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The Value of Advice

Research by the Wharton School of Business asked what clients of financial planners deemed the most important aspects of their professional relationship. The top 3 were: Trust, understanding of the family’s needs and goals, and the advisor’s communication practices.

Research also shows that advised households have more confidence in their future than households that do not have a financial planner, and that they have at least 2 times more assets over long time period.

Portfolio rebalancing, financial planning, behavioral coaching, and efficient drawdown of capital(such as from an RESP or RRSP), has been proven to add several percentage points to an advised household’s return over time. There are also many immeasurable intangibles that can add value to a client’s overall financial health, for example tracking/monitoring investments, research, goal setting, discipline, and education, navigating tax and investment regulations, and accessing government benefits.

An engaged and interested client will get the best and most relevant advice from me. I consider it a privilege that you have given me the responsibility of your financial well being and future. Here are some of the remarks I remember from our many conversations:

I appreciate that we work as a team.
You help us pay attention to our finances as we should.
I have hope for the future because you helped me get and stay out of debt.
Thanks for taking care of my mom, that helps me sleep better at night.
I have less stress and worry about my finances because I don’t have time to do it all myself.
Thanks for keeping us on track.
I appreciate that you make dealing with our finances less stressful, and with more hope.

Your success is the primary motivation for the work I do!

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What is the Future of Our Planet Earth?

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The mayor of Rome Italy recently refused to back an Olympic bid for her city because as she said “we can’t even collect our own garbage.”

New Delhi India, has closed schools for a few days because the air pollution is seriously affecting its citizens.

Did you know that there are many jurisdictions in North America and the world do not recycle beverage containers as we do here in Alberta? For me it is painful when I travel to see these plastic bottles stuffed in garbage cans or blowing in the wind down the street, and I know my friends have said the same.

Economic progress and world population growth are impacting our planet in ways that could be irreversible if continued unchecked.

There has been a growing awareness of the fragility of our planet and that many of our resources that support our lifestyle are finite. The impact of human activity is evidenced in statistics such as the disappearance of wildlife and the ongoing California drought.
This awareness has created an interest and movement towards a type of investing called responsible investing. Historically, responsible investing was named ethical investing or socially responsible investing. In the past the emphasis was on avoidance of companies that profited from products such as tobacco, nuclear development and weapons manufacturing. Today these companies are focusing their investments on innovation in the areas of environmental health and safety, water management, energy efficiency and development of renewable energy sources, waste management and pollution control, and sustainable agriculture. One recent example is Adidas making running shoes out of waste plastic drifting in the ocean.

Investment companies that are participating in responsible and sustainable investing want their money to make a positive difference. It is more than a trend, it is a realization that for the future of our children and grandchildren to be as positive as ours that there must be wise stewardship of the planet’s resources and an ethical and equitable supply chain.

Investment companies that do responsible sustainable investing, can as shareholders play an active role in company policy, influencing a company in a positive direction in such areas as executive compensation, fair hiring practices and respect for stakeholders in resources development.

Just as importantly the catalyst for responsible investing has been institutional investors such as pension plans. These large investors are constructing portfolios that reflect longer term view of responsible sustainable investing. Now you and I can also participate in this important investment

As the world’s population continues to grow innovation must play a crucial role. Most of the world’s land is not arable land that crops can grow on. And creating arable by deforestation contributes to climate change and loss of biodiversity. As well, potable water is a finite resource, unless new technology can access water from alternate sources, such as the sea.

The Paris agreement is historic in that that governments have pledged to work together to control pollution that contributes to climate change. Responsible investing will be at the forefront of positive change by partnering with innovative companies that create sustainable economic progress.

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The Benchmark

Beginning in 2017 the performance reporting on your investment statement will compare your rate of return to a particular benchmark. The stock market is classified into sections by companies that have similar characteristics or investment objectives. Each section is called a benchmark. Examples of a benchmark are Canadian resources, emerging markets, or Europe.

In some ways this comparison could be unfair because expert and experienced investment managers add a lot of value, and will often not invest in a way that reflects or follows the benchmark.

However, the reporting of performance in comparison to a benchmark is a mandatory requirement that Portfolio Strategies must comply with.

The investment managers I carefully choose usually want their funds to be unlike the index or benchmark they are compared against. They have deep research teams and resources that enable them to get more information than other investors have access to. They meet with management, competitors, and customers of a company they potentially want to invest in. They are also careful because they know that a loss of capital means it will be more difficult to get a good return if their decision is incorrect. Many investment managers have their own money invested in the funds they manage.

These managers also can include more asset classes in their fund than the index. Their investment experience allows them to manage to preserve capital when the stock market loses value in a correction or downturn. This is where active managers earn their keep, because a passive index investment will by default participate fully in a down cycle of the market.

Please be assured that I am always seeking the best value and return for your cost to invest.

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No More Punch the Party’s Over

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The financial crisis of 2008 was a memorable event worldwide. Central banks want to prevent another catastrophic event like that. The Bank of Canada’s role is to provide favorable conditions for the Canadian economy to grow which in turn benefits its citizens. Zooming closer in, my value to you is much the same: to guide you in your financial decision making so that you achieve your long term goals.

If you have been a reader of my posts for a few years, you might remember a newsletter about how the government and Bank of Canada made borrowing money so cheap that Canadians could not help but borrow money, to buy houses, cars, charge their credit cards, etc. It got to the point where there must have been a tinge of regret in Ottawa. The past few years have seen a gradual increase in regulation for mortgages. It is a reversal of the cheap money policy. The host has declared the party is over and taken away the punch bowl.

There are 2 risks in the Canadian economy that the government and now the Canadian Mortgage and Housing Corporation(CMHC) are concerned about and want to mitigate. Number one is that Canadians have far too much debt, and in many urban centres of Canada houses are overvalued. These 2 factors create the probability of a bubble such as occurred in the US. Because the debt to income ratio is somewhere around 160% it would only take decrease in income for any number of reasons to put a homeowner in trouble.

The past few weeks have seen new regulations with respect to home purchases. I will highlight the most important ones.

First of all the sale of any home by a taxpayer must be declared on a tax return. If you want more details please contact me.

We all know the maximum amortization is 25 years, and that any down payment less than 20% is subject to CMHC insurance.

On October 26th the CMHC is going to categorise Canada’s housing market as a strong risk, upgraded from a moderate risk.

On October 17th all potential homebuyers wanting to get a guaranteed mortgage will now be subject to a stress test. Previously the test was only administered to high risk mortgages. One mortgage provider has estimated that up to 30% of mortgages recently granted would have failed this new test. The stress test will measure the potential homebuyer’s ability to make mortgage payments when interest rates increase. The test uses a rate of 4.64%, which is the average of the rates banks currently charge.

I am going to be incorporating a variant of this test in our client meetings from this date. It is very important that you know in advance that you could pay your mortgage when your monthly payments increased. My value to you lies in my ability to get you to look at all of your financial statistics in the big picture. Every financial decision you make will impact that big picture and much of financial planning is prevention. Please access my expertise and experience as we work together to ensure your definition financial success.

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Your Quarterly Statement

I had a client call me the other day to ask why she had not received her statements in the mail. It turns out she had electronic delivery but had never accessed her statements online. So I walked her through the process, and it got me thinking about the rest of you.

Almost all of my clients have signed up for e delivery, and I thank you for making my life a little easier. It is now the law that a fund purchase or switch requires pre disclosure. And fund fact documents must be updated every year so all future purchases or switches will also require pre disclosure. Having almost all my clients on electronic delivery cuts down on the amount of paper fund facts, which is good for the environment. It also makes the pre disclosure easier for me. If you have not yet signed up for electronic deliver and would like to please contact me.

Regulators have stipulated that dealers such as Portfolio Strategies must issue quarterly statements. Approximately 2 weeks after the end of the quarter, in January, March, June, and September, you will get an email with a link to access your statement. Once you are at the access portal you enter your user name and password. If you cannot remember either or both you can contact me. If you have never accessed your statement, then you have a temporary password. PLEASE change that password to something that is meaningful to you. If you get locked out I can help you change your password.

I encourage you to check out your information about your portfolios. I also welcome questions about any information you see there.

Most mutual fund companies typically issue statements twice a year. Some fund companies have been allowed to suppress the semi annual statement in June. However, all companies must issue an annual statement. They will also send confirmation of transactions. All fund companies allow e delivery, for those clients who do not want paper statements. You have to call the fund company to set that up. You will need to know pertinent information such as your SIN and account number.

Exempt market products and flow through limited partnership units do not issue regular statements. However, you can check the market value of your portfolio through PSC investor access. PSC only reports the market value, they are not responsible for exempt market valuation.

On your next quarterly statement in January 2017, you will see more information on your statement. This information is about your cost to invest. Fund companies will now have to disclose how much they pay dealers. As your financial planner I constantly strive to keep costs reasonable without compromising quality. I welcome discussion on my decision process.

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A Carrot or Sharp Stick?

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Hope you are all enjoying the first few days of autumn!

This blog post will highlight a few important topics from Portfolio Strategies’ annual conference which I recently attended. The presenters at the conference are leaders in the investment and related professions, such as technology and tax planning. I want to present these topics to you, so that you will have a chance to have me elaborate on any that would interest you in future meetings.

Socially responsible investing is known by several different terms. Socially responsible investment managers want the money they manage to reflect their unitholders values with regards to stewardship of resources and human rights, for example. They use their position to influence positive outcomes with managements of the companies whose stocks they own. They know that the responsible investing can make a positive difference in the world we live in. This is already occurring at the institutional level of investing. Many large pension funds are looking to the future by investing in a socially responsible manner.

Technology can help clients have a better understanding of their portfolios. PSC is seeking ways that their clients can have more access to the information they need on any electronic device if they so choose.

The importance of advice was discussed. The amount of financial information that is available to people makes the importance of expert, accurate, and objective advice even more important. And it cannot be generic advice, it must be advice that is relevant to your own goals and situation. This advice must be delivered in the manner that clients would be most willing to receive it.

Different investment management styles were discussed. There is room for both active and passive management in any portfolio.

Shifting demographics will affect economies around the world. Retiring baby boomers, millennials entering the work force, for example, will affect factors such as employment rates and productivity.

The monetary policies of central banks around the world have some influence on stock markets. We discussed how much they have influenced the market. Negative interest rates are a policy tool that has unknown effects. Imagine PAYING to be allowed to deposit your money at the bank instead of getting a few pennies of interest as we do now. That is the reality for citizens of some countries. If central banks think negative interest rates is a measure that would help stimulate the economy it might become more widespread. It is less a carrot than a sharp stick attached to the carrot.

And last but not least, the current bull market is getting old and wrinkly. No bull market usually lasts more than 10 years and Larry Berman of Berman’s Call who spoke at the conference, has said that there is a likelihood of a recession within the next 3 years.

Questions and comments are always welcome.

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What Is Wrong With This Picture?

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The above is a full page ad in a local newspaper which I happened to glance at while waiting for a medical test.

Poor spelling aside(which incidently makes it difficult to take this ad seriously), this pitch for easy credit is a good example of predatory lending.

If a purchaser needs to finance as little as $200, the chances are high that he or she should not be buying the item in the first place. There is also a strong likelihood that after the introductory grace period of 0 % interest, he or she will not have the balance paid off, which is the only way to avoid paying interest.

The ad also pitches an application for a credit card. Purchasers who would need to finance small amounts are targeted by credit card companies because that is the chunk of the population that makes them the most money, through interest and late fees. Unfortunately, bad habits have a way of perpetuating a vicious cycle, which help credit companies make billions of dollars.

This financial practice really annoys me. I am sure none of my readers would fall for this ad, but if you know anyone that needs financial education this is an essential part of that education.

Until the next time!

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The Top 5 Mistakes People Make With Their Money

IMG_0723Are you better off than you were five years ago? Note I did not say financially better off though I am sure that is what most readers would interpret that to be.

Throughout my adult working life I have observed that a recurring theme with people is that they feel that having more money would be a solution to their life’s problems. Is that always true? The richest people are not always the most happy and often those with the least are the most generous.

Here are my financial professional’s observations as to how peoples’ view of money can be an obstacle to their financial goals. The 5 points are interrelated, meaning they affect each other.

1. Increasing your spending in step with salary increases. There are two problems with this. First you are not increasing your bottom line or net worth. A fancier car or more expensive vacation doesn’t get your balance sheet in the black. A larger salary should mean you increase your assets which are things that increase in value over time. Secondly your spending habits will be difficult to reign in during those inevitable dips, such as unemployment, or divorce. A good rule of thumb is to always live slightly below your means with a meaningful emergency fund. A line of credit is not an emergency fund.

2. Rushing to build wealth. People who dream up new investment ideas and products know this aspect of human nature well. They can take advantage of peoples’ impatience and novelty bias. There is no such thing as a get rich quick scheme. Patience is a key to financial success.

3. Procrastination is the number one dream killer. Putting off a developing a financial plan or positive habits are destructive. Is time your friend or enemy?

4. Trying to apply parts of generic mainstream ‘investment’ information to your finances. Here are two examples. A TFSA is better than an RRSP. Real estate is a good investment. It is not that these statements are untrue. But these ideas must be applied in the context of each individual situation as part of the bigger picture. Unfortunately the list could go on and on.

5 Not identifying needs and wants, or believing wants are needs. This will lead straight back to #1.

Financial success is not the best or newest financial product. It is the dedicated application of a proven process over time, and managing behavior and expectations with an eye to the bigger picture or future goal. Take advantage of my expertise and experience to help you on your financial journey.

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Statement Snapshot

Once again I must apologise for the long pause in between blog posts. Unfortunately in mid July I caught the flu and was very sick right up to our family trip for a wedding. Yes I did get the flu shot last fall. I had a forced hiatus off regular work, although I did sneak in a few client meetings, research, and paperwork, in between bouts of being flat out cold in the couch.

The day before I left on our trip a client phoned me. She is a retiree, who still works part time. She recently at age 71 had to convert her RRSP to a RRIF. She was concerned that her 2nd quarterly statement(March-June) had shown a decline in market value. She wanted to discuss this.

Regulators of the mutual fund industry, the Canadian Securities Administrators(CSA) and the Mutual Fund Dealers’ Association(MFDA) have mandated quarterly statements. This is a non negotiable rule dealers must abide by. It costs time and money, especially if paper statements are issued, instead of e delivery.

Almost all of my clients are long term investors who are not that concerned with the day to day short term fluctuations in market value. For those with a shorter time horizon, such as the retiree or parents with children in high school, I have their names on a short watch list. That means I am monitoring their investments more often. Also, hopefully we are in regular discussion regarding future plans. A client and financial planner must work as a team to ensure success in reaching their financial goals. Also these clients are more conservatively invested to begin with.

So what did my client and I discuss? It turns out that since her initial investment in February 2016, her investment had increased by about 8%. This was not reflected in her June statement. She took the absolutely correct action to phone me with her question. Her call shows me she is engaged and interested in her financial future.

By the way if you have questions about the format or information on your statement please let me know. Also if you have trouble accessing your statement online please contact me. Thank you to all my clients who made the switch to e statements to facilitate fund facts delivery compliance.

 
Beginning in January 2017 you will see more information on your statements, which pertains to your cost to invest. Future blog posts will detail these changes.

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The Insider in Your Corner

IMG_0679Just past the second anniversary of my tenure at Portfolio Strategies Corporation, I thought the open letter format would be appropriate as I haven’t written you all in a long time. I remember long ago handwriting a stack of postcards and putting stamps on them to be mailed! Many of you received one of those postcards.

Reflecting back on my almost 17 years of financial planning, remembering meetings and remarks, I want to first of all thank you for your loyalty in walking the journey with, as one client termed me, her financial chickie. I have enjoyed our conversations and you have taught me a lot about human nature and behavior. I have valued your life perspectives.

I know many of you view your finances as one of the must do chores in the same vein as ironing or cleaning the bathroom. In fact one client remarked that she wished money didn’t exist. Variations on that theme have surfaced over the years in my financial planning practice. Some people’s way of coping is to ignore the elephant in the room by procrastinating on changes or important decisions. I am the voice of reason in those situations.

My role is to teach you to become an objective steward of your financial resources. Yes there is a lot about money that is unfavorable. I see a lot more of it than most people. Occasionally I ask myself is my career worthwhile and enjoyable? Some days are more challenging than others. For example, the democratization of knowledge through the internet has led to it becoming popular to look down on experts and professionals and to second guess their education and wisdom. Plus the proliferation of financial information has misled people to believe that building financial security can be done quickly. I am the voice of patience in those situations.

The sense of gratification I get is when I see the results of assisting people successfully navigate the financial maze which, with each technological advance makes financial freedom harder to reach. 2 examples stand out. The first is a single parent with 4 children. This parent was unable to obtain child support because the other parent had left the country. Parents must file a tax return to qualify for child benefits. That parent’s choices were to do a paper return, buy tax filing software( which costs money and requires a computer) or hire a professional. That parent’s gratitude was priceless and made my pro bono work worthwhile.

The second example involves a missing T4. Employers now save money by providing an electronic copy. But for one taxpayer that proved a hindrance to file so I am now in the process of helping him catch up and deal with CRA.

My role is to equip you to level the playing field in the financial world by giving you tools and knowledge. I am the insider in your corner who has a fiduciary duty to always seek your best interest. As long as I know I am making a positive difference in clients’ lives that is my prime motivation for my work.