Monthly Archives

February 2019

What Are The Financial Ramifications Of Getting Divorced?

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Today, we’re elaborating on divorces and the financial ramifications of going through one. If you happen to be going through one or you think you might be going through a divorce, you might find some valuable information here.

I know it’s not pleasant, but at least you can start to consider all the financial moving parts that need to happen when you are going through this. A lot of things are happening and obviously the change in your financial plans is a big one. You need to make sure you have a team in place that you trust and that you can focus on:

-Your accountant and your lawyer.

Hopefully, you have one of those professionals in your network that can help and guide you through the painful process of a divorce. There’s a ton of marital assets that are there. First and foremost, you will want to divide the marital assets. This is going to be one of the steps that’s going to be very complicated.

One other key point you need to consider is factoring in the tax implications of dividing those marital assets. Sometimes you’re much better to have a real asset like a property or a home (the marital home) than it would be to potentially own a registered asset, like an RRSP or something similar. These are factors that you definitely have to consider.

When you’re going through the split, there will often be pensions involved and you’re going to have to consider all of these pensions that come into play in the divorce. How much of each do you have access to? Do you have access to the future cashflow? Are you doing a NPV (Net Present Value) on those pensions in order to figure out what they’re worth today? At the end of the day, there will be a ledger indicating the assets for husband, the assets for wife and then there will be an equalization payment.

It’s complicated, trust me. Have the RESPs been factored in? Is that being taken care of? Who’s going to be the trustee for the RESPs and how are you going to function that on a go forward basis, especially if the kids are still a young age. You also must consider and ask yourself this; what does my retirement look like? The retirement for a couple is significantly different than retirement for a divorcée. So the divorcée now needs to factor in less cash flow. Expenses will most likely be similar for a house, for a condo, for travelling expenses, etc. Your cashflow is now way less than it potentially was before. Our priority at Tetrault Wealth Advisory Group is to make sure we can generate that cashflow. We do it in the most tax efficient way possible.

You certainly want to make sure you look at all the documentation, the insurance needs, the beneficiary change. You’ll want to look at the liabilities, look at any joint bank accounts with your name on it. There’s unfortunately a laundry list of things that you need to go through and some of this stuff can easily be forgotten. The worst case scenario is that you forget one of these factors and the next thing you know, you’re jointly held liable for something with your ex-spouse. This is not an idea situation.

Tons of things to consider if you happen to be going through a divorce. We covered a lot of stuff here today folks.

If you’d like to schedule a call with Rob to discuss further on your current investment portfolio management, just click the button below and we’d be happy to help.

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Should You Invest With A Robo Advisor?

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Today, we’re talking about Robo Advisors and why I think you should NOT have one. Clearly, I’m a little biased here. I guess, some would say they are my competition.

You’ve seen the commercials, right? They’re out there saying computers better at this than everyone else. I’d like to ask you a couple of questions:

-Do you really want to be that individual, that human being who’s being block traded his entire portfolio along with everyone else in the entire country at the exact same time?

-Are you first in line or your last in line, what kind of pricing are you getting there?

-Do you really want an algorithm deciding what you should own and in which accounts?

-Do you really think it makes the most sense to have a questionnaire decide the future of your entire life?

-Do you really think that this algorithm and this computer can give you the advice that you need on tax planning, on financial planning, on corporate succession, on philanthropic giving and on business succession?

These are questions that I’d personally like to get an actual human being’s advice. The robo-advisors are useful If you have 5K or 10K, you’ve put that aside and you’re convinced that this algorithm is the best thing for you.

However, if you got actual assets and you’ve accumulated some wealth in your life, you know that in order to get the right advice, you actually need to talk to human beings.

The Robo-Advisors build these portfolios and they’re the same for everyone. These custom portfolios that they have across every platform have underperformed. You can check study after study. They’ve underperformed. They’re not timing the market and the robo-advisors are not able to take advantage of opportunities in the market. They’re not able to structure the alternatives, not able to do anything principal protected and they never look at private debt of any kind.

These Artificial Intelligence Advisors are modeled by the institutions that own them; banks and wealth management firms. These institutions come up with a specific recommendation for individual investors, which is generally in the best interest of the company that owns that robo program or that algorithm.

Now, do you think it’s a fully biased opinion? I’ll tell you what, I’ve asked you a lot of rhetorical questions and if you’re not sure what the answer to those are, maybe you are best to be with a Robo Advisor. Nevertheless, if you want top level advice, you need to be with a Portfolio Manager. Robo Advisors serve a purpose. They’re really good for the introductory investor and folks that would like to invest their first 5K and that don’t really need any other advice. On the other hand, if you actually have wealth, this is not the solution to your investment goals and needs.

If you’d like to schedule a call with Rob and discuss your investment portfolio options, just click the button below and we’d be happy to help.

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Manitoba Tax Rates 2019 – Combined Federal & Provincial

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Individual Tax and Corporate Tax Rates

When we provide advice to clients, it is important to understand your tax rate so that we can provide you with the best personalized guidance. This information can help us determine whether your contributions should go into your TFSA (Tax Free Savings Account) or your RRSP (Registered Retirement Savings Plan) during your earning years. Alternatively, we will consider how we can maximize your current tax bracket in retirement by drawing down your assets in the most efficient manner.

  • How does your CPP (Canadian Pension Plan) / OAS (Old Age Security) amounts factor into your retirement cash flow needs?
  • How can you avoid or minimize the effect of OAS claw back?
  • When should you start taking your CPP and how will it affect your income needs over time?

Through our comprehensive planning process we address these questions and more. As always, reach out to us with any questions. We are here to help.

View Manitoba Tax Rates for 2019 (PDF)Free Consultation

What’s an IPP (Individual Pension Plan) and who is it for?

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Today, we’re chatting about the IPP, also known as the Individual Pension Plan. It’s truly a fantastic way for business owners to pull out a lot more tax-free money from their respective corporation.

We’ve all heard of an RRSP, right? You contribute to an account, get a tax deduction personally and it effectively reduces your income. Now the thing with business owners, is that they’re limited. If you are indeed a business owner, the IPP could potentially be for you.

Now it’s not for everyone. Obviously, you need to own a business and have spare cash flow. Ideally, you need to be above 40 years of age and have a high income (high taxable T4 income). The higher your income, the more IPP contribution room you will get.

Why does the IPP work for high networth business owners? Once the individual creates the individual pension plan, he or she is effectively replacing their RRSP with that IPP account and it now becomes a new account. This account then gets funded by your corporation or your business account.

This is a fantastic a way for the business to pull out more money than they would if they were just doing the RRSP contribution. Some examples can run anywhere from one and a half times to even twice as more RRSP contribution room through the IPP.

So how does that work? You set up the Individual Pension Plan. Once it’s structured, there is a rollover. All the RRSP assets move into this IPP account. The business will then also fund it, usually using a formula. It’s calculated by an accounting or an actuarial firm. They calculate it and then you’ll start with a huge lump sum and in turn, it will become an expense for the corporation.

What I find neat is that you can then reduce your actual profits for the Corp and you can also potentially even reduce your tax bracket for the corporation while doing so. To recap, you take the money out of the corp., you then put it into a personal account. No matter what happens with the corporation, whether you sell it someday and move on or hand it down to the next generation, you will have that bucket of assets that effectively should be twice or even three times as large as an RRSP.

That IPP will then fund your retirement for the rest of your life. You could also add other important and connected people. You could add a spouse to an IPP, a partner and/or your kids if they are working for the company.

This is a unique investment option. Very few people know about the IPP. A lot of people would be a perfect fit for an IPP. They just don’t know about it or they’ve never heard about it.

There is a lot of moving parts in the IPP. It’s not simple, but the ballpark main factors are:

  • Are you 40 or older?
  • Are you in a high-income tax bracket?
  • Do you have a corp. and does the corp. have spare and disposable income?

If you answered yes to all those questions and if you want to retire wealthier, you should consider the IPP.

If you’d like to schedule a call with Rob and discuss further on Individual Pension Plans or anything related to your portfolio management, just click the button below and we’d be happy to help.

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What are Alternative Asset Classes?

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Today we’re talking about alternative asset classes and how and why they should be in your portfolio. An alternative asset class is not a stock and it’s not a bond. It’s something completely alternative. Historically in the CPP (Canadian Pension Plan) and historically in all of these endowment funds, the largest ones in North America used to have nothing but stocks and bonds. Then something started happening in the 80s. Harvard, MIT, the CPP started adding alternatives. They would buy actual private equity. They would buy companies and would look at private real estate. Most of them would look at infrastructure, look at private debt and anything to get an alternative asset class. The key is to have it uncorrelated to the performance of the stock market.

Why does that matter? Because when you’re getting crushed in your portfolio on your stocks like 2018, you want to be able to have a portion of your portfolio that actually has gains that made money and that didn’t fall with the rest of the portfolio.

This is the reason why we love to have alternatives. We consistently build them and the investment portfolios have consistently outperformed because of our alternatives. For the alts, I’ll give you a few examples:

  • An easy one is private REITS or limited partnerships and real estate.  Those have very low volatility, very little movement in the actual asset class performance and the shares are fairly stable. They pay a consistent cash flow. They are very tax efficient and over time they had consistent growth; the 13% to 15% range. Therefore, if we can add that to a portfolio when the markets are up or when the markets are down, that’s a phenomenal asset class to own and does wonders for risk adjusted returns.
  • Another example would be private debt. Private debt is essentially owning the mortgage on a building, on a property and/or on the development. We’re able to get 7% – 8% on private debt using first mortgages. That is something that I want to own for my clients because it’s defensive. It’s got a core structure that is generally very conservative in nature. It pays monthly income and my clients have security on their assets. It’s a fantastic replacement for a portion of a fixed income portfolio with consistent cash flow.
  • Third example are structured notes, principle protected notes or equity linked notes. We love these alternatives because we can structure them specifically for clients. I’ll give you a very straight and simple example: We take an underlying asset class and then we tie it to a bank style bond. Basically, it’s a bond issued by a bank that guarantees the future capital. The capital is guaranteed for clients. They also get to perform and participate in the upside of the market. Typically, if the market is up 10 percent per year, clients get that benefit while having the full principal protected. Notes are an alternative asset class that has grown immensely in the last few years and if you’re not participating in this type of asset class, you really should consider it. It’s a no brainer in my opinion. It does wonders for the risk adjusted returns in portfolios.
  • Finally, there is private equity. There’s a lot of private equity deals that are structured and these would be considered like a hedge fund type investments. Not all hedge funds are created equal. Many of them are extremely risky and it’s not something we want to do. We like to focus on the conservative hedge funds that have private equity. We also want to work with those that we trust, those with strong management that provide exceptional work.

We’re able to focus on those four asset classes that have either way less volatility, no correlation to the market and that can provide cash flow or can provide capital protection. They do amazing work for you and your portfolio, and this is the reason why we love the asset classes. I highly suggest that you consider having these in your portfolio.

If you’d like to schedule a call with me and discuss further on Alternatives or anything related to your portfolio management, just click the button below and I’d be happy to help.

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Health and Wealth Forum 2019

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Message from Rob posted on Social Media – “Thanks to everyone who braved the frigid weather to come to our Health & Wealth Forum this past Sunday. I always enjoy hosting this annual event with my sister at her gym CrossFit Winnipeg. Not only is it informative, but the audience got a glimpse of how Tania and I used to resolve debates when we were younger. All jokes aside, Health & Wealth go hand-in-hand and this event is a great reminder about the importance of balancing both in life. What are you doing to optimize and balance your Health & Wealth?”