies with the member (or the member's spouse), a retiree with a strong desire to leave a financial legacy may gravitate toward the commuted value option. On the other hand, having a pension may allow an investor to take more risk with their other investments, potentially leaving a higher inheritance!
8. The funding status of the plan - Over the past decade, the public has seen the failure of some high-profile pensions. Depending on the solvency of the pension plan, a pensioner could potentially be lowering their risk exposure by taking the commuted value.
9. The source of your financial advice - There is the potential for bias when asking an investment advisor which option is best for you. An advisor focused on managing more of your investment assets might be (consciously or subconsciously) over-emphasizing the benefits of the commuted value option.

While it may be tempting to duplicate what those in your peer group have decided, the commuted value decision is highly dependant on many factors unique to you and your pension.

An independent financial professional can analyze your options, and help you make the right decision. And don't delay! If you're within five years of having to make a pension decision, talk to an a trustworthy advisor.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Free money

Registered Education Savings Plans (RESPs) are the best way to save for your children's education. That's because the government provides at least a 20% match of your contributions*, and who doesn't love free money? These matching funds come by way of the Canada Education Savings Grant, which is deposited directly into the RESP account.

An RESP account can attract a lifetime maximum CESG of $7,200. For example, if you contributed $208 per month into your child's RESP from when they were born, and if you received a 20% match, the CESG would be maximized when your child was 14 years and 5 months old.

Finding out how much free money has been received

Unless you follow this 'perfect' approach to RESP savings (and most parents do not), you may not have a clear idea as to when the account is getting close to the CESG limit. Don't worry, you will not have to build a spreadsheet to find out!

Although it is not the easiest number to find, you can contact the Canada Education Savings Program directly at 1-888-276-3624 to find out how much CESG has already been attributed to your child. You will need to know your child's SIN.

Note that you can still contribute up to $50,000 on behalf of a child to their RESP, but the account will not attract matching funds once the CESG has been maximized.

Family RESPs missing out on hundreds of dollars

In our family, we have all three children's RESPs under one family RESP account. Until recently, the default allocation for our annual contribution was 33.3% to each child.

Now that our oldest is 14 and a half, she has approached the maximum CESG limit. This requires that two actions be taken:

1. Halt further RESP contributions on her behalf to the account
2. Adjust the percent allocation to 50% to the remaining two kids, and reduce her allocation to 0%.

The second point above is important, and one that could get easily missed in a Family RESP. If the reallocation is not done, then future RESP contributions would continue to be attributed to her. This would mean that:

1. Future contributions would not attract CESG on her behalf and
2. The other children would unnecessarily miss out on some CESG.

Family RESP example

Let's use more concrete numbers to clarify.

• Up until now, RESP contributions have been $7500 per year ($208 per month, per child). Each child's RESP receives ? of that amount.
• Oldest child has maximized the CESG. Therefore, contributions are now reduced to $5,000 per year.
• If allocation is not changed, this $5,000 would continue to be split ? to each child ($1666 each).
• Oldest child does not receive CESG because maximum limit already received. Other two children receive only $333 each in CESG instead of $500 each ($1666 X 20% = $333).
• Therefore, allocation must be changed to 0% oldest child and 50% each remaining children to get maximum CESG for them. This typically cannot be done online and you will be required to fill in a form.

Your financial institution will likely not be on the watch for maximized CESG, nor will they proactively suggest reallocating the Family RESP contributions.

This means that your children could be missing out of hundreds of dollars in free money!

Your next step

Be aware of how close your child or children are to their CESG limits, especially if you've had the RESP open for a while. You can find out by calling the Canada Education Savings Plan at 1-888-276-3624. From there, you may need to adjust your contribution amounts and/or the defaults of your Family RESP allocation.

If you have questions, be sure to speak to your advisor.

* Subject to annual and lifetime maximums. For more information visit the Employment and Social Development Canada site.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Whether you keep your tax records in a fireproof safe on the second floor, stacked up beside the microwave, or in five coloured folders in your home office... deciding which ones to keep and which to discard can be stressful and time-consuming.

The golden rule? Hold on to anything you used to complete your tax return in a given year.

The 2^nd golden rule? Create a simple system that you, personally, find it easy to stick to. The time you take to create the system will easily pay off over the years, in both saved time and decreased stress.

Depending on the complexity of your portfolio, many different factors can go into calculating your taxes. Some you know already - tax information slips such asT4s for employment income and T5s for investment income should be kept on file, as should accounting books and records. This includes consumer bills for tax-deductible expenses, invoices, and vouchers.

Investment statements and trade confirmations can also prove useful if unforeseen issues (like an over-contribution to a TFSA or an RRSP) pop up. On the other hand, the receipt for the new set of bath towels you bought last week won't have any impact on your tax return (unless, say, you're running an AirBnB), so it and everything like it should be tossed away.

How long do you need to hold on to your tax records? The CRA advises to keep tax documents for six years after the end of the tax year to which they apply. In practice, this is 6-7 years from the date listed on the document. If you have a non-registered account, it's wise to keep these records for longer, as they contain information (such as original purchase prices for securities) that will be necessary to determine your taxable capital gains if/when you decide to sell.

However - there are a number of reasons to maintain tax records for longer than seven years, not all of them related to a possible CRA review. In the event of a divorce, for example, statements and tax documents that show your assets prior to marriage can come in very handy - under net family property law, assets accumulated before marriage are not subject to division of assets. Similarly, matrimonial homes and proceeds from inheritance or insurance settlements are excluded from the division of net family property, but only if proper documentation is available to show that these assets weren't blended in with the family funds.

At the end of the day, your own personal judgement can go a long way towards easing the burden of tax season. And of course, if all those official-looking envelopes and statements that come through your mailbox get to be a bit too much, you can always reach out to your financial planner for guidance.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Of course there's a catch, and it's in the limit on how much you can contribute. The thing to keep in mind - and I suspect you know this already - is to maximize the amount you put in your TFSA every year. It's a no-brainer.

How much can I contribute?

Oh the joys of online data! The CRA tracks all of your TFSA contributions, updating the figure every January - even if you have more than one TFSA, with more than one institution (you can have several TFSAs, but the number you have does not affect the amount you are allowed to contribute each year). However, you'll need a CRA account to access this data. I highly recommend going through the process of acquiring one (check out this cheery little 3-minute video to learn more, and/or start here), particularly for those of you who don't excel at paperwork.

You can also find your TFSA contribution room in your latest tax return.

From your CRA login - what next?

If you're having trouble finding your contribution room with your CRA login, here's a step by step instructions (with screenshots!) to guide you:

1. Go to theCRA My Account login page.
2. Log in, either through your sign-in partner (typically your bank) or your chosen user id/ password.
3. Click on the RRSP and TFSA tab
   
4. ClickTax-Free Savings Account (TFSA) which is likely the last of the links shown, below your RRSP deduction limit and Home Buyer's Plan.
5. Now, click on 'Contribution Room' which should be the first link you'll see.
6. You're now at the disclaimer - you may even want to read it. Once you have (or haven't!) clickthe blue Nextbutton underneath.
7. Now you'll see your contribution room for this year, which will probably look like this screenshot. If you've read the disclaimer, you'll already know that any contributions or withdrawals you've made this year will not be included - as mentioned above, the number is updated once annually, at the beginning of each calendar year.
   
8. Make sure you use that contribution room, this year and ongoing - make it an investment priority!

More about TFSAs

For those of you with adult children, now's the time to get them started on a TFSA, if they haven't already. In summary

As of 2015, only 10% of Canadians had maxed out their contributions to the TFSA! For anyone trying to save for anything - house, retirement, 3-masted yacht - the TFSA should be your first port of call. Plus, as I've mentioned before, no government program is ever guaranteed to return year after year - get it while it's hot!

To find out more about TFSAs,click here for the CRA webpage.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Boring Betty and Procrastinator Paul

Let's take the example of Boring Betty and Procrastinator Pete.

Boring Betty has been contributing the maximum since 2009, when the TFSA program started. As of this writing, Betty has contributed annually for 2009-2018, for a total of $57,500. And while Betty is indeed boring, she is a natural investor with an excellent advisor, and now has a total of $91,425 in her account - tax-free. Has she over-contributed? Definitely not!

If you're wondering how we calculated the $91,425, you might want to try out this TFSA returns calculator. Fill in the number of years you expect to contribute (the younger you are, the more potential years you have), expected rate of return, and initial contribution, and you'll see a *projection* of what you might earn.

Back to Procrastinator Pete, who has never yet contributed to his TFSA but just inherited a tidy sum. He happened to see Betty's statement when she was reviewing it on the bus, and now thinks he can deposit a full $108,000. Not a chance! Paul caught the bus but missed the boat on the tax-free earnings he could have had by depositing annually. He can, however, contribute up to $57,500 on his 2018 return.

But you really have over-contributed - now what?

So. Let's say you really have over-contributed. Now what do you do?

You have two options:

1. Let your TFSA provider know (now!) how much you need to move out of your TFSA. Not because the boys in blue are about to turn up at your door with cuffs, but to minimize the fine you'll pay. Over-contributions are subject to a 1% penalty tax per month (on the over-contribution amount only, learn more at the CRA site, here). You don't want to pay that interest, and you don't want to be going against regulations.
2. If by any chance you have more than one TFSA account, you may have contribution room available in another account, and you can move the surplus into the second account. However, note that having two or more TFSA accounts does not in any way affect the maximum contribution room allowed.

In summary

It's hard to believe but (as of 2015) only 10% of Canadians are maxing out their contributions to the TFSA. For anyone trying to save for anything, the TFSA should be your first port of call. So good on you for maximizing your TFSA contribution, it puts you in the top 90%.

Not to mention, no government program is ever guaranteed to return year after year - get it while the going's good!

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

To get that coverage, you likely did one or more of:

• Answer a bunch of medical history questions
• Provide blood and urine samples and possibly an EKG
• Permit your doctor and any specialists to provide medical reports to the insurance company
• Provide proof of income (in the case of disability insurance).

In other words, this was a decision you thought about and committed to.

Now you're covered; you've looked after your dependents. The insurance company is on the hook for a claim, even if your health deteriorates, as long as you pay your premiums. The premiums are your only contractual obligation.

But if you miss!

But one day you miss or are late paying your premium. It might be because:

• Your automatic monthly payment was rejected because of insufficient funds
• Your automatic monthly payment was rejected because you closed your bank account
• You pay annually and you didn't receive your premium notice, or you overlooked it.

You have 30 days

Most insurance companies offer a 30-day grace period to catch up on the missed monthly or annual payment.As long as you make that outstanding payment within 30 days of the due date, the policy stays in force. In fact, most policies will pay a claim if it occurs (a death for example) during the 30-day grace period.

After 30 days

After 30 days? The policy has lapsed and coverage ceases. It's true, many life insurers will reinstate the policy within two years, but medical evidence is required.And if your health status has changed negatively? Reinstatement may be declined.

Another possibility is that the insurance company offers reinstatement but at a higher price, or with new coverage exclusions that weren't part of the original policy.

What to do?

What should you do if you are offered reinstatement under less attractive terms than your original policy? If you still need the coverage, accept the new terms and consider applying elsewhere for better terms. If another carrier will provide coverage at a better price or with fewer or no exclusions, you can replace the original policy once the new policy is in hand.

Note that it's not just about changes in health. Financial changes can undermine a disability insurance reinstatement request; coverage amount is a factor of earned income. If at the time you attempt reinstatement, your income is much lower than when you applied (say you are temporarily in-between jobs), reinstating coverage at the previous level may not be possible.

Moral of the story

Do not miss your insurance payments! Of course, you don't want to miss any payments. But missed insurance payments can carry a particularly high penalty.

If your payments are annual, create an annual reminder in your electronic calendar. You may even want to do that for automatic monthly payments, to ensure funds are on hand (although that comes at a cost). Also, put your insurance company on the list of organizations to notify of an address change.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Why do Canadians voluntarily choose the more expensive option? And which option should you choose?

It's all in the pitch

For the insurance agent, the pitch is obvious.

'Mr. and Mrs. Prospective-Client, for $150 per month you can protect against one of your most significant financial risks.'

Mr. and Mrs. P-C consider the cost and can visualize being able to afford the extra monthly expense easily, or with modest lifestyle spending adjustments. The P-Cs are onboard.

What if the agent says:

'Mr. and Mrs. Prospective-Client, for $1,650 per year you can protect against one of your most significant financial risks.'

Now Mr. and Mrs. P-C consider the cost and see that it's on par with the cost of their annual vacation or holiday season budget. Not to mention, they may not have an extra $1,650 sitting in their bank account.

Now, they question whether they need as much insurance as is recommended. Or even question the likelihood of experiencing the risk (death, disability, critical illness), and choose not to insure at all.

Even though the annual option is $150 less per year than the monthly pay option. Yes, that's right. To the customer, the more expensive option feels more affordable than the less expensive one.

What would a more client-centred pitch sound like?

There's a way to ensure that you the client pay the least amount for the coverage you need. Here's how it works:

1. The agent presents the cost of the policy as a monthly figure, the annual premium/12. Using the previous example, the monthly cost would be $1650/12 or $137.50.
2. Advise the client that, when taking on an insurance policy on an annual pay basis, they must pay the first year's premium up front. However, this is only true the first year, as long as ...
3. ... You the client establish an automatic monthly transfer from your bank account to a high interest savings account. When you receive your second and following annual premium notices, the money will be there to pay it. Essentially, you are paying yourselves monthly, instead of the insurance company, and pocketing the savings. Better yet, since you were probably comfortable with the $150/m premium you would have paid monthly, you can set your automatic savings to $150, and the savings will accumulate in your hands.
4. This initial fiscal discipline sets you up for a lifetime of savings. To look at it another way, if someone offered you a guaranteed 9% return, wouldn't you jump at the opportunity?

Which one should you choose?

Before you decide, here's the one big caveat. If you ever miss paying your annual premium because you didn't save throughout the year, or you got busy with other things and overlooked your premium notice, or you moved and didn't notify the insurance company of your change of address ... you run the risk of the policy lapsing. Most insurance companies offer a 30-day grace period for late payment, but beyond that the policy will lapse and reinstatement may not be possible.

So! If you are somewhat of a scatterbrain about bill-paying or paperwork? You might want to choose the monthly payment; it offers more protection against the policy accidentally lapsing.

For everyone else, consider contacting your insurance agent and asking about switching to annual payments. That phone call could earn you as much as 9% per year, ongoing, on all your policies.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Back in late 2008 a client of mine shared an article with me about a new mutual fund company called EdgePoint. I did the research, and as a result, discovered one of Canada's premiere investment management firms. Our clients were some of the earliest EdgePoint investors, and that foresight has paid off handsomely for them.

'Depending upon the portfolio you pick, we've out-performed between 362-437¹ basis points (3.62% to 4.37% per year) against our benchmarks annually compounded since inception. It's a pleasing start.'
- Tye Bousada

In this rare interview with Tye Bousada, Portfolio Manager at EdgePoint Wealth Management, Tye shared, what I believe, is the reason for their success.

Rona: What motivated you, Tye, Geoff, and Patrick to create EdgePoint ten years ago?

Tye: We saw the industry had changed.

Go back to the 1970s or even a little bit earlier, it used to be run by great investors. You had Bob Krembil at Trimark, Alexander Christ at Mackenzie, Goldring Sr. at AGF, Goodman Sr. at Dundee, Sir John Templeton at Templeton.

All investors, all building their companies by doing right by the end investor. But over a number of decades, those companies morphed from being investment-led to marketing-led. A marketing-led company is all about gathering assets, and in this industry it's easiest to gather assets when something is easy to sell. But that's usually the worst time for the end investor to buy.

A good example would be Bob Krembil's last roadshow, around 1998. He went across the country launching a resource fund.

Gold was maybe $300 then, all the 'smart' money was saying it was going to go down to $100. Everyone said Bob's fund was going to half in value, that the price of oil would drop from around $10 to $5.

You couldn't even say words like nickel or aluminum - they were bad, bad words. But Bob saw opportunity. He said: 'It's the right thing to do. Maybe we're not going to gather a lot of interest and investors, but this fund will be one of the best.'

Rona: So nobody wanted it and everybody was buying Nortel.

Tye: Yup, everybody was buying Nortel. Now, fast forward ten years.

It's 2008, oil's up tenfold. The fund did tremendously well for investors. Geoff was one of the investment managers of the Fund from May 1998 - September 2002. Investors were hard-pressed to find a better portfolio anywhere, not just in resources. So then, everybody and their brothers are launching resource funds with oil at $120, $130 bucks a barrel. Why? Because it's easy to gather investors, gather assets. Not because it's the right thing to do.

We looked at that, and said 'There's room in the industry for an investment-led organization. There's a small percentage of advisors and their clients who would like to deal with an investment-led organization again.' To this day we still have the same business cards. They say: 'owned and operated by investors.'

Rona: When you started the company, what was the goal ten years out?

Tye: We've only ever had three goals. You won't see them painted on the walls, and if you work here you won't be given a laminated something-or-other. You have to live and breathe them, because every decision you make comes back to them.

The first goal is to have performance at or near the top of our peer group over a 10-year time frame. We're only 9 years in so we haven't hit our first goal yet - but we're off to a good start. Depending upon the portfolio you pick, we've out-performed between 362-437 basis points (3.62% to 4.37% per year) against our benchmarks annually compounded since inception. It's a pleasing start. But it's not like we've finished the race. We've always got that focus on delivering value for the end investor over a 10-year time frame.

The second goal was trying to partner with a really limited number of advisors across the country. I mean, 1-2% of the advisory community. Today, we're partnered with about 900 advisors -around 1% of the financial advisor community.

The third goal was we wanted internal partners that thought and acted like owners. It's a different level of experience altogether when you deal with an owner - we wanted to make sure that every interaction anyone had with EdgePoint was ownership-level.

Today, 62 of the 66 partners that make up EdgePoint actually own shares in the business (the other four just haven't been with us long enough). It's not free - there are no free options, no free DSUs, free warrants. If you are offered the opportunity, you have to reach into your pocket, slam down your wallet and say 'I'm buying'. We want true ownership here.

Every decision made here every day by the 66 partners comes back to those three things.

Rona: Were there business growth goals as part of that? Or do you see business growth as a result of doing those other things right?

Tye: You answered it! We believe if you take care of the end investor through good performance, and take care of the financial advisor through good relationships, and have people walk around thinking like owners all day long - good things will happen.

Rona: I can really relate!

What we focus on here and how we make decisions is really driven by one thing - the name of the firm - Caring for Clients. If anyone has a question as to what they should do, they refer back to our name and the decision is obvious. You don't need to talk to me, you don't need to talk to anybody.

Whatever you do should be an expression of caring for their financial and personal well-being. It creates shortcuts in everything we do, because we always have our north star. We're like you, but not like most in the industry; we don't have sales or asset or plan targets. I was trained to think about those targets decades ago, but I rebelled big-time because I've always believed that if you do the right thing, success will follow. Not just success, but sustainable, durable success. So, I really relate to what you are saying!

R: Let's shift a little bit and talk about product. Mutual funds, at least in the media, have been getting a whole lot of negative attention. Why do you think that is?

Tye: It's because the mutual fund industry worked hard for a lonnnng time to lose the trust of end investors. I think that. I really do.

As these firms morphed from being investment-led to sales- and marketing-led, they emphasized their focus on taking care of the shareholders of the firm, as opposed to the investors in their portfolios. That meant selling investors the wrong thing, at the wrong time -whatever was easy to sell, while advertising like crazy.

I'm trying to think of an example without calling out specific ridiculous ones. Basically, an end investor doesn't need to be advertised to by wealth management firms. They should trust an advisor to help them find the right path. All that money that goes into advertising is essentially coming out of the end investor's return. There's multiple ways this industry has betrayed the trust of the end investor for a long, long time. They deserve their reputation.

Rona: The failures of the mutual fund industry have been fuel to the fire of the popularity of ETFs. What is your view on this trend towards low-cost passive investing?

Tye: Our view is extremely selfish, I'll call that out right now. It's that we want it to continue. Sounds counterintuitive - we're active managers. You may think: 'Why would EdgePoint want more people buying passive funds?'

The reality is, as more and more people buy passive funds, there are fewer and fewer trying to understand what the value of the underlying businesses are. That gives us an edge.

A big element of our investment approach is trying to identify growth, but not pay for that growth today. When you have ETFs that buy something because it happens to be in an index, and buy more of it because the price is going up, or selling it because it's going down, without asking questions like - 'Why is the price going up/down? Does that make sense?' - that gives us an edge.

Imagine being at the starting line of a sprint, daily. And every day on that line there are fewer and fewer people trying to win the race. That's what's happening, and we kind of like that. We're this little niche player and we like the fact that every day we look left and we look right and there are fewer people trying to win. That helps us.

Rona: You've met a lot of financial advisors, you partner with about 900, likely the cream of the crop. What do you think Canadians should expect from a full service wealth advisor these days?

Tye: I think it starts with someone who listens to what their goals are.

A financial advisor, I would imagine, has to sit down and really talk to their client about what their goals are first, and listen to what their hopes and aspirations are financially. Then, I think a very big job of the financial advisor is to tell the truth, regularly, and sometimes more regularly than the end client might want to hear.

The more I do my job, the more I realize it's a big element of a financial advisor's job to act as a psychologist. To prevent the client from making mistakes when it's too easy to do so.

Telling the truth starts on day one with the assessment of their financial position relative to their goals. If one of my three younger brothers was sitting in front of a financial advisor, I hope they would hear something like: 'You have all these aspirations, this is where you are today, it may not be easy to get there.' Or: 'Here are the tough decisions you'll have to make to get there.'

Keeping it to my brothers again, they may think they'll work 60-80 hours a week to earn a living, provide for their families, and maybe go on a nice vacation once a year. Then, at the end of the year maybe save some money to turn over to their financial advisor, and miraculously it's going to be easier to make money in the stock market or through investments than it was in their careers.

If that was the case, the world would be way richer than it is. But it's not!

It's super difficult, and I think financial advisors have a huge responsibility to tell the truth about how emotionally difficult investing can be. That gets back to the psychology element as well. I think financial advisors have a responsibility to tell the truth about that importance of living in a narrow emotional band, investing-wise.

When things are going well, and let's call that the last nine years since the financial crisis - don't get too excited, because it's not always going to be going this well. Likewise, when things aren't going as well, let's call that 2008 and 2009, don't get too down, it is going to get better.

The best investors have the ability to live in a narrow emotional band. Financial advisors have a responsibility to tell clients about that, and guide them through being in that narrow emotional band as much as possible. A good summary of my learnings from working with financial advisors, for a really long time, is the best ones have the ability to do that.

Rona: I remember in the financial crisis, I would go the odd roadshow and be surrounded by lots of other advisors. One of the moments that really captures what I had been hearing, was when I was sitting at a table and there was an advisor beside me - and this was very close to the bottom of the crisis, early March of 2009 - and they turned to me and said, 'So what are you telling your clients?' I thought to myself: 'You're asking me what I'm telling my clients? You don't know what you should be telling your clients right now?' The whole room, it was a bunch of just shell-shocked, freaked-out people. I think the only advisors that are going to be able to help their clients live in that narrow emotional band understand that it's about patience and discipline, and have that emotional fortitude themselves.

Tye: You can't teach someone to do something unless you know how to do it yourself, I totally agree.

Rona: Human nature is what it is, I think there's a small percentage of people who can manage their emotions, whatever type of professional you are - a doctor, an accountant, a financial advisor. I think some of the most successful people are the ones that can manage their emotions.

Tye: I would agree. But it doesn't come naturally. We're genetically encoded to move in packs, there's safety in numbers. So if euphoria is the name of the game and everyone is buying something, you are genetically predisposed to want to do the same thing. Likewise, when everyone is scared, you are genetically predisposed to running away from whatever it is everyone is scared of.

Rona: 'There must be a tiger here somewhere, I shouldn't just be standing here waiting for it'

Tye: Exactly. I think most people are genetically predisposed to being greedy when others are greedy, and fearful when others are fearful.

Something else that gets lost on a lot of people? The stock market, investing as a whole - it's a zero sum game.

If you're a doctor, for every ten people you save, you don't have to go kill ten. If you're an engineer, for every building you erect, you don't have to knock one down. But every time you make an investment, you're either making a mistake or capitalizing on the mistake someone else made.

Someone who sold us Anthem shares eight years ago at a quarter of the price of it is today? Their relative loss back them was our relative gain.

Rona: What are you looking for in your 900 partners? If you're looking for another 50 partners over the next year, what are they going to look like?

Tye: Let me start by saying we are not trying to be everything to everyone. Fortunately, many of the 66 partners that have worked here have been in the industry for a really long time. We have probably had the chance to meet the vast majority of the 70,000-90,000 financial advisors out there.

What we're really looking for in financial advisors is someone who has a similar belief system to our own. That starts with putting the client's interest first in everything they do.

We try to do that internally, we are only trying to partner with people who do that as well. You're a financial advisor so you know this. But I'm not sure if your clients know this - there are a lot of advisors out of those 90,000 who may choose to put their own interests ahead of their end clients' interests.

I'm not pointing fingers here, but in the mutual fund industry it happens all the time. They put shareholder interests ahead of the end client's interest by selling products when everyone wants to buy, as opposed to selling investment portfolios that are good on a return perspective.

And financial advisors are just as guilty as the industry - but not all of them. So we're trying to find and partner with the ones that put the end investor first in everything they do.

The second thing is trying to identify financial advisors who are not trying to just buy our historical performance. Right now, it looks like we know what we're doing. But there have been four or five periods of time since we started where we looked just plain dumb.

Sometimes you have to look wrong in the short term to be right in the long term. But there are a lot of financial advisors that can't tolerate that deviation, let's say, from an index. We're making sure they can more than tolerate our investment approach; they have a solid understanding, a belief. Those are high hurdles.

We have to find someone that defines risks in the same way we do. Let's say we stop 100 people on the street and ask: 'How do you define risk as it relates to the stock market? I think 100/100 would say risk is volatility.

Not us. We think the truest definition is the opportunity for permanent loss of capital.'

We're looking for the financial advisor who understands that volatility is the friend of the investor who knows the value of the business, and the enemy of the investor who doesn't.

Finally, we want a financial advisor that encourages their clients to buy more of a portfolio when it is uncomfortable to buy that portfolio. The clients that have done the best with us have bought more of the portfolio when we haven't looked as intelligent as we do today.

That's a recipe for compounding wealth at a faster rate. Find an investment approach that you think works or may have a track record of historically working, stick with it as long as you think the approach continues to work, and add to it when it doesn't necessarily look as smart as it has historically. Those aren't easy hurdles to clear, and it speaks to why we are not cut out to be partners with everyone - so far, one percent of the entire financial advisory community.

Rona: How do you control who buys your funds?

Tye: We make a lot of effort to ensure that people understand who we are. We have relationship managers, some would call them salespeople, but we don't encourage them to go out and sell.

We encourage them to go out to the financial advisory community and communicate what we are trying to do here, and ensure interested people have a solid understanding. That's step one.

We communicate open and honestly. We not only tell you about the successes we've had, we also tell you about the mistakes. Right away and in plain sight. Go to our website and you'll see lots of disclosures about the mistakes and our learnings. We try to give full disclosure on who we are so that people understand who they might be partnering with. So they can make a better decision.

Sometimes we have advisors who join us without having met a relationship manager. So, any new financial advisor that decides to do business with us - every single one - gets a letter from Patrick (the CEO) that says: 'Welcome to EdgePoint and thank you for placing some of your trust in us to manage your client's money, we appreciate that. You should be prepared for a material drawdown in the market. By the way, we require you to meet with one of our relationship managers within the first six months of this purchase. And if you don't we're going to block your ability to do business with us. Because we want to ensure we're not just attracting people who are chasing our historical performance.'

Rona: I'm guessing you've experienced pushback on that?

Tye: We have, not surprisingly. It upsets some people. They say: 'Who are you to tell me I have to meet with you if I want to do business?'

But it's our requirement. Again, we're not cut out for everyone. We're only looking to partner with 1-2% of the entire industry in Canada, and we want to make sure there's a meeting of the minds. We're asking for thirty minutes of someone's time. And I think that their clients at the end of the day would want them to at least meet with the company they're investing with.

Sometimes, no matter how much effort you make, some advisors make it through the process and they, or we, discover that it's not a good fit. We are not afraid of having those tough conversations saying maybe we have to go in separate directions.

Rona: What do you enjoy most about what you are doing these days?

Tye: I absolutely love business. I enjoy learning about what clever business people do and how they use their skills to build attractive businesses.

My job allows me to do that. I get to meet very clever people from around the world at the most senior levels of the largest companies and figure out how they apply their skills to build value for their shareholders.

Sometimes the stock market gives you the opportunity to buy these clever people and the gorgeous businesses they have built at prices well below what they should be trading at. That's extra exciting.

Say you're passionate about business and meeting clever people who have built great businesses? Now, compound that with the idea that there's this mechanism called the stock market that gives you the ability to buy that fantastic package of attributes at far less than it is worth, then partner with these people for far less than it should cost. What's not to like?

I spend my days gathering facts about people and businesses, trying to apply reasoning to those facts about whether it makes sense to partner. Makes me happy, every day.

When we started the business, I undervalued how beautiful it is to be able to pick your own partners and surround yourself with people that you really want to work with every day, people whose company you enjoy. We've surrounded ourselves with 66 partners that we like, trust, and admire. I come to work every day and spend a lot of my waking hours surrounded by those people. There's no better way to spend your day.

Rona: I was going to ask how the industry may evolve and EdgePoint's role. But I think it really doesn't matter, because you're doing what you're doing. Your future is going to be driven by what you create, what you build, and how it helps end investors. What the rest of the industry does doesn't factor in all that much.

Tye: It really doesn't. You're exactly right. And we're not seeing evidence the industry is changing from its bad ways. Geoff's office door has advertisements plastered all over it, just from the past couple of weeks. It's the same old, same old, trying to sell what's hot, trying to use buzzwords like low volatility, guaranteed rate of return, all the stuff people want to hear to make them feel warm and fuzzy. When it's probably the exact wrong thing for them to be buying at that point in time.

Our plan hasn't changed. We'll continue to focus on those three things: top flight performance for the end investor, being a good partner to a limited number of advisors across the country, and having internal partners that think and act like owners. If we can deliver on those, we'll continue to be happy.

Rona: That's all the questions I have, is there anything else you want my clients to know?

Tye:I could count on one hand, literally, how many interviews I've done over time; I rarely do this.

Over the years, you've demonstrated you eat your own cooking. Before suggesting your clients put money into our portfolios, you put your money in, and, I've come to understand, some of your family's money too.

You identified us way back in 2009. You did the work to find us when we were one year old, no track record to speak of. It's a lot easier to support us today after nine years, and we tend to look smart right now. But in 2009 the world was tearing apart at the seams. As I remember, you first purchased us in April 2009, one month after the trough. That was a very scary period. But you did your due diligence, you found EdgePoint on behalf of your clients and invested their hard-earned money in us. Talk about having faith in an investment approach!

¹Series A Portfolio total returns as at November 30, 2017, in C$. Inception date: November 17, 2008. Refer to standard performance at end of document.

²US$

³Series A Portfolio total returns as at November 30, 2017, in C$. Inception date: November 17, 2008. Refer to standard performance at end of document.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Recently a client sent me an interesting note ending with two excellent questions about how our investment managers keep their feet on the ground. I enjoyed his note, and decided to share both the note and my answers with you.

Great questions! Following, my answers.

By the by, I wonder if the young NY geek ever thought through his question about why you didn't just play the market, instead of actually producing a product. Aside from the inherent risk, did he wonder if it might be a bit difficult to play the market, if everyone decided to follow his advice?

How do portfolio managers use the latest technologies/models to their benefit?

There are a few primary methods:

• Sophisticated screening tools allow for company and economic data to be captured and analyzed with immediacy.This enables managers and analyst to quickly identify and assess changing information, and incorporate it in their valuation models.
• Today's modelling software also allows them to regularly stress-test their portfolio under a range of market and economic possibilities (however remote) such as: interest rates rising faster than expected; oil prices spiking; US currency plummeting; global recession).This allows managers to calculate value at risk under a range of both extreme and high-probability criteria.
• What most managers don't attempt to do is value emerging technology companies that could be the next Google. Those companies appreciate on speculation before they have much in the way of earnings, making them un-investable if you care about risk. That being said, managers do pay attention to new technologies in terms of how they may represent a way to make the companies they do want to invest in more profitable, or to the degree they are a threat to an incumbent's business model.

Are there methods/processes by which they keep their 'feet on the ground?'

Yes. There is an art and a science to successful long-term investing, both of which keep good investors grounded:

• The science involves the analytics that I refer to above.
• The art is what distinguishes the best portfolio managers from the merely mediocre or downright awful. I characterize it as:
  • Believing in the merit of their investment process
  • Discipline - adherence to the investment process in good times and bad (both nominal and relative)
  • Ability to avoid the distractions/noise of the media and industry in general
  • A focus on the end investor.

So, when hiring active portfolio management, look for individuals with focus and discipline. These will be demonstrated by their use of a robust, consistent process for making investment decisions.

In other words, ensure that they apply both the art and the science of investing in their work.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

A portfolio strategy suitable for accumulating a retirement nest egg may be need to change when it is time to convert to a RRIF.

Here, there and everywhere

When making annual RRSP contributions it doesn't matter how many separate RRSP accounts you open. The tax deduction applies regardless.

When RRIF payments begin, the investor must withdraw a legislated minimum from the account each year. If you have five different RRIF accounts, you will receive five separate monthly or annual deposits to your bank account. In addition, you will have to make sure that there is sufficient liquidity in the account to fund the withdrawals. That can be challenging if your RRIF is primarily invested in GICs.

Keep your sanity by consolidating your various RRSP accounts into one RRIF account.

RRIFs require a different portfolio strategy

Market volatility can significantly impact your retirement cash flow. Unlike during the accumulation stage, the sequence of returns during the withdrawal phase can have a huge impact on how long the money lasts. Withdrawing capital after a decline in the value of the portfolio results in a permanent loss of capital that cannot be recovered. That is one of the reasons why a more conservative investment approach is sensible as you move into retirement.

A 'cash wedge' strategy is one way of reducing this risk. Here is how it works:

1. The cash wedge - One year's worth of RRIF payments is invested in a conservative, liquid investment such as a high interest savings vehicle. This part of the portfolio creates a secure base from which you draw your retirement cash flow.

2. Short-term, conservative investments - The second and third years' projected withdrawals areinvested in a low volatility investment, such as short term GICs or fixed income investments. This part of the portfolio can generate a reasonable return and would be used to 'top up' the cash wedge on an annual basis.

3. Diversified asset mix - The remainder of the portfolio would be invested in a mix of investments suitable to the investor's investment profile and risk tolerance. This is the portion that would likely include some amount of conservative equity exposure. Over time, and opportunistically, profits are moved from this part of the portfolio to the cash wedge and/or short-term portion of the portfolio.

4. Repeat as necessary

Annuities are worth considering as well. They aren't for everyone, but can complement traditional investments in some cases.

It's time to pay tax

The party's over. After receiving tax savings for contributions, and earning investment returns tax free for years, it's time to pay the piper. RRIF withdrawals are taxable at the top tax rates. Here's how to deal with the inevitable tax hit:

1. Withhold tax even if you don't have to - When you elect to receive only the minimum required payment from the RRIF, the RRIF trustee is not required to withhold income tax. That could mean a nasty surprise when you file your tax return. The better approach is the estimate your overall tax rate and request that the trustee withhold an appropriate percentage before depositing the net amount to your bank account. If you over estimate your tax rate, you will get a refund when you file your tax return.

2. Split income - 50% of RRIF income can be split with a spouse. Doing so may reduce the overall tax burden of the family.

3. Minimize realizing income from non-registered investments - Some Canadians are finding that their RRIF withdrawals are resulting in Old Age Security (OAS) benefits being clawed back. It may be possible to structure your non-registered investments in such a way as to minimize T3 slips, thereby recapturing lost OAS. Income splitting can help here too.

If converting your RRSP to a RRIF is on the horizon, meet with your wealth advisor sooner rather than later to ensure that your portfolio strategy reflects that reality.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Exchange Traded Funds (ETFs) are supposed to reduce the cost clients pay for investment management. However, in some cases, I've noticed that they are actually increasing it.

Start-up and growth of ETFs

ETFs have been around for longer than you might think - in Canada, 27 years. The first one launched in 1990. It was called TIPS -Toronto Index Participation Shares.

Fast-forward 27 years. According to the Canadian ETF association (CETFA), we now have 644 ETFs available for Canadians to purchase. That number grows almost daily.

As you are likely aware, the primary advantage of ETFs is their low cost. A well-diversified ETF portfolio can have fees of 0.25% or less per year. That's only one-tenth of the 2.5% figure that we hear is the average cost of a mutual fund.

The explosion in the number of ETFs is a fairly recent phenomenon. That growth is not surprising, responding to consumers' desire for a lower-cost way to invest. As well, there is an increasing groundswell among investors, particularly younger ones, to look for better value for the fees they are paying.

The good news and the bad news

Now, let me explain why I think that, in some cases, the cost of advice is increasing, while the costs of investment products are decreasing.

I'll start with a conversation I had with a rep from an investment firm a couple of years ago. His firm offered a quality product, in the form of a mutual fund, with a cost structure much lower than is typical. Well under 0.50%.

He encouraged me to incorporate the product into my client portfolios. Not just because it had merit as an investment, but because it would allow me to charge more for my wealth management services without raising eyebrows. He suggested that our wealth management fees were too low; I could use his product and pocket the difference.

I know our full-service wealth management fees are lower than average. I'm comfortable with it. My business philosophy is one of partnership. I don't feel compelled to generate the maximum possible revenue that the market will bear, I'm playing the long game.

I want us to deliver outstanding value so that our clients will see us as their financial and life management partners on a multi-generational basis. Of course we need to be profitable; our clients want us to be there for them for the long term. However, we want our clients to meet their financial goals, and so cost matters. That is the balance we aim to strike.

Back to my meet with the product salesperson. The lightbulb went off during our conversation. I thought: 'This is the sales proposition?' Buy his product, because it will allow me to charge more?

Guess what? He's not the only one

I'm starting to see this trend more often as I review the portfolios of new clients. I'll explain what's happening, but first, a brush-up on how mutual fund pricing works.

Let's assume that the mutual fund you own has a Management Expense Ratio of 2.5%. Depending on how you purchased that fund (front-end, or deferred sales charge):

• A portion of that fee is directed to the investment dealer as compensation for their advice. That is called the trailer fee, and it is generally between 0.50% and 1%.
• The mutual fund company keeps the rest. (There's HST in there so the government gets some too).

Back to the ugly trend

What some advisors seem to be doing is saying: 'Mr. / Ms. Client-or-Prospect), I can reduce your fees from 2.5% to 1.75%. Wouldn't that be a vast improvement?'

It might be ... but ... how do they plan to do that?

By building portfolios exclusively with low cost ETFs and eliminating the active management aspect of the portfolio! If the ETFs on balance cost 0.25%, and the total cost to the client is 1.75%, then you can see that the advisor component of the overall fee is 1.5%.

Yes, the investor is saving dollars. Actual fees have been reduced by 30%. But the advisor has increased their fees by up to 300%. The question the investor should ask themselves is: 'Am I getting more value for my advisor's increased fees?'

If the advisor was being paid 1% before using full-fee mutual funds, why isn't that level of fee appropriate now? If it is, then the total cost to the client should be 1.25%, not 1.75%. Reducing cost from 2.5% to 1.25% is what I consider meaningful fee savings. In this case the client gets the full benefit of the lower-cost product.

Cost of active vs passive fees - not as different as you might think

The cost difference between a low-cost ETF and an actively-managed mutual fund is not as wide as you might think. As I mentioned already, we are looking at about:

• For an ETF portfolio: 0.25%, on average
• For an actively managed fund: from 0.75% to 1.00%.

That's a difference of .5 - ¾ of a percent for professionally active management versus a passive ETF.

Just to make everything more complex, many of the newest ETFs are looking more like mutual funds in terms of their structure and pricing. Just because an investment is called an ETF doesn't mean it is automatically low-cost. Watch out for this one!

So what is it that makes some mutual funds expensive?

It's the cost of advice and wealth management, over and above product cost. It's the fee that the person who chose this vehicle for you is being given, for their advice.

Historically, the cost of advice has been embedded in the management expense ratio (MER) of the fund. That cost is now being reported on year-end investment statements so that investors know what they are actually paying for professional advice.

So, if you eliminate the advice? You'll reduce your costs dramatically.

And if you want advice but aren't getting sufficient value for the fees you pay? Find a new advisor.

Moral of the story

The next time you're presented with a strategy and a pricing model that says 'It's a lot less expensive than a mutual fund,' get the advisor to break down the fees. Find out how much is product cost, how much advisory.

You shouldn't be paying any more than 1% for the advice piece. And for large portfolios, even less.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

I read about a divorcing couple who met with a mediator, only to be told that mediation would not be the best option for them. Later, when pressed, the mediator offered several reasons why she was reluctant to take them on as clients. But the factor that seemed the most significant to me was the divorcing woman's discomfort talking about money and her lack of basic financial literacy. Was the woman in this case a recent immigrant and unfamiliar with North American ways? Was she uneducated? Was English her second language? You might be surprised to hear that she was a highly educated (Ph.D.), middle-class, native-born American.

But then again you might not be surprised. A survey by the Globe and Mail of 800 of their (presumably educated and sophisticated) readers, found that only 29% of women and 53% of men said that they were 'absolutely' financially literate. When the woman in the case I've mentioned reflected on her situation, she found that she had gradually let her husband take over the family's money management. There was nothing sinister about this - she disliked having to think about such things, he enjoyed working with numbers, and she felt that he would do a better job. But this meant that when they decided to divorce she was a bit lost. She had to pick up money management skills at the same time as she was trying to cope with the stress of divorce and the added burden of being a single parent.

The Canadian Task Force on Financial Literacy defines 'financial literacy' as having the knowledge, skills and confidence to make responsible financial decisions. While everyone should be knowledgeable about their money and able to make good decisions, the costs of financial illiteracy are particularly high for women, who still tend to earn lower salaries than men.

How can you become financially literate if you're not? If you aren't already familiar with your family's financial situation, get better acquainted with it. As a minimum, you should know the amount of your monthly rent or mortgage payment, your monthly cost of living, how much money you're setting aside for savings each month, the outstanding balance on your credit cards, and how much you're paying in interest. You can get more familiar with your financial situation by taking on some money management tasks each month: pay the utility bills, make the mortgage payment. Get involved the next time you renew your mortgage. Sit down with the person who handles the family finances and have them go over the basics with you. If you're handling finances by yourself for the first time and you feel overwhelmed, ask for help. For help with your specific situation, it might be worth your while to sit down with someone where you do your banking, a certified financial planner or a certified divorce financial analyst.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

The Financial Planning Standards Council (FPSC) recently issued new guidelines for Certified Financial Planners (us!), in the development of financial plans.

Many assumptions go into building a financial plan. Rate of return on investments is only one of them, but it's a critical one.

Spoiler alert - the new FPSC guidelines are sobering:

• For conservative investors, the FPSC wants planners to use 3.25% as the annual rate of return for the long term. By long term, they mean ten or more years
• For balanced investors, planners are to use 3.92%
• For aggressive investors, 4.75%.

Do these numbers sound very low to you? They probably do. You've lived through times that had much better rates of return. It's hard not to expect and count on the more generous returns you're accustomed to.

But these lower rates are very familiar to us at Caring for Clients, and in our wheelhouse. We typically use 4% when working with a balanced investor in building our plans and we have for a while.

Why should you err on the conservative side in rate of return assumptions?

If you overstate returns in your planning, and don't experience what you planned for? You're going to look at yourself 10-15 years from now and realize that you haven't saved enough.

If you are heading into, or already in retirement, you're likely to be spending too much. Not to mention, you've used up 10-15 years that you can't get back, when you could have been saving more.

So planning conservatively is critical!

Now, planning for 4% doesn't mean you are going to get 4%. You could earn more (or less). However, it's easier to adjust to lower-than-expected returns than expected than higher. The key is to plan conservatively and review your progress in 2-3 years. If you are well ahead of plan, then you simply re-project, recalibrate and carry on.

There is a wonderful real-life example of the pain and cost of overestimating return assumptions, from the insurance industry. It was based on a product called the Vanishing Premium Policy.

The magical vanishing premium

Here's how it worked:

• You bought an insurance policy and the premiums levied were higher than the cost of insurance
• The extra dollars would be invested on a tax-sheltered basis
• Providing you earned the projected rate of return on the money inside the policy, you would be able to stop paying premiums after a number of years
• Hence the name!

Unfortunately, the rate of return assumptions used to sell the clients this concept were far too high. Just when the premiums were expected to vanish, policy holders realized they needed to continue to pay. And they couldn't stop paying their premiums, or the policy would lapse.

In summary

Anyone can make financial plans look prettier by using a high rate of return assumption. It will make their client feel good in the moment, but it's not going to help in the long run.

So make sure your planner and/or you are using conservative return assumptions in your projections and planning. Use sensitivity analysis to find out where you will be if your assumptions turn out to be a bit high. Use realistic projections, not just past return patterns.

You'll be glad you did.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

'When I was born the doctor came out to the waiting room and said to my father 'I'm very sorry. We did everything we could, but he pulled through.'
-Rodney Dangerfield

Poor Rodney. Never got any respect. Kind of like annuities.

There are a few reasons why annuities don't get the attention they deserve. But first, a basic explanation of the product.

• An annuity is a contract that you make with an insurance company.
• You have savings.
• You give some of your savings to an insurance company in exchange for a guaranteed income for life. It's kind of like a pension plan.
• You create your own 'pension' by purchasing an annuity.

Most people love the idea of a guaranteed income for life. In fact, there are financial products that have been created to look like annuities, and these products became more popular than annuities themselves. Why is this?

They aren't popular with advisors

• Annuities are sold, not bought - There aren't investors lining up to buy annuities. It really takes an advisor who sees the benefit of an annuity for a client to strongly recommend that an annuity makes sense, at least in part, to fund retirement.
• It's an insurance product - If your financial advisor isn't licensed to sell insurance products, they may not bother to suggest annuities.
• Compensation conflict of interest - An annuity at the time of purchase will pay the salesperson about 1.5% commission at point of sale. It pays that commission only once. Whereas if that same amount of money was invested in a managed portfolio, where the advisor was charging 1% a year, the advisor would be receiving 1% a year, every year, for as long as that portfolio is being managed. That could be 10 years 20 years 30 years or longer. So you can see how much more lucrative it is to manage a portfolio at 1% a year than to recommend annuity that pays 1.5% just once.

They aren't popular with investors

• Lack of liquidity - You can't access to the capital used to buy the annuity. You do get the guaranteed income stream, but like a pension plan, if you needed an extra $10,000, for whatever, you can't go the the insurance company and ask for an extra $10,000. That's why, generally speaking, it's not wise to invest every dollar you have in an annuity other sources, you will need to have a liquid pool of capital to draw from. the annuity strategy.
• Interest rates are too low - Most investors compare an annuity strategy with a guaranteed investment certificate strategy(GICs) because they are both guaranteed, hassle-free investments. Investors assume that if annuity rates are similar to GIC rates. The mistake that's being made in that thinking is that the income stream that you receive from an annuity isn't entirely based on interest rates. It also has to do with expectations about how long you will live. Your age matters. The income you get from an annuity is a combination of interest and return of your capital. So investors are often very surprised at how much cashflow they can get from an annuity as compared to a GIC.
• Bad for beneficiaries - When you die, the income stops, and the capital is gone. So the idea that there would be nothing remaining of that original investment for your estate is extremely troubling for some people. You can mitigate that risk by through payment duration guarantees and/or through an insured annuity strategy.

Here is an example of how it works. (source: Hub Financial)

It's hard to see why investors don't at least consider this option as part of their retirement cash flow plan. Be fully informed. Ask your advisor to run some quotes for you.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

When mortgage renewal time arrives it's time to pause and assess. Your financial situation may have changed since your last renewal - hopefully for the better. Once you renew your mortgage, the door is effectively closed to further modifications and you will have to wait until your next renewal date to make changes (unless you are prepared to pay discharge penalties).

Here are 3 reasons to review your mortgage at renewal and not just sign the renewal offered:

1.INTEREST RATES

Mortgage rates will likely have changed since your last renewal. Whether higher or lower, you renewal offer may not reflect the best possible rates. The best rates and terms are offered by the financial institution most motivated to lend. It pays to shop around up to 90 days in advance to find the best offer and lock in the rate, particularly in a rising rate environment.

2. CHANGES IN INCOME

If your income has increased you will want to take advantage of some simple, but effective, mortgage reduction strategies to become mortgage free sooner. Conversely, if your income has decreased and you are feeling squeezed financially it's worth looking at your total financial picture to see if re-structuring your mortgage and/or debts is a means to relieve the pressure.

3. NEW GOALS

Your financial goals may have changed since your last renewal. Life changes lead to changing life and financial goals. Your mortgage structure should reflect those overall goals. Major life changes that suggest a review of your mortgage strategy include:

• Starting a family
• Career change
• Getting Married
• Getting Divorced
• Losing a spouse
• Receiving an inheritance

This list goes on and on. The bottom line is that a change in financial circumstances requires a review of your overall financial strategy, including how you structure and retire your debt.

There are currently 30+ mortgage lenders in Canada. An independent mortgage broker is able to find the best mortgage solution for the unique circumstances of each client and help each client achieve their financial goals sooner. Feel free to reach out for an independent analysis of your renewal options.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

This blog features a very special guest - my university-bound daughter, Rachel!

Not too long ago my daughter and I had the following conversation about budgeting. If your child is anywhere from newborn to uni-bound, I hope you'll find it useful.

Mom: How prepared are you for the costs you'll be facing?

Rachel: I've always been a saver. It was you who taught me that but I was never really conscious of it until recently. It's just something I've done. Now that I'm heading off to university, I have money saved because I've been focused on it since I was a kid.

Mom: And where do your savings come from?

Rachel: I started getting money for presents when I was 10 or 12. When I had a birthday party and got money, or a family member gave me some, I'd give some of it or all of it to you to put away in my account.

Mom: You have a lot of savings - more than just gifts! How else have you saved?

Rachel: Working. I've worked for the past three summers, plus there's the dog walking. It's fun, the neighbours appreciate it, and it's a little extra money.

Mom: So what's prevented you from spending it all?

Rachel: I've always been more of a saver than a spender. I like having a reserve, and being able to buy things when I want them. A laptop for school, or a trip with my friends.

Mom: What kind of expenses are you expecting, as you head off to Universityland?

Rachel: There's lots I hadn't thought of! A shower caddy because I'll be sharing a bathroom. School stuff like paper, binders, pencils, pens. Also, most students use laptops to take notes, so there's one big expense I need to plan for. I've also read that handwritten notes are better ... that they help you take in the information better, but ... I'll still need a laptop. Transportation, too. If I'm living on campus I'll be fine but when I move off I'll have to pay for rent and getting to campus.

Mom: Yeah, those are some of the bigger expenses. Another thing that you might not take for granted is needing to sign a lease. You'll only want your space for 8 months of the year but the landlord will want you to pay for 12. You can't just budget for 8 months because you only need 8. And your expenses will change when you're out of residence. You'll be paying for all of your food, household supplies, all those things. And thing you haven't mentioned - probably you just didn't want to mention it to me? Your social life? A 'beer fund' even? What do you think these expenses will be?

Rachel: That's true. It's not all about school. I guess I'll start by figuring out how often I want to go out, set a budget for each time, make sure I have enough.

Mom: And tell me again - make my heart glad - why aren't you going to be burdened with the cost of tuition, residence, or food?

Rachel: Because my mummy and daddy set me up with an RESP!

Mom: As soon as you were born! We encourage all our clients to have one. If you start early enough, save hard, and take in the money the government contributes, it goes a lonnng way to covering university expenses. Tuition, residence, all the big stuff. How else do you think saving and budgeting for all these years has helped you prepare for post-university life?

Rachel: It's just become a habit. It's second nature for me to put money away rather than keeping it to spend.

Mom: You'll still be working summers - in fact 4 months instead of 2. You'll earn more money, gain more experience. It will be even more important to manage that money, because before you know it university will be over, you'll be getting a full-time job and you'll be independent. How is continuing to build that nest egg going to help you when you graduate?

Rachel: It will make me independent sooner! Sorry, mom, here comes the bad news, I have no plans to come back and live at home.

Mom: Dad and I are going to miss you SO much when you leave. But I'm so proud of how hard you've worked, and how diligent a saver you are. Thanks for being a good sport about this. Lots of students will be going away for the first time in September, and I hope that hearing what you say will help them plan for their own university experience.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

What's brought all this on? And is it easy to fix? (Hint: No. Regulation alone can't do it. You need to be on your guard to ensure you get good service.)

CBC news reports stir up further customer anger

Aggressive upselling was the primary CBC News discovery, in a feature on today's banking practices.

CBC quoted several TD employees who said they were pressured to meet unrealistic sales targets. Not surprisingly, that reporting stimulated a further raft of complaints to OBSI.

But there are less obvious activities - grey areas - that all consumers should be wary of when dealing with their bank. Let's talk about a few.

Grey area 1: 'Almost' tied selling

Tied selling occurs when a financial institution attempts to coerce you into buying one of their products as a condition of getting another, say a loan or a mortgage. As an example, your account manager cannot say: 'We'll give you this loan or mortgage if you transfer your RSP over to the bank.'

Tied selling is illegal in Canada.

Do Canadian banks do it? Almost certainly, no. They'd get caught, and the repercussions wouldn't be pretty.

What many clients have described to me over the years is a close cousin to tied selling. The bank employee says 'Yes, we can give you a mortgage! But I can get negotiate a better rate if you transfer over your RSP.'

Is that coercion? Is that tied selling?

What do you think?

And what would you think, if you knew it was a common practice? What would that tell you?

What to do: Call their bluff. It's a competitive market. Let your bank know that if they don't offer you their best, you will take your business elsewhere. Be prepared to put your money where your mouth is. It's a digital world now, it's easy to move your allegiance for any given bank product.

Grey area 2: Conflicts of interest

Bank employees are paid to serve and sell. They're typically incented to serve and sell. And rated and promoted on how well they serve and sell. When banks hire, the job descriptions make the sales focus crystal clear.

Any bank employee would be foolish to tell you if a competitor has a better, or more cost-effective product. That isn't their obligation. They'd not only be failing to meet the documented goals of their role, they'd be asking for trouble.

Typically, bank employees see their primary obligation as to their employers, who set ever-increasing sales targets for them. Compensation is base salary plus bonuses for sales results.

Even in the brokerage arms of the banks, there is a financial incentive for advisors to recommend proprietary wealth management solutions vs third-party products. Is this to the customer's advantage? Or the bank's?

What to do: Shop around. Ideally, get your advice from an independent advisor at a firm that does not have proprietary products. Work with a mortgage broker. If you can't find an independent solution, demand that the bank advisor be fully transparent regarding fees. Not only what you pay, but how they are compensated for proprietary vs non-proprietary products.

Grey area 3: Just plain bad advice

Tax Free Savings accounts (TFSAs) were created in 2009. Canadians lined up at the banks to open their new TFSA accounts. It was a no-brainer. Or so it seemed.

The banks opened thousands of TFSAs. Typically, tellers and account managers did not ask those customers whether they had any outstanding credit card debt.

But what if you have credit card debt with an interest rate in the (stratospheric) area of 19%? And instead of paying that down, you put money into a TFSA account paying you 1% interest? Not a good plan!

Now, think about it from the bank's standpoint. If they issued that credit card:

• They're collecting 19.99%* interest on your outstanding balance. They profit more if you do not pay it down.
• Better yet, they pay you 0.90%** interest on your TFSA and then take your savings and lend it out to borrowers at much higher rates.

It's a win/win for them. But for you?

What to do: Consistently increase your financial literacy over time, to protect yourself from bad financial advice. Read a financial article or two per week, or subscribe to an independent newsletter. You'll find out about the latest financial practices, and forewarned is forearmed. While you build your knowledge, get your cash flow optimization advice from an independent financial planner who has no vested interest in what you do with your hard-earned money.

Grey area 4: Over-lending

Over-lending has been a problem for a long time. But as interest rates continued to decline and the housing market heated up, from my standpoint, it became increasingly problematic.

We would develop a financial plan for a client and give them guidance in terms of how big a mortgage they could carry. Of course, the plan would consider their other expenses and obligations, as well as their future expenses (e.g. child-rearing costs). They would then go to the bank, and the bank would approve them for a mortgage materially larger than was prudent.

Why the difference of opinion?

The approval criteria for lending at the banks have historically been that you could qualify for a mortgage well outside what would make sense for you, because it wasn't their concern whether or not you can fund your children's education, put money into your retirement account, build an emergency fund, or have money for unexpected expenses. That isn't a part of the calculation.

Their objective is to lend as much as they possibly can. And lucky banks, they have your house as security, and in most cases, CMHC insurance, so if you ran into financial difficulty and couldn't pay, they were covered. Heads they win, tails you lose.

The Canadian government has had to take action a couple of times over the last few years to enforce a tightening of lending qualifications. The banks are being forced to do the right thing, forced to lend more responsibly. The Federal Government is now considering taking further action, which you can read about here.

In summary

Canadians are proud of their banks. Following the financial crisis, Canada's banking system was the envy of the developed world.

But just because they compare well relatively, it doesn't mean they are your personal pal and mentor, carefully looking out for your best interests. It doesn't mean that they are different than any business that is trying to maximize its revenue and profitability.

It doesn't mean they can't do better. And so can you.

• Scotiabank website as of Aug 23, 2017
• Scotiabank website as of Aug 23, 2017

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Is your magic number one million dollars, two million dollars, or five hundred thousand dollars? It really depends on six primary factors. These six factors, depending on how they relate to you, will either mean you have to save more or less to be comfortable in retirement. Let's go through each of these factors one at a time.

Pension income sources

There still are Canadians who have company pension plans. The best ones are defined benefit pensions. These are the ones where the company guarantees a monthly income to you in retirement for the rest of your life. Defined contribution plans are pretty much just like an RSP. Thing is, not all defined benefit pension plans are as secure as others. There have been lots of examples, Nortel being one of them, where pensioners are not getting what they have been promised.

Nortel pensions will only receive 57.1% of their pension.

Sears Canada might be heading in the same direction.

Canada Pension Plan (CPP) is in much better shape, and old age security benefits (OAS) appears solid for those eligible.

From a retirement savings standpoint, the more pension income you have from all of these sourcesthe less you need to save.

Retirement duration

How long is your retirement phase going to be? Plainly, the earlier you retire and stop having earned income, the more money you are going to need to draw from for the rest of your life. Is your retirement period going to be 20 years, 30 years, longer? The longer it is, the bigger that nest egg needs to be.

Investment rate of return

The growth of your savings matters. The higher the rate of return on your investments, the less you need to accumulate through your retirement saving years. The lower the investment return, the more you are going to have to beef up that retirement nest egg. If only it was possible to know in advance what your returns are going to be. Future returns are unknowable. So be careful to use conservative return assumptions in your planning. Over-estimating future returns will result in under saving pre-retirement increases the risk of outliving your money while in retirement.

Retirement spending

A comfortable retirement means different things to different people. If your style of living in retirement will cost $100,000 dollars a year, you're going to need to save a lot more than someone who is comfortable living on $40,000 dollars a year. Knowing what your future lifestyle spend is going to be is an important thing to consider.

Housing

Are you a homeowner? If so, you have another asset that can support you in retirement, perhaps in your later years, once you have spent through your savings. If there are no other assets for you to fall back on, your financial nest egg will need to be larger than someone who has that real estate. A property will help you to the degree that is not mortgaged. The value of the real estate is only the equity in it.

Legacy

An estate legacy can be money and/or assets left for your children, other people who are important to you, and charity falls into that category as well. If you have a magic number in your mind that represents the legacy that you want to leave behind, those are assets you will not use during your lifetime. The bigger your desired legacy, the larger the required nest egg.

Make sure that you and your financial planner take all of these factors into consideration when determining your magic number!

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Clients will occasionally ask: Why isn't my investment doing well?

Then I ask which one they're concerned about, and what they're basing that determination on.

They say: Well, that's what the statement says. That's what I'm looking at!

But statements can be misleading. Let me explain why.

We'll begin with industry jargon

Let's first deal with some industry jargon. You may have heard of adjusted cost of your investment, or something called book value. These two terms mean the same thing.

Market value is what your investment is worth today. It is not the same as book value and/or cost.

What typically happens in these cases is that an investor is comparing their adjusted cost to market value, as reported on their statement. They look at the difference between those two, and say that that is the performance they are generating.

In other words, they're thinking market value, less my book value, is my percentage return.

But! Book value, and what's called net invested - essentially the money you put in - are not the same thing.

Your percentage return is what you put in, versus your market value.

A deeper look at book value

Let's figure it out - what is book value? If it isn't what you invested, then what is it?

This is important because book value, and adjusted cost base, are reported on your statement. Plus market value.

So where is your net invested?

It usually doesn't show up at all!

Then what is book value all about? Book value, or adjusted cost base, equals net invested plus income distributions. Let's talk about those income distributions!

Income distributions change everything

The investment that you bought, say a mutual fund, owns a number of types of investments. Those investments generate interest if they're bonds. They might pay dividend income, if they're stocks, and if sold at a profit they will generate capital gains. If you own that investment in a taxable account? The CRA says: Give me my tax money.

This income will have to be reported and will show up on one of those lovely T-slips at the end of the year even if you reinvested the income rather than took it in cash. But you don't want to pay tax on that return twice!

So let's assume the investment unit value that you bought was $10 per share, and you got an income distribution of $1 per share. If at the end of the year the unit value was $11 dollars per share, you reinvested that $1 - you didn't take it out. You're going to pay tax on that $1. So your book value is now your net invested plus this one dollar of income. Now your book value is 11 dollars. It's not what you originally invested! It's what you invested plus any income distributions.

Tax implications

Now, one day you might sell this investment.

You invested at 10 dollars, you got a 1 dollar income distribution on which you paid tax, it's worth 11 dollars and you sell it. You've made 10 percent! Pretty good!

But you shouldn't be made to pay tax on that $1 again, so the CRA calculates your capital gain on this investment as the market value minus the book value, which was 10 dollars plus your income distribution: $11. So you have zero capital gain. Hooray!

Bet you never thought you'd be happy about not having a capital gain on an investment! But you should be happy - you don't want to pay tax on this income twice.

RRSP and TFSA statements

The next question I hear is: Why does this get reported on my RRSP or TFSA statement, when taxes don't come into play? The distributions are not taxable.

The fact is, financial institutions usually use one system to report all account information. What's useful for a tax account may not be as useful for a tax-free account but everything gets reported the same way.

Moral of the story

The next time you're thinking of judging the quality of your investment return by comparing cost base to market value? Don't do it - you'll be missing part of the puzzle!

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc.assumes no responsibility or liability.

As a result, major Canadian banks and investment institutions repaid hundreds of millions to customers across the country. Based on years of overcharging.

The OSC (Ontario Securities Commission) has a newish no-contest settlement that allows cases to be settled without an admission of wrongdoing - no surprise that in each case, the institutions 'neither admitted nor denied the accuracy of the facts and conclusions' of the OSC staff!

The cases included settlements with the Bank of Nova Scotia, the CIBC, TD Bank, the mutual-fund giant CI Investments, and Quadrus Investment Services Ltd.

What are our major institutions saying?

What did our major financial institutions call these multi-million-dollar settlements?

• 'Excess fees not detected in a timely manner' (RBC)
• 'Inadequacies' in system controls and controls and supervision (CIBC)
• 'Inadequacies' in payment systems (Manulife Securities)

Call it whatever you want. If you were one of the thousands of clients who were overcharged (and have been or will be refunded the excess fees), do you think it's time to reconsider your advisory relationship?

But why penalize the advisor? Isn't it the fault of the institution?

Because they know they were overcharging you. And if they suggest they were unaware, it's either an untruth or an admission of ongoing poor service.

Here's why.

The bulk of the overcharging was related to fee-based accounts. These are accounts where the negotiated advisory fee is charged at an account level, rather than at the product level.

Prior to an account becoming 'fee-based,' clients would pay by product - through trade commissions when buying stocks and bonds, and through trailer fees embedded in mutual funds. But once an account becomes fee-based, clients pay a fee based on the size and nature of their account.

What happened in most of these cases is that an account holding full-fee mutual funds became a 'fee-based' account. At that point, the full-fee mutual fund was not switched into one that excluded trailer fees. That resulted in a layering (or a lathering??) of additional fees. Which means you the investor were paying your original full fee, plus the new fee for being a fee-based account.

Here's a simple parallel

Say you're a member of a fitness club who pays a fee every time you get out on the court. Racquets buff that you are, fired up by Raonic's rise to fame, you decide one day to become an all-inclusive member.

Now, you're paying one annual fee that covers as many or as few games as you can manage.

But! Somehow, the fitness club doesn't notice that you've switched payment systems. It continues to charge you for court fees every time you play.

They also, of course, charge you the new all-inclusive fee. For years. Using fee statements that are surprisingly difficult to comprehend.

Not only that, this ongoing 'problem' occurs at most major fitness clubs across the country.

To cap it off, the reason you went over to the all-inclusive fee in the first place was at the counsel of your fitness advisor, who gets a percentage of every full-fee, as well as every court fee. Last but not least, you have learned that the management of these 'fitness clubs' (you can read my blog on this here) pressure the 'fitness advisors' hard to sell as many 'fitness packages' as they can, regardless of customer fit (no pun intended ;-).

Was it an accident?

Any advisor that did not understand how they were compensated is a stretch and a half. Here's a question for you - what do you think would have happened in the reverse situation? If, when an advisor's client had switched to fee-based, a mistake had occurred such that they received neither trailer nor fees? Would they have noticed then?

At the end of the day, though, I don't think it matters if you think it was an accident or not.

Any client who was subjected to this double-dipping is the recipient of either dishonesty or appalling sloppiness. Maybe it's time to look for a more ethical, diligent, trustworthy advisor.

Rona Birenbaum is a certified financial planner and founder of Caring for Clients. This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc.assumes no responsibility or liability.

'If you can get your hands on a directory of doctors, you'll be made.' Believe it or not, this was part of my training as a rookie financial adviser over 20 years ago when cold-calling, door-knocking and investment seminars were the primary methods of finding new clients. The pressure to bring in new assets was intense, so focusing prospecting efforts on the perceived wealthy was an obvious route.

If you are a high income earning doctor, lawyer, C-suite executive or successful business owner, you probably know that you are a target, not just of the financial services industry, but of othersas well.

The method of getting your attention and creating doubt about your current service providers may have changed over the years, but you are still more heavily prospected than almost any other demographic.

A quick Internet search on prospecting doctors generated the following gems:

• 'Power Prospecting - Get in frontof Physician Prospects in 28 days!'
• From a Canadian industry magazine, on why one adviser prospects younger doctors: 'It's better to catch them before they have their own lawyers and accountants. A physician in her 50s, for instance, probably has a solid relationship with an adivser, and she'll only move if something market- or service-related breaks that relationship.':
• '7 Ways to Prospect Doctors'
• In a list of the top six niches financial advisors should target, 'occupations' is number two, and the author specifically recommends doctors and lawyers.
  

Extra Vigilance

OK, so I've hopefully made the case that you are a hot commodity, So why does it matter?

I think it means that you need to be extra vigilantwhen being approached by someone from the financial industry (even if that person was me!). Anectdotally, highly taxed professionals are generalized as being particularly vulnerable to pitches of 'creative' tax reduction schemes and products exclusive to the 'high net worth' individual. Appeal to their ego, I've been told many times. Show them something not widely available to get their attention.

Sigh. I'm sorry to tell you that extra vigilance takes energy. But it takes a lot more energy to unwind a strategy or relationship that wasn't well-suited to begin with.

What does vigilance look like?

• Do not respond to product-only pitches. This is the sign of a salesperson, not an adviser.
• If you meet with an adviser and their product idea is compelling, run it past trusted sources such as your accountant, lawyer and financial planner, if you have one.
• Seek advice from independent sources not recommending proprietary solutions. These solutions may not be in your best interest and are rather a way for salespeople to maximize their income and the financial institution's profit margins.
• Trust your gut. If it seems too good to be true, or just doesn't feel right, avoid it.
  

Process not product

Now, here is why I happen to enjoy working with physicians, lawyers, corporate executives and business owners.

They're busy. They're tired. They just want to spend more time with their family. They want to know that one day, all the hard work will pay off with some degree of financial security. Frankly, everyone wants these things.

It's important for you to know that the panacea is not a product. It is a process. A journey, not unlike the one that you take with your customers, patients, employees and corporate stakeholders.

The essence of the process looks like this:

1. Understand your uniqueness and history.
2. Flesh out how you define financial health/success.
3. Develop a well thought out, evidence-based plan to get you there.
4. Support and encourage you on your journey.
5. Repeat annually, more frequently as necessary, forever.

So really, for some of us in the industry, we're not that different from you. Apply the vigilance I recommend to finding these kindred spirits. You'll be wealthier as a result.

Replublished from The Medical Post - with permission

Rona Birenbaum is a certified financial planner and ounder of Caring for Clients. This information is of a general nature and should not be considered professionaladvice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc.assumes no responsibilityor liability.

Maybe some of you remember my blog post of 2010, on whether or not to give a child an allowance? In case you didn't catch it, or don't boast a photographic memory, I'm reproducing it below.

My daughter was 11 at the time. She turns 18 next month and will be heading to university in the fall.

I'm feeling a bit nostalgic, a bit weepy (I may as well admit it) and in awe of the passage of time. So I'm bringing back the original post with an update on how things have evolved, and some ideas about what an allowance is and is not.

Should you give your child an allowance?

I was having coffee with a friend recently who has three beautiful daughters age 6 and under. She asked me when I began giving my soon-to-be 11 year old daughter Rachel an allowance.

Now, there are many philosophies on the subject, and sharing my own is not meant to be prescriptive. I do find, however, that people tend to be interested in my personal money decisions, given that I give so many people financial advice (yes, I practice what I preach!).

My daughter started getting a weekly allowance about 3 months ago. Here is how it happened:

I was preparing dinner after work and she was doing her homework at the kitchen table. Out of the blue she said, 'Mom, when can I get an allowance?'

Me: 'Why do you ask?'

Daughter: 'Well, my friends get an allowance.' (bad answer)

Me: 'What would you spend an allowance on?'

Daughter: 'Hmmmm, well, birthday presents and Mother's Day and Father's Day presents. Stuff like that (good answer!). And I will do chores around the house.'

Me: Rachel, your responsibilities at home are yours whether or not you get an allowance. Everyone in the family pitches in, even though we don't get paid for it. That will not change. Dad and I will discuss this and let you know.

We did discuss it, and neither of us have anything against giving Rachel an allowance. She has learned the value of money over the years and when she has received gifts in the form of cash, she hands over most of it for her savings account. So, having a little spending money for presents etc. will get her used to making buying decisions.

We surveyed a number of parents and found out that the going rate within her group of friends is $5. Wow, when I was a kid it was 50 cents! But back then, I could buy two chocolate bars for 50 cents.

So, how is it going? Pretty well I think! She has made a couple of purchases, but has also been saving. Just this weekend she mentioned that she is saving up for a laptop. Good thing they get less expensive every day!!!

2017 update

What did she first use her allowance for?

• Yes, she did buy that laptop - second-hand and within her small budget. She was very pruod of her purchase and used it daily.
• She did purchase small gifts for me, her dad and some of her friends to celebrate birthdays and seasonal holidays.

Then what?

• Her allowance increased slightly over the years, then disappeared completely when she got her first summer job at age 16.
• Savings from the summer job in hand, her required contribution to the 'extras' increased:
  • She contributed 1/3 of the cost of her Apple IPhone.
  • She buys clothing items that are beyond the 'necessary' (from her parents' perspective).
  • She goes out with friends occasionally for Korean BBQ, Thai etc., and uses her own money.

How about her savings, and university costs?

• I just handed over the birthday money she gave me to save for a number of years. She can handle it now.
• She's looking forward to the $2000 university scholarship offered to her (Calculus final grade permitting!).

And today?

She is heading into university with lots of savings in the bank, a sense of control over money and priorities, and a growing nest egg that will help her establish herself in her first apartment in second year university.

Yes, we could have paid for everything on top of providing an allowance but I don't think that would have helped Rachel understand:

• The value of a dollar
• The benefit of delaying gratification
• How money grows when invested
• How money allows for independence and choice.

We did good. And so did Rachel.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

By now, most of you working with a financial advisor or robo-advisor have completed a standard risk tolerance questionnaire. You know the questions:

• How much of a percentage decline in your portfolio can you tolerate over the short term?
• How soon will you been needing the money you plan to invest?
• How old are you?
• Is your objective safety, income or growth?

But do these questions adequately assess your risk tolerance?

I don't think so.

Here's a simple example. Recently, a client answered that she would be comfortable with a 10% decline in the value of her portfolio. I then asked her if she could tolerate a $100,000 decline in portfolio value and she was far less enthusiastic. I pointed out that as her portfolio value was $1 million, $100,000 and 10% were for her the same thing. It was an eye-opener.

How do you actually behave as an investor?

At Queensbury Strategies, in addition to the typical risk tolerance and investor profile questions, we have started asking a few others, ones that provide a more accurate measure of our clients' true risk tolerance. Such as:

1. During the 2008/2009 financial crisis did you:
   • Sell any investments that had declined in value?
   • Hold onto your investments through the decline?
   • Add to your investments through the decline?
   • Contribute to retirement savings but leave the money in cash temporarily until the market settled down?
     
2. How much of a decline could you handle in dollar terms before you would begin questioning your investment strategy?
   
3. Quality investments designed to generate higher than GIC returns can experience temporary declines in value. What do you consider short-term?
   • 1month
   • 6 months
   • 1 year
   • 2 years

During a recent conversation with consumer advocate and personal finance expert, Ellen Roseman, Ellen suggested another illuminating question that I plan to integrate:

4. How do you feel about insurance, e.g. property, life, product warranties, etc. (multiple answers are acceptable)?

• Insurance is a waste of money. I'll take my chances.
• I have only what I have to by law or as required by my employer.
• I've purchased insurance but I'm not sure it's enough to protect my biggest risks.
• A comprehensive insurance program helps me sleep at night.
• I purchase extended warranty plans.
• I purchase bank credit and mortgage insurance.
  

Actions speak louder than words

In other words?

Your real attitude towards risk is best measured by what you do, not what you think. Or what you think you think!

Get your risk tolerance right - it matters

The historical underperformance investors have experienced is largely due to a misalignment of their portfolio and their risk tolerance. That misalignment results in poor decision-making, particularly during times of market stress and market euphoria.* It even shows up in investment flows in mutual funds and ETFs.**

Getting your risk tolerance right when structuring your portfolio is Job One. As you were reading, did you ask yourself the questions I asked in this blog? Do you think that you and your investor would change your estimation of your risk tolerance, knowing these answers?

'The information contained herein was obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability'

* 'Quantitative Analysis of Investor Behavior, 2016,' Dalbar, Inc.

** Looking for Easy Games, How Passive Investing Shapes Active Management. Credit Suisse, Global Financial Strategies. Data obtained from Morningstar, www.seeitmarket.com and

Many of you will have read my March post, discussing the furor over TD bank employees being caught breaking the law. You may remember I was unsurprised. Bank employees being pressured to sell unnecessary products? That's been a feature of the banking industry for as long as I've known it.

In a recent visit to LinkedIn, I ran into another example of this issue.

LinkedIn ­postings for financial planners - how much is about planning?

Whenever I visit LinkedIn, the platform tries to recruit me for positions they think suit my skills - typically, financial planner roles. The last time I went, I decided to actually look; I needed a break during a demanding day.

My eyes began to widen as I read. The financial planners the banks are looking for bear little relation to the candidates I'm looking for.

When I'm looking to add a new planner, I post on the Financial Planners Standards Council website; it's where I found my last four.As I read the bank postings, I pulled out my posting, and started to check off the differences.

I began to see why most Financial Planner candidates tell me their job search is not going well. They are looking to help clients save appropriately and prepare for retirement, while the jobs postings with the Financial Planner title are actually aggressive sales roles.

A few examples - let's start with job objectives and motivation

Following, a few excerpts from the Caring for Clients job posting on overall goals:

• To support us in being ... the leading fee-for-service financial planning firm in Toronto, responsible for delivering value-added planning services and ongoing support
• Retaining clients so we are the last financial advisor clients will ever need
• Delighting clients with every touch point.

Now, a couple of excerpts from the banks' postings on objectives and motivation:

• Your creativity, motivation, and hunger to drive new investment sales is what pushes you to provide world-class advice
• The FP will identify opportunities to refer clients to bank partners, i.e. Retail and Wealth Management
  

Moving forward, let's talk responsibilities

Here's how the Caring for Clients job posting describes responsibilities of a planner:

• Collect and analyze client financial and non-financial information
• Prepare multiple planning scenarios using specialized software
• Identify the actions need to achieve client goals and support and empower the client.

Sounds a lot like financial planning, right? But the banks have a different idea:

• Focused on the mass affluent customer segment with responsibilities for retaining and increasing market share through acquisition of Money-in assets.
• Develop external business referral sources through networking, marketing, and your centres of influence

Need to succeed qualities

Here's the first line from each in the 'need to succeed' category:

• Us: Minimum 3 years experience in client-facing financial services role
• Bank: Proven networking and client acquisition skills

And our conclusion is?

This isn't solely about financial planning.

In Canada, we have a tendency to view banks and bank employees as courteous, impartial, and supportive. When we enter a branch to deal with minor or major financial matters, we typically accept their suggestions, sometimes without questioning. We notice they tend to leap when they see a chance to talk about investments, or if we have more than the usual amount in our chequing account, but we don't pay much attention to it.

But! If this sounds like you, I recommend you be more wary. Each branch has metrics (aka sales objectives) assigned from head office; these are passed down to the individuals who work there - hence the furor at TD. Those courteous employees are trained and pressured to find opportunities to sell.

If you're looking for a financial planner - an individual who reviews and analyzes all your financial data, then helps you set spending and saving goals, and offers support and counsel to help you meet those goals - your bank may not be the best place to start.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

A 'job for life' is a thing of the past. Most Canadians will receive a termination notice at least once in their career. Don't leave getting the best possible treatment in your severance to chance. If you are hesitating getting legal advice before signing on the dotted line, consider the following:

1.The termination agreement is an offer, often up for negotiation. There very well be more money and protection available to you, but only if you ask. The request should come in the form of a legal letter from an experienced employment lawyer. The letter infers that you mean business and infers the potential cost of litigation which can motivate the employer to offer better terms.

2.The cost of legal advice is tax deductible. Legal fees paid to collect money owed to you for severance, pension benefits, or a retiring allowance are deductible on your tax return under 'Other Deductions'. Keep in mind that your fees can't be reimbursed by your employer and the amount collected must be considered income. For example, if your entire severance was transferred to an RRSP, the legal fees are not deductible that year. You can carry the deduction forward for 7 years though to deduct against other income. *

3.Ask for financial planning - A career interruption is the perfect time for a comprehensive financial plan. A planning engagement will help you manage through a period of unemployment and help you assess a range of employment options you may want to consider.

4.Insurance benefits are important - Ensure that your benefits extend along with your period of salary continuance. In most cases, group disability insurance benefits are difficult to negotiate inclusion. Transition disability insurance is designed to fill this specific gap and you can negotiate payment of the premium for such coverage into your termination agreement.

5.You will feel empowered - Job loss, even from a job you disliked, is emotionally draining. Taking control of the severance experience, is a confidence builder. Even if the ultimate terms remain unchanged because they were fair to begin with, you will have taken an important step in protecting your rights.

A termination notice can be upsetting, but if you empower yourself to be treated fairly, you will face the next phase of your career with greater confidence.

*Knowledge Bureau

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

Typically, severance packages do not include a continuation of disability insurance. This, despite the courts having made clear* that an employer is obligated to continue all benefits during the common law notice period, in the absence of a contract stating otherwise!

But should a severed employee become permanently disabled during their notice period, the cost to the employer can easily run into the hundreds of thousands of dollars, if not millions. It's a considerable risk.

Why is this obligation so often ignored in severance packages? I see three primary reasons. The employer:

1. Is not aware of the legal obligation.
2. Has not considered the financial exposure.
3. Lacks a simple, cost-effective solution to fulfil their legal obligations.

If you've received a termination notice and the disability obligation has been ignored, you need to negotiate a transition disability policy as part of your severance package.

What is a transition disability policy?

A transition disability policy:

• Provides individual coverage for a period of 6-24 months (typically, equal to your severance period).
  
• Is designed to pay disability benefits that start 90 days after a severance and continue to age 60 or 65.
  
• Includes coverage for both accident and sickness, and offers monthly benefits of up to $10,000 (actual amount depends on final base salary).
  

Why can't I just get regular disability insurance?

Disability insurance is, technically, income replacement insurance. No income? No coverage. (While there are a handful of disability policies that don't require earned income, they are limited in scope.)

It could be some time before you have a stable income upon which an individual policy would be justified. And if you make the leap to self-employment, it could take a few years before you have a track record of proven income upon which a new insurance company would provide coverage.

Is everyone eligible?

You may qualify if you:

• Are age 60 or younger
• Have been at work full time at full pay for 12 or more months
• Apply for this coverage within 90 days of your last day at work
  

What's the process?

The application includes a few medical questions. The insurer may require additional information from your physician before making a decision on whether to issue the policy.

There is a one-time premium, which makes it simple to negotiate into a severance package. We provide this cost to clients that have been terminated, so they can request the cost be included in their final compensation.

In summary

Disability insurance is one of the most important aspects of a group health and dental plan. You don't want to be without it.

When your severance package includes a continuation of benefits, but excludes disability, get a quote for Transition Disability coverage. Then pass it on to your ex-employer with this article.

1 [2006] O.J. No. 34 (C.A.).Egan v Alcatel Canada Inc.

This information of a general nature. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Interest rates are still low. As a result, we are increasingly asked if it makes more sense to invest extra cash rather than pay down debt. The same question comes up when we recommend using non-registered investments to pay down debt.

You might be thinking:

'If my mortgage rate is under 3%, wouldn't I be better off investing extra cash and pocketing the difference?'

Maybe.

Let's assume for the moment that leveraged investing is appropriate for you - because that's what you would be doing. Further on, I'll give you a checklist to determine if you really are a candidate for leveraged investing.

Let's try an example

To start, let me challenge your assumption with a little math. We'll assume you have $100,000 that you now want to invest, and you also have:

$220,000 mortgage or secured line of credit, with a 2.9 guaranteed interest rate
Investment return of 6% (not guaranteed) in a balanced portfolio; 2% interest, 2% dividends, 2% realized capital gains
$105,000 earned income in Ontario (marginal tax rate is therefore approx ... 43%)

Difference in return: pay down mortgage debt or invest (own source)

Difference in cash flow: pay down mortgage debt or invest

The results

In this case, the choice of investing vs paying down the mortgage earns an extra 1.3% per year (4.2% - 2.9%). Note that if the portfolio return had a greater component of interest, taxes paid would be higher, decreasing the 1.3% advantage to investing that this case shows.

Of course, you could achieve a higher return on your investments, but you could also experience a lower, or negative return in the short term. In addition, you'll want to pay the tax out of your bank account rather than withdrawing from your investment portfolio. Using your portfolio to pay taxes reduces the magical advantages of compound growth over time.

How do you stack the numbers in your favour?

Here are three ways to optimize your choices:

1. Let the tax act help you. CRA lets you deduct your borrowing costs (interest charged) when you borrow to invest in an income generating investment. Note that the paper trail is important to qualify for the deduction. In our example, you would need to take the $100K cash and pay down your debt first, then borrow it back and invest in the portfolio. You must be able to prove that the borrowed funds were used to make the eligible investment.
   
2. Invest tax-efficiently. The less taxable income the portfolio generates the better.
   
3. Invest for growth. The higher return the better. Conservative fixed income won't generate the returns you need to make this work, and is tax-inefficient to boot.

Checklist for leveraged investing

So, is this for you? Here's the checklist I promised earlier, to decide whether you are a candidate for leveraged investing. See how many you say yes to!

• You are investing for the long term.
  
• You have a stable income and can afford to pay the annual loan interest and taxes on portfolio income from your cash flow rather than the portfolio.
  
• You will not have future borrowing needs. The leveraged strategy could impede your ability to borrow additional funds for other purposes.
  
• You have a high risk tolerance. This is necessary for two reasons:

A growth portfolio is necessary to generate the necessary return to compensate for the risk of the overall strategy.
Aborting the strategy during a bear market amplifies your losses. There is a loss on the investment as well as the outstanding debt that cannot be fully repaid when the strategy is unwound.

How did you do?

What can go wrong?

You're a knowledgeable investor; before you make your choice, you want to review the downside as well. Here are the two eventualities most likely to derail a leveraged investing plan:

• Interest rates rise - rising loan interest rates and a stock market correction would be a bad combination. Historically, rising interest rates signal the end of an economic cycle, and precede a recessionary period, which is negative for the stock market.
  
• You need to liquidate the portfolio at an inopportune time. There are lots of reasons why you might need the cash. Job loss, supporting children or parents unexpectedly, and major house repairs are just some of the events that could force you to liquidate your investment at a time that undermines the leveraged strategy.

Is the risk worth it?

I always like to measure the long-term impact of investing versus debt repayment with a detailed financial planning exercise. You might be surprised to find out that paying down debt is the most effective, certain path towards your wealth-building goals.

But if you answered yes to all of the items in the checklist above, that risk of leveraged investing may be worth it for you. Talk to your advisor!

This information of a general nature and should not be considered professional tax advice.The information contained herein was obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability

When CBC recently dropped the bombshell that employees were being pressured to sell unnecessary products to customers, all I could do is roll my eyes. It wasn't news to me - that pressure has been a feature of the financial and banking industry for as long as I've been a part of it.

My journey in financial services

When I joined the financial services industry 25 years ago, I was full of energy and idealism. In my first five years, in the credit union environment, I soon discovered that I loved helping people with their finances.

But my entrepreneurial spirit urged me to spread my wings. When I heard that being an investment advisor provided the opportunity to be of service, plus tremendous potential if I was willing to put in the work, it seemed like the perfect combination. Continued learning, a greater challenge, and unlimited impact. Sign me up!

Next step? I applied to a bank-owned brokerage firm where my parents were clients.

I interviewed well. The firm was impressed with my professional accomplishments over the past five years, rising from teller to multi-branch manager at the tender age of 28. They liked the idea that I had a business degree in marketing. They asked me to do a raft of intelligence and psychographic tests, which I completed in record time.

Next, the second interview. Where I got the bad news. I would not be welcomed into their rookie investment advisor program.

The reason? The psychographic test suggested I was not 'sales driven.'

I found another firm that hired me, but ultimately discovered that viewing potential clients as people to be sold to, rather than advised, was deeply embedded in the culture and structure of the industry. True, clients would be given advice. But in the end, earning a living required that I sell stuff. The stuff they wanted me to.

Going on my own

So, in 2000, I went independent. No more conflicts of interest, and sales targets. And I started a fee-only financial planning firm at a time when Canadians didn't understand the value of paying for independent, objective, holistic financial planning advice. Almost nobody was doing it. It was a time when friends and colleagues frequently asked me 'Why should I pay for financial advice when I can get it for free from my current advisor or local bank branch?'

Fast forward 17 years. Canadians are much wiser. Independent fee-only Financial Planning is considered an invaluable process and a viable occupation. It's viable as a career now, because consumers are willing to pay for it.

And banks? They have to sell even harder than they did 25 years ago. Here are three reasons why:

• Far more competition - from credit unions, independent wealth management firms, virtual banks, and financial technology platforms such as robo-advisors. Do a little googling of 'blockchain' and you'll quickly realize that the basic foundation of banking is being challenged.
  
• 'You never call, you never visit' - Sounds like a complaining family member, but in fact it's the refrain of your bank manager. ATMs and online banking free consumers from the drudgery of visiting the branch. So there are fewer opportunities for bank staff to 'offer' banking solutions to their customer base. It also makes it harder for them to build meaningful relationships with customers, so the pitch becomes more selling than problem-solving.
  
• It's generational - Historically Canadians maintained their relationship with their bank for a lifetime. It set the banks up to be the solid, profitable businesses that they are today. What got them here won't get them there though. Today, Millennials, GenX and GenY and many Boomers put value ahead of loyalty when choosing financial products. It's easier to make a change than ever before. That leads to a more aggressive bank sales culture, since everyone's business is up for grabs.
  

Moral of the story

Canadians can be proud of their banks. The World Economic Forum has singled out Canadian banks as one of the soundest in the world for the past nine years in a row.[1]

But! Remember, when you talk to any bank employee, that banks are not impartial, and they do have an agenda. While it is easy to see a bank as a solid, safe, unbiased authority, the real story is more nuanced.

Keep that in mind, particularly when you are making a banking or investment decision!

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

[1] http://www.tfsa.ca/financial-services/banking/

Lucky Americans - they pay much lower investment advisory fees than we do in Canada.

Or so many people think ... but is it true?

With the new CRM2 legislation showing investors how much you pay for advice, it's considerably easier to do a cross-border comparison. Let's start with the two components of the fees you pay. And a heads-up - read this part twice! Most people don't understand the two-component aspect of how financial advice is priced; you'll be well ahead if you do.

Two components to fees

1. If you are working with a financial advisor, there are two components to the fees you pay, product and advisor:

• Product cost - the cost of the investments recommended by your advisor, e.g.
• Fund management portion of a mutual fund Management Expense Ratio (MER)
• MER of an ETF
• Trading costs
• MER of a pooled fund or segregated fund

2. Advisor cost - the cost of professional advice

• Service fee portion of a mutual fund MER
• Percentage charged by a fee-for-service financial advisor
• Flat fee or hourly fee charged by a fee-for-service financial advisor

Fee insights from a U.S. benchmarking study: the results may surprise you

FA Insight recently released its 2016 financial advisor benchmarking study: Growth By Design. The latest information on fees might surprise you.

Since 2009 the median US advisory fee (not including product costs) on assets under management has hovered close to 1%. Fees drop to .70% at $5,000,000 and to .50% at $10,000,000 +.

But despite the fee pressure exerted by the robo-advisor trend, which took off in earnest in 2012, the 2014 edition of the FA Insight indicated that 70% of firms planned to keep their fees steady and 28% of firms planned to raise fees in the next two years. The data from 2016 confirmed the rise: 34% actually did raise fees.

So, do we pay more in Canada?

I believe that fees are somewhat higher here than in the US. This is based on both ongoing anecdotal evidence and data from the Globe and Mail Fee Tool (available to Globe Unlimited subscribers).

For example, I used the fee tool to find the average advisory fee being reported by Canadians with a portfolio between $500,000 and $1 million. 30% reported paying between 1.0 - 1.24% and 38% pay between 1.25% - 1.74%.

That is well above the 1% being charged in the US. Canadian investors are paying more relative to our US counterparts - it looks like the prevailing wisdom is correct!

The really big question - is it worth it?

It's a matter of personal judgment as to whether you are receiving sufficient value for the fees you pay. However, at the very least, if you work with a financial advisor, you should know how their fees fit in the marketplace.

And even if the fees being charged by your advisor are competitive, you still need to evaluate whether you are getting value from the relationship.

The breadth and depth of service you receive depends on both the firm you deal with and the specific advisor. Some firm cultures encourage and reward holistic planning and advice; others pressure their advisors to focus on asset-gathering and reaching annual fee generation targets. What kind of firm do you think yours is?

Individual advisors differ as well. Some focus narrowly on investment management and advice. Others see their role more broadly, as financial planners, with a mandate that expands well beyond investment portfolio design and rebalancing.

In my mind? Premium pricing is appropriate only when you, the client, have access to advice that extends well beyond investment portfolio design.

The information contained herein was obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

More often than not, buyers are purchasing properties fully planning to take on a sizeable renovation. Theyfactor inan estimate of the reno cost into their bidding strategy. Doing so exposes the buyer to the risk of underestimating the ultimate cost and scope of the reno, potentially leaving them in a financial bind.

How do you mitigate this risk?

We have started recommending that our clients take a trustworthy, experienced contractor with them on a walk through of their dream house before offer day. The contractor can let them know what they are in for financially given their vision for the house.

I asked Rob Price, of Equinox Developments a few questions on this emerging trend.

Rona: Has there been an increase in demand for pre-house bid renovation consulting?

Rob: Yes, although only slightly more. I don't think many companies will do a walk through unless they have a contract in place. At Equinox we see the opportunity to gain knowledge of a potential site as well as impart some knowledge of the benefits of our processes to a potential client.

Rona: How does that kind of client engagement work?

Rob: At the moment it's just contacting us with a request to do a walk through. As long as the timing can work and it hasn't been left to the last minute we are usually available. We don't charge for the service but we do hope that puts us at the top of the list of potential Project Managers to execute the work.

Rona: What risks do clients face if they don't get a professional opinion before purchasing a 'fixer upper'?

Rob: A professional is going to be able to have a cursory look through and around the house and be able to give you a rough idea of how much work there is to do and possibly an idea of what it might cost. Foundations, structure, mechanical and electrical systems, framing, plumbing, etc... There are all sorts of building components that could be no longer up to code because of their age or because they are just failing altogether. A professional builder is going to be able to let you know if you are taking on too much or just the right amount of work for your budget. Unfortunately, possession of the property is needed to pop holes in walls to see what's going on behind them with insulation and vapour barriers etc, but a decent amount of info can be garnered from a walk through, enough to know almost exactly what you are in for.

Rona: Thanks Rob. What's your email address for the curious?

Rob: rprice@equidev.ca and thanks for asking!

Partnering with a contractor before committing to the largest purchase you will likely ever make just seems like good sense to me. Forewarned is forearmed.

This information of a general nature and should not be considered professional advice on home purchasing, renovations or home inspections.

I've always advised clients to approach financial news as interesting, but not reliable as an investment strategy source.

Ben Carlson, author of the A Wealth of Common Sense blog, recently did a great job outlining how to read financial news headlines. I couldn't have said it better myself, so let this be a guide for you:*

Headline: Stocks Rose/Fell Today by 1% Because of ______________

How to read it: Millions of shares traded hands today because investors all have different goals, strategies, risk profiles, holding periods and ideas.

Headline: (Popular economist/fund manager) Expects Market Volatility to Pick Up Later This Year

How to read it: Saying you expect volatility to pick up at some point in the future is like saying you expect it to rain at some point in the future. And volatility works both ways - to the upside and the downside - so really this is just a way of saying the markets will fluctuate, which of course they will.

Headline: George Soros Gained/Lost $1 Billion

How to read it: Soros has around $25 billion so what he does with his money shouldn't concern most investors.

Headline: Markets Got Slaughtered Today: A Sign of Worse Things to Come?

How to read it: No one ever really knows why stocks rise or fall on a single day. The market is up just over 50% of all trading days and down just under 50% of all trading days so you can never put too much stock in any one day.

Headline: Investors Are Dealing With More Uncertainty.

How to read it: The future is always uncertain. The past just feels more certain because now we know what really happened.

Headline: Are Markets Overbought Here?

How to read it: Ask us again in a few months.

Headline: The Stock Market Enters a Painful Correction

How to read it: Retirement savers rejoice as stocks fall on the week. Those with decades to save and invest should hope it continues.

Headline: ______Could Cause Gold to Rise to $1500/oz.

How to read it: Total guess. No one has a clue.

Headline: Is This the stock-Picker's Market We've Been Waiting For?

How to read it: It's both always and never a stock-picker's market because it all depends on the quality of the stock-picker, not the market.

Headline: Goldman Sachs Expects Stocks to Rally For the Next 3 Months.

How to read it: Big financial firms have so many strategists that there will surely be a research piece put out in the coming days that totally contradicts whatever they just predicted.

Headline: When Will the Fed Raise Rates?

How to read it: Has Fed policy really ever helped you make better investment decisions? Even if you knew exactly what they were going to do in the future you still have no idea how other investors will react.

Headline: Investors Panic as Stocks Enter a Bear Market.

How to read it: Don't panic - expected returns and dividend yields go up during bear markets. This is a good thing for long-term investors.

Headline: A Perfect Storm Caused Markets to Fall.

How to read it: Stuff happens in the markets and we like to attach important-sounding narratives to everything. 100-year storms now seem to come around once a month or so.

Headline: (Permanently-bearish pundit) Predicts a Market Crash Worse than 1987.

How to read it: Certain pundits are constantly predicting peril and end times for the markets and the economy so expect to read a few of these every week as they'll continue guessing until they're finally 'right.'

Headline: The 10 Best Stocks to Own Right Now

How to read it: Here are 10 random stocks we think could go up for reasons we are purely speculating on.

Headline: Investors are Cautiously Optimistic.

How to read it: We've got nothing so we're going to run this classic that gives no information whatsoever.

Headlines will never be the same for you again. And that's a good thing.

*source: http://awealthofcommonsense.com

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

But alas, this isn't quite true. There are many ways of measuring your return, and each one delivers a different result.

Today I want to talk about the difference between a time-weighted and a dollar-weighted return. With good reason! CRM2 performance reporting is dollar- (as opposed to time-) weighted. And as you'll see, it makes a difference. Particularly in the short term!

Time-weighted vs. dollar-weighted returns

Let's talk about Fund XYZ. As with most funds, XYZ moves around a bit.

In 2016, while XYZ ended up rising 10%, it didn't do that by increasing every month by just under 1%. No, Fund XYZ was close to static for about six months of the year. But from September-December XZY excelled, going up 12% and falling down only 2%, giving the a net 10% gain in those four months, as well as over the year.

Now you and your Aunt Minnie and your friend Isaac all happened to invest in XYZ in 2016. But lucky Aunt Minnie, she put her money into XYZ on September 1, just as the fund began to rise. Whereas unlucky Isaac, he took his money out of XYZ in July. And you, you held the fund for the entire year.

The time-weighted return will be the same for all three of you: in one year, XYZ rose 10%. But the dollar-weighted will vary considerably. Minnie's dollar-weighted return will be considerably higher, because her invested dollars earned a 10% return in only four months. Whereas you invested for 12 months to get the same 10% return. And poor Isaac, he received virtually no return for the 7 months he held XYZ.

Quite the difference!

Which is better, dollar- or time-weighted?

Use the metric that suits your objective. If you want to compare one fund to another, use the time-weighted metric to see which fund is performing better year over year.

But if you want to know what your own return was in a given year on a given fund, use the dollar-weighted metric. That metric will tell you what your invested dollars earned, in that fund, in that year.

Just keep in mind that it's easy to give an investment undue credit or too much blame for the effect of your cash additions and withdrawals. Their timing can unduly weight the return, particularly in the short-term.

But I thought CRM2 made it easy!

CRM2 does offer you more information on returns and fees than you were given previously. But it's a complex topic! Make sure your advisor helps you to understand where and how to maximize your yearly contributions, minimize your tax outlay, and optimize your savings for a comfortable retirement.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

I don't.

For a moment I felt guilty about it. For heavens sake, a movie was made about them. Am I disrespecting the fleetness of my time on earth by not identifying 'things I want to do before I die', and then ticking them off one at a time? Won't a page of ticked off boxes prevent regret when my time comes?

The answer, for me, is no. And that can be a relief for anyone who feels uncertain that they can, or will be able to, afford to do the things that comprise many a bucket list. I reflected momentarily on why I don't have one and came to the following conclusions.

• I have something else. Goals. Big audacious goals. The goals are not things I want to do, or have. They are the impact I want to have while I'm here on earth.
• I live in the moment. These days it's called 'being present'. Others refer to it as mindfulness. Turns out this comes naturally to me.
• I practice gratitude. Though not in the way it's often encouraged these days by journaling, daily affirmations and the like. It's in my nature to be grateful for the small things (not having a plugged nose after a cold), and the big important stuff (like freedom).

The cool thing is that what brings me joy and makes me grateful don't cost anything in the conventional sense. So the bucket is full at the end of every day. I have all that I need, all the time. You might be thinking, 'easy for her to say, my life is difficult, how can I be grateful and feel joy?'. Well, I felt this way even when my husband was slowly and painfully leaving me, and this world, thanks to cancer. So, it's possible.

Now, this is a blog written by a financial planner. So what's the connect to money matters? You've probably guessed by now, but the bottom line is that money is a tool that is needed to navigate life and make stuff happen. But it's not the only thing. And much research has proven that after a certain (relatively modest) level of wealth or income, one's level of happiness plateaus. Over 11 million people have watched this TED Talk that highlights the research and important results.

So please, write that bucket list but it can't be the measure for the value of your life, your status, and most of all, your daily happiness. Because, after all, today is all we have, every day.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

Yes, I could have made a coffee and bagel for a fraction of what I paid Starbucks for it this morninig. But here's why it was worth far more than the $4 I spent.

It's about MOMENTUM.

I've discovered that getting motivated to do stuff that really matters on the weekend is hard for me. I wake up in the morning having a list of things I intend to do. But something happens. Cozy in my home, tired from a demanding week of work and family, I start to rationalize that I deserve to do nothing. The draw of curling up in a soft blanket on the couch reading escapist magazines or watching sports begins to win. I've earned the right, my mind keeps telling me. If you know me, you would agree and tell me that I do deserve it.

But here's the thing. At the end of the day of doing nothing, rather than feeling rewarded, I feel disappointed. Time wasted.

Maybe it's something about turning 50 next year, but I'm acutely aware of how fast time flies and how short my time on the planet is.

So I put on my runners and head out to Starbucks in the morning. It gets me moving. MOMENTUM. And once I'm moving, something magical happens. I want to do stuff. Stuff that makes life meaningful to me. That is often active, present, time with my daughter or parents. That is often working on business that ultimately is about making others' lives better.

So, when I go to bed tonight, I'll say to myself. That was the best $4 I spent today.

MOMENTUM. Keep moving.

Bridge loans are a confusing concept for people. Don't feel bad, I know people that work at mortgage lenders who find them confusing!

Bridging is often required when the sale of your current home occurs after the purchase date of your new home. Appropriately, you are 'bridging the gap' for the funds needed to close the new home. In simpler terms, the lender is actually lending you the down payment and closing costs for your new home while you wait for the equity from the sale of your current home.

When is it useful?

After selling your current home and purchasing a new home, sometimes it's hard to line up the closing dates on each perfectly. Bridge financing allows you to accept sale offers on your existing home for dates that don't match the closing date on your new home.

Bridging can also be a good idea if you want to do some renovations on the new home, such as paint or install new flooring. During this time, you can still live in your current home while the work is being done so you won't have to live through the mess.

Let's look at an example

You purchase a home on March 1 with a closing date of June 1 for $800,000. You've listed your home and it's sold for $500,000 with a closing date of July 1. Your current mortgage is $300,000 and you intend to put down 20% or $200,000 of equity on the new home so that you'll have a $600,000 mortgage ($800K - $200K). You've already put down $50,000 so you need another $150,000. In addition, you need to cover the closing costs such as Land Transfer Tax at the lawyer's office so you need an additional $16,000 or so. They will lend you this too, assuming of course you have the equity available from the sale of your existing home.

So, in this example, the lender will provide you a bridge loan of $166,000 on June 1. You will repay it on July 1 when you receive $230,000 from the sale of your home and be left with $64,000 in your bank account.

What does it cost?

It depends on the lender. There is usually and administration cost up to $500 for set up and the lender will charge interest on it during the bridge period. The rates vary from about Prime + 2% to Prime +4%. The rate may seem high but it only applies for a short time. So, in our example, borrowing for one month might cost about $900, which is relatively small compared to the greater purpose it achieves.

How long can I bridge for?

Again, it depends on the lender's policy. For most lenders it's typically a maximum of 30-60 days. Other lender/banks may extend to 120 days or even longer.

How do I get approved for a bridge loan?

If you are approved for the new mortgage, then you likely meet all the requirements for a bridge loan. Furthermore, the bridge requirement doesn't limit your ability to be approved for the new mortgage. Most banks and lenders offer bridge loan solutions.

What is required?

The requirements vary from lender to lender but in all cases they want the unconditional purchase agreement on the new home and the unconditional sale agreement on the existing home. This assures the lender will get the bridge loan repaid when the existing home sells. The lender may also ask for your current mortgage statement to prove the equity and the MLS listings to give more assurance one the home valuations.

The bottom line

Bridge loans can be an essential strategy when making a housing transition. Educate yourself on how one can be used to help you accomplish your home ownership goals.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

When Harry met Sally it seemed like their differences complemented one another.

He loved it that she was responsible and 'good with money.' Even though he made a decent salary, Harry seemed to live from paycheque-to-paycheque and never knew where his money went. Sally helped him get things under control. And Sally appreciated Harry's spontaneity and sense of fun. If she mentioned a play she wanted to see, he'd buy the best seats for the next available performance.

Now it is ten years later and they are parents of twins. Harry and Sally's differences threaten to undermine their relationship. Each is frustrated by the other. Sally is anxious that Harry's free-spending ways mean that they won't have enough savings for retirement. And Harry feels judged whenever he buys something. Every time they try to talk about money it ends in accusations and bad feelings. And now the hostility is affecting other areas of their relationship.

Can a saver and a spender find happiness together? Yes - as long as they are honest about their differences, communicate openly, and share some core values.

Both Harry and Sally have legitimate points-of-view. Sally is correct that if the couple doesn't put enough money aside, they won't meet their goals of a comfortable retirement and helping the twins through university. And Harry also has a point when he says that their quality of life would be compromised if they focused too narrowly on these future goals. Yet if they have this conversation every time they need to make a financial discussion, frustration will set in.

Instead of frequent, frustrating conversations, Harry and Sally need a plan. If they can agree on some common financial goals and priorities, then their different attitudes to money shouldn't undermine their relationship. They need to sit down, do the math and work out some numbers. They have to figure out how much they need to set aside for expenses and savings, and how much is left for 'free' spending. After that, they can revisit the numbers on an annual basis, or whenever their financial situation changes.

If Harry and Sally have been arguing about money for the better part of ten years, this conversation might be very difficult. In order for them to reach a durable understanding, they might need help from a neutral third party. A good financial advisor should be able to help them arrive at appropriate numbers, and also help them explore their different attitudes to finances.

The practical issues - figuring out proper amounts for saving and spending - are actually the easy part. Harry and Sally also need to have a frank conversation about money and what it means to each of them. Sally needs to tell Harry that, when he makes an extravagant purchase, she worries about their future. And Harry should explain to Sally that he feels infantilized when she quizzes him on his spending habits. If each can understand the impact of their behaviour on the other, it will help both stick to the plan.

Guest post by: Jeanette Bicknell, PhD, CMed. She is a professional mediator who helps leaders manage conflict, and helps families communicate more effectively.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

In today's heated real estate market, it's not uncommon to waive the Condition of Financing - waiving might be the difference between two similar offers. Let's explore that choice...

...You've been preapproved for a mortgage and are actively searching for your home with your trusted realtor. One bright sunny day you find the perfect home in the perfect neighbourhood.

You're about to put in an offer and your realtor says you can win it - if you come in with a clean offer, which typically requires waiving your Condition of Financing clause. What does that really mean?

A Condition of Financing is a clause in the Offer to Purchase saying you will purchase as long as you are able to obtain satisfactory financing by a certain date, typically 5 business days. If you are unable to, your offer lapses and your deposit is returned in full.

No condition of financing - what happens then?

What happens if you do not have a condition of financing, but are unable to secure financing?

You lose the deposit you made when the offer was accepted.
The seller may sue for damages and breach of contract. A negated offer hurts the future marketability of their property - a house that has trouble selling raises flags to the next prospect.

Let's examine the risks of waiving and how to mitigate them.

Pre-approval ≠ approval!

Recall that a pre-approval does not guarantee a final approval - the property valuation and the property type itself must be approved. Full property assurance can never be given on a pre-approval.

When a lender/bank lends on a property they need certainty that the property value is accurate, which means an appraisal. If the appraised value comes in lower then estimated, you may be forced to provide additional down payment.

Some lenders will determine the value through either an Automated Valuation Model (AVM) or request a physical appraisal. The second part, the property itself, must be a type of property they will lend on too. For example, many lenders will not lend on log cabins under any instances!

As well, a pre-approval always has pre-funding conditions: items such as income or down payment verification. If you have switched jobs, this can present a problem. If the down payment can't be clearly shown with statements from a Canadian financial institution, you have another problem.

Mitigating the risk

1. The pre-approval can be strengthened if a full review of the key underwriting documents is completed up front. For example, income verification documents are provided, reviewed and discussed upfront with the lending underwriter. Also, the down payment sources can be reviewed for suitability and acceptability.
   
2. The estimate of property value should be discussed with the mortgage agent in terms of location. A detached home in the GTA has much higher certainty of value than one in a rural area.
   
3. The expected size of the down payment can provide safety too. The bigger the down payment, the safer you are in waiving the COF, as a higher down payment makes it easier to procure a mortgage.

Walk in well advised - know your risks!

Have a discussion with an experienced mortgage advisor, who will outline the risks and tolerances for your individual situation and profile. The better you understand your own situation and risks, the better your decisions.

The stress of purchasing, the heated atmosphere of today's market, and the excitement of finding a possible new home can exert a great deal of pressure. Do NOT let that pressure be what decides whether you waive or not - do your homework first!

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

Many Canadian seniors will be surprised when their RRIF payments decline by as much as 28% in 2016. Seniors age 82-and-under will see a decrease of at least 20%*

Seniors that chose to receive the RRIF minimum payment will be most affected. That minimum is determined by the market value of your plan assets as of the previous December 31st, multiplied by the CRA age factor. But in the 2015 Federal budget, the RRIF minimum factor was significantly reduced (see table below). And if your amount withdrawn exceeded your plan growth in 2015, your pay cut will be even deeper.

You're a senior and your financial advisor has not spoken with you about this? Here are a few suggestions:

• Up to now, if the minimum has been more than you needed, you might have manually or or automatically moved the excess to a TFSA or other account. Consider adjusting that amount downward, or outright cancelling it when your RRIF payments decline next year.

• If the minimum has been less than you needed, you may have been withdrawing additional funds from a TFSA or non-reigstered account. If those withdrawals were automated, you may want to increase the withdrawal amount to offset your reduction in RRIF income.

• You may have a one-time opportunity to re-deposit an excess amount to your RRIF to reduce your 2015 tax burden. The deadline is February 29, 2016.

Today's longer lifespans are the reason for the change in the RRIF tables. The federal government's concern (the concern of every senior and their advisor) is that the existing formula forced seniors to deplete their RRIFs too aggressively, and risk running out of money prematurely.

Let's say you're a Canadian senior. Now is a particularly good time to re-assess whether your portfolio withdrawals (irrespective of the changing RRIF rules) are sustainable, keeping in mind ever-increasing life expectancy. And don't be shy about reaching out on this tricky issue - it's mission-critical!

*The above table is based on CRA data found here.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.

Recently, the Globe and Mail created a tool for investors to compare if they are paying more or less for advice than other investors who complete the questionnaire do.

Fee transparency is important, and it got us thinking that how advisors spend those fees is also important and can provide clients with insights as to the business values of their advisor. So we analyzed our allocation of revenue and shared the results in our most recent client newsletter.

Perhaps the broader public is also interested, hence this blog post.

A recent analysis of our practice showed the following breakdown:

*information compiled internally

Compliance and Back Office 15% - This is the cost of all services provided by Queensbury Strategies, our investment dealer. We value Queensbury as a platform to provide conflict free advice and service without the pressure of sales quotas, within a collegial and supportive culture. When I worked at CIBC Wood Gundy, this percentage was over 50%. Keep in mind that the bank provided an employee, a workstation for me and my employee, and the brand value of Wood Gundy. In spite of this, for many reasons for the benefit of clients and my practice, I left the firm 15 years ago to become an independent advisor.

Salaries 40% - This includes staff salaries, health and dental benefits, CPP and other payroll related costs. As an independent, I'm on the hook for these expenses. However, rather than having only one dedicated support staff, I've chosen to have three. Two associate financial planners and one administrative assistant. The additional staff enable us to deliver a much more comprehensive and responsive service to clients. Furthermore, this strong base of expertise ensures seamless support to clients when I am on vacation or at home with the flu. These great young talents are also the future of the practice, and will hopefully be around long after I have retired.

Training and development 5% - This includes courses and exams related to continuing education and skills development for the entire team. Continuing education is a priority at Caring for Clients, and as you can see we invest a great deal more on training and development than we do on marketing. Our view is that if we strive for continued excellence, growth in clientele will naturally follow.

Marketing 1% - This includes all activities related to marketing and promotion. New clients come from three sources: existing client referrals, referrals from other professionals, and unsolicited inquiries through our website. We have invested a lot of time on delivering value to existing clients, building professional relationships beyond our clientele, and in building a reputation as an industry leader which shows up in our media mentions and growing web presence. Our efforts in this regard are resulting in business growth that is not reliant on advertising and traditional sales and marketing.

Technology and Client Service 10% - We are constantly investing in our planning technology, and are currently investing in the development of a new client portal that will make the client onboarding experience an even more pleasant one. The online portal will be expanded over time as we identify opportunities to use technology to enhance the client experience. In addition, we look for ways to express how much we value our clients and these expenses fall into this category too.

Office Rent 4% - The cost of one office and two workstations in downtown Toronto. So far, my team member, Alexandra doesn't mind sharing an office with me. I try to be on my best behavior! J We are in a great building in a convenient location that our clients seem to really like.

Retained Earnings 25% - Otherwise known as profit. This is the part that is available for annual bonuses for staff, and for investing in the future of the business such as hiring additional staff when needed. It is also important to run a profitable business to ensure sustainability during cyclical downturns when revenue falls. Ours is a cyclical business, and operating conservatively from a financial standpoint means that we can stay focused on client service even when revenues decline, which happens during a bear market. A secure business is one that will be around over the long term. Given the fact that our clients will need us over the long term, we view this as an important strength.

By the way, I used the Globe and Mail fee comparison tool to see where our fees stand in the marketplace. I was pleased to see that as full-service planners and wealth managers, in all categories, our clients pay less than average, while (in our view) getting more advice and service than average.

This information isgeneral in natureand is not intended to constitute specific financial advice for any individual. Please speak with us directly for advice customized for your needs.

So, it is timely to share with you a list of 10 things that we have learned from Peter Lynch, one of the world's most successful investors. Peter isn't the only person who has said these types of things, just one of the most famous. These basic investing tenets and observations are essential to being a successful investor at all times, but particularly when returns get 'bumpy'.

1. 'Nobody can predict interest rates, the future direction of the economy, or the stock market.Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested.'
   
2. 'The way you lose money in the stock market is to start off with an economic picture.If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes.'
   
3. In the long run, a portfolio of well-chosen stocks and/or equity mutual funds will always outperform a portfolio of bonds or a money-market account. In the long run, a portfolio of poorly chosen stocks won't outperform the money left under the mattress.'
   
4. 'A share of a stock is not a lottery ticket. It's part ownership of a business. I think you have to learn that there's a company behind every stock, and that there's only one real reason why stocks go up. Companies go from doing poorly to doing well, from doing well to doing very well, or small companies grow to large companies.'
   
5. 'To make money, you must find something that nobody else knows, or do something that others won't do because they have rigid mind-sets.'
   
6. 'If you can't convince yourself, 'When I'm down 25 percent, I'm a buyer' and banish forever the fatal thought 'When I'm down 25 percent, I'm a seller,' then you'll never make a decent profit in stocks. Bargains are the holy grail of the true stock picker. We see the latest correction not as a disaster, but as an opportunity to acquire more shares at low prices.This is how great fortunes are made over time.'
   
7. 'If you go to Minnesota in January, you should know that it's gonna be cold. You don't panic when the thermometer falls below zero.'
   
8. 'I've found that when the market's going down and you buy funds wisely, at some point in the future you will be happy.'
   
9. 'If you hope to have more money tomorrow than you have today, you've got to put a chunk of your assets into stocks. Sooner or later, a portfolio of stocks or stock mutual funds will turn out to be a lot more valuable than a portfolio of bonds or CDs (GICs) or money-market funds.'
   
10. 'In the long run, it's not just how much money you make that will determine your future prosperity. It's how much of that money you put to work by saving it and investing it.'

Amen

This information isgeneral in natureand is not intended to constitute specific investment advice for any individual. It is best to speak to directly to a financial planning professional for specific advice. The author is a licensed mutual fund advisor with Queensbury Strategies Inc. She is also President of Caring for Clients, a fee-only, financial planning firm.

That makes it more important than ever to have your equity allocation actively managed in professionally managed funds, where the portfolio managers can hand pick the best valued companies with the growth profile necessary to drive returns. Multiple expansion will likely not deliver, and in fact, may contract. As a result, index investing could be very disappointing over the next 5 - 10 years.

Also, we anticipate that after an extended period of declining interest rates in the bond market and therefore increasing bond prices, interest rates will likely stabilize and slowly rise, which would detract from bond performance.

Finally, volatility is sure to increase relative to the recent past. Equity market volatility over the last few years has been markedly lower than average, and that is probably a temporary aberration.

We liken the investment climate over the past 5 years to riding your bike downhill.

The wind is in your hair, and you feel like you will get to your destination in no time flat. 'Wheeeeeeee!'But hills inevitably bottom out and turn uphill.


Riding uphill takes more effort, and is not nearly as enjoyable, but if the destination is worthwhile, retirement security for example, your focused effort will pay off.

At this time it is essential that you have a clear strategy for how both your overall financial planning and investment approach needs to respond the current environment. You need to decide now, what you will do when volatility returns and what adjustments you should make to either saving or spending patterns in the event that future returns are lower than the recent past.

The UCCB was expanded to children aged 6 through 17. Parents will receive a benefit of up to $60 per month for each child in their care aged 6 through 17.

Make sure that you are receiving all that you are eligible for by reading the following Q&A.

Do I need to apply for the enhanced benefit?

If you are the parent of a newborn and already applied in 2015 - You will automatically receive the increased payments.

If you are already receiving the UCCB - The increase will be applied automatically.

If you previously applied for, or received the Canada child tax benefit (CCTB) or the UCCB for a child or children who are under 18 and who are still in your care - The increase will be applied automatically.

If you have never applied for, or received, the CCTB or UCCB for a child or children in your care who are under the age of 18 - Yes, you must apply. You can do so online by using 'Apply for child benefits' through the CRA's My Account online service or, you can complete Form RC66, Canada Child Benefits Application and send it to your tax centre with the supporting documents.

I share custody of my child with my ex-spouse. Who gets to claim the benefit?

If a child lives with two different individuals in separate residences on a more or less equal basis, each individual will get 50% of the payment that they would have received if the child lived with them all of the time. Each parent would apply for their half of the benefit separately. If benefits are already being received, and need to be divided between spouses, contact CRA directly at 1-800-387-1193 to advise them of the change. CRA may request documentation confirming the shared custody arrangement.

When can I expect payments to start?

If you are eligible, and CRA does not request additional information upon receipt of your application, payments typically commence within 3 months.

Will the money be directly deposited to my bank account?

If you already provided your bank account information to the CRA for one or more payments, they will continue to use that bank account to deposit all UCCB payments. For more information or to apply for direct deposit, go to Direct deposit.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained herein.

We all have a relationship with money. It guides our decisions and can define how we experience life. Do you see yourself in these four money personalitycategories?

The Ostrich

The ostrich doesn't want to know what their financial position is or whether they should adjust their money management approach to ensure a more secure future. So it's a crap shoot whether or not their current lifestyle is more frugal than necessary or over the top irresponsible. The future will come when it does and they hope for the best.

Hope is not a strategy for success and building financial awareness is usually empowering rather than painful. The ostriches that we meet are often happily surprised that they have a brighter financial future than they thought and are emboldened by the knowledge that they have the power to change the direction of their life if they so choose.

The Spendthrift

The spendthrift has a hard time saving money and/or paying down debt. They have a hard time answering the question, 'how much money do you spend each year?' Money is often a tool used to smooth the rough edges of life, whether by using shopping as a leisure activity or overspending on conveniences to avoid the perceived drudgery of home maintenance or cooking. The spendthriftoften wants to enjoy a lifestyle beyond their means and asks the question, 'how come my friends can go on fancy vacations, own luxury vehicles and basically spend freely but I have to stretch to do the same? What's the point of saving for retirement if I never get there? Just look at all the people who die in their 50's and 60's!'

If you see yourself in this description it's time for a gut check. Spending feels good but being in control of your finances feels even better.

The Hoarder

The hoarder has difficulty spending money and as a result is a great saver and works hard to eliminate debt. Saving and reducing debt is smart money management, however, if it comes at the expense of experiencing life fully and/or creates stress in a relationship, it's a problem. Hoarding behavior is usually driven by fear. Fear of not having enough in retirement and fear of job loss are two examples. People hold onto money like they would a teddy bear, because it makes them feel more secure in an uncertain world.

Taken too far, this way of being keeps one's world small. It's true that money can't buy happiness, but it can help you experience the world more fully. Whether used to visit art galleries or the theatre, or to travel the world, it's true that we only live once. Spending responsibly doesn't have to compromise sound financial management.

The Engineer

The Engineer knows how their money is spent. They often keep track of their spending, investing, and debt reduction progress on a spreadsheet. Analytical about most things they naturally do a cost/benefit analysis of expenditures, which can take some of the romance out of life's adventurebut overall tends to lead towell-balanced financial decisions.Stress can arise when the engineer marries any of the categories above and can't relate to the emotional connections that their partner has with money.

Understanding your money personality can help you establish a more balanced relationship with money.

This information isgeneral in natureand is not intended to constitute specific financial advice for any individual. It is best to speak to your financial professionals (or us!) for specific advice.

Customer loyalty to one's bank of choice has historically been very Canadian. We love our banks. 'This is my bank; surely they'll return the love.'

Canadians are starting to take off the rose coloured glasses and see the banks for what they truly are; businesses designed to generate profits for shareholders. Loyalty doesn't mean what it used to and here is a case in point to prove it.

It is a common occurrence in my work as an independent mortgage broker agent that a client provides me with the mortgage renewal offer they got from their bank. A recent client of mine was offered Prime rate minus 0.55% on the renewal for a 5-year closed, variable term mortgage. The exact same bank, at the exact same time offers me Prime minus 0.65% for clients. My client has great income, great credit, always made timely payments, and should have been given the better offer as an existing customer.

Why don't the banks offer their existing customers the best possible rate? They understand the principle of inertia. Inertia is that physics law that you learned in high school. You know, the principle that all physical objects are resistant to any change in its state of motion. Your bank, relies on the fact that most customers do not shop around at renewal time because they are either too busy, too loyal, or naïve enough to think that they will be offered the best possible rate and mortgage terms.

So what should you do? If you've never consulted with a mortgage broker or agent then you should give it serious consideration. A broker/agent will only give you upside on your financing solution. There is no cost to the borrower because brokers are paid by the eventual lender.

It's best to contact a reputable mortgage broker at least 6-months prior to the renewal date. This gives the broker time to understand your needs and unique circumstances, do their research and educate you on your options. They can obtain rate guarantees well in advance of the renewal date that will come in handy when interest rates inevitably rise.

About the Author:

Ian Mucignat is a mortgage agent at TMG The Mortgage Group. He is an industry expert having served in variety of roles at Canadian schedule I banks and lenders for 14 years, including his last role of Vice President. Ian completed his Chartered Financial Analyst designation and his Bachelor of Business Administration, with a minor in Economics, at Wilfrid Laurier University.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained herein.

We are often asked the question whether it makes more sense to make extra mortgage payments or top of retirement savings when there is extra cash flow. This question is coming up more often these days given the low borrowing rates and recent great returns in the stock market.

Our view is driven by the reality that the more principal you pay now when mortgage rates are low, the stronger a financial position you will be in when mortgage rates do increase. Rates don't have to increase much to magnify the amount of interest that you pay over the life of the mortgage so the smaller you can get it before that happens, the better.

Making a mortgage prepayment gets you a guaranteed, tax free return that usually exceeds the after tax return of guaranteed investments like GICs.

The exception we make to this general advice is if you have unused RRSP room and are in a high tax bracket. In that scenario, we usually recommend RRSP top up and subsequent allocation of tax savings to the mortgage.

The other caveat is that once the money is paid into the mortgage, you may not be able to borrow it back. So make sure that you have access to emergency cash such as an unused line of credit or TFSA account investments.

Finally, if you have investments in a non-registered account, your TFSAs are maximized and you have a mortgage approaching renewal, you may want to consider using your non-registered funds to pay down the mortgage at renewal and then borrow back the same amount to replace your investments. Doing so can convert the interest paid on that portion of the debt from non-tax deductible to fully tax deductible. There may be costs and capital gains taxes associated with this strategy, so make sure that the future tax savings of the strategy more than compensate for the structuring expenses.

This information isgeneral in natureand is not intended to constitute specific tax or financial advice for any individual. It is best to speak to your tax and financial professionals (or us!) for specific advice.

You applied for an insurance policy (life, disability, critical illness or long term care) and your agent advised you that 'there is good news and bad news'.

The good news is you got approved for coverage. The bad news is that the insurance company has rated the policy a substandard risk. That means the premium is higher than standard rates and/or certain conditions or exclusions have been added to the policy.

Your first reaction is likely anger. You might want to tell the insurance company to take their offer and put it where the sun doesn't shine. After you take a deep breath, you consider the following three options:

1. Delay accepting the policy pending a visit to the doctor.
   
2. Apply to another insurer to see if they will offer better terms.
   
3. Accept the offer and then visit your doctor to discuss the issue that led to the rating.

If you want to know why option #3 is the best choice, consider some real life scenarios recently shared with me by one of Canada's largest insurance companies:

Case 1

Insurance: $5 million Term insurance policy

The need: Funding a buy/sell agreement; legal agreement is final and insurance is mandatory.

Client 1: Age 56

Client 2: Age 58

Medical requirements: Full medical exam, blood profile, urinalysis and a stress EKG.

What happened:

Client 1: Completed the underwriting requirements with normal tests and is assessed standard.

Client 2: Presented with a rhythm abnormality on his stress EKG known as ventricular tachycardia (V-tach). This episode only lasted for three to four beats, which is good, since an extended V-tach can lead to ventricular fibrillation and sudden death. V-tach is generally, but not always, associated with underlying coronary artery disease.

The decision: Insurer decided on a rating of 250% but shopped the reinsurance market for a better offer. After a week of negotiation, they were able to secure an offer of 175%. (175% rating means that if the standard premium was $1,000, the rated premium is $1,750)

What happened next: Prior to accepting the contract, the client discussed his case with acardiologist friend and then underwent a coronary angiogram. This test indicated severe stenosis of two coronary arteries. The client underwent a coronary angioplasty with stents placed in two arteries. After, the applicant gave the insurance agent the report and said 'You were right, I was sick but now I'm cured.'

Unfortunately, it's the insurance industry's standard for cases where there are two diseased blood vessels and a coronary angioplasty to postpone for six months and then apply a significant rating. So when the reinsurer received the additional report, they withdrew their 175% rating. Six months later the client reapplied and was rated 250%.

The lesson: By seeing his physician prior to accepting the rated policy, the applicant had rendered himself temporarily uninsurable. Furthermore, there is no guarantee the applicantwon't be considered uninsurable permanently. Eligibility for coverage is always subject to change until your policy is in force.

Case 2

Similar to the case above, this client had T-wave abnormalities on his electrocardiogram. His coronary risk profile was not ideal. He had a positive family history of coronary artery disease, had been a smoker 10 years prior, had borderline cholesterol and was being treated for hypertension.

The decision: The insurer offered a 150% rating and the case was immediately placed. The insurer sent a copy of the suspect electrocardiogram to his physician with a letter indicating that they would be open to reviewing the rating after additional cardiovascular testing was done.

What happened next: The applicant completed a stress echocardiogram test and was deemed normal.

The insurance agent sent the insurance company a Request for Change form asking for a rating review. In response, the insurer requested an Attending Physician's Statement which confirmed the normal stress echocardiogram results.

Within three months, the risk rating was removed and the premium reduced.

In Summary

As you can see from these two examples, if the option to accept the policy is available, it is best to accept a rated offer while you attempt to improve your health status, get updated test results to the insurer or shop around.

You can always replace the policy down the road if better options emerge.

This information isgeneral in natureand is not intended to constitute specific financial or tax advice for any individual. It is best to speak to your insurance advisor for specific advice. Case studies courtesy of Manulife Financial.

Most retirees have several sources of retirement income. The largest contributor to this income is typically a portfolio of investments. Retirees spend decades savings for the future and trying to maximize returns to build the largest possible nest egg. When investors shift from the accumulation phase (saving for the future) to the decumulation phase (spending the nest egg) different investment objectives emerge.

The number one worry becomes, 'will I outlive my money'? Secondary, but no less important concerns are how to reduce income tax and how to generate steady, guaranteed returns. Risk tolerance plummets in the decumulation phase of an investor's life.

The insured annuity concept addresses all of these considerations. The strategy maximizes after-tax income from non-registered savings and preserves capital for heirs and/or charitable bequests. An insured annuity involves the purchase of two contracts from insurance companies, a life annuity and a life insurance policy. The objective is to provide a better return on investment than traditional, conservative, taxable fixed income investments like GICs. Additional benefits can include creditor protection and avoidance of probate fees that come with life insurance products that name the appropriate beneficiaries.

Here is how it works

A specified amount of non-registered savings is used to purchase a prescribed life annuity. The annuity pays a regular stream of tax efficient income for the life of the investor. A portion of that income stream is used to purchase a life insurance policy that is paid to the estate (or named beneficiary) upon the passing of the investor. The end result is higher retirement cash flow than alternative fixed-income investments while still leaving an estate for heirs.

The preferred tax treatment of prescribed annuities and the tax free nature of life insurance death benefits drive the higher after tax returns. Payments from prescribed annuities are considered a combination of interest and capital, therefore, only a portion of the income is taxable.

There are risks to consider though

An insured annuity is a strategy that cannot be undone with the exception of cancelling the life insurance.As such, it is prudent for a retiree to have other sources of capital that they can draw on in the event of an emergency or change of circumstances that requires a lump sum withdrawal of assets.Annuities are like pensions in that you cannot request more than the monthly guaranteed income that the contract guarantees.

Returns on alternative guaranteed investments may increase.If interest rates on GICs increased dramatically in the relatively near future, the relative advantage of the insured annuity begins to erode from a financial standpoint.The advantages of simplicity and tax efficiency remain however.

• Poor health - You must be in sufficiently good health to obtain the life insurance.Before committing to the annuity purchase, it makes sense to apply for the life insurance first and ensure that the policy is approved at the expected premium level.

• Both the annuity and life insurance contracts should be purchased from different insurance companies.If purchased from the same insurer, CRA could consider them 'one contract' and that would have negative tax implications.

In summary

The insured annuity strategy is not well understood and consequently underutilized. Speak with us or your financial planner to assess if it makes sense for you.

This information isgeneral in natureand is not intended to constitute specific financial or tax advice for any individual. It is best to speak to your tax professionals for specific advice. Photo source

Now, to ensure that estate values are not underestimated, estate trustees in Ontario must file an Estate Information Return (AIF). This form must be filed within 90 days of the estate trustee being issued a probate certificate by the provincial government. The report requires disclosure of much more detailed information regarding the value of estate assets than was required in the past The return must be filed even if the value of the estate is less than $1,000 and no probate fees are payable.

No return is required where an executor applied for the Estate Certificate (letters probate) prior to January 1, 2015.

Here are a few interesting highlights regarding the return:

You are on the hook for four years - If, within four years of the issuance of the Estate Certificate by the Ontario Government, an estate trustee becomes aware than any information given to the Ministry of Finance on an Information Return is incorrect or incomplete, an amended Information Return must be received by the Ministry of Finance within 30 calendar days of the estate representative becoming aware that the information is incomplete or inaccurate.

Discovering more property - If, after receiving the Estate Certificate, an estate trustee discovers additional property owned by the deceased, a statement disclosing the subsequently discovered property must be filed with the court within six months of the discovery.

Non filing penalties are stiff - Estate trustees who fail to file the Information Return as required, or who make false or misleading statements ono the return, are guilty of an offence and, on conviction, are liable to a fine of at least $1,000 and up to twice the tax payable by the estate, or imprisonment of not more than two years, or both. Yikes!

You have to prove values - Estate trustees should be able to substantiate valuations. Depending on the asset, valuations can be complicated, (private business for example) and a professional valuator with the necessary expertise may be necessary. Because professional valuations can be expensive, sufficient estate residue be held back from distribution until such costs are paid. Records relevant to the valuation of estate assets must be retained, and seven years appears to be the period that satisfies the Ministry of Finance.

You can obtain the full Guide by contacting us or by doing an internet search using the term, 'Estate Information Return Ontario'.

One of the final lines delivered the most powerful message of all. A young women, clearly having passed before her time says, 'Oh life, oh life, oh beauty, oh life. To leave you knowing that you were never loved enough...' Nowhere in her lament is there regret for not having had the fanciest designer clothes, flashiest car, or not having travelled the world.

So before you spend the big bucks on the typical gifts, consider spending less money on each gift, and more time on making it something truly meaningful.

The gift of time

• If you like children - Offer to babysit the children of a close friend or family member while they enjoy a night or afternoon out.
  
• If you are tech savvy - Set up or improve someone's Linked In profile, or help them organize their online files and/or photographs.
  
• If you live close by - Offer to water their plants, walk their dog or feed their cats next time they are travelling.

The gift of your talent

• Love to party? Offer to help bartend, cater or decorate a party that someone on your list is planning.

• Love to cook/bake? Homemade goodies from your kitchen (include the recipe!) is thoughtful and who doesn't love food? If you want to add a little to the cost of the gift, include a utensil like a mixing spoon or teacloth.
  
• Handy? You know which friend or family member is stressed at the thought of hanging pictures, changing lightbulbs and organizing closets/storage facilities. Give them a DIY day. Make sure they help you so that next time they have the skills when they need them!
  
• Great with makeup? Give a friend a makeover and recommendations for inexpensive products that would work well for them.
  
• Have a green thumb? Provide a list of perennial plans that would thrive in their garden and include a small gift certificate for a local garden centre, or perhaps a gardening book.

The gift of giving

• Tell someone that you love them. Better yet, get some nice paper and write a letter to them. Tell them what they mean to you and why you are glad they are in your life. Guaranteed, this gift will never be forgotten.
  
• Make a donation in lieu of a gift. Give them some information on the cause that you are supporting with them in mind, along with an example of the difference the giving makes.

Perhaps you can re-visit your annual gift budget with these ideas in mind. You will be spending less, but giving more.

The difference between being a fixed income investor then and now is the direction of interest rates.

Since rates peaked in 1981 when a November issued Canada Savings Bond yielded 19%, rates have been steadily declining to the point where the April Canada Savings Bond was issued at a 1% rate and 'high interest' savings accounts hover in the 1.5% range. The inflation rate is commensurately lower now as well, however, there is no denying that investing in cash and GICs results in steadily eroding purchasing power.

Furthermore, the tailwind that falling interest rates has had on fixed income returns is likely at an end. In a recent commentary, PH&N Investments made the following comments:

'It is likely that the era of ultra-low interest rates is now in the rear-view mirror. The U.S., which remains a very important influence on global interest rates, seems determined to follow through on its commitment to end its quantitative easing program. Barring any economic or political disruptions, that is scheduled to end in December of this year. Developed markets have, for the most part, recovered from the 2008 crisis and are entering a new, perhaps more modest, stage of growth. And even with last year's rise, interest rates are still marginally below what we consider to be longer-term fair value. As such, we should expect a continued upward grind in yields over time. It almost certainly will not happen in a straight line, and fluctuations - such as those just witnessed this quarter - are to be expected. But in the long term, a return to a higher interest rate environment, where investors can earn a decent yield on their savings, is a welcome development.'

Until then, staying short-term makes good sense. There is a greater likelihood that interest rates will go sideways and then increase modestly over the next few years. That would be a positive event given that interest rates would likely be rising in response to economic growth. That is better than deflation.

So why own GICs or fixed income funds at all?

The fact that investors ask this question partially explains the strong equity markets in the face of so much global economic and political uncertainty. Investors needing income are purchasing the dividend equity funds that have handily outperformed the returns offered by fixed income funds. There is a new owner of dividend yielding equity funds, the retiree.

What should not be ignored is the role that fixed income investments should play in a portfolio, that is, income and capital preservation.

As frustrating as it can be to own (and for us to recommend) investments that offer a paltry 1.5%, investments that protect capital are low yielding right now. If capital preservation and/or low/moderate portfolio volatility is important to an investor, high quality fixed income investments must play a role. Our job is to determine how much is appropriate for each individual client and provide a rationale to support our view.

This information isgeneral in natureand is not intended to constitute specific investment for any individual. It is best to speak to your investment professionals forspecific advice.

In August 2011, Mark posted a blog titled 'The Income Tax implications of Purchasing a Rental Property'. There are 300 comments and answers on that post (so many thathe added a note at the end of the blog a while back, thathe would stop answering questions on this specific post).He recently read through the comments and realized there were several excellent questions that have probably been 'lost' in the morass of questions. Today,he decided to highlight some of the better questions.

Questions and Answers Related to Rental Properties

Q: With respect to rental income being considered passive and therefore taxed at the high rate - is there are certain point or threshold when a real estate company's rental income is considered active and therefore eligible for the small business deduction? Is it still considered passive when you grow to a certain number of properties or employees?

A:Great question, the answer is yes. A real estate company would be considered a specified investment business and not eligible for the small business deduction. However, if the corporation employs greater than 5 full time employees, the income is deemed active and eligible for the small business rate of 15.5% or so depending upon your province. I have clients with multiple corporations, each owning a single rental property. If one of the corporations has more than five employees, who really are also employees of the other corporations, it may be problematic to claim the active tax rate in that corporation. You may be able to utilize a management company, however, where the rental properties are residential, they cannot claim back the HST they pay, so a management company may not work.

Q: My question is about net loss and the government. My husband and I make over $300K in combined income. We own a 1.3 Million dollar home and it has no mortgage. We are looking at purchasing a property which is close to 2 million dollars and finance the whole amount (based on LOC and new mortgage). It will clearly generate a net loss even if we get the maximum rental income. We have done the math and the savings on taxes and a moderate appreciation of the property is well worth it. We currently have a condo rental which has generated a modest profit for the past 5 years. Does the government care if you generate a loss for an extended period of time (over 10 years)? Thank You!

A:Here is a link to a useful Torys LLP newsletter on the subject. Although the link is dated, it should answer your question.This is really a question on the 'reasonable expectation of profit' doctrine.

The key comment in the Tory's newsletter is the following: 'Essentially the court have held that where an activity is a commercial activity - that is, it does not have a personal element-there should not be judicial or CRA scrutiny of the taxpayers business judgment for the purpose of determining whether or not the activity is a source of income'.

As per the comment above, commercial activities are problematic for the CRA to attack, so they have been going after taxpayers who claim losses with any kind of personal element.

Q: My husband and I have a duplex in both our names. Both units are rented out at this time. My husband is the sole provider for the family and I stay at home with the kids. My question is how do we claim the rental? Do we claim it 50/50 or does my husband claim 100% since he is responsible for the expenses etc.

A: Legally if ownership is 50/50, you must report the income 50/50. However, for income tax, there is the issue of income attribution. i.e.: whose money was used to purchase the property or was it a Line of Credit with both names. If your husband used his money and put the property in both your names, then technically all the rental income or losses should be reported by him. Although technically incorrect, many spouses seem to ignore the attribution rules and report income/losses on a 50/50 basis.

Q:I have a very old house that I have been renting for five years now. The roof has to be repaired or it will soon start to leak. We want to replace the roof with life-time guaranteed shingles. Is this kind of expense a current expense since it's required to maintain the current quality of the house or a capital expense since it also increases the value of the property?

A: Great question. Technically the CRA may say you have improved your roof by purchasing shingles that are better than the prior shingles or the lifetime guarantee makes them better than the prior shingles and thus the cost should be capitalized. However, I would suggest that the majority of accountants would likely expense the cost and argue this is purely a repair, but it is not 100% clear.

Q: I purchased a revenue property in Quebec 5 years ago and I am planning on possibly selling it this year. Can I amortize the capital gains from the sale over 5 years? I am considering possibly selling it and buying another revenue property immediately afterwards. I.e. during the same year. I was told that if did do this then the capital gains from the sale of the property would not need to be declared since I am using the profit to buy another property. Is this true?

A: For capital gains there is typically a five year reserve available where all the proceeds have not been received on sale, see this example. In respect of the second part of this question, you are asking about the replacement property rules. These rules would not typically apply to rental property purchases and re-purchases, but relate to business properties replaced. This paper from CGA Magazine discusses the issue.

Q: I have a couple of rental houses and currently considering incorporating them to credit proof my personal assets. I understand that the rental income is treated as passive income so no benefit, but is there a difference if the rental property was sold through a corporation or held personally - i.e. can the capital gain be reduced capital gains exemption?

A: The capital gains exemption is not available on the sale of shares where the underlying asset is a rental property not used in an active business. The benefit of incorporation is pretty much creditor proofing and maybe some income splitting with your spouse depending upon the circumstances.

Q:I purchased a 2 floor office condo (525k, 2800 soft) and its part of a 6 unit block of 2 floor office condos. One floor I rent out and one floor I use for my business. I can't find anything to indicate the value of the land for tax allocation. Do you think using the 10% rule of thumb would be appropriate in this situation and would a rule of thumb satisfy CRA?

A: Where there is no hard evidence to determine the allocation between land and the building, it would not be unusual for many accountants to use 10% for land related to a condo. That does not mean it is correct and that the CRA would not challenge the allocation, however, I have not seen the CRA challenge this.

Q: What are the tax implications of purchasing a home for myself and family to live in as our primary residence and renting out the basement. Would it be the same implication if we put an addition on the house but we still occupied more than 50%. Thanks.

A: This is what the CRA says, I think their response answers both your questions.

'It is the CRA's practice not to apply the deemed disposition rule, but rather to consider that the entire property retains its nature as a principal residence, where all of the following conditions are met:

a) the income-producing use is ancillary to the main use of the property as a residence;
b) there is no structural change to the property; and
c) no CCA is claimed on the property.

These conditions can be met, for example, where a taxpayer carries on a business of caring for children in the home, rents one or more rooms in the home, or has an office or other work space in the home which is used in connection with business or employment. In these and similar cases, the taxpayer reports the income and may claim the expenses (other than CCA) pertaining to the portion of the property used for income-producing purposes'.

Q: I have a question about % used for business on my tax return. We have a cottage rental property. We open it in the spring and close it in the fall. Out of the 16 available weeks, it was rented 12 weeks, vacant 1 week, and personal use for 3 weeks. The 1 vacant week was advertised for rent but we did not get a booking. The remaining 36 weeks a year, the cottage is not accessible, the roads are not maintained and the cottage is not heated.

How do I calculate percentage used for business? Is it just the rented weeks (12) or available for rent weeks (13)? And in the denominator, can I use 16 weeks or do I have to use the whole year.

A: See the discussion in this paper about your issue.

The paper says this. 'In the Morris case, the decided that the portion of the operating losses to be written off against income was the percentage that is was available for rent during the operating season. Since the cottage was frozen for a portion of the year and therefore not rentable, the expenses for that period of time were not deductible.

As a result of these decisions and others, the Canada Revenue Agency is taking the position that if you use the property personally and rent it out the rest of the time, your business use is only the period when you can 'Reasonably expect to rent out the property.'

Keep in mind that this is the CRA's view, I am sure lots of people do not necessarily agree with their position, but if you take an alternative position, you may be challenged.

As you will have observed from the above Q&A, some of the income tax issues that arise in respect of owing a rental property are complicated or fall into a murky grey area. I would suggest that if you own a rental property, you should probably have an accountant assist with your income tax return.

Mark Goodfield is a tax partner and the managing partner of Cunningham LLP in Toronto. He writes about income tax, business, the psychology of money and investing topics and is meant for taxpayers no matter their income bracket, but in particular for high net worth individuals and entrepreneurs who own private corporations. The views and opinions expressed in his blog, The Blunt Bean Counter, do not reflect the position of Cunningham LLP

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained herein. The above information, comments and opinions are not necessarily the opinions of Queensbury Strategies Inc. Its accuracy or completeness is not guaranteed and Queensbury Strategies assumes no responsibility or liability.

Change #1 Elimination of second home mortgage insurance

CMHC now limits the availability of homeowner mortgage loan insurance to only one property (1 - 4 units) per borrower/co-borrower at any given time.

The impacts:

In the past, when some condo or homeowners decided to move to a larger or different property they would retain the current property as an investment, rent it out and purchase a new property to live in. Many of these individuals could not raise a 20% down payment on the new property given that they have equity tied up in the current property. Being able to obtain CMHC insured mortgage supported a smaller down payment making the strategy doable. No longer. Owning a second property will require saving up a much larger down payment.

In the past, when lenders required a mortgage applicant to provide a co-borrower to approve the mortgage, the co-borrower could already have a CMHC insured mortgage of their own. No longer. There will be some (mostly young, first time buyers), who will have to save more, or earn more in order to qualify on their own merits.

Change #2 Elimination of Self-Employed without 3rd Party Validation mortgage insurance

Going forward, to validate your income, you will have to provide copies of your Notice of Assessment, audited financial statements or unaudited financial statements prepared by an independent third party, for the previous two years. Most self-employed individuals maximize business expenses with the aim of reducing income tax. This approach may result in a reduction of the business owner's mortgage financing ability.

The impact:

It is clear that the federal government is working to ensure that a Canadian version of the recent US housing crisis does not occur. In our view, there is merit to such an approach. That being said, alternate high ratio mortgage insurance companies, Genworth Financial and Canada Guarantee have not introduced similar restrictions yet.

All mortgage insurers increased their insurance rates this year.

This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained herein.

GST/HST Credit - Positive change

Beginning with your 2014 tax return, you will no longer have to check the box on your T1 General personal tax return asking whether you want to apply for the GST/HST Credit. CRA will automatically determine whether or not you are eligible to receive the credit. The Credit will be paid to the spouse or common-law partner whose tax return is assessed first.

Medical Expense Tax Credit (METC)

Two new eligible expenses are being added to the list of expenses for which an individual is entitled to the METC. These are:

• The design and subsequent adjustment of an individualized therapy plan provided that the cost of the therapy itself would be eligible for the METC, such as applied behavior analysis therapy for children with autism, assuming certain conditions are met.
• The cost, care and maintenance expenses related to service animals specially trained to assist an individual in managing their severe disabilities. This would also include reasonable travel expenses to obtain the necessary training.

Donations Made by Will/Beneficiary

Budget 2014 will provide additional flexibility in how donations by will or beneficiary designation will be treated for tax purposes for deaths after 2015. Under the new rule, beginning in 2016, donations made by will and designation will no longer be deemed to be made by an individual immediately before the individual's death, but rather will be deemed to have been made by the estate at the time the property is donated to the registered charity. That means that the estate would then have the option to allocate the donation to the taxation year in which the donation is made, an earlier taxation year of the estate, or the last two taxation years of the individual who died.

Pension Transfer Limits when Commuting a Pension Plan

If you leave a defined benefit pension plan, there are rules in the Income Tax Act that determine how much of your commuted value can be transferred tax-free into an RRSP. If the pension plan is underfunded, that reduces the amount of the commuted value that can remain tax sheltered.

In 2011, the government introduced a special rule to cover these situations, but only where an underfunded pension plan of an insolvent employer is being wound up. Budget 2014 proposes to extend this rule to any commuted value paid to a departing employee under the following conditions: the payment has been reduced due to plan underfunding and the reduction in the estimated pension benefit that results in the reduced commuted value payment is approved pursuant to the applicable pension benefits standards legislation. This will apply to commuted value payments made after 2012.

We await details for how individuals who transferred the commuted value of their pension plan in 2013 can take advantage of this new rule retroactively.

Elimination of Graduated Tax Rates of Testamentary Trusts

The graduated rate taxation for testamentary trusts (trusts created by a Will) will be significantly curtailed.

Starting in 2016, flat top-rate taxation would apply to testamentary trusts created by wills as well as to estates 'after a reasonable period of administration' of 36 months. The benefits of graduated rate taxation is now limited to the first three years of an estate.

Thankfully, graduated rates will continue to be available indefinitely for testamentary trusts whose beneficiaries are individuals who are eligible for the federal disability tax credit.

Thanks go to Renaissance Investments and Jamie Golombek, Managing Director Tax and Estate Planning where much of this information was sourced. This information isgeneral in natureand is not intended to constitute specific tax or legal advice for any individual. It is best to speak to your tax and legal professionals for specific advice.

I wasn't disappointed. His plain language, common sense advice regarding the financial services industry is in line with the plain language, common sense advice in the rest of the book.

Why is this book essential reading for those who desire grounding in the basics of financial planning? As the great philosopher, Voltaire, once said, 'common sense is not so common'.

Preet delves into the fundamental rules of financial planning, helping the reader understand the importance of each. He dispels some common misconceptions and presents each rule in a relatable manner. The rules are:

• Disaster-Proof Your Life
• Spend Less than You Earn
• Aggressively Pay Down High-Interest Debt
• Read the Fine Print
• Delay Consumption

Preet also includes a great primer on investing and insurance, both subjects that the financial industry often over-complicates.

Does this book replace the need for Financial Planners like me? Both Preet and I don't think so. What it does do is empower Canadians with information onthe critical aspects of financial decision making that, when implemented with or without an advisor, leads to greater financial security.

I consider it essential reading for young professionals entering the workforce. The sooner one embraces the 5 rules, the fewer regrets in the future.

You can order the book here.

'This information isgeneral in natureand is not intended to constitute specific tax or legal advice for any individual. It is best to speak to your tax and legal professionals for specific advice.'

Yes. The executor has the right to charge a fee or 'compensation' for managing an estate. The Trustee Act states: 'A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.' While there is no set fee in the Trustee Act or elsewhere, the courts have developed 'guidelines' for calculating the executor's compensation as follows:

2 .5 % of the capital receipts
2 .5 % on capital disbursements
2 .5 % on revenue receipts
2 .5 % on revenue disbursements
2/5 of 1 % per year management fee on the gross value of the estate

It is important to note that the 'guidelines' are just that, guidelines, and may be varied from in certain circumstances. For instance, the courts recognize that in some cases it may be appropriate for an executor to charge more compensation and in other cases, the guidelines may be too much. In this regard, the courts have historically considered the following five factors in determining the appropriate amount to compensate an executor if the 'guidelines' are deemed inappropriate:

• The size of the estate
• The care, responsibility and risks undertaken by the executor
• The time spent by the executor managing the estate
• The skill and ability demonstrated by the executor in managing the estate
• The results obtained by the executor in managing the estate; i.e., the extent to which the estate was successfully administered

Of course, if the Will sets out the executor's compensation, this amount will be followed and the guidelines and the above factors need not be considered. There is also a legal presumption which states that if the executor is left a specific bequest in the Will, this amount is intended to be his or her compensation (this 'presumption' can be rebutted by the executor).

The funds paid to the executor as compensation are deducted from the 'residue' of the estate. The term 'residue' refers to the funds that are left over after all the estate debts, general legacies and other specific bequests have been paid. In many instances, the executor elects not to charge compensation because he or she is either the only residuary beneficiary or one of a few residuary beneficiaries (i.e., one sibling acting as the estate trustee on behalf of his or her siblings). The compensation is taxable income whereas the inheritance is not so it may be more tax-advantageous for an executor to forego compensation, depending on the number of beneficiaries.

Jason Allan is a Barrister and Solicitor with Allan Law in Aurora, Ontario. www.allanlaw.ca

Believe it or not you can be charged a 20% penalty for missing information that the CRA already has on hand.

In the next month or two, the CRA's matching program will begin kicking out notices of reassessment to Canadians whose reported income on their 2012 income tax returns does not match the CRA's records. Some of these income tax filers will be assessed penalties of 20% on income not reported. Yes, that is income not reported, not tax underpaid! This penalty applies to income tax information your employer or financial institution provided to the CRA which was not reported on your return. In most cases, the omission of income was purely unintentional.

How can one be considered to not have reported income that the CRA has in its database? Is this not a penalty for failing to confirm income, as opposed to not reporting income? This is how the matching program works.

The Matching Program

The CRA's matching program catches the non-reporting of income every fall. Each year the CRA checks theT-slip informationin its database against Canadian taxpayer's income tax returns to ensure the T-slip income reported matches. Where the income filed by a taxpayer does not match the CRA's database records, an income tax reassessment is mailed to the taxpayer asking for the income tax due. If the taxpayer is a first time offender, they are just assessed the actual income tax owing and possibly some interest. If this is the second occurrence in the last four years, a 20% penalty of the unreported income is assessed.

The Penalty Provision

Under Subsection 163(1) of the Income Tax Act, where a taxpayer has failed to report income twice within a four-year period, he/she will be subject to a penalty. The penalty is calculated as 10% of the amount you failed to report the second time. A corresponding provincial penalty is also applied, so the total penalty is 20% of the unreported income.

Ouch! Is this Fair?

I find this penalty unfair for the following reasons:

1. It is excessive. I can accepta penalty of 5%, maybe 10%, but20%?

2. The penalty can be levied even if you owe no income tax. I.e.: If someone in Ontario fails to report a T4 slip with $5,000 of employment income and the slip also reported $2,325 of income tax deducted, they would owe no income tax, as the maximum marginal income tax rate of 46.41% was applied (ignoring Ontario supertax). However, if you had failed to reportincome in any of the three prior years, the penalty under subsection 163(1) would be $1,000 (20% x $5,000), even though you owed no income tax and the CRA was provided this information by your employer.

3. The penalty can vary wildly on the exact same total of non-reported income. If you fail to report $2,000 two years ago and fail to report $100 this year, your penalty is $20. However, if you failed to report $100 two years ago and failed to report $2,000 this year, the penalty is $400! That is a huge difference in penalties for the exact same total of unreported income.

4. Most penalties relate to T-slips taxpayers did not knowingly ignore or evade. In most cases, the missing income relates to T-slipslost in the mail or sent to the wrong address. Also, many T-slips are now issued online and are easy to miss.

According to an article by Tom McFeat of CBC News, the number of Canadians penalized for this repeated failure to report income totaled over 81,000 in 2011 with an income tax cost of slightly over $78,000,000.

To be clear, my issue with this penalty is that taxpayers in most cases are being penalized where there is no intent to hide income and the CRA receives that information. However, I am not as forgiving with the non-reporting of rental income, capital gains or self-employment which relies on taxpayer honesty.

Tax Tip forT-slips Received after You Filed Your Return

If you receive (or discover) a T-slip after filing your tax return and ignored the slip since it was a small amount, dig it out tonight andfile a T1 adjustment as soon as possible before the matching program gets you. Even a small $10 missed slip will start your clock ticking for a potentially larger penalty if you miss reporting income again in the subsequent three years.

Mark Goodfield is a chartered accountant with Cunningham LLP and author of The Blunt Bean Counter blog.

Being appointed executor of a loved one's Will is an expression of the ultimate trust that person places in you. Although you may emotionally feel the need to honour the wishes of the deceased, there are some practical aspects one should take into consideration before taking any action on behalf of the estate. You may wonder whether you have the necessary skills and time to manage the deceased's affairs. Are you legally bound to handle the estate once appointed executor in a will? This article reviews your basic responsibilities as an executor and explores avenues open to you.

• When appointed as an executor, what options available to you?

You can either decline or accept to be an executor at the time you are notified of your appointment after the death of the individual. Timing and processare important if you choose not to act as executor. A renunciation should be done in the form required by your provincial estate law (a sample Ontario Form 74.11 courts of justice act is here) and submitted before carrying out any duties related to the estate. If you perform any tasks on behalf of the estate prior to renouncing, the court may reject your application to refuse your appointment as executor.

• Executor duties

An estate executor has many estate settlement responsibilities. Those responsibilities include, but are not limited to the following:

Locating wills - In order to reassure third parties and beneficiaries, executors are often required to probate a will. Probate is the legal process through which a will is validated by the court as the last valid will, and gives legal authority to executors of the estate.

Arranging funeral - Although the funeral is usually organized by family members, the executor is legally responsible for the costs associated with funeral arrangements. The executor should negotiate funeral details with family members while focusing on funeral cost control because of his duty to protect estate value for beneficiaries' interest.

Inventorying, managing and protecting assets - it is the responsibility of the executor to identify, locate, appraise and make a listing of all deceased's assets and their market value as at the date of death. The executor's duty to protect assets may involve purchasing liability and damage insurance. Also, the executor must manage estate assets prudently and reasonably until full distribution. If necessary, professional advisers can be hired to provide assistance with estate law, investment management and accounting services.

Paying debts and preparing tax return- The executor can be held personally liable for the deceased debts (including tax) and should make an effort to identify and locate creditors. Also, an executor has the obligation to file afinal tax return for the deceased by the later of April 30th of the yearfollowing the year of deathand 6 months after the date of death. When the deceased is self-employed the deadline is the later of June 15th of the yearfollowing the year of deathand 6 months after the date of death. Business, trust and 'rights or things' returns may be also reported on separate tax returns if it is advantageous to do so. As all deceased's capital assets and other properties are deemed disposed of at fair market value immediately prior to death, except when they are transferred to the spouse or a spousal trust within 36 months after death, it may be appropriate in some circumstances that the executor elects to transfer assets tothe spouse or a spousal trust at market value if permitted in the Will. This strategy will be beneficial to the estate when the deceased has capital losses carried forward from previous years, or has an unused capital gains exemption. An executor should also consider making a final contribution to an RRSP for the year of death when the deceased still has unused contribution room. Furthermore, an executor is responsible for filing annual tax returns for the estate and should also find out if there are any foreign tax issues. An experienced chartered accountant should be hired to ensure proper reporting.

Distributing assets to beneficiaries according to the will - Before any distribution, it is recommended that the executor obtains a clearance certificate from Canada Revenue Agency in order to avoid any personal liability for income tax owed by the estate due to any future adjustment in tax return. A clearance certificate will be provided when estimated taxes are paid, and any tax liability arising on a future date will be shared by beneficiaries.

Preparing an accounting of the estate - One of the executor legal responsibilities is to present an accounting of the estate to the beneficiaries. Any debts, receipts (including insurance proceeds) and disbursements should be properly recorded.

• Are you inclined to accept your appointment in spite of a lack of technical competency and/or time?

Yes, there is still an option for you. You can hire a trust company, whose trust officers will perform all the actual duties for you. The only thing you will be responsible for is to retain the final decision making as you are still bound by the legal duty 'not to delegate decisions' about the estate management and affairs. Note that the costs of hiring professional advisers, including a trust company, will be paid by the estate.

• Are you a non-resident executor?

Some provinces require posting a bond if executor is not a Canadian or Commonwealth country resident. In case the majority of executors are not Canadian residents, the estate will be taxed as a non-resident trust and tax will be deducted at source on any income earned in Canada. Also, you have to make yourself readily available for any regulatory audit in Canada.

Being an executor of an estate is an honour and significant responsibility.We have highlighted some of the major considerations.Here is a useful checklist that covers most executor duties should the need arise.

'This information isgeneral in natureand is not intended to constitute specific tax or legal advice for any individual. It is best to speak to your tax and legal professionals for specific advice.'

Whether incorporated or a home based sole proprietor, business owners can deduct many operating expenses from their income. Here is a list of the most common expenses and a tip for effectively keeping track of them.

• Advertising - Costs associated with marketing your services may include: Pay per click online campaigns, print and radio ads, direct mail, memberships in business associations and networking groups.
• Car and fuel - the proportion of automobile expenses related to business use can be deducted. Make sure to keep an auto expense usage log in the event that you are audited.
• Insurance - Business liability, property, trade credit and any other business insurance.
• Legal fees - Business legal advice fees typically result from incorporations, lease reviews, shareholder agreements, contract development and unfortunately at times, litigation.
• Eligible maintenance and repairs - Upkeep of buildings and equipment including utilities.
• Equipment and supplies -Common expenses include office supplies, telephone and cell phone services, computers and related technology and furniture.
• Support staff - All staff expenses including contractors are a deductible expense. Make sure to treat employees as such rather than contractors if for all intents and purposes the individual(s) is working exclusively for you on a full time basis.
• Taxes - Yes, some taxes are deductible and they include property taxes and HST.

One of the most common financial mistakes that business owners make is commingling personal and business expenses.

By taking advantage of all tax deductions available and tracking them properly will allow business owners to minimize tax and simplify tax reporting.

'This information is general in nature and is not intended to constitute specific tax advice for any individual It is best to speak to your tax professional for specific tax advice.'

Getting Married

How can getting married be an estate planning mistake? Well, in most Canadian Provinces, marriage automatically revokes a will made prior to the marriage unless the will clearly states that it was created in contemplation of marriage (to the person you ultimately marry!). So unless you have a new will drafted and signed following marriage, at your death you would be considered intestate (having died without a valid will). The estate laws of the province would then dictate the distribution of your assets. The unintended consequences could include:

• Bequests to friends or charities outlined in the pre-marriage document would be ineffective.

• Delays can result. For example, in Ontario, Pursuant to s. 26 of the Estates Administration Act, subject to s. 53 of the Trustee Act, no distribution is to take place from an intestacy for one year.

• Trusts for children that are commonly included in wills to delay the distribution of estate proceeds beyond the age of majority (18) would be ineffective.

• Even if you would be satisfied with how the provincial government dictates the distribution of your assets, the estate would bear an additional administrative burdenresulting inadditional legal and court fees.

Getting separated

Unlike marriage, separation (without any formal separation agreement or divorce) will not automatically revoke a will that likely has all or a significant portion of the estate benefitting the soon to be ex-spouse. We recommend getting legal estate planning advice immediately following a marriage breakdown.

Having an outdated will

Wills are drafted in line with your financial and relationship status at a moment in time. Flash forward a decade or two and what was a sensible will can result in unintended consequences. There are enumerable changes that would justify an update or redrafting of a will, but here are a few examples.

• A large charitable bequest is named in dollar terms with the estate residue directed to family. At the time of drafting, if the person's estate is worth $2 million and the bequest is for $500,000 that might be reasonable. Over time, if the value of the estate declines as the person uses their capital in retirement, they may pass away with an estate valued at less than the bequest. In this case, the family members would receive no benefit. Estate litigation could result. Charities are known to get involved in Estate Litigation to secure bequests, so don't assume that they are pushovers.

• Children often experience different degrees of financial success/hardship over time. A will that distributes an estate equally, may not be desirable in this scenario.

• The optimal choice for a guardian for minor children may also evolve over time and should be reflected in an updated will.

• The suitability of named executors can also change over time.

Ignoring tax implications

Although there is no estate tax in Canada, significant taxation can occur at death. These taxes result from the 'deemed disposition' rule wherein CRA considers all of your assets 'sold' on the day prior to your death. Unless you designate your spouse as beneficiary of any registered plans and other appreciated assets, taxation will result. If taxation is not considered, unintended consequences can result. We will deal with this in a future post.

Procrastination

Taking the time and spending the money to have a well developed estate plan is a gift that you give your survivors. Leaving an untidy estate for your mourning loved ones to deal with is easily avoidable. It is one of those tasks that falls to the bottom of the to do list, but when complete results in a sense of accomplishment and peace of mind.

This information is not to be construed as legal advice.If legal assistance is required, the service of a competent professional should be sought.

The legislation would require an attorney an attorney under a continuing power of attorney for property to make an annual accounting to the Public Guardian and Trustees Office (PGT) or where requested by the grantor. It is still unclear as to the nature of the reporting, but it would likely include the grantor's assets, liabilities and the amount of compensation taken by the attorney.

The legislation also proposes to establish a formal registry of attorneys for both property and personal care.

It will be interesting to see how onerous the reporting obligations are and whether there will be a surge in attorneys no longer wishing to take on the role. Unless the changes are communicated directly to those named as POAs, I don't anticipate any mass exodus. Should the additional reporting become more broadly understood, some POAs may ask the grantor to find an alternate.

Those who are unable to find someone willing to be their primary or alternate Power of Attorney for property will rely on the services of the PGT. The PGT could find itself strained under the growing demand and would need to increase staff (which would require more tax dollars). Should the dollars not be available, service would eventually be compromised.

Stay tuned here for updates as they become available.

This information is not to be construed as legal advice.If legal assistance is required, the service of a competent professional should be sought. Feel free to refer to Our Network page for recommended professionals.

You've heard of High Frequency Trading (HFT) but have you seen it?

The 2010 flash crash has been blamed on HFT. For those of you who forget the details, the term 'flash crash' was coined when the U.S. stock market lost 1000 points in a matter of minutes before recovering most of these losses a few minutes later. The crash was triggered by HFT algorithms initiating a selling cycle that wiped out billions of dollars of value before anyone knew what was going on. The trades were processed by computers, rather than human beings making buy and sell decisions based on fundamental valuation measures.

Market data research firm Nanex created this amazing video that illustrates a .5 second of trading activity in Johnson & Johnson (symbol JNJ) on May 2, 2013.

I asked Keith Graham, veteran portfolio manager with Rondeau Capital and manager of the NexGen Turtle Canadian Equity fund if investors should be concerned.

'I view it as legalized 'front running' and it should be stopped. I think it creates enormous volatility and is bad for the capital markets overall. It is another issue that is causing the public to lose faith in capitalism etc. and this is very bad for our economy (and our society I think) in the long term.'

Regulators around the world are trying to figure out whether and how much they should regulate HFT. That is an emerging story. Stay tuned.

'This information is general in nature and is not intended to constitute specific investment advice for any individual.'

The AODA's deadline for providers of goods and services with 20 or more employees to file a Customer Service Accessibility Compliance Report was December 31, 2012.

AODA stands for the Accessibility for Ontarians with Disabilities Act. Many business owners are unaware of the law that requires the filing of a compliance report. They are also unaware of the onerous penalty for non-compliance.

Employment lawyer, Doug MacLeod tells the story of a client of his that received a non-compliance letter from the Ontario government. Her organization was given 15 business days to comply with AODA. Thereafter, the organization would be subject to a fine of $50,000 for each day the organization did not comply with AODA.

'The government has provided fairly user friendly tools to assist employers fulfill their obligations under the act' MacLeod says. There is a detailed package that provides directions on compliance reporting. MacLeod suggests not waiting until you receive a letter from the government to develop an accessibility policy and file the compliance report. 'It appears that employers are being given very short deadlines for compliance. It is prudent to file the report now, even though the deadline has passed.'

Businesses with fewer than 20 employees don't need to file the compliance report, but they are still have obligations under the Customer Standard of AODA. Such obligations include: establishing policies, practices and procedures on providing goods or services to people with disabilities; providing people with disabilities with notice of a temporary disruption in facilities or services; and providing training to certain persons about the provision of its goods or services to persons with disabilities.

The Ontario government provides a range of online resources to help business owners fulfill their obligations under the Act.

- For every provider of goods and services (except sole proprietors) there is a an accessible customer service policy template.

- For every provider of goods and services (except sole proprietors) there is a 45-minute online training course for employees.

- For every provider of goods and services with 20 or more employees there are directions on compliance reporting.

These resources, along with advice from your employment lawyer, are all that you need to become compliant with the Accessibility for Ontarians with Disabilities Act.

This summary is intended to highlight the aspects of the budget that will affect some or all of our business owner clients. It is not meant to be a comprehensive outline and analysis of the budget.

Corporate income tax rates

There were no changes porposed to any corporate income tax rates.

Hiring credit for small business

The temporary hiring credit for small business will be extended for another year. The credit will be available to employers whose EI premiums were $15,000 or less in 2012.

Scientific research and experimental development tax credit (SR&ED)

More detailed information will be required when taxpayers use third parties to prepare a claim. Business numbers for each third party along with details about billing arrangements including the existence of contingency fees and the amount of fees payable, will be required. The claimant will have to certify if there was no third-party involvement in preparing the claim. There will be a new $1,000 penalty for all claims where the required information is missing.

Leveraged insured annuities

Leveraged insured annuities use a combination of borrowed funds, lifetime annuities and life insurance policies to create a current interest expense deduction, reduced capital gains tax payable on death, receipt of tax -free growth within the policy and an increase to the capital dividend account of the corporation. We have never been comfortable with such a strategy and now this budget has taken steps to eliminate the tax benefits that made the strategy so marketable.

10/8 arrangements

10/8 arrangements use life insurance policies and borrowed funds to create an ongoing interest expense deduction, a tax deduction for a portion of the life insurance premiums paid and an increase to the capital dividend account of the corporation. This is another tax driven insurance strategy that has always made us uncomfortable, and now this budget has taken steps to eliminate the tax benefits that made the strategy so marketable.

To facilitate the windup of existing arrangements before 2014, the budget proposes to alleviate the tax consequences of withdrawing from a policy under this arrangement to repay the borrowing, if the withdrawal is made on or after March 21, 2013 and before January 1, 2014.

Various other tax measures

- Accelerated capital cost allowance provisions for clean energy generation and mining companies.

- Elimination of corporate loss trading with a new provision that restricts the deductibility of losses in cases where there has been an acquisition of control of a corporation.

- Phasing out of the additional deduction available to credit unions over a five year period.

- Extention of the accelerated capital cost allowance for manufacturing and processing machinery and equipment acquired after March 18, 2007 and before 2014.

Please let us know if you have any questions about how the budget affects you.

'This information is general in nature and is not intended to constitute specific tax advice for any individual It is best to speak to your tax professional for specific tax advice.'

This summary is intended to highlight the aspects of the budget that will affect some or all of our clients. It is not meant to be a comprehensive outline and analysis of the budget.

Personal income tax rates

There were no changes made to personal income tax rates, although tax brackets have been indexed by 2% to reflect the impact of inflation.

First-time donor's super credit.

If you or your spouse or common-law partner have not made a charitable contribution since 2007 you are eligible to receive a one-time super tax credit for contributions up to $1,000. The donation must be made after budget day (March 21, 2013) and before 2018. The resulting benefit would be a 40% tax credit on the first $200 of donations and 54% on the next $800.

Lifetime capital Gains exemption

The budget proposes to increase the $750,000 lifetime exemption by $50,000 to $800,000. The limit will be inflation indexed for 2015 and subsequent years. This exemption is available only for dispositions of qualified small business shares, qualified farm property and qualified fishing property after 2013. If you already claimed the maximum exemption, the incremental new higher limits are available to you going forward.

Deduction for safety deposit boxes.

This deduction has been eliminated.

Dividend tax credit

The highest marginal tax rate on non-eligible dividends (typically paid to shareholders of a qualified small business) will increase from 19.58% to 21.22% after 2013.

Foreign reporting requirements

If you own specified foreign property with a cost that exceeds $100,000, you must file form T1135.

You can see the list of property that must be reported on the second page of the T1135 form.

For the majority of Canadians, property that they will have to report includes:

- Funds in foreign bank accounts
- Shares of Canadian corporations on deposit with a foreign broker; (not including U.S. IRA accounts)
- Shares of non-resident corporations held in certificate form or on deposit with a Canadian or foreign broker; (for example, US stocks like Apple, Coca Cola, etc.)
- Land and buildings located outside Canada, such as a foreign investment property; (this does not include property that is for personal use primarily)
- An interest in or a right to any specified foreign property, such as a foreign Trust

Character conversion transactions and corporate class funds

This refers to financial arrangements that attempt to convert ordinary income into capital gains, through the use of financial derivatives. Many corporate class fixed income mutual funds use such arrangements to minimize the tax burden for investors. As such, as these derivative contracts expire, the tax-efficiency of these funds will be reduced, albeit they will still hold a structural advantage as compared to mutual fund trusts and ownership of individual securities in non-registered accounts.

Taxes in dispute and charitable donation tax shelters

CRA is generally prohibited from initiating collection action in respect of assessed income taxes, penalties and interest in cases where taxpayers have formally objected to the assessment. In order to discourage participation in charitable donation tax shelters deemed offensive by CRA that lead to prolonged litigation and delayed tax collection, the budget proposes to allow CRA to collect up to 50% of the disputed amount pending ultimate determination of the tax liability. This measure will apply to 2013 and subsequent taxation years.

Testamentary trusts and graduated rate taxation

A common estate planning strategy involves the use of testamentary trusts (spousal trusts, for example) created in a deceased person's will to hold a beneficiary's inheritance. These trusts can be more tax efficient that receiving an outright inheritance because the trusts are subject to taxation at graduated rates and allow for the splitting of income between the trust and the beneficiaries. The Department of Finance is concerned with the increasing tax-motivated use of testamentary trusts and the impact on the tax base. The budget announced that the government will consult on possible measures to eliminate the tax benefits arising from the use of these trusts.

Please let us know if you have any questions about how the budget affects you.

'This information is general in nature and is not intended to constitute specific tax advice for any individual It is best to speak to your tax professional for specific tax advice.'

Some Canadians have been asking their tax preparer not to file their return electronically because they believe that it increases the chance of an audit.

Whether e-filing increases the odds of an audit or if that is a myth is no matter. Starting in 2013, tax preparers who file more than 10 personal or corporate income tax returns are required by CRA to file them electronically.

What is the repercussion if a taxpayer refuses to file a return electronically? None for the taxpayer. It is the professional preparer who would be exposed to potential penalty for using an incorrect filing method.

So, if you want to file your tax return the old fashioned way, you will need to file it yourself or have a friend or family member help you. The good news is, there is helpful tax return software that is inexpensive and makes it easier than ever.

If you are planning a trip to Florida anytime soon, do not pass GO, do not collect $200, but go directly to your local CAA office with $25 and passport photos.

A new Florida state law was enacted on January 1, 2013 requiring all international visitors have an international driving permit before getting behind the wheel on state roads.

The law is intended to help local police interpret foreign drivers' licenses. That is why there is hope that eventually visitors with English-language driver's licenses will be exempt from this law, but for now the international permit is required.

You can obtain the necessary permit application and information on the new legislation at your local Canadian Automobile Association office. CAA has done a good job of summarizing related information on their website here.

If you are already in Florida, applications can be processed by mail.

UPDATE: Canadians told not to worry. See updateddetails here.

Being self-employed has many benefits, one of which is that business owners get increased tax planning opportunities.

Self-employment is a great tax-shelter because of the many tax deductions available to entrepreneurs. CRA allows deductions for a multitude of expenses as long as the costs and reasonable and were incurred in order to generate income for the business.

CRA isn't going to take your word for it though, so recordkeeping is essential. One of the most common mistakes that entrepreneurs make is commingling personal and business expenses.

What does commingling look like?

- Using one credit card for both personal and business expenses.

- Using one chequing account for both personal and business expenses.

- Moving money from personal accounts to business accounts and vice versa without adequate documentation or explanatory notes

The advantages of segregating business and personal finances

- Your accountant (or you) can easily prepare your tax return. Less time spent by the accountant means lower accounting fees.

- You won't break into a sweat if CRA decides to do a business expense audit.

- It is easier to assess the profitability of the business.

Separating your business and personal income and expenses will result in greater financial clarity, and fewer problems with CRA.

This information is for general information only and is not intended to constitute specific tax advice for any individual.

Scientific research and experimental development credits (SR&ED) represent a significant financing and cash flow source for Canadian small businesses. Under this tax incentive program, corporations can get a tax credit of nearly 40% on eligible R&D expenses. In addition, should the corporation not have income taxes to pay, then in many circumstances the corporation can receive a cash refund of the amount of the tax credit.

For 50 of Canada's fastest growing companies these credits represented 22% of their financing in 2012, according to the 2012 Profit Magazine Hot 50 report.

But changes have come to the program. One of the most significant is the elimination of R&D capital assets as eligible deductions under the program as of 2014. That means that 2013 is the last year that such eligible investments will generate a SR&ED tax credit.

Howard Lerner, CA and partner at Richter LLP in Toronto advises client that any planned capital expenditures that would be eligible for SR&ED should be acquired and used before December 31, 2013.

Examples of the type of equipment that often qualify under the program are:

• Equipment used in a test facility or laboratory
• Computer equipment used for testing software programs that would qualify for SR&ED
• Equipment used in testing food processing e.g. ovens, freezers, etc.
• Automobile used to test an alternative fuel source.

Before making such investments, speak with a tax advisor knowledgeable in SR&ED to find out if the expense is likely to qualify under the program.

Business owners of specialized equipment companies should put their sales force on over-drive to capture this window of opportunity. After 2013, the after tax cost of these products will rise significantly for customer

'This information isgeneral in natureand is not intended to constitute specific tax advice for any individual'

The spirit of the holiday season inspires charitable giving. Whether it is dropping a few coins in the Salvation Army bucket, helping out at a local food bank, or by donating funds in lieu of gifts, it really is the season of giving. Here at Caring for Clients, in lieu of holiday greeting cards, we made a donation to World Vision, in particular to programs that generated corporate matching donations.

To help you decide which organizations to support, Moneysense publishes an annual guide which provides detailed information on how charities raise and spend giving dollars. Check it out here.

Happy holidays and happy giving!

Being self-employed has many benefits, one of which is that business owners get increased tax planning opportunities.

Self-employment is a great tax-shelter because of the many tax deductions available to entrepreneurs. CRA allows deductions for a multitude of expenses as long as the costs and reasonable and were incurred in order to generate income for the business.

CRA isn't going to take your word for it though, so recordkeeping is essential. One of the most common mistakes that entrepreneurs make is commingling personal and business expenses.

What does commingling look like?

- Using one credit card for both personal and business expenses.

- Using one chequing account for both personal and business expenses.

- Moving money from personal accounts to business accounts and vice versa without adequate documentation or explanatory notes

The advantages of segregating business and personal finances

- Your accountant (or you) can easily prepare your tax return. Less time spent by the accountant means lower accounting fees.

- You won't break into a sweat if CRA decides to do a business expense audit.

- It is easier to assess the profitability of the business.

Separating your business and personal income and expenses will result in greater financial clarity, and fewer problems with CRA.

These days many Canadians are accepting career opportunities that take them to the United States for a number of years during which they accumulate assets in a U.S. retirement savings plan. Upon returning to Canada, it is possible to transfer the US retirement plan assets into a Canadian RRSP, in most cases on a tax-deferred basis.

The following plans are eligible for transfer to a Canadian RRSP:

401(k)
403(b) (if transferred to an IRA first)
Keogh Retirement Plan
Individual Retirement Account (IRA)

To ensure that the transfer does not affect your RRSP contribution room, three conditions must be met. These conditions are set out in subparagraph 60(j)(i) or 60(j)(ii) of the Income Tax Act.

- The payments made to the U.S. plan must have been in respect of employment services you, your spouse or common-law partner, or former spouse or common-law partner; rendered while not resident in Canada

- You are a Canadian resident taxpayer and a non-U.S. citizen at the time you collapse your U.S. plan and contribute the proceeds to your Canadian RRSP.

- The transfer must be done as a lump sum and not as periodic payments.

If all three conditions are met, the transfer process has three steps.

Step One - Contact the U.S. plan provider to request the documentation needed to collapse the plan. Complete the paperwork requesting a lump sum withdrawal.

Step Two - A cheque in U.S. dollars will usually be mailed directly to you. Convert the funds to Canadian dollars prior to making the contribution to your Canadian RRSP. The contribution must be made to your RRSP within the calandar year in which you collapse your U.S. plan, or no later than 60 days after year end.

Step Three - Complete the additional tax filing forms necessary. These are noted below.

Withholding tax considerations:

U.S, withholding tax may apply to the transfer. If it does, under the Canada-U.S. tax treaty, the withholding tax should be 15%. The foreign tax credit will generally be available in Canada to reduce possible double taxation.

If you are under age 59 1/2 when effecting a transfer, check with the plan sponsor in the U.S. to see if a 10% early withdrawal penalty will apply. If you are assessed the 10% penalty you can claim the amount paid as a foreign tax credit on your Canadian income tax return.

Your tax return

In addition to the T1 General tax return, these forms will also be required:

Federal Tax - Schedule 1

Schedule 7 - RRSP unused Contributions, Transfers, and HBP or LLP Activities

Form T2209 - Federal Foreign Tax Credits - completed if foreign withholding tax is applicable. A similar provincial form is generally required.

Please speak with your tax advisor for the tax considerations specific to your circumstances.

TurboTax is finding ways to make tax filing easy and affordable. I just discovered a couple of discounts being offered when using their online tax preparation software.

For Manulife Financial customers:

This tax season, Manulife Financial is again offering customers located in Canada the opportunity to save 20% off the cost of preparing their tax returns using TurboTax, from Intuit Canada.

There are three options:

• TurboTax Standard - maximize deductions from RRSPs, spousal/dependent credits and more.
• TurboTax Premier - all the features of the Standard plus extra guidance for investments and rental property income.
• TurboTax Home & Business - all the features of Premier, plus guidance for claiming self-employment income.

Take advantage of the discount at www.turbotax.ca/manulife

Free for students!

TurboTax Student Online Edition is free for students! You qualify if:

• You were a college or university student in 2011: You paid tuition fees during the 2011 calendar year and you hold a T2202A, TL11 or its equivalent.
• Youearned under $20K: Your household income does not exceed $20,000 gross (that is, before taxes).

Free for very basic returns

You can use TurboTax Free Online Edition if:

• You earned income: You receive T-slips, like T4s & T4As. You may have have tip income and/or pension income.
• You are not self-employed.
• You do not have investment income or RRSPs.
• You have not made any charitable donations or investments.
• You Have Simple Deductions: You receive only 'standard' federal & provincial deductions.
  

The best part...free advice!

For TurboTax customers, they offer free tax advice 24/7 between February 10 and May 4, 2012.

We cannot vouch for the product, so it's buyer beware, but Intuit has a good reputation overall.

Q: I am turning 60 next year. Should I apply for CPP now or wait until I am 65?

A: It sounds like you realize that electing to receive CPP prior to age 65 means that your monthly pension will be less than if you waited until age 65 to apply.

There is no simple answer to this question, which explains why you may have received conflicting advice.

Here is what you need to know to make a decision that is right for you.
The most recent changes to the CPP were designed so that if you live an average lifespan, there is no advantage or disadvantage to taking benefits early. There are some situations where taking CPP early or later make really good sense. Perhaps you fall into one of these categories:

Early CPP situation #1

You need the money - If have a cash flow deficit that early CPP benefits will cover, it makes sense to take it rather than build debt.

Early CPP situation #2

You are in poor health - If you expect a shortened life expectancy either because you have health issues or because your family history is one of shorter life spans, taking early CPP is a good bet.

Early CPP situation #3

You spent a number of years out of the workforce - Your pension amount depends on averaging your contributions and 'pensionable earnings' from age 18 until you start taking CPP. You're allowed to drop 15% of your lowest-earning years from the calculation, which amounts to seven years if you retire at 65. If you took time off work to raise kids or because you had a serious disability, you get to drop even more of your low-earning years. The thing is, it's easy to use up all your drop-out years if you spent a long time getting an education or just 'finding yourself.' If you then stop working in your early 60s and don't take CPP right away, you'll immediately start adding more years of zero earnings to the calculation. This will lower your average pensionable earnings, which in turn will make your benefit go down. Under these circumstances, you're clearly better off starting CPP early.

Later CPP situation #1

You expect to live a very long time - If longevity is in your family history, delaying CPP until at least age 65 means that you will have a larger pension for a long period of time.

Later CPP situation #2

You are still working - You can now begin receiving CPP benefits, and grow the benefit through continued contributions while you are working. That being said, you will possibly pay a higher rate of tax on CPP income while you are working than if you delayed receiving benefits until you retire.

As you can see, there is no simple answer to this question. Hopefully this outline will help you determine which approach is right for you.

Effective January 5th, 2012 students in Ontario are getting a financial boost from the provincial government.

Students in a university or college degree program will save $1,600, while students in college diploma and certificate programs will save $730. These amounts are 30% of the average tuition in Ontario, which is the formula being used to establish the amount.

Your children are eligible if they are:

1. A full-time student at a public college or university in Ontario
2. It's been less than four years since they left high school
3. They are in a program that they can apply to directly from high school
4. Their parents' gross income is $160,000 or less
5. They are a Canadian citizen, permanent resident or protected person
6. They are an Ontario resident

The deadline to apply for the term starting January 2012 is March 31, 2012.

How to apply

If your child already receives OSAP no application is necessary. They will be automatically considered and the student will receive the grant by cheque or direct deposit by the end of January.

For those that do not receive OSAP, an application must be completed and requires the following information:

1. Student's Social Insurance Number
2. Parents' Social Insurance Number(s)
3. Line 150 from each parents' 2010 tax return (if a 2010 tax return has not been filed yet, the grant will not be available)

Then you'll need to:

1. Register for an OSAP Access Number
2. Fill out and submit the online grant application
3. Print the declaration and signature pages which the student and parents sign.
4. Mail or fax the signed pages to

Student Financial Assistance Branch
Ministry of Training, Colleges and Universities
P.O. Box 4500
189 Red River Road, 4th Floor
Thunder Bay, ON P7B 6G9
Fax: (807) 343-7278

For more information, check the FAQ's or call the toll-free hotline at 1-888-449-4478.

Royal Bank's latest housing survey found that one-third of Canadians who are 55 or older have at least 16 years left on their mortgage term. That reality doesn't line up with the average Canadian's desire to be mortgage free by age 65.

The survey was picked up by the major media and splashed across both print and online news outlets.

Claude Demone, RBC's director of strategy for home equity financing stated the obvious, 'Canadians want to be mortgage-free as they approach retirement age and beyond, but the reality is that it takes prudent planning and the right advice to stay on track.'

My father forwarded the article to me. He regularly sends me information that he thinks would be of interest to his financial planning daughter. My response to him on the article about the RBC report was,

'It's a real problem....and the banks are not helping'.

He asked, 'How are the banks getting in the way?'

My answer to him was:

In spite of what the banks say in the media, I see what they do in practice every day.

1. Encourage people to borrow more than they can afford
2. Approve amortizations that are too long
3. Encourage the use of home equity lines of credit vs. mortgages

This is how I see the above playing out in my practice daily.

Over-borrowing

The banks will approve credit based on a simple formula called 'Total Debt Service Ratio' (TDSR). If your total monthly debt payments (mortgage, loans, credit cards, lines of credit) divided by your monthly before tax income is less than 40% that is acceptable. This assumes that your credit history is good and that you live in a perfect world.

There is little or no consideration for whether you are:

• Saving enough for retirement
• Saving enough for your children's education
• Adequately insured for disability or death
• In a position to have enough money left over to pay for other ongoing expenses like home repairs, supporting aging parents, a new car etc., etc.

The bottom line is that it is generally not a good idea to borrow as much as you qualify forif it puts other important financial priorities at risk.

Extended amortizations

Mortgage amortizations are typically based on current interest rates. I gave an example of how a modest increase in interest rates can blow up your repayment strategy in a prior blog posting here.

'Never out of debt' lines of credit

There is a trend towards the banks encouraging home equity lines (HELOC) of credit instead of conventional mortgages. The theory is that a HELOC provides greater flexibility to deal with fluctuating income and expenses by only requiring interest only payments. The theory is sound, but for the majority of Canadians the result is slower (or no) progress on reducing the principal outstanding. Why? Because life is imperfect and invariably, an event will occur that will interfere with your ability to reduce principal. Worst of all, the banks have your house as security for the debt, so they win even if you make no progress towards your debt retirement objective.

So, what are some solutions?

- Consider all of your financial goals, not just your home ownership goals, when determining how much you are prepared to borrow

- Do your own cash flow analysis and be sure to include expenses that only arise from time to time as opposed to on a monthly basis. Make sure to include room for savings at a level that will meet your long term retirement objectives. If you are not sure what that amount is, try out an online calculator or ask your financial advisor.

- If buying real estate, make sure that your real estate agent knows clearly what you upper price limit is and don't waver!

Being mortgage free takes planning. Make sure that you are in charge of the plan, not the banks.

With interest rates at historical lows, the majority of Canadians with mortgages, lines of credit or conventional loans are making the minimum payments required by their bank or credit union.

This is a mistake.

When interest rates are low, more of your payments can go towards principal rather than interest. This allows you to reduce the debt outstanding so that when rates inevitably rise, you have less principle outstanding at the higher rates.

Here's an example:

$400,000 mortgage at Prime less .85% is 2.15% (best rate I've seen of late),
Amortized over 25 years the monthly payment is $1,724 per month. The borrower assumes that they will be mortgage free in 25 years.

Let's fast forward 2 years. The good news is that the mortgage has been reduced to $375,000. The bad news is that interest rates have increased by 1% and this borrower is now paying 3.15% on their mortgage.

If the borrower leaves their mortgage payment at $1,724 per month, instead of only having 23 years left to be mortgage free, the amortization has become 27 years!

In order to keep the amortization at the original schedule (23 years remaining) the payment would need to be increased $206 to $1,930 per month.

Since the mortgage is fully secured by your home, the bank will likely not ask you to increase your payments. The longer you are indebted to them, the better their profits.

I think that anyone who decides to spend more rather than pay down debt when rates are low simply have not done the math. It's easier in the short term to avoid debt repayment....but it bites in the long term.

Yesterday, CNBC interviewed the President of the International Monetary Fund (IMF) Christine Lagarde on Europe's fiscal problems. You can see the interview here. It is well worth 8 minutes of your time.

In our view, resolution of the debt problems in Europe will take time, and will be expensive. To protect our clients, we have avoided European bonds, and minimized exposure to European equities for some time now. That being said, uncertainty regarding Europe's fiscal imbalances and the likely cost of restructuring that the European banks will have to bear will continue to drive stock market volatility globally.

We believe that the fear triggered by bad economic news and increased market volatility will result in short-term indiscriminate selling of a wide range of quality company shares. The rational and prudent investor will benefit over the longer term by accumulating shares in great companies during this time of volatility.

Will you be rational and prudent?

Every once in a while I come across an investor who was convinced to borrow money and invest the loan proceeds. This was presented to them as a smart way to build their net worth and reduce their tax bill at the same time.

There are a number of financial organizations that are known to encourage their financial advisors to recommend leveraged investing as a way of building their assets under management. How else can one get a prospective client with few or no investment assets to make an investment that will generate a sizeable commission?

I came across an example of such a case recently, and present it to you along with information about the strategy that you should read thoroughly beforeleveraging to invest.

Investment loan snapshot

(A) Initial loan value: $50,000
(B) Market value $41,358
(C) Current loan balance $49,052
(D)Aftertax interest cost since inception (2007 to present): $4,625

Total loss if strategy closed out $12,319 [$49,052 (C) - $41,358 (B)] + $4,625 (D)

So, the client has invested $4,625 in the form of loan payments, and if she wanted to close out the strategy now should wouldexperience aloss of $12,319.

Leveraging lesson #1 - If the investments go down in value and you have borrowed money, your losses would be larger than had you invested using your own money.

Clearly, closing out the strategy now will only trigger the loss. If the investor can afford to continue making the loan payments, they would be wise to hang in there until the portfolio recovers in part or whole.

Now, if the investor had not borrowed to invest, but simply invested cash, the portfolio, which has declined 17%, would need to grow by 21% to break even. Unfortunately, the leveraged strategy raises the break-even hurdle rate to 42% because of the additional after tax cost of the loan.

Lesson #2 - If the investments go up in value, you may still not make enough money to cover the costs of borrowing.

Here is the full summary that I share with clients when they ask about leveraging.

Is leveraging right for you?

Borrowing money to invest is risky. You should only consider borrowing to invest if:

• You are comfortable taking a high level of risk.
• You are comfortable taking on debt to buy investments that may go up or down in value.
• You are investing for the long-term. (20+ years).
• You have a stable income.
• You do not have any non-deductible debt such as credit cards, lines of credit, car loans or mortgage.
• You have maximized your RRSP and Tax Free Savings Account contributions.

You should not borrow to invest if:

• You have a low tolerance for risk.
• You are investing for a short period of time.
• You intend to rely on income from the investments to pay living expenses.
• You intend to rely on income from the investments to repay the loan. If this income stops or decreases you may not be able to pay back the loan.

You can end up losing money.

• If the investments go down in value and you have borrowed money, your losses would be larger than had you invested using your own money.
• Whether your investments make money or not you will still have to pay back the loan plus interest.
• You may have to sell other assets or use money you had set aside for other purposes to pay back the loan.
• If you used your home as security for the loan, you may lose your home.
• If the investments go up in value, you may still not make enough money to cover the costs of borrowing.

Tax considerations

• You should not borrow to invest just to receive a tax deduction.
• Interest costs are not always tax deductible. You may not be entitled to a tax deduction and may be reassessed for past deductions. You may want to consult a tax professional to determine whether your interest costs will be deductible before borrowing to invest.

I subscribe to one daily blog, and it is the one written by Seth Godin. Seth is a wonderful thought leader on all things business.

He posted a second blog on August 23 following an earthquake in Virginia that measured 5.9 on the Richter Scale.

Please replace the word 'earthquake' with the words 'stock market correction' and it makes just as much sense. Seth's blog follows:

Two earthquake-related thoughts about human nature

1. The first thing that happens after we encounter an earthquake is to wonder if anyone else felt it. The need for group validation is widespread and happens for events that don't involve earthquakes as well.
If those in the tribe feel something, we're likely to as well. That's why people look around before they stand up to offer an ovation at the end of a concert. Why should it matter if any of these strangers felt the way you did about the event? Because it does. A lot. Social proof matters.

2. Organizations are busy evacuating buildings, even national monuments. Even though experience indicates that the most dangerous thing you can do is have tens of thousands of people run down the stairs, cram into the elevators and stand in the streets, we do it anyway. Why? Because people like to do something. Action, even ineffective action, is something societies seek out during times of uncertainty.

Seth does a great job summing it up doesn't he?

Now, I'm one of those people that stand up to offer an ovation right away if I'm so inclined. I'm not at all interested if no one else in the audience does so.

That also may partially explain my tendency to recommend that investors add to equities when the majority are selling.

I don't give standing ovations for just any performance, and I don't recommend just any equity investment when bear markets strike. But for the deserving, I am happy to be one of the first to recognize the value that I see, stand up, and be counted.

Before your child heads off to University this fall, give them a chance to earn their first 'A' by having them complete a Caring for Clients Student Cash Flow Worksheet.

In fact, it's a great project to complete together with your child, since you are likely a big part of the income side of the equation.

Completing the worksheet has the following benefits:

1. Reduces the chance of a 'cash call' towards the end of the school year.

2. Helps the student see how individual expenses that seem minor add up to a really big annual number.

3. Identifies shortfalls that you and your children can discuss. Ask your child how they suggest closing the gap. (Part-time job perhaps? Contribution from their summer earnings?)

4. Begins teaching them the importance of budgeting since they don't teach that in University. (High Finance doesn't help you balance a personal budget!)

The worksheet is sufficiently detailed to ensure that all possible expenses and sources of income are taken into account.

Have a gold star sticker in your back pocket to put on the finished project. You may get a roll of the eyes, but don't kid yourself, your child will be proud of themselves.

Let's get started! You can find the worksheet here.

Investors are again wondering what they should do as stock markets decline around the world.

They wouldn't be wondering if they had a well crafted Investor Policy Statement (IPS).

An IPS is developed by your investment manager/advisor with your input, participation and ultimate endorsement. It represents the guiding principles for the management of your portfolio.

If your advisor has not prepared one for you, ask them why.

When done properly, it prevents advisors and clients from making some of the most common investment mistakes:

- Investing in equities with a short-term time horizon
- Choosing illiquid investments when access to capital is needed
- Expecting less volatility than is likely
- Expecting higher returns than is likely
- Paying more tax than is necessary
- Buying high and selling low

How can an IPS do this?

It outlines the following parameters specific to a client:

- Risk Tolerance - including quantifying how much of a decline you can take and for how long.
- Time Horizon - when you will need access to part or all of the investment.
- Return Expectations - what your portfolio return is most likely to be, and if it differs from what you would expect.
- Asset Mix - an outline of what percentage of your portfolios will be in stocks, bonds, GICs, cash, annuities, etc.
- Rebalancing - when and how your portfolio would be adjusted as market conditions change.

During times of volatility, the IPS reminds clients (and advisors) what strategic adjustments are appropriate (and inappropriate) for you. It can act as a form of discipline, leading to rational vs. emotional investment decisions.

Let us know if you would like to see a sampleCaring for Clients Investor Policy Statement.

An IPS cannot make your portfolio bulletproof, but it can ensure that you and your advisor are on the same page, in black and white.

This second entry seeks to further explain how Manulife can offer a package of coverage (life, disability, critical illness) for up to 30% less than if you purchased individual policies.

In Part I of this blog, I highlighted some of the differences between the disability coverage within the Synergy product as opposed to individual disability coverage that Manulife offers. Those differences explain, to some degree, the lower price point for the Synergy bundled product.

Lower Cost reason #2 - Manulife's maximum exposure

Let's assume that you qualify for the maximum amount of Synergy coverage. The maximum policy coverage is $500,000.

The amount of coverage is reduced by the amount of benefits paid out over the life of the policy.

• Life Insurance $500,000
• Disability Insurance $2,500 per month maximum
• Critical Illness Insurance $125,000 maximum

If you had bought individual policies with the above coverage limits, and you are age 45, the insurance company would potentially have to pay out $1,225,000 in the event that you experienced a qualified critical illness that disabled you totally and you ultimately died prior to age 65.

With the Synergy product, the benefits would max out at $500,000. So the bundled product should be less expensive.

Just because you purchase $500,000 Synergy coverage, does not necessarily mean that you are eligible for the maximum disability benefit of $2,500 per month. Your income must justify the benefit. If you have taxable income below about $46,000, you may not be eligible for the $2,500 monthly disability benefit. You may want to structure the size of your Synergy policy based on the maximum disability coverage that you are eligible for given your income level.

Lower Cost reason #3 - Age limits

Synergy cannot be purchased after age 50 and the policy expires at age 65.

The expiry date is an important one. The risk of death or being diagnosed with a critical illness increases dramatically after age 65. It is at that point when the Synergy product expires as compared to stand alone Critical Illness policies that can be purchased to age 75 or for life. Product warranties have this down to a science. This allows Manulife to price Synergy at a discount to stand alone policies that may extend beyond age 65.

As always, I recommend that you make insurance purchase decisions in the context of a comprehensive financial plan. The best solution is obvious when considered in light of cash flow, debt and retirement planning considerations to name just a few.

Manulife does a great job of developing products that address gaps in the marketplace, and an equally great job of promoting them. Their latest creation is an all-in-one product that can provide life, disability and critical illness insurance.

I have read comments from various insurance agents that this bundled product can save a client up to 30% of the cost of purchasing individual policies. I think that the potential cost savings of the Synergy product may be misleading and bears further scrutiny.

In my view, the reason that premiums are lower is the benefits within the Synergy product are less generous as compared to robust individual policies for life, disability and critical illness.

Now, there is nothing wrong with purchasing an insurance policy without all the bells and whistles as long as you understand the tradeoffs that you are making. For example, when shopping for a car, I expect that a fully loaded vehicle with all of the possible features will cost more than a standard, bare bones version of the same car. If I decide that I don't need the heated leather seats, I am happy that I don't have to pay for them. Buying insurance is not like buying a car though. The features that make disability insurance policies more expensive are not nice-to-haves like leather seats, but must-haves that dictate whether, and how much, you will actually receive in benefits at the time of claim.

As with all product purchases, buyer beware applies. Understanding what a policy does not cover is as important as understanding what it does cover.

In this entry I highlight some of the limitations of the disability insurance aspect of the Synergy plan that purchasers should be aware of.

Benefit Period Limits

Manulife limits the benefit period (for how long they will pay you) to a total of 24 months for all disabilities that are caused by psychiatric or by neck or back conditions. Some statistics indicate that up to 70% of disability claims fall into those categories.

So whereas a typical stand alone disability policy will provide benefits to age 65 no matter the cause, the Synergy product imposes a two year limit on payments for the most common disability benefit claims.

As a result, by limiting their exposure to these risks, Manulife should be able to reduce premiums.

Pre-existing conditions

For the Synergy product, Manulife does not pay disability benefits if a total disability begins within 24 months of the policy start date and is caused by, contributed to, or results from a pre-existing condition.

So, if you complained to your doctor of numbness in your foot, and then were diagnosed with Multiple Sclerosis within 24 months of the policy start date, Manulife could refuse benefits on the basis that the numbness was a pre-cursor to the MS related disability.

In a typical stand alone disability policy there would be full medical underwriting, and unless the policy specifically excludes or limits disabilities related to particular conditions, all disabilities would be fully covered.

Lessons learned

Make sure that your insurance agent properly compares the Synergy product against the stand alone alternatives. There is no question that a bundled approach can be an affordable solution for consumers. Just make sure that you understand what you are getting for the price paid.

Next entry I will highlight the limitations within the critical illness element of the Synergy product.

It is estimated that there are about 150 fee-only financial planners in Canada. That is 150 individuals, not companies. Compare that to the fact that there are over 17,500 Certified Financial Planners (CFPs) across the country.

With so many CFPs offering free financial plans, why would you pay for one?

To answer that question, let's first consider what a comprehensive financial plan entails.

- An analysis of your cash flow (current, future, and retirement)
- An analysis of your debts
- Illustrations of a variety of retirement income scenarios
- A review of your tax situation and potential tax savings
- An estate plan review
- Assessment of financial risks relative to your existing insurance package
- Investment analysis and recommendations, including a customized Investor Policy Statement
- Ongoing updates to ensure that you adapt to changing circumstances and stay on track.

Given the above, how many hours do you think a Financial Planner invests serving you?

To help you guess, here is a simple outline of the financial planning process.

- Gather all relevant information
- Assess and analyze the information
- Research if necessary
- Prepare analysis and recommendations
- Present recommendations
- Help with implementation

A properly developed comprehensive plan will take, on average, 15 - 25 hours of the planner's time.

Now ask yourself, what business person or company would provide 25 hours of expertise and work for free?

Right, none!

If you are getting a 'free' financial plan, it likely means that:

a) The plan is a loss leader. The planner is doing the plan with the expectation that you will purchase recommended products from them. As such, there is a built in conflict of interest motivating the advisor to build product recommendations into the plan. OR

b) You are not getting a comprehensive plan. OR

c) Both a) and b).

So if you are seeking a thorough, objective analysis of your financial circumstances without product influences, what do you think that's worth?

Although kidnap insurance is not new, the risks associated with international business and personal travel have raised both awareness and the need for this little known or understood insurance product.

What does it provide?

The product that that I present to clients is arranged by Hunter McCorquodale Inc., and underwritten by certain underwriters at Lloyds and offers:

Crisis Management - In my opinion, the most important benefit of coverage is immediate, priority access to ASI Global, a specialist crisis management team. Evidence suggests that, in situations where the advice of professional crisis management specialists was available, the hostage was released safely in 90% of cases.

In addition to Crisis Management, coverage includes, but is not limited to:

- Ransom payments or loss of ransom in transit

- Fees and expenses for

o Response consultants
o Independent negotiators
o PR consultants
o Security guards at incident site
o Travel and accommodation
o Interpreters

- Post-incident benefits such as

o Psychiatric, medical and dental care
o Cosmetic or plastic surgery
o Rest and rehabilitation

What does it cost?

Here are some examples to give you an idea as to the cost of coverage.

Business executive travels to Panama City monthly, 5 to 7 days per trip in addition to one trip to Columbia. $2 million coverage for 12 months was $2,575.

Two contractors go to Afghanistan and need coverage for 9 weeks. $1 million coverage was $2,450.

Large Canadian resource company, with worldwide operations needs coverage for 20,000 employees. $5 million coverage for 12 months was $49,000.

High net worth Canadian family travels within Canada and the US for vacation. $1 million coverage, 12 month policy is $1,300.

If the idea of Somali pirates, foreign terrorists or South American/Mexican drug cartels is taking the shine off of your travel plans, Kidnap insurance might be the solution for you.

U.S.citizens continue to have obligations for U.S. tax purposes even though they may be a Canadian resident for many years.

Canada and the U.S. have worked together over the years to ensure that treatment of RRSPs and RRIFs by each is consistent. This is not true for all Canadian investments where special rules apply. For example, problems can arise where a U.S. person holds a Registered Education Savings Plan (RESP).

The main disadvantage is that, unlike RRSPs and RRIFs, U.S. persons cannot elect to defer the taxation of income earned in an RESP.

The U.S. tax implications for RESPs depend mainly on the residency of the contributing parent and the beneficiary child.

Contributing Parent is a U.S. Citizen or Resident

The income earned within the plan, including Canadian Education Savings Grants, is taxable to the parent for U.S. tax purposes. There are no income tax consequences upon withdrawal of the funds. That being said, there is an element of double taxation. In addition to having to pay tax on the plan income as mentioned above, for Canadian tax purposes the income will generally be taxable in the hands of the child when they go to university or college.

Contributing Parent is Not a U.S. Citizen or Resident

but Beneficiary is a U.S. Citizen or Resident

The income earned within the plan is not taxable to any party when earned. However, if the child is a U.S. citizen or resident, the accumulated income is taxable to the child upon withdrawal of the funds. A special prescribed tax and interest charge is calculated based on the accumulated income distributed from the plan, which achieves roughtly the same result as if the income were taxed as it was earned over the life of the RESP.

Tax Reporting Requirements

Since an RESP is a foreign trust, U.S. persons who invest in them are subject to the U.S. reporting requirements for foreign trusts. The ability toobtain the tax treatment described above can be jeopardized if the proper U.S. tax reporting forms are not completed. In certaincases, a portion of the original RESP contributions may be taxable to the beneficiary if the appropriateforms are not filed.

If you are a U.S. citizen considering contributing to an RESP for your child in order to take advantage of the Canadian Education Savings Grant, it may be better for another relative in Canada to set up the RESP.

To find out howU.S. foreigntrust tax rules applyin your situation, speak with your accountant.

A banker, broker and financial planner walk into a bar.

They are approached by a fairly inebriated customer who laments the huge tax bill they just learned about from their accountant. He asks the financial experts what he should do. (true story, except the bar part). :-)

You can learn about the various professions via their answers to his question.

The banker suggests that the fellow simply refinance his mortgage by adding the CRA bill to his existing debt. With interest rates so low and a long ammortization, he will barely notice the increase in his monthly payment!

The broker tells him that the banker's advice was good and then asks to see his investment portfolio. Certainly he can help there.

When hearing about the unexpected tax bill, the fee-based financial planner says, 'how the heck did that happen'? And proceeds to develop a cash flow and tax minimization plan to ensure that the debt is paid off quickly, and a tax surprise like that doesn't occur again.

Which approach would you prefer?

If you are fully disabled for the rest of your working life, the disability benefits within your group medical insurance can easily exceed $1 million over time. In spite of the value of the coverage, and its financial importance in the event of a disability, most employees have a limited understanding of how the coverage would work for them in the event of a claim. Many will not be aware of insurability requirements for disability benefits.

A number of insurers are building in insurability requirements which employees must meet in order to be eligible for maximum benefits under the plan. A basic amount of coverage is in place without medical evidence. The basic coverage amount can be much less than you are eligible for based on your salary level. This is one way that insurers and employers keep plan costs under control. Medical evidence must be submitted by the employee and assessed by the insurer before the maximum benefit is approved.

For example, a recent plan that I reviewed had the following features:

• Benefit: 66.67% of monthly earnings rounded to the next higher $1
• Maximum Benefit $5,000
• Benefit Period: Age 65
• No Evidence Limit: Evidence of insurability is required for amounts in excess of $3,000.

So, based on the above limits, once a member of the plan, the employee automatically qualifies for 66.67% of salary coverage, until, their salary exceeds approximately $54,500. Unless they provide evidence of insurability, once they pass this income threshold, they will not be eligible for the maximum benefit under the plan. It is capped at $3,000.

I asked the client that is a member of the above plan how much disability coverage they have through work. They answered, 'two thirds of my salary from what I recall'. This client earned $75,000 and thought that he was covered for about $4,200 per month. He was shocked to find out that at best he would get $3,000 because he had not provided evidence of insurability when his salary was increased beyond $54,500.

When was the last time you reviewed your group health insurance benefits thoroughly? I recommend that you pay particular attention to the disability benefits. That is one of the most important, and valuable, features of your plan.

In past blogs I have highlighted how to find an unclaimed bank balance and a missing life insurance policy.

As it turns out, there are millions of matured Canada Savings Bonds (CSBs) that are sitting un-cashed somewhere.

The good news is that the federal government keeps a record of the owners, and many matured bonds have received an interest payment extension. This means that although the bonds have matured, the government will continue to pay interest for a further 10 years.

Getting at the principal investment is the key though. For Series 1 to 31 (the old ones with the interest coupons attached) you need to call the Bank of Canada at 1-800-665-8650.

For Series 32 and later, you should call 1-800-575-5151. You will want to be prepared with the CSB certificate number is you have it. If not, the service agent will ask you a variety of questions to confirm your identity and to identify which particular CSB issue they are to search for.

If it is determined that you are the rightful owner of matured bonds, and after a 120 day waiting period, The Bank of Canada will send you a letter of indemnity form to complete. This form must be completed in the presence of a Commissioner of Oaths or Notary Public. Check out http://www.redsealnotary.com for a cost effective notary in your neighbourhood.

The Bank of Canada has arranged a program for you to obtain Bonds of Indemnity from The Guarantee Company of North America (GCNA) at very favourable pricing. This program is available exclusively through an insurance broker, HKMB HUB International (HKMB HUB).

If the total amount of CSBs is less than $1000, the charge is $25.

If the total amount of CSBs is between $1000 and $3500, the charge is $65.

If the total amount of CSBs is between $3500 and $100,000, the charge is 2% of the total.

If the total amount of CSBs exceeds $100,000, HKMB HUB will help you find a surety/bonding company that will handle the transaction and the fees would be determined by that company.

Once HKMB HUB International has received your completed documentation, along with the associated premium fee payment, a replacement certificate(s) for your un-matured certificate(s) or a cheque for your matured certificate(s) will be issued. It takes6 to 8 weeks for this portion of the process to be completed.

If this information has not motivated you to retrieve your matured bonds, perhaps knowing that the interest rate being paid on most outstanding and matured CSBs is only .65% will.

This is often the response when I tell clients what it would cost to replace their company group health insurance if they become self-employed or find new employment with a company that does not offer as generous a group health insurance program.

The vast majority of employees do not know the monetary value of their company health insurance benefits. In fact, most are also unfamiliar with what the benefits offer them and their family.

You probably scanned the booklet when you were hired. You then selected some options (if there were multiple benefit levels to choose from) and then filed the booklet away.

Here are some things to consider before you make that job change, or gripe about the minimal raise you got this year....

1. The most valuable part of the plan is the long term disability benefit.

Insurance is really intended to cover the big, uncertain risks in life.
Employees tend to value the smaller, certain costs such as teeth cleaning and vision coverage. Most of us could manage the small stuff if we had to, but a long term disability without income would be a financial disaster.

2. The second most valuable part of the plan is the prescription coverage, if the annual benefit is unlimited.

These days, some of the most effective medications for a severe or chronic illness can cost upwards of $5,000 per month. Because of this, many plans now have annual caps on the amount that can be claimed for drugs. If your plan does not have an annual cap, be thankful.

3. You likely did not have to qualify medically to be eligible.

If the company is large enough, getting on the health plan is as simple as getting through your initial probation period (typically 3 months). You get on the plan irrespective of medications you currently take and your health history. If you tried to buy your own individual coverage, in some cases, existing medications would be excluded, and in cases of poor health history, coverage is often declined outright.

4. In general, group benefits are not portable.

Some plans allow a departing employee to convert the life insurance coverage to individual coverage. This will be at a higher rate that you could get if you applied for new coverage because you don't have to qualify medically. So if you are healthy, buying your own coverage makes more sense.

Some plans also offer conversion options for medical benefits, also at higher than medically underwritten rates, but if your health is poor, this could be a good option for you.

The most valuable benefit, long term disability is not portable.

5. The cost of group benefits is rising dramatically each year, which is a significant expense for your employer.

Health care cost inflation rates are well above general inflation rates. Cost of benefits can also increase dramatically for a small company with higher than average claims by one or more employees.

So if you are contemplating a change in employment, do your homework on the group benefits you are giving up so that you can negotiate knowledgeably with your new employer. Before you become your own boss, find out what buying your own coverage will cost so that you can factor that into the cost of running a business.

Mortgages are more often sold than bought. Evidence of this truth is best illustrated by the number of Canadians choosing to buy into the TD Collateral Mortgage structure.

Now, TD isn't the only bank offering Collateral Mortgages, they just seem to be the most aggressive in their sales approach with clients.

If you have a TD or Scotia bank STEP mortgage, you likely have a collateral mortgage and you might want to know what that means. Likely the bank told you about all of the advantages of such a structure, but they may not have emphasized the drawbacks.

First, let me distinguish between a Collateral Mortgage and the traditional Regular Mortgage. I asked Bob Woods, of Assured Mortgage Services (www.assuredmortgage.ca/bob) to clarify the differences.

He said, 'A collateral mortgage is a loan attached to a promissory note, and backed up by the collateral security of a mortgage on a property. These are not new in Canada and historically have been used in the granting of secured lines of credit. They work well by allowing the balance of the loan to float up or down depending on the customer's needs.'

So I asked Bob what are the downsides of such an approach for a conventional mortgage. Here is the list that he gave me:

• Collateral mortgages appear on your personal credit bureau, while Regular Mortgage Charges generally do not. Even when Regular mortgage charges do show up, they do not affect the credit rating. Bob has seen individuals with Credit Scores in the low 700's drop to less than 630 after the promissory note loan/collateral mortgage showed up on the credit bureau. The reason for this is that 30% of Equifax's Beacon Score is attributable to balance limit rations. A $300K limit and a $300K balance can do some serious damage to a person's credit score.

• A collateral mortgage is often registered for the total value of the property. TD is known to be offering up to 125% loan to value. This offers the customer the 'convenience' of applying for additional credit when the value in their property appreciates, without additional legal or registration fees. Personally, I don't see this as an advantage at all, since it facilitates taking on more debt rather than paying it down.

• It gives the bank more power as it relates to other unsecured debt (credit cards, lines of credit etc.) that you may have with the lender. A Collateral Mortgage allows the lender to seize equity (mortgage payment) and or re-direct that payment to cover other debts that you have with that lender. So in essence, you are securing all of your loans with your collateral mortgage.

• Acollateral mortgage cannot be transferred under a 'no fee' offer by a competitor bank at maturity. To transfer the mortgage would require new legal fees, re-registration of the mortgage etc. This is a disincentive to transfer your mortgage in order to get a better rate from a competitor.

• Finally, if your collateral mortgage goes into default, even briefly, the bank can revert to the registered face rate. Check your paperwork; this is likely to be Prime plus 10%.

I have no problem with banks changing their product structure or creating different borrowing options. What I do object to is the lack of transparency in explaining the pros and cons to the ultimate consumer.

Rona

A few Money Insights readers that read the most recent blog regarding searching for unclaimed bank balances asked if there was a similar search service for missing life insurance policies.

There is. It is free, and is offered by the OmbudServices for Life and Health Insurance (OLHI). But before the OmbudServices dedicate time and resources searching for a policy, they expect you to have done a little sleuthing first. At the very least, there are two minimum requirements:

1. There is a reasonable basis for the search. Due to the size and scope of each search, there must be basic evidence to support the premise that some un-located coverage does exist.

2. Specific, factual data about the deceased is available

OLHI expects that you will have already conducted a thorough search through the deceased's papers, files, and safety deposit boxes. In spite of the lack of policy documents, you must have reason to believe that a policy exists. For example, policy renewal statements, bank statements showing pre-authorized premium payments, and written correspondence with an insurance company would likely justify an inquiry.

OLHI will not do a search within the first three months following the date of death or later than two years after the date of death.

The search will not turn up policies purchased outside of Canada or group insurance policies. For possible group insurance, an executor should contact the deceased's employer and professional associations to determine if any group life insurance existed. Credit card issuers and banks should be contacted to confirm if any creditor insurance had been purchased.

You can find the guidelines and policy search form here http://bit.ly/ht1r0l.

Rona Birenbaum BAS, CFP, CHFS

At the end of 2009, there were over one million unclaimed bank account balances worth $395 million dollars in Canada.

An 'unclaimed balance' is a Canadian-dollar deposit or negotiable instrument, issued or held by a federally regulated bank or trust company. It can be in the form of a deposit account, bank draft, certified cheque, deposit receipt, money order, GIC, term deposit, credit card balance, or traveller's cheque.

When there has been no owner activity in relation to the balance for a period of 10 years, and the owner cannot be contacted by the institution holding it, the balance is turned over to the Bank of Canada, which acts as custodian on behalf of the owner.

The Bank of Canada will now hold unclaimed balances for thirty years, once they have been inactive for ten years at the financial institutions. Therefore, balances will now be held a total of forty years prior to being prescribed.

It is not unusual for older Canadians to have a myriad of bank accounts as a means of maximizing CDIC insurance, which until 2005, was $60,000 per bank account and GIC. (The coverage is now $100,000) Such accounts can get lost in the shuffle, particularly if the customer has moved residences multiple times. If you become a financial power of attorney or estate executor, it makes sense to inquire with the Bank of Canada regarding potential unclaimed balances.

You can search for an unclaimed balance by completing the online form at http://bit.ly/zytV8 or by calling the Bank of Canada at 1-888-891-6398.

Happy hunting!

When you leave your employment, voluntarily or not, youmayhave to decide what to do with this benefit. The options can be varied and in some cases, confusing. Once you have made your choice, there is no turning back. That is why it is essential that your decision is a fully informed one.

This is how the process typically works:

At the point of termination the company will provide a written outline ofyour company pension plan options. Watch for a deadline being stipulated for your response. Without a response within the required timeframe you may end up with a default option that is either not your preference or not to your best advantage. Typical options include:

Leave your funds in the pension plan

1. Hassle free - One of the advantages of this choice is that all investment decisions are made for you in exchange for a lifetime income. Before selecting this option, you want to be comfortable that the pension plan is solvent and the company is in good financial shape. Even then, the health of the pension plan, and company, is subject to change/deterioration over the length of your retirement. This used to be of little concern to pensioners until the recent financial crisis highlighted underfunded pension plans. Pensioners of some of Canada's premier employers (i.e. Nortel) will be experiencing significant pension income reductions as a result of underfunded pension plans.

2. Choose an appropriate spousal benefit - If you are married, you can elect that your spouse receives the same income, or a somewhat reduced income for their life in the event of your death. Making this election requires a trade off for lower income during you life. Given the uncertainties of life, we generally recommend electing a 50% spousal benefit at minimum. Anything less generous that will typically require the spouse to acknowledge the choicein writing.

3. Medical Benefits - Another benefit of the pension option may be medical benefits thatmay accompany the pension. Depending on the extent of the benefits, this could be a very valuable part of the pension option.

Commuting to a Locked In Retirement Account (LIRA)

1. Contol - The greatest benefit of this option is control; control over how the pool of capital is invested, and control over access to the capital itself (liquidity).

2. Liquidity - Lump sum withdrawals in excess of the monthly pension are not permitted, but LIRAs allow them within certain limits. In addition, at the time of transfer from LIRA to a Locked in Retirement Income Fund, unlocking provisions can provide additional liquidity if taken advantage of. You may never need to take advantage of the additional access, but it is nice to know the option exists in an emergency.

3. Premature death - In the event of the premature death of the pensioner without a spouse, the remaining value of account is available to the estate or designated beneficiary. In the case of a pension, without a guarantee period, the remaining capital is absorbed by the pension plan to be used to pay pensioners who live longer than expected.

4. A risk - One of the risks of choosing the transfer to a LIRA is of making poor investment decisions that erode the value of the benefit prematurely. Obtaining experienced advice is, therefore, important.

The decision to commute or not to commute is a complex one as there are many variables to consider. Make sure that you get advice, and that the advice is impartial and considers a full range of variables and your unique circumstances.

A recent article written by Manulife Financial advises that for insurance companies, the internet is a valuable research tool. Depending on the face amount and purpose of the policy, an underwriter might do an initial search on the applicant, policy owner and beneficiary.

In the majority of cases, they get positive confirmation of application details and this can speed up the approval process.

Here are a couple of recent cases that highlight how searching the internet made a difference.

Female, 29, applying for $250,000 Term 10 life insurance

This applicant had just moved to Canada from the southern United States and had initiated the application. This was a red flag because insurance is usually purchased on the recommendation of an insurance advisor - individuals don't usually seek it out. The curious underwriter Googled the applicant and the first hit was a 'Wanted' poster from the state the applicant previously lived in; she was wanted for forgery and passing bad cheques. The underwriter sent a link to the advisor and the surprised advisor confirmed that it was his client. The insurer declined the application.

Male, 35, applying for $4 million Term 10 life insurance

This young entrepreneur had an incredible business history. Due to the amount of insurance being applied for, the underwriter conducted a search on his business and name. The information on the business helped the underwriter feel more comfortable about the suitability of the product, and about the risk, as very little financial information was available through the standard Inspection Report. (An inspection report is required in the case of large size policy applications, and they are completed by a third party who has no direct interest in the transaction. The purpose is to confirm details reported on the insurance application form.) Interestingly, the client's You Tube video of his 35th birthday party was also available and showed the insured in an advanced stage of inebriation with a sign on his shirt that said 'If found please return to...' This certainly made the underwriter stop and think about this risk! (But ultimately the policy was approved as applied for.)

So, it's not just potential employers, first grade crushes and potential mother-in-laws Googling you. It's might also be an insurance company. You heard it here.

Caring for an ill parent brings many challenges; emotional, logistical, physical and financial.

On the financial front, in spite of our government funded health care system, caring for an ill parent does result in costs that are not covered by provincial health care programs. Some of these costs include:

• Lost wages for time taken to care for your parent
• Private care from a registered nurse or personal support worker (PSW)
• Medication not covered by provincial health care plans
• Medical devices to facilitate quality of life

In this article I outline a range of sources offunds that can help fund some of the costs associated with caring for an ailing parent.

Private Insurance Plans

Your parent may be a member of a private insurance program that funds a portion of some of these expenses. This could be the health benefits that accompany pension plan benefits, or stand alone privately paid for coverage. I have seen children fund health care expenses all the while the parent had insurance coverage that would have paid for some or all of those costs.

Also inquire if your parent purchased Critical Illness, Disabilityor Long Term Care insurance. They may be eligible for benefits through these plans.

Tax Credits

Attendant Care Credit

If your parent qualifies as disabled and requires the services of an attendant to enable them to function, they may be able to claim some or all of the costs of the attendant. The attendant must be at least 18 and not a spouse. The deduction cannot be claimed where the expenses were claimed for the Medical Expense Tax Credit (explained below).

Disability Tax Credit

This credit is available for disabled persons and is 15% of $7,239 or $1,086 for 2010. The credit can be transferred in certain cases.

Medical Expense Tax Credit

A credit for medical expenses not covered by other sources is available. The amount of the credit is for expenses in excess of the lesser of $2,024 or 3% of the person's net income in 2010. The credit can be transferred in certain cases. Provincial credits are also available.

Infirm Dependent Credit

Where your parent is dependent on you due to physical or mental infirmity you may be able to claim this credit. The amount of the credit depends on your parent's net income and is a maximum of $633.45 in 2010 (15% X $4,198). Provincial credits are also available.

Caregiver Tax Credit

This credit is available to taxpayers who are providing in-home care for a relative over the age of 65. The amount of the credit will be related to the dependent's net income and is a maximum of $633.45 in 2010 (15% X $4,223). Provincial credits are also available.

Government Pensions

If your parent has been a contributor to the CPP during their working lives and are less than age 65 they will probably be eligible for some CPP disability pension. To receive the pension they will need to meet the CPP definition of disability. The maximum current CPP disability pension is just over $1,100 per month and is considered taxable income. Your advisor can assist you in describing the specifics of the program and how an application can be made.

Private Pensions

If your parent was a member of a private pension plan and has not yet started receiving benefits, most pension plans will provide an early pension if they meet the plan definition of disability. The pension sponsor should be approached to determine the specific benefits provided.

Caring for an ill parent is a big responsibility that can at times feel overwhelming. Hopefully this information will help you tap into additional financial resources that will relieve some of the financial burden you and/or your parent may be facing.

Fighting about money is one of the most common reasons for divorce in North America. Many couples face an overwhelming task when creating and managing the household income. These couples find themselves frustrated when it comes to combining their financial styles, and, as a result, both their net worth, and relationship suffers.

So how do you prevent money stress from eroding your relationship? Here are five common situations that we see in our Financial Planning practice, and some suggestions for overcoming the difficulties.

'We don't discuss money, we fight about it'.

To prevent a money discussion from turning into an argument, make it a planned discussion. Most couples bring up the subject of money when they are unhappy about something and so the conversation turns into an 'I'm right, you're wrong' debate. For example, spouse buys an expensive item (flat screen tv, fancy new clothes etc.) while the other spouse feels the funds should be going towards the mortgage. What starts as a discussion turns into an argument about which use of funds is 'better'. That's a no win debate.

I recommend that couples meet regularly to discuss finances when they are calm, not at a time of crisis. A quarterly meeting on the weekend, or in the evening over a glass of wine works best. The fewer the distractions the better.

'We'll never retire at the rate we're going'

Uncertainty about the future can be very stressful for some people. To alleviate the anxiety, find out where you stand and assess your financial reality. Prepare a net worth statement and prepare a cash flow review. There are many retirement calculators on the internet that will give you some idea as to how close your retirement goal is. Email me at info@caringforclients.com for a monthly Budget Tracker that will help you calculate your current cost of living and start the dialogue.

'I'm a saver and he/she is a spender, that's the problem'

The problem is actually thinking that you can turn a spender into a saver or vice versa. Compromise and moderated behavior is the key. Rather than labeling one another, consider this line of thinking, 'We both spend but on different things. Let's budget'

Create a spending plan together that addresses your individual and combined financial needs and goals. This will often mean having a joint account for 'family' expenses and individual accounts for personal spending. The budget should be a reflection of both spouse's current and future lifestyle needs.

'You worry too much!'

It can be frustrating when a spouse worries constantly about money. In my experience the worry comes from a lack of information about how money is being spent, or whether certain financial goals are being achieved. Even if the worry is unfounded, the solution is complete disclosure. Regular meetings to review the family finances will eliminate the mystery and set the stage for constructive, joint decision making and goal setting.

'We aren't making any progress'

Hire an objective third party to help facilitate dialogue and develop a financial plan that respects both spouse's concerns and goals. The Financial Planner should have experience working with couples that are having difficulty having constructive conversations about finances. The planning process and ongoing, regular meetings with the planner will help diffuse the inter-couple stress and keep them focused on working together constructively.

Itook my daughter to Great Wolf Lodge recently, which is a family resort built around an indoor water park.

The park highlights are the water slides. They range from the kiddie slides to the high intensity Vortex.

Now, if you really must know, if I could get away with it, (and if I was under 48 inches tall), I would choose the kiddie slides every time. However, my 11-year old daughter is adventurous, but not so adventurous that she'd go on the slides alone so I made the sacrifice and joined her on the more 'exciting' slides.

We inched our way towards the 'Eagle', which appeared to be the most tame option at 1,100 feet of twists and turns. During the approach I listened to the squeals of glee and the screams of fear. I watched each person shoot out the end of each slide, focusing on their facial expressions. 'Were they upset? Were they laughing?' How would I feel when I got to the bottom?'

It got me thinking about investing. Anyone can go on a water slide and survive (even thrive) because at the scariest point of the slide you can't get off. There are no escape hatches, or ejector seats. All you can do is hold on tight, scream if that helps, and you get to the bottom safe and sound.

Investing can be as unnerving as a wild water slide for some people. The problem is an investor can bail out at any time. Research tells us that they do so frequently when it is scariest, which is usually the worst possible time.

So picture some water slides of varying intensities but you cannot see the end, and you cannot see how people are when they get to the end. Which slide would you choose and see the related investor risk tolerance.

Lazy River - not actually a slide, but a slow moving current where you can coast on an inner tube enjoying the ride while the sound of laughter and screaming surrounds you. Risk profile - Ultra Conservative. Forget investing, go for high yield savings accounts and cash equivalents.

Kiddie slide - a gentle, sloping ride ending in a light splash. Risk profile - Conservative, stick with GICs and quality bonds.

Eagle - a medium speed slide with a few twists and turns. Risk profile - Moderate, a preponderance of GICs and bonds with a sprinkling of quality equity investments.

Grizzly - a fully enclosed tube with higher speed twists and turns. Risk profile - Moderate/high, a balanced mix of fixed income and equity investments.

Niagara River Rapids - a roller coaster like ride with unexpected ups and heart pounding downs. Risk profile - High, primarily equity investments including smaller, non dividend yielding holdings.

Vortex - a dramatic drop down a dark tube into a huge wide basin where you are whipped around at a high rate of speed ending in a final dark, deep descent. Risk profile - Very high, speculative equities including the penny stock that the cab driver told you about yesterday.

Which slide would you choose?

It is a well known fact in the insurance industry that bank mortgage life insurance is underwritten at the time of claim.

It is not as well known by the borrowing public. In fact, the majority of mortgage customers are not familiar with the difference between underwriting at the time of claim vs. underwriting at the time of application. Do you know the difference and why it matters?

Simply put, when you buy bank mortgage insurance you only have to answer a couple of medical questions. Unless the size of the mortgage is very large (and hence you are buying a verylarge amount of life insurance) a nurse does not visit and take blood, urine, your blood pressure and weight.

The bank is not interested in any additional detail because they don't actually underwrite (rate the risk) the policy until there is a claim. At that point, they may actually decide that the insured is not eligible for coverage.
That's right, you don't knowif you really are covered until you die and your next of kin files a claim.

If you think I'm joking, watch this episode of CBC Marketplace. It will be crystal clear.

Mortgage insurance has other drawbacks as well, but they pale in comparison to thepossibility of your beneficiaries finding out that the insurance they believed would protect them will not pay out.

Usually, basic term life insurance is the better alternative. That being said, it's best to make a life insurance purchase decision in the context of your overall financial plan since everyone's circumstanceis differentand there is no one answer for all individuals.If you own mortgage life insurance, you can replace it with individual coverage. Just make sure that you get the individual coverage in place before you cancel the mortgage insurance.

For most Canadians, a mortgage is the largest debt they ever take on. Much time and attention is given to negotiating the lowest possible interest rate, but typically much less time is taken determining the optimal amortization period. This is even though the length of repayment (amortization) is directly correlated with the amount of interest paid and, therefore, the ultimate cost of your house purchase.

Here are the four most common approaches to choosing an amortization period along with potential drawbacks:

1. I select the maximum amortization in order to qualify for as large a mortgage as possible, so I can purchase my dream home.

This, of course, is one of the strategies that got many Americans into financial distress. The problem with this approach is that it leaves little room for financial hiccups such as, increasing interest rates, job loss, and unexpected expenses such as home repairs. When the 'unexpected' happens, credit cards become the solution and a debt spiral begins.

2. The shortest amortization that I can afford. I can't stand being in debt.

There is nothing wrong with this in theory.....but it lacks practical considerations. This approach also leaves little room for the financial hiccups noted above. Asking the lender to extend the amortization while you look for a new job doesn't always go over well. You know how it goes, it's easy getting credit when you don't need it......

Any half decent mortgage provides the option to double up the payment, increase the payment by 10% and make principal repayments of 20% of the original mortgage every year. All of these options speed up repayment. An alternate to committing to a short amortization would be to moderate the amortization and accumulate the extra funds in a savings account. Every six to twelve months you can determine how much of the savings to apply to the mortgage. If your employer has just announced another round of layoffs, hold onto the cash.

3. I chose an equity line of credit so I can control the rate of repayment.

This is a popular approach these days. It is a lot like #1 but can be even worse since often equity lines of credit only require that the monthly interest charges are covered. This is called the 'forever' amortization. A typical rationalization we hear is that it doesn't make sense to pay down the mortgage when interest rates are so low. The reality is that it's the best time to pay down the mortgage since the majority will go towards principal. When interest rates inevitably rise, the rate will apply to a smaller outstanding balance.

Equity lines of credit are best suited to the most financially disciplined of us. Those individuals benefit from the additional flexibility of an equity line of credit without the risk of still being indebted when reaching retirement age.

4. I chose what lender recommended.

This is hit and miss. The suitability of the recommendation depends on the experience, ethics and integrity of the lender. Even the best, most trustworthy lenders base their recommendation on fairly limited information about the client. Lenders typically gather asset/liability and income details in order to determine affordability and credit worthiness. They don't always know about the complete financial life of the client, which if they did, might lead them to an alternate recommendation.

So, how do you choose the mortgage that is right for you?

The options should be considered in light of your overall financial plan.

We give very specific recommendations to our clients regarding the maximum amount of debt they should consider as well as the optimal structure of the mortgage. The advice takes into consideration the client's entire financial reality, their many goals, and risks and opportunities they may not be aware of. Armed with the advice they can negotiate with their lender with much more confidence and power.

What's your amortization and is it optimal for you?

Recently, expert sales and productivity coach Nicki Weisswrote a fantastic article on how (and why) to stop multi-tasking. Below isthe article in it's entirety. This article comes from Nicki's super monthly newsletter. It is worth subscribing to and you can do so on her website's home page www.sa1eswise.ca

Sa1esWise: How (and Why) To Stop Multitasking

During a conference call with the executive team of a client company, I decided to send an email to another client.

I know, I know. You'd think I would have learned.

What could go wrong?

First I sent the client the message. Then I sent him another one with the attachment I had forgotten to append. In my third email I explained why the attachment he received wasn't the one he was expecting. When I eventually refocused on the call, I realized I hadn't heard a crucial question.

Multitaking makes you stupid

I swear I wasn't smoking anything, but apparently I was acting as if I had. A recent study has shown that IQs drop by 10 points in people who are distracted by email and phone calls.

We're only fooling ourselves when we think we get more done by doing several things at once. In reality new research shows that our productivity can decline by up to 40%. We don't actually multitask; we switch-task, rapidly shifting from one activity to another, interrupting ourselves and losing time.

You might think you're different, that you have multitasked so much you're an expert. But you'd be wrong. Recent findings show that heavy multitaskers are less competent at doing several things at once than light multitaskers. The more you multitask, the worse you are at it.

An experiment in non-multitasking

I decided to do an experiment. For one week I would not multitask and see what happened. When I was on the phone, I would only talk or listen. In a meeting I would only concentrate on the meeting.

I didn't think I could sustain that kind of focus, but turns out I was pretty successful, at least most of the time.

During the week I discovered six new ways of looking at the world:

1. The experience was delightful. When you stop checking for email you stay in closer touch with your surroundings. I noticed this phenomenon especially with my teenage sons. Normally I feel they don't want to interact with me much, given how uncool I am. However, I was surprised to notice how often they initiated a conversation when I wasn't constantly responding to the e-mail ping.

2. I made significant progress on challenging projects. I usually try to distract myself from work that requires thought and persistence, such as writing and strategizing. However, without distractions I was able to plough through the uncomfortable times and overcome the mind blocks.

3. My stress dropped dramatically. Research shows that multitasking isn't just inefficient, it's stressful. I can vouch for the stress factor. I felt liberated from the strain of keeping so many balls in the air, and I experienced a sense of accomplishment when I finished one task before going on to the next.

4. I lost all patience with time-wasting activities. An hour-long meeting seemed interminable and a meandering conversation was excruciating. I focused my attention like a laser beam on my list, and quickly burned through the 'to-do's'.

5. I had tremendous patience for enjoyable activities. I was in no rush to end conversations with my clients, and my mind stayed focused when I was brainstorming about a difficult problem.

6. Single-tasking has no downside. No one became frustrated with me for not answering a call or failing to return an email the second I received it.

Why don't we all just stop multitasking?

So, why not use all your brain's energy to listen to a prospect on the phone while booking a trip to Paris online?

Sounds good, except the brain is already working at capacity when you're doing just one task. It is picking up conversational nuances or thinking about what you've just heard. Ask it to take on a second or third task and you take away its ability to deal fully with the first one.

How do we resist the temptation?

Turn the distractions off. I often write and plan at 6:30 a.m. Following my successful experiment I continue to leave my cell phone and email off just in case a multitasker is trying to reach me. I turn my car phone off, too...sometimes (other single-task warriors I know leave their cell phones in the trunk).

Use your impatience constructively. So you're itchy without all the ring tones and email pings to answer. Fill that void by creating unrealistically short deadlines. Give yourself a third of the time you think you need to accomplish something.

There's nothing like a deadline to fully occupy your brain. If you only have 30 minutes to finish a presentation, you're not going to take a call or flip back an email.

Ironically, single-tasking to meet a tight deadline will reduce your stress, and just might help you to be more productive.

Talk back: What is your experience with multitasking? How does it affect your productivity? Your customer relationships?

Now I've seen it all.

A friend of mine recently told me about a financial advisory firm that offers:

A FREE financial plan

OR

A FREE Clublink golf lesson.

All you have to do is book a meeting with the financial advisor and bring in your investment statements to qualify. I checked it out and indeed, the offer was on the advisor's website in black and white.

It reminds me of an offer I received when visiting Las Vegas recently.

The friendly individual offered me and my husband:

$100

OR

Tickets to a show such as Cirque de Soleil or Donny and Marie (yikes!)

All we had to do was attend a 90 minute presentation and the 'gift' would be ours.

Now, I wasn't born yesterday, so I know a sales pitch (aka scam) when I see one and so we moved on while the salesperson was throwing every sales technique at us in the book.

Having chatted with a number of Vegas tourists, we found out that the 90 minute presentation is really a five hour, high pressure sales pitch for a time share investment.

My bottom line message is this.

If you want a financial plan, would you rather deal with a salesperson that offers one for 'free' if you bring in your investment statements, or with a professional with no strings attached?

It amazes me that millions of Canadians have billions of dollars invested in Money Market Funds (MMFs) that are earning no interest for all intents and purposes. In fact in the six months to the end of 2009, the average Canadian Money Market Fund earned just 0.02% after costs.*

The potential opportunity cost for Canadians is between $300 million and $400 million. That is because secure, higher interest savings options do exist. We know this because we use them for our clients.

So why are Canadians not selling their MMFs and finding better alternatives? Here is what I think:

- Investors are unaware that they are not earning any interest on their MMF investments.
- Inertia - it's easier to do nothing than do something.
- Advisors are not incentivized - There is a lot of work and administration and very little (or no) compensation related to moving clients into higher yielding savings vehicles.
- Investors are stuck in Deferred Sales Charge funds and would pay a redemption fee to get out, thus negating the benefit of earning more interest.

None of the above reasons are acceptable in my view. If you own a money market fund, ask your advisor what you are earning on it and why you haven't been presented with a better alternative.

*source: Globefund.com

I was having coffee with a friend recently who has three beautiful daughters age 6 and under. She asked me when I began giving my soon-to-be 11 year old daughter Rachel an allowance.

Now, there are many philosophies on the subject, and sharing my own is not meant to be prescriptive. I do find, however, that people tend to be interested in my personal money decisions given that I give so many people financial advice. (yes, I practice what I preach!).

My daughter started getting a weekly allowance about 3 months ago. Here is how it happened:

I was preparing dinner after work and she was doing her homework at the kitchen table. Out of the blue she said, 'Mom, when can I get an allowance?'

Me: 'Why do you ask?'

Daughter: 'Well, my friends get an allowance.' (bad answer)

Me: 'What would you spend an allowance on?'

Daughter: 'hmmmm, well, birthday presents and mother's day and father's day presents. Stuff like that. (good answer!) And I will do chores around the house.'

Me: Rachel, your responsibilities at home are yours whether or not you get an allowance. Everyone in the family pitches in, even though we don't get paid for it. That will not change. Dad and I will discuss this and let you know.

We did discuss it, and neither of us have anything against giving Rachel an allowance. She has learned the value of money over the years and when she has received gifts in the form of cash, she hands over most of it for her savings account. So, having a little spending money for presents etc. will get her used to making buying decisions.

We surveyed a number of parents and found out that the going rate within her group of friends is $5. Wow, when I was a kid it was 50 cents! But back then, I could buy two chocolate bars for 50 cents.

So, how is it going? Pretty well I think. She has made a couple of purchases, but has also been saving. Just this weekend she mentioned that she is saving up for a laptop. Good thing they get less expensive every day!!!

Feel free to share your allowance stories. I'd love to hear them!

But we don't ask with the intention of developing a portfolio designed to achieve those expectations. So why bother asking?

Well, we ask to get a sense of how much, and what type of client education will be necessary when we present the optimal portfolio.

One of the things we might discuss is the impact of volatility on returns. Here is a theoretical illustration to prove the point:

Beginning investment $100,000

Now, we realize that these numbers are constructed to illustrate the point, but the point is an important one nonetheless.

Individuals seeking double digit returns will typically purchase the Portfolio B investment in year three or four after the great returns have come to their attention. Then they experience the declines of years five and six. Typically, by year seven a number of them will decide that it wasn't such a good investment after all and sell at a loss. With this kind of volatility, most investors don't hold on long enough to receive the average 6.5% rate of return. And the bad news is that even if they were invested for the full 10 years, the 6.5% average gets them less money at the end of the day than the boring portfolio that generates 6% each year.

The bottom line is that volatility and sequence of returns matter. More on both of those subjects to come.

Stay tuned.

Although proof of Canadian provincial health insurance is sufficient for visitors to enter Cuba, your provincial plan may cover only part of the costs and will not pay the bill up-front, as required. It is therefore recommended that travellers purchase supplemental health insurance. Note that some private insurers also require the traveller to pay costs up-front and be reimbursed later. Travellers should note that Cuban authorities will not allow anyone with outstanding medical bills to leave the country.

If you have travel medical insurance through your employee group benefits or as a credit card benefit, read the fine print and ensure that the insurer will pay for medical expenses up front. If not, ensure that you have easy access to cash in the event of a medical emergency or purchase a separate policy that will pay expenses up front. For example, Manulife Financial Travel Medical Insurance will pay expenses up front if they are contacted as soon as the illness or accident occurs. Otherwise, you are on the hook for 25% of the costs.

All health insurance policies are recognized, except those issued by U.S. insurance companies, as they cannot provide coverage in Cuba.

For the latest travel advisories on Cuba, go to the Canada Foreign Affairs website.

I asked her whatshe pays now,and her answer was $25 per month. Now, $300 per year seems like a sizeable amount to me (I pay $60 for unlimited activity)and I suggested that the alternative being suggested may indeed save her a few dollars.

So, why wasshe skeptical? There are two reasons in my opinion.

1. Baggage - The banks havefocused so much oftheir efforts trying to upsell and cross sell products to their customers, that customers regularly question whose best interest is at heart. This will take a cultural change at the banks, and a lot of time, to overcome.

2. They still don't get it - How did this banker endeavor to convince my client that she would be better off with a different type of account? She handed my client a glossy brochure highlighting the advantages of the 'senior's account'.This is anot so subtle message to the customer to 'figure it out yourself'.

Rather than miss out on potential savings, I told my client to go back to the banker and ask for an illustration on how much she would save by switching - using her individual transaction history for the illustration. In my practice that's the approach I take when illustrating why one financial decision is preferable over another. Time consuming? Yes. A better result for clients? Definitely.

Great customer service is more than handing out a brochure. Insist that you get it.

Ultimate this, infinite that, gold, silver, platinum.....an almost endless list of choices.

One of my life philosophies is simplicity, so the obvious choice for me is PC Financial Mastercard.

There isno annual fee and points on all purchasesequate to 1% cash back.

I can redeem my points fora bunch of items from the PC Financial online store, but the best value is using the points to buy groceries at Loblaws. I shop at Loblaws or No Frils (a Loblaws division) weekly, so as soon as I rack up points Ican redeem them. Just yesterday I got three large bags of king crab legsfor the value of my points!

By being able to redeem for groceries I know that my points will never languish unutilized for months or years and I get real valueonce a month (everytime I pay my monthly Mastercard bill).

So, my card may not be fancy andmay not impress anyone when I flash it, but when my family digs intocrab legs with melted butter oohing and aahing,the reward is.........priceless.

Saving Money Tip#1 - Cook your meals

If after reading that tip, you are still here, that is a good sign. For many, the idea of cooking most meals at home is simply too overwhelming to consider. Keep reading though, because the returns on this tip are more than just financial.

For working professionals and families,dining outis one ofthe largest variable expenses.

Dining out sounds fancy, but it includes family meals at Swiss Chalet, ordering in Pizza or Sushi,or having dinner out in a moderately priced local restaurant. And of course it includes those special occasion meals. It can add up to hundreds of dollars each month, thousands each year.

I started cooking for real six years ago at the age of 37. Before thatmy repetoire consisted of spaghetti, omelets, and the odd stir fry. I regularly heated up prepared, frozen food. Then I moved in with my (now husband) Clifford, two of his children and my daughter. Clifford is traditional. Only nutritional homemade food will do for the nightly family meal. Since he had committed to doing the laundry, yardwork, and general maintenance, I could hardly say no.

The solution? www.recipezaar.com and some planning and discipline. Each Friday night I make a meal plan and grocery list (usually built around the Loblaws flyer). I shop on Saturday and have the recipes set up for the week. If I am out on Friday night I do it on Saturday morning.

I must say, that as a working parent, most days when I get home from work I'm not overflowing with energy, but that's where the discipline part kicks in. And the sous chefs.....I get the kids (and sometimes Clifford) involved chopping, setting the table and cleaning up. We have fun chatting about the day, and doing some general horsing around. It's wonderfultogether time and they are learning important life skills.

Try it....your health, family dynamic and budget will all benefit.

The weather, the shows, the restaurants and yes....the casinos.

So how do I reconcile my healthy relationship with, and respect for, money with the fun of slot machines?

Well, as with so many other things I set a budget and stick to it. Now by most measures my budget is laughable. I set myself a daily budget of $40. That's $20 during daytime hours and $20 during nighttime hours. It works because of a fabulous invention called the 'penny' slot machine. During a visit to Las Vegas about 6 years ago, I discovered that if I bet 9 cents each time I can make $20 last about 2 hours. Sometimes that $20 becomes $25 or even $40 and sometimes I lose it all but I figure that if I lose $20 over 2 hours that is pretty good entertainment value at $10 per hour. (and they serve free drinks to me all the while!!!). When I walk away with more than $20 it is with a skip in my step and the feeling that I 'won' by being ahead.

Now when I tell people about my approach, they usually laugh, or roll their eyes. 'You can't win much that way' they say. And I tell them that they are absolutely correct, which is fine with me. That's because I know that the odds are stacked against me and that all casino games are designed to separate partipants from their money. I truly don't believe that I can beat those odds and because of that I don't put at stake any more than I am comfortable parting with. Whereas the majority of gamblers cling to the belief that they will be one of the few lucky ones.

The casinos use every psychological trick in the books to encourage visitors to part with more and more cash. It takes a lot of discipline not to get caught up in it all. The same kind of discipline is helpful in all financial endeavors, whether it's saving, investing or spending.

I'm off to Las Vegas tomorrow morning. Wish me luck! ;-)

Actually,because we believe incomplete professional transparency, we tell prospective clients up front thatnagging is part of our job.

As a result, 95% of our clients have well crafted Wills and Powers of Attorney. We know how important these documents are for individuals of any age and our value as advisors is diminished if this piece ofthe financial plan is not completed.

So we nag.

We even draft up instructions and deliver them to the lawyer for review and discussion with the client if that will move things along. Whatever it takes, really. It is just not good enoughto think that our responsibility ends when the recommendation to get Wills and Powers of Attorneycompleted is given. We know that human nature oftenputs this taskat the bottom of the 'to do' list.

So what about the 5% who don't have these documents complete yet? Well, we are stillnagging them.......!!

64% of our usage was during off-peak hours
12% of our usage was during mid-peak hours
24% of our usage was during on-peak hours

That is a reasonable mix but not enough to earn an A+

The other reason why there is room for improvement is that the bill was still high at $183.
Granted, if we hadn't shifted some of our energy use to off peak hours, the bill could have
been as high as $250.

If you haven't familiarized yourself with the new rate system, go to
www.torontohydro.com/tou

Let us know what grade you give yourself!

Thousands of Canadians have opened these accounts over the past two years and many of them are making a tactical mistake by doing so. How can saving tax oninvestment incomebe a bad thing? It is when the alternative would grow your net worth faster.

The majority of TFSA accounts have been invested in low interest savings account vehicles. Many TFSA investors also still have debt on the books at rates that exceed their TFSA savings rates.

Here is how the math works:

$5,000 TFSA savings account earns 1% ($50).

$5,000 deposited against a mortgage or line of credit at 2.5%. This results in interest savings of $125.

I don't know about you, but at my house $125 beats $50 every time. Unless........and there is always an unless.

Unlessyou may have ashort-term need for that $5,000 and the debt that you pay down with those funds is a conventional mortgage that you cannot then draw from in an emergency. Liquidity needs can trump the math.

So, if you can get a guaranteed rate of return on your TFSA investments that exceeds the interest rate on your debt then you are not losing ground. Unfortunately, these days it is very difficult to find guaranteed investments that exceed line of credit and conventional mortgage rates.

The reality is that many Canadians were not asked about their overall financial circumstances when the TFSA was recommended to them, and that is a mistake. We know this happens because we see it all the time.

Thanks to the government for the TFSA account because it's a wonderful gift. Just be sure that there isn't a better use for the funds each time you make a deposit.

Be careful though, after experiencing 3 years of losses, CRA may question whether or not the business is truly capable of making a profit and may deem that it is more of a personal hobby than a business. When they do this, they can deny the losses which will result in an unexpected tax bill for you.

Check out Tim Cestnick's comments on the subject. He is the author of 101 Tax Secrets for Canadians.

If you want help ensuring that your business does become profitable, please let us know. We can connect you to the people and ideas that will take your business to the next level.

Rona & Clifford

What if no one reads it?
And if people read it, what if they don't like it?

You know, the two basic concerns in life.....do they care and will they like it (me)?

So I'll just blow past those two concerns because they are obstacles to experiencing great things in life like sharing, learning, teaching, discovering, achieving, helping, and loving.

So this entry isn't about money at all.

It's simply about starting something.

Rona