Monthly Archives

July 2017

Estate planning: have you really considered everything?

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Have you openly discussed your estate plan, Will, and Powers of Attorney with your family? Do you wish to create a scholarship or endowment fund to benefit your alma mater? Have you considered establishing a trust to support a relative’s long-term palliative care? Who will manage it? What are the legal and tax implications for the beneficiaries of your international property?

Dealing with estate issues is a sensitive topic.  Openly discussing your thoughts and plans can be difficult ….and delicate (challenging).  By the same token, you have laboured to build your wealth and you are entitled to determine precisely how, when, and to whom you wish to ultimately distribute your assets. However, if you fail to prepare and sign valid documents, intestate succession law will apply and the provisions of the applicable law are not likely to be in line with what you had in mind.  Clearly establishing how you wish to preserve and transfer your wealth is one of the best investment of your time you can make.

Estate Planning, Estate Settlement, and Trust Services

Naturally, ensuring that family and those close to you, as well as the causes you cherish, have adequate financial support is usually what first comes to mind.   Regarding your estate planning, you will also want to be making choices that avoid complications or litigation and protect the value of your estate by limiting costs, taxes, and settlement delays.  Many factors contribute into the decisions you will make.  Almost as many have consequences and implications you may not even have considered.

Estate Planning

Getting your paperwork in order – Wills, Powers of Attorney, and Trusts

  • In your will, you will determine how your assets are to be distributed or settled. Your Will may include the appointment of guardians for minors, age thresholds when your estate will devolve to beneficiaries, and testamentary trusts. If you already have a will, is it up to date? Is your named executor still willing or able to act? Has your civil status changed? Has your family expanded? Is one of your children now a partner in the family business? If so, how do you intend to divide your estate ‘equitably’ among your children?
  • A power of attorney delegating authority to handle your financial affairs and, in case of incapacity, a power of attorney to manage and support your health care also need to be drawn up.  Have you already drafted these documents?  Have your circumstances changed? Are your original appointees still willing and able to act on your behalf?  Will they require professionals to assist them in implementing strategies and managing affairs for you?
  • Perhaps you wish to establish an inter vivos trust to provide benefits now and in the future…. for your grandchildren’s education, environmental causes, or regular ongoing donations to a charity dear to your heart.  Or you may want to establish a testamentary trust only effective upon death, whereby the capital (or possibly simply the income generated) benefits your heirs or a charity.  In setting up trusts, delineating the terms and putting the financing in place can be intricate.

Estate Settlement Services

Your executor or your beneficiaries can draw upon expertise in implementing the provisions of your will.  Perhaps settling your estate may require establishing the value of your professional practice or the “goodwill” of your business.  Or, your hobby collection (antique cars, art, or a wine cellar) may entail the services of a certified appraiser.

And, once all is in order, the actual distribution of the estate’s proceeds and requisite tax filings need to be handled. This may involve coordinating with your legal advisors, accountants, and tax specialists — as well as affecting the actual transfers of titles, ownership, and assets to your beneficiaries.

At a time when emotions often run high, having professionals who are able to objectively manage expectations and resolve family conflicts, can help reduce stress and provide clarity.

Can I tap my child’s RESP before he starts university?

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My son is going to university in September. Can I withdraw a portion of contributions to his registered education savings plan before he starts school?

The rules regarding RESP withdrawals can be technical, so I put your question to Mike Holman, author of The RESP Book: The Simple Guide to Registered Education Savings Plans for Canadians.

“It is not necessary to wait until the first day of school to ask for money,” Mr. Holman told me.

“Once the child is enrolled, you can start requesting withdrawals.”

You can actually withdraw RESP contributions at any time, he said, but to avoid penalties you would need to provide your financial institution with proof that your son is enrolled in an approved postsecondary program. This could be an official letter from the university, a course confirmation or a receipt for tuition paid. Your financial institution can tell you exactly what documentation it requires.

“I think it’s pretty common for people to do [RESP] withdrawals now because they want to get going for the fall,” Mr. Holman said.

With RESP withdrawals, there are several things to keep in mind.

When making a withdrawal, the subscriber must specify whether the payment consists of a refund of contributions (ROC), an educational assistance payment (EAP) or a combination of the two.

An ROC payment is deemed to come from the original contributions to the RESP and is, therefore, not taxable. These payments can be made to either the subscriber or to the beneficiary (i.e. the student) and there are no limits on the amount withdrawn.

An EAP payment is deemed to come from the income and capital growth inside the RESP, plus any Canada Education Savings Grants, provincial grants and Canada Learning Bonds received.

EAPs are paid directly to the beneficiary and taxable in his or her hands, but because many students have very little income, the tax consequences are often minimal. For full-time students, there is a $5,000 limit on EAP withdrawals for the first 13 consecutive weeks of enrolment. After that, there is no limit on withdrawals as long as the student remains enrolled.

Contrary to what many RESP holders believe, there is usually no need to specify what the money will be spent on. If you are making an unusually large EAP withdrawal, a financial institution could technically ask for receipts to prove the funds are being used for educational purposes, but Mr. Holman said that’s unlikely and isn’t even practical given the myriad expenses students face.

“Tuition, textbooks, housing, transportation, computers, televisions or vacations are all eligible.

Anything goes,” he writes in The RESP Book.

Cash has been building up in my tax-free savings account. Rather than having it sit there as dead money, can you make any recommendations as to how I can still get a return, no matter how small, on this cash? Would a money-market fund make sense?

The problem with money-market funds is that the management expense ratio eats up a big chunk of the already puny yield. A better option are the high-interest savings accounts offered by discount brokers. These products, which currently pay about 0.75 per cent to 0.8 per cent, are bought and sold like mutual funds and can be held in non-registered accounts as well as TFSAs, registered retirement savings plans and other registered accounts. Like regular savings accounts, they’re also covered by Canada Deposit Insurance Corp. (with the exception of U.S. dollar savings vehicles). The interest rates aren’t huge, obviously, but convenience is a big plus because the money is at your fingertips should you decide to cash out a portion of your savings to invest in stocks, mutual funds or exchange-traded funds. Typically, these products have initial minimum investments of $500 or $1,000. There should be no fees or early-redemption penalties, but be sure to verify this with your discount broker.

This article was written by John Heinzl from The Globe And Mail and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to

Edited on 20 June 2017 by 

Advisor: How I keep my business growing

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2016 was quite the year for Rob Tétrault. Adding 77 new clients and boosting assets under management by $95 million (a 75% increase) would’ve led some advisors to take their foot off of the gas, but not for Tétrault: 2017 is proving to be another blockbuster year.

Tétrault has added another $50 million in AUM year-to-date and is consistently signing new clients. On top of all of that, Tétrault and his wife recently celebrated the arrival of their fourth child (which meant he had to miss the WP Awards in Toronto last month).

“I have a very strong team and I’m lucky enough to have found really good people who work well together and care about the clients as much as I do,” says Tétrault, who is head of the Tétrault Wealth Advisory Group at National Bank Financial. “Everyone embraces our model and the commitment to clients we have here. As a result, most of our clients come in as a referral.”

Tétrault leads a team of eight and has carefully handpicked each person. Instead of hiring people based on their education or experience, Tétrault brought people on who he trusted; people he knew were hardworking and reliable. “I grew up in a small town about an hour south east of Winnipeg, called Marchand, and ended up hiring people I knew growing up,” he says. “My head of operations and I grew up together. I knew he had a strong work ethic and was loyal. I knew he cared about people.”

Tétrault is committed to marketing and has worked hard to establish a brand in the local Franco-Manitoban community. He believes that offering specialized services to this group has been a key driver to his growth.

Achieving good investment returns has also played an integral role in enabling Tétrault to grow his client base. Tétrault doesn’t believe in “reinventing the wheel” or taking on unnecessary risk in order to find returns. He likes blue chip equities and has been overweight U.S. and global stocks recently, which has helped his portfolios. Tétrault has also made changes on the fixed income side – in his defensive, balanced and conservative portfolios.

“We use alternatives to fixed income such as Principal Protected Notes, equity linked GICs and mortgage investment corps, and that greatly helps reduce risk and volatility and increase risk adjusted returns,” Tétrault, who worked as a litigation lawyer before completing a finance MBA, says. “We also have a portion of our portfolio in real assets, like REITs and infrastructure, because long-term there is less volatility and they generally create consistent, stable income streams that prevent the portfolios from suffering as much in a downturn.”

Although he missed the recent WP awards gala, Tétrault was awarded the prize for Philanthropy and Community Service of the Year in his absence. Giving back to the community is clearly a top priority. Tétrault is the longest-serving president of the St. Boniface Chamber of Commerce and is also the co-founder of Le Classique, an outdoor winter hockey festival. Five years ago, Tétrault founded a national charity – the Canadian CMV foundation – which has raised over $250,000 and is in talks with the government to change legislation.

“Both of my sets of grandparents were charitable people, they didn’t have much but would always give whatever they could,” Tétrault says.  “It’s important to give back to those less fortunate. If you don’t have money, you can give your time.”

Original article:

Three advisers shed light on how their wealthy clients invest

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Canada’s richest people are a small but growing group that’s on track to control almost 70 per cent of personal wealth in the country. With at least $1-million each to plunk into a portfolio, these individuals tend to take a different approach to investing than the other 95 per cent of the Canadian population.

A recent survey by Tiger 21 LLC – a North American peer-to-peer network for investors with at least $10-million in investable assets – sheds light on how the wealthy are growing and preserving their money these days. Last year, according to the survey, Tiger 21 members allocated the biggest chunks of their investment portfolios to three asset classes: 28 per cent in real estate, 21 per cent in private equity and 19 per cent in public equity.

Fixed income and cash or cash equivalents each made up 12 per cent of members’ portfolios, while hedge funds and commodities accounted for the remainder.

“When you combine those top three asset classes, you’re looking at almost 70 per cent allocation to what I call equity, because we consider real estate as a form of equity risk,” says Michael Sonnenfeldt, founder of Tiger 21.

“If you look at a [historical] model where you have a 60-40 split of equity and bonds, what the survey results are telling us is that our investors have the highest exposure to equity that we have on record – a result of the current low-interest-rate environment where you really have to work your assets.”

How else do high-net-worth investors stand apart from those with fewer zeroes in their accounts? Three financial-services professionals who work with the country’s top 5-per-centers provide some insight into how the wealthy invest.

Jay Nash, vice-president, investment adviser and portfolio manager, National Bank Financial Wealth Management, London, Ont.

“Those who have created the most wealth over time have been, from my experience, able to maintain their investments through market cycles. They’re often invested directly in stocks but are able to detach themselves from the emotions of market gyrations. They have that ability to buy when the market is weak, and because they don’t foresee a need for that money in the short term, they have the ability to do this more than others.

“The investing styles of highnet-worth individuals tend to be characterized by a greater attention to the downside risk of investments than perhaps some others would be. Their interests tend to lie in larger-cap securities, and they want to know that the companies they own are going to be around. Those with some investment acumen will tend to favour direct ownership of equities versus something like an exchange-traded fund (ETF).

“Their core portfolios tend to be made up of large-cap North American stocks. Then we build around that, adding international exposure and fixed income to the degree that each client requires.

This is where it becomes very much dependent on their individual circumstances and timeline.

With a small portion of their wealth they’ll often take a risk, but it’s usually a calculated investment – they aren’t particularly interested in the flavour of the week.”

Daniel Nolan, certified financial planner, IPC Securities Corp., Ottawa “For people of average wealth, their first priority might be growth, second might be preservation and third might be income. With high-net-worth investors, preservation of their money – or the bulk of it – is paramount.

“But I wouldn’t say they’re conservative. Because they’ve got large chunks of wealth, they can divide up those assets. One chunk could be moderately managed, and they would still have a chunk that allows them to continue to make money. One of my top clients buys up other businesses and properties, but we also make sure he chunks up assets in a very modest-risk investment account.

This is where he’ll pull out future income.

“What do wealthy peoples’ portfolios look like? Stocks and bonds for sure – you typically see a nice mix of blue-chip, dividend-paying stocks along with a reasonable risk bond portfolio. Real estate tends to play a part, whether it’s personal or corporately owned.

“Fully transparent costs are important to high-net-worth investors so they can judge value, and this value has to be apparent and typically tax deductible.”

Tom McCullough, chairman and CEO, Northwood Family Office, Toronto “The issue really is not what people like or what their investing styles are but rather what they need. For a wealthy family that plans to spend a lot of money each year – maybe they have several university-age kids studying in the United States and they plan to build a cottage or start another business – we would focus a good portion of their investments in something that’s not locked up for several years, so maybe cash or short-term bonds.

“For investors who are spending less and want to build legacy money to leave their children, there’s more room for illiquid investments with higher returns, such as private equity, infrastructure and real estate.

“High-net-worth individuals are definitely interested in investments that are intriguing, but the question we ask them is: Is your portfolio for entertainment?

Sometimes, we have to talk them down from things that are fun, or we designate 5 per cent of their portfolio as play money.

“Sometimes, they come in expecting a 25-per-cent return on their portfolio – similar to the return they got from their business. The reality is you can’t get significant capital growth out of the markets these days, so people have to be reminded that if they want to grow capital significantly they should try to start another business, or we should build a portfolio full of direct investments in businesses. We have some clients who have done this, and we’ve helped them find a private-equity manager to stay on top of these investments.”

Responses have been edited and condensed.

This article was written by Marjo Johne from The Globe And Mail and was legally licensed through the NewsCred publisher network.

The Real cost of stock transactions

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Commission is the only cost that’s really visible when you buy or sell stocks. However, every stock transaction involves other costs that can be harder to spot, and even harder to predict. 

The cost of buying or selling a stock or exchange-traded fund (ETF) is transferred to the client through their broker in the form of a commission. You can identify this cost in your transaction reports.

But the way the stock market operates means that by its very nature, the price paid or received for a stock includes costs that are invisible to the client. Did you know that?

The discrepancy between the purchase and sale price, identifiable before a transaction

The cost, which is often significant, is not completely invisible: you can calculate it by looking at a detailed market quotation. Also, for each security the market quotation lists not one price, but two:

  • The Bid, or the price at which buyers are ready to buy it, and
  • The Ask, or the price at which sellers are prepared to sell a security

The Bid (purchase price) is always lower than the Ask (sale price). The term “bid-ask spread” is typically used to identify the difference between these two prices.

An investor who buys a stock and then resells it immediately would incur a loss equivalent to the bid-ask spread – even if they weren’t paying a dime in commission.

This discrepancy between the sale and purchase price is used to compensate the market maker, in other words the organization that ensures that purchase orders and sale orders match, thus allowing transactions to happen.

For example, if a buyer wants to buy 125 shares of a security, the market can’t wait for a seller to decide to offload exactly 125 shares, while at the same time there are three sellers waiting to sell 50, 50 and 25 shares respectively. A market maker must therefore, at all times, buy shares from sellers to make them available to buyers. At the end of the day, it’s from this intermediary that buyers are purchasing securities, not other investors.

The market maker assumes the cost of temporarily holding the securities and of carrying out the transactions to buy and sell. Most importantly, they take on the financial risk of purchasing securities and potentially having the stock price drop before they can sell them.

To compensate themselves and cover their risk, the market maker buys for less than they sell, and inversely the investor buys for higher than they can sell.

For an investor interested in long term investments, the cost of the bid-ask spread is usually minimal, but for a more active investor who buys and sells securities frequently, it can become significant.

Additionally, the bid-ask spread is usually greater for less traded stocks, notably those from smaller companies that attract a lower number of investors.

Two other minimal costs for the majority of individual investors

When a transaction order is for a number of securities that is large in comparison to the number of securities available for transactions at that same time, the very fact of placing the order can change the value of the security to the detriment of whoever placed the order.

So, if there are few effective sales orders for a security, a buyer who turns up with a large purchase order will “wake up” securities holders who weren’t ready to sell at the current price, but who would be interested in selling a little higher. To be able to get all the securities they want, the investor will end up paying more than the price at the time they placed their order.

The inverse is also true: an order to sell that’s disproportionate to the liquidity of a security will force the price down, and the seller won’t be able to get the price they were expecting.

The cost of this impact on prices is generally negligible or non-existent for small investors negotiating small quantities of stocks in large companies.

But it can be considerable for institutional investors, when they decide to trade a significant proportion of a company’s share capital. It might also be substantial for individual investors who want to buy or sell a large amount of a less liquid security.

That might be a reason to divide one big transaction into several smaller transactions, so that each one is more discreet and blends better in the market. Also, the investor can protect themselves by placing an order at a fixed price (minimum or maximum, depending on the case).

In the end every investor needs to assume a certain opportunity cost related to the delays involved in each transaction. From the moment an order is given for a purchase or sale, the cash amount or number of securities in play is blocked until the transaction is complete. This cost is practically negligible for individual investors targeting the long term, but could be major for very active investors.

Smart management of costs is an important part of maximizing the performance of your portfolio. Every investor should therefore have an interest in thoroughly understanding all the transaction fees involved when setting up an investment strategy.