Banks own the investment industry! A good thing?

Let’s face it!  In the battle for investment dollars the Canadian banks are clearly the winners!  Is this a good thing?

Once upon a time, the investment business was more of a cottage industry.  Portfolio manager and investment broker were ‘professions’ rather than jobs.  Smaller independent firms specialized in looking after their clients’ savings.  There were no investment ‘products.’  The landscape began to change dramatically – in 1988 RBC bought Dominion Securities, CIBC bought Wood Gundy and so on – when the banks decided to diversify away from lending and began their move into investment banking, wealth management and mutual funds.

Take mutual funds for example.  Over the past few decades Canadian banks have continued to grow their share of total mutual fund sales* – this should not surprising since by acquisition and organic growth in their wealth management divisions they now own the lion’s share of the distribution networks (bank branches, brokerage firms, online trading).

An added strategic advantage most recently has been the capability of the banks to successfully market fixed income funds since the financial crisis. Risk averse investors want to preserve their capital and have embraced bond and money market funds as well as balanced funds while eschewing equity funds altogether. With waning fund flows into stock markets, how can equity valuations rise?  It’s a self-fulfilling prophecy.

Many of the independent fund companies, born decades ago during times when bonds performed badly (inflation, rising interest rates) and stocks were the flavor of the day, continue to focus on their superior equity management expertise.  Unfortunately for the past few years they are marketing that capability to a disinterested investing public.

The loss in market share* of the independent fund companies to the banks continues unabated. Regulatory trends also make it increasingly difficult for the independent fund companies to compete.  Distribution networks nowadays (brokers, financial planners) require a huge and costly infrastructure to meet compliance rules.  Perhaps I’m oversimplifying, but once a financial institution has invested huge money in such a platform does it make sense to then encourage its investment advisers and planners to use third party funds?  Not really! Why not insist either explicitly (approved lists) or implicitly (higher commissions or other incentives) that the bank’s own funds be used?

Stricter compliance has made it extremely difficult for investment advisers to do what they used to do, i.e. pick individual stocks and bonds.  In Canada, regulators have made putting clients into mutual funds more of a burden in recent years.

To a significant degree, mutual fund regulations have contributed to the rapid growth of ETF’s (Exchange-Traded Funds).    An adviser will be confronted by a mountain of paperwork if he recommends a stock – suitability, risk, know-your-client rules) or even a mutual fund.  An ETF is less risky than a stock, and can be purchased and sold more readily in client accounts by trading them in the stock markets.  Independent fund companies that introduced the first ETF’s did well enough for a time but not surprisingly the banks are quickly responding by introducing their own exchange-traded funds.  For example:

TORONTO, ONTARIO–(Marketwire – Nov. 20, 2012) – BMO Asset Management Inc. (BMO AM) today introduced four new funds to its Exchange Traded Fund (ETF)* product suite.

In fact, the new ETF’s launched by Bank of Montreal grew 48.3% in 2011.  When it comes to the investment fund industry, go big or go home!  You’d think that Claymore Investment’s ETF’s would have it made with over $6 Billion in assets under management (AUM) but alas the company was recently bought by Blackrock, the largest money manager in the world with $29 Billion under management.  It will be interesting to see if the likes of Blackrock will have staying power in Canada against the banks.  After all RBC has total bank assets twenty-five times that figure.  Survival in the business of investment funds, and perhaps wealth management in general depends on the beneficence of the Big Five.

Admittedly, the foray of insurance companies  into the investment industry has been aggressive and successful for the most part.  With distribution capability and scale they certainly can compete, but the banks have a huge head start.  Most insurance companies are only beginning to build out their wealth management divisions.  I can see a logical fit between insurance and investments from a financial planning perspective, but then the banks know this and have already begun to encroach on the insurance side of the equation.  Nevertheless I would not discount the ability of the insurance companies to capture signficant market share.

So, is it a good thing that larger financial institutions own the investment industry?  Consider the world of medicine.  No doubt a seasoned general practitioner will feel nostalgic for days gone by when patients viewed them as experts and trusted their every judgement.  The owner of the corner hardware store no doubt holds fond memories of those days before the coming of Home Depot.  Part of me wants to believe that investors were better served before the banks stampeded into the industry but I’d just be fooling myself.  Although consolidation has resulted in fewer but more powerful industry leaders, the truth is that never before have investors had so wide an array of choices.  Hospitals today are filled with medical specialists, while banks and insurance companies too are bursting at the seams with financial specialists.

It is not fun becoming a dinosaur, but this general practitioner has to admit progress is unstoppable.

Malvin Spooner

 

 

 

 

 

 

 

 

*The industry charts are courtesy of the third quarter Scotiabank research report Mutual Fund Review.  The annotations are my own.

When Internet security takes a back seat

By Terry Cutler.

Why is it that those in charge of protecting the company’s security network, that database of sensitive customer data – bank cards, credit cards, bank accounts and personal information – don’t seem to spend the money to protect it? This is a question that is baffling to those in the data protection business, and may be more baffling in the years ahead.

CEOs and Chief Security Officers (CSO) do not always see eye-to-eye on this problem. The CEO is budgeting the overall books, while the CSO is focused on his task, and can only submit for his budget. This is understandable. However, a recent survey (http://www.cioinsight.com/c/a/Security/Information-Security-Views-of-CEOs-CISOs-Diverge-Sharply-418309/) released by Core Security which highlights and demonstrates this separation over the security stance of the same company who has the potential to drop a company in a “click”.

Staggering is the first word that comes to mind after a quick read of this benchmark. Only 15 percent of CEOs said they were very concerned about an attack on their network, and didn’t think their systems were under attack or even compromised. There is a large gap between CEO and CSO thinking.

Sixty percent of CSO’s reported being very concerned about attacks and reported their systems were already penetrated. Yet with all the breach threats filling the news, and the numbers in dollars lost rising with each attack, or even a threat, the report unearthed that 36 percent of CEOs don’t deem it necessary to get a security briefing from the member of their own security team. It is inevitable. With large customer databases becoming the norm with big companies, the norm for hackers is to go after the company. Decide this at the board level, or decide how to fix it later, of course at a loss of reputation and customers and millions.

It isn’t fashionable to call Internet security unimportant, yet CEO’s continue to scoff at filtering money in that direction. This is risk management of the grandest form. One breach can cost millions. As I have written in previous blogs, that extra money may go to training that one employee not to “click”, or maybe not?

It’s the CEO’s call.

Real Diversification

 

When I purchased my first vehicle, I wanted something unique, manly, and most importantly, something that would attract the female gender. With those conditions in my mind, the obvious vehicle for me was a… Lada Niva. Here’s my conversation with the car salesman about choosing a colour:

 

 

Car salesman: What colour would you like?

Me: What are my options?

Car salesman: They come in many colours, the colours of the rainbow.

Me: Wow! I’ll take red. (Thought it was fitting)

Car salesman: Actually, you can only get white. We don’t bring in any other colours.

Me: I guess it’s white then.

I couldn’t ever figure out the conversation, but because I was so starry eyed with my new vehicle, I just went with it. Interestingly, it turned out to be a pretty good vehicle

I suspect the same sort of conversations have been going on with financial advisors all across North America.

When a mutual sales person presents a “diversified portfolio”, there appears to be many companies, types, and asset classes. Lots of colours. Perhaps you have a balanced fund from bank A, a bond fund from bank B, and an equity fund from bank C.

The thing is though, if you look at the underlying holdings, you really could be holding a redundantly “white” portfolio.  My observation over the past years in the financial industry is that this is a chronic issue.

I believe, however, the tide is shifting. There have been a number of media reports showing an increased use of non-conventional investment types, like the ones I spoke about in my Toolbox article.

An article in a US based magazine catering to financial advisors, quoted a US study that found that an overwhelming majority of financial advisors are looking at expanding their use of alternative investments for their clients.

Closer to home, Mr. David Pett writes in the Financial Post about the new portfolio. This new portfolio pie, or asset allocation includes private equity, real estate, real assets and alternatives, all of which can be found in the exempt market.

When you are considering the advice of your financial advisor, take a look at their toolbox. Does your financial advisor have the proper tools to help you reach your financial goals?

 

Marty Gunderson is an expert who helps companies navigate through the Exempt Market. He has served in a variety of leadership positions in the industry, from sales to issuer to dealer. He is the founder of www.BetterReturns.ca, a site that highlights a few quality exempt market offerings.  To contact Marty, please email marty (at) idealeader.ca

 

 

 

So What Goes in a Full Financial Plan Part 3 of 3

So – now the wrap up of this series.

Financial Planning is intensely personal and clients need to have complete faith and trust in their advisor to make the process work properly, effectively and efficiently. The relationship is the key to success.

It is for this reason, that top planners spend the first meeting just working on laying the foundation for a relationship to grow and blossom – listening is the key of course – the good Lord gave us two ears and one mouth – and good planners and advisors use them in that ratio! This is what as known as a “non-interview”.

I first learned about this concept about three decades ago by reading a book by a fellow named J. Douglas Edwards – “Questions are your answer” – copies are still available in used book stores and on-line – I highly recommend that everyone involved in the financial/estate/retirement planning process, read it – and read it several times. In fact, it is excellent reading for anyone in a sales, marketing and/or management role.

I want to touch on the reporting now – I can hear advisors and planners already saying that if they covered everything I listed in my two previous posts, the final report is going to be 100 pages in length! Well, that depends, doesn’t it ——– on the client.

Some clients are detail-oriented, number crunchers, navel inspectors, etc. – and for those people, a planner can create dozens of reports and many dozens of pages – looks impressive I admit – but of what value to the client?

I learned from studing about and listening to people like Jim Rogers, John Savage, Jack and Gary Kinder, Norman Levine, Charlie Flowers, Don Pooley, Hal Zlotnik, Rick Forchuk, Dick Kuriger, Jim Otar and many others – that simple is best.

In my experience, I have found that the planners who use the longest reports are often trying to impress clients with quantity as opposed to quality. Certainly the attitiudes of the client drive the entire process – including the reporting and some clients do want more details than others – but this is a fine line to follow.

I have found that there needs to be enough detail to illustrate to the client that their goals can be achieved given a certain set of circumstances, what changes they need to make and actions they need to take and I allow the client to determine how that is done. As an example, before I present a plan, it is my normal practice to ask them a few questions first, including: How much time to you want to spend at our next meeting reviewing the plans? Do you want to go over the entire plan in detail, or do you want just a high-level summary and then decide on what sequence to follow before getting deeply involved in the entire report? As part of my interview process, I ask clients very early on to indicate their priorities in dealing with their goals – and regardless of my personal preference or prejudice, I follow the sequence or timing as verbalised by the client – this is critical IMHO.

My preference is to give a high-level overview at the first reporting meeting – typically no more than 3 or 4 pages – I don’t want to frighten them or have them start to think they can’t change anything – spoon feeding in other words. Then the rest is covered over the next two or even three meetings so they aren’t overwhelmed and I use LOTS of pictures and graphs and as few tables of numbers as possible. If they ask for some specific details, of course I can produce them, but I don’t try to bury them.

Last, but not least, as a professional financial planner, it is great to have a plan but unless it is implemented and there is regular follow-up (at a minimum of once every two years) to make adjustments as necessary – the whole thing collapses into a pile of snot with only some wasted money and good intentions left lying on the ground!

Anyway, that wraps up this series – hope you find some of the comments of value or at least thought-provoking – agreement is neither necessary, required or expected! Cheers Ian

So What Goes in a Full Financial Plan – Part 2 of 3

So here we go on part 2 of this 3-part series

Post-employment/work Income PlanningAll sources of potential revenue.

1) Employment pensions:
a) Type – Defined Benefit Plans, Money Purchase Pension Plan (Defined Contribution) Deferred Profit Sharing Plans, Employee Profit Sharing Plans, Employee Share Purchase Plans, Group RSP, etc. – past and present – valuations, statements, benefit formulas – early or late – contribution rates, maximums, etc.
b) Portability, commutability – formulas, etc.
c) Inflation protection – none, partial or fully indexed.
d) Pension choices available – spousal requirements, pension splitting options, etc.
e) Income buy-back availability.
f) Integration with OAS or CPP as applicable.

2) Personal retirement assets:
a) RRSPs, Spousal RSPs, Locked-In Retirement Accounts, Locked-in RSPs, Tax Free Savings Accounts, OPEN – depending on current purpose if in existence.
b) Valuations, statements, reasons for choices of investment holdings.
c) Plans for disposal of other investments/business interests/tax-shelters, etc. to supplement other retirement income assets.
d) CPP and OAS benefits statements – OAS maximization/claw-back minimization and planning.
3) Other Savings/Investments earmarked for other purposes/re-direction possibilities.
4) Review potential for partial employment or other post-retirement income supplements, potential inheritances, etc.

Education Planning – as appropriate For clients and family members as applicable.
1) RESPs, other in-trust holdings earmarked for education:
a) CESG and related possibilities including low-income education benefits for grandchildren/great-grandchildren.
b) Retiring student loans effectively.
c) Potential uses of Tax Free Savings Accounts for children.

Charitable/Philanthropic Intentions Family, living and/or posthumous recognition or benefits, donation planning.

Special needs – challenged or gifted Registered Disability Savings Plans, other government assistance plans, trusts, grants.

Wills, Codicils Inter-vivos/Discretionary Trusts, Alter-Ego/Joint Spousal Trusts, General and
Restricted POAs – including bank accounts, Limited POAs, Enduring POAs,
Representation Agreements (Living Wills), Multi-jurisdictional Wills/Multiple Wills for non-situs assets,
Planned inheritances, tax implications, contingent ownership issues etc.
choices for Executors/Co-Executors/Corporate/Contingent Executors, Guardianship
of the person and financial guardianship, conservatorships.

Marriage Marital regime, prior divorce, financial obligations from previous relationships that
survive death. Discuss domestic partnerships as appropriate.

Special tax-planning issues Restructuring cash flows, taxable inheritance planning. Review previous
personal, corporate, partnership, Limited Partnership financials, trust tax returns for missed items,
trends. Discuss Health and Welfare Trusts or Private Health Services Plans, as appropriate.

Risk tolerance assessment Separated by family member, goal specific – generic asset allocations, generic product
allocations.

Gift planning Family and others – refer back to Charitable/Philanthropic.

Intergenerational Wealth Transfer Tax effective and efficient transfer of wealth – next and/or subsequent generations.

Implementation roadmap Suggested target dates, sequences.

So What Goes in to a Full Financial Plan? Part 1 of 3

I start this series with a bit of trepidation – I have so far, in more than 20 years of doing financial planning, been able to find some sort of universal agreement on what should be covered – but here is my attempt. I fully expect some disagreement – but that is good – it means people are thinking about it seriously! Also, readers should be aware that “financial planning” is NOT about selling products – it is exclusively about helping clients create a roadmap for their lives – financial and otherwise. For brevity, I am covering these issues in point form – obviously the actual discussions drive the ultimate destination and no two clients(even spouses or partners) have exactly the same vision – which keeps life interesting! If anyone would like confirmation of what some of these abbreviations and notes mean to me – just ask!

LifestyleCurrent and future, hobbies, interests, health issues/family history, soft-facts via
non-interview. Potential for changed occupation(s), children? Where do they
see themselves in 5, 10, 15, 20 years??

Cash Flow Actual versus planned, leakage (un-accounted for loss of revenue)/budget/cash flow
Planning.
Income tax assessment/recommendations. Income splitting (CPP and other options).
Debt analysis and review – consolidation, refinance, Line(s) of Credit, Total Debt Service Ratios,
eliminate debt through use of other assets to improve cash flow, TDSR, etc.

Assets and Liabilities Including property assessments, mortgage/loan statements and schedules, details of
co-signing, credit card statements, revolving LOCs, bank accounts, GICs, TFSAs,
RESPs, all Registered Products, notes/mortgages receivable, loans to family
members, ACBs, assessments, valuations, cash flows, etc., stock options,
student loans

Risk Management Risk assessment – lives, property, automobiles and business.
Assessment of risk protection alternatives.

1) For individuals – all family members:
a) As appropriate, discussions about life insurance, disability insurance, critical illness insurance and long-term care insurance.
b) Discuss beneficiary appoints (contingent), previous spouses, blended families.
c) Review of group insurance benefits available – including life, AD & D, STD, LTD,
Medical, Dental, Vision Care, Out-of-country, HSAs, etc.
d) Current and available accident benefits, credit life insurance, disability insurance and critical illness insurance.
e) Potential for expanded benefits through ICBC re automobile injury/death.

2) For business/investment real estate/tax shelters/etc. – all involved family members:
a) Over-head Expense Coverage, Disability Buy-Sell, CII Buy-sell.
b) Grouped Executive Enhanced Benefits Plans.
c) LOC coverage as appropriate.
d) Discussion of Buy-Sell situation, liabilities, potential problems for survivor and deceased family.

3) Contingent Liabilities – all involved family members:
a) Who signed what and are the debts protected and recoverable – including review of alternatives.
b) Can contingency be removed.

4) Residence – owned, rented – reviews as appropriate:
a) Coverage for buildings, contents, scheduled items, deductibles, floaters, exclusions (earthquake), limits.
b) Voluntary medical payments, own damage, personal liability, off premises items, properties.
c) No frills, Basic, Broad Form or Comprehensive coverage.
d) Is building or contents over-insured?
e) If strata – match coverage with Strata Insurance Certificate to ensure no gaps.
f) Loss-payees.
g) Improvements updated on policy – strata and detached residences.
h) Fair Market Value versus Replacement Value updated on policy
i) Scheduled items – basket-clause application for jewelry, collectables, etc.
j) Check coverage for ATVs, boats, etc. extended re damage, theft, destruction and liability.

5) Automobiles – Government and Private insurance as appropriate:
a) Are deductibles appropriate given age of vehicles, use, driver?
b) Waiver of depreciation appropriate
c) BC residents – RoadStar eligibility/benefits.
d) Loss of use
e) Underinsured Motorist limits
f) Uninsured Motorist limits
g) Supplemental Death and Income Benefits
h) Third-party liability
i) After-market upgrades or improvements
j) Change of use
k) Experience of drivers
l) Check coverage re ATV’s, boats, etc. extended as floaters or endorsements
m) For boats – Recreational Boater operator cards, etc.
n) Coverage for personal items such computers, cell-phones, iPads, etc. if vehicle stolen or destroyed.

6) Business/Rental Properties/investments/tax-shelters:
a) Coverage limits for structures, loss payees, flood, fire.
b) Third-Party liability, voluntary medical, own damage.
c) Loss of revenue – business continuation – business financial statements.
d) Recent valuations of all assets used in the business.
e) Business cash flow.
f) Tenant damage as appropriate.
g) Revolving Lines of Credit and terms/agreements/co-signing.
h) Business agreements – shareholder, partnership, operating, financing, royalty, revenue sharing, etc. as appropriate.

Taxation and financial planning – Part 2 of 2

So let’s pick up where we left off last week.

Whether people recognise it or not, wealthy people do pay more total taxes than lower income earners – they like more toys, more vacations, more luxuries – guess what – there are taxes included in all of those items too – but then, to admit that would go against the current 1% versus the 99% protests! The simple fact is, there is no “tax freedom” day – everything we spend goes for taxes or raw materials – everything in between is taxes or becomes taxes in one form or another – but let’s not get depressed about it! How does this impact on financial and insurance/estate planning?

Projecting future tax rates that might apply to retirement income or tax credits that might exist for personal health care is a losing proposition. The same applies to the future impact of estate succession/capital gains or even inheritance taxes (which will come back in the future in one form or another – guaranteed!)

Most software programs in use today around the world for the financial services industry, add compelling statements such as “full income tax T-1 calculation done for each year of your plan” (pardon the Canadian influence – but I are one – and proud of it!!). What rubbish. The only thing that COULD accurately be said is the tax calculations are reasonably accurate for the PREVIOUS tax year – everything else is at best an estimate and at worst, a SWAG.

Canadians want more services paid for by “governments” so the governments have to get more $$ from the tax payers to pay for those services. Remember, there is only ONE taxpayer – that is each person. Businesses don’t actually pay any tax – never have and never will – they are simply conduits to get taxes from tax payers to the various levels of government. Some politicos say we are going to raise taxes on various businesses – how nonsensical! Does anyone seriously believe that the business is going to reduce profits to owners, partners and shareholders to pay the tax? Of course not – they just increase the cost of the item, good or service they sell to…….guess who……. tax payers!! But then, that isn’t nice to admit either! The same applies when businesses are charged royalties for accessing natural resources – the cost of those royalties are simply passed along to the consumer – who is also the tax payer – again! BOHICA!

In financial and insurance/estate planning, all we currently need to address are income taxes – and then only as a best estimate. It is my normal practice to include a large disclaimer relating to tax estimates and then I go further by increasing the projected costs by a further 10%. Why do I do that? I have never met a retiree in need of health care who complained about having too much money available to get the level and quality of care they want. I have never met a widow or widower or orphan or surviving business partner who ever complained about having too much tax-free cash available. And I know all governments are going to need more revenue in the future – and they can only get it from us!

BTW for those readers who may not be familiar with the words SWAG or BOHICA – they come from my past military experiences – SWAG – silly wild ass guess – BOHICA – bend over here it comes again! Cheers.

Is Your Car Taking You To Your Retirement Dreams?

When a mechanic is fixing your car, it’s probably a good idea for that mechanic to have as many tools he can. Your car is a complex system with many moving parts that, when working properly, takes you to your destination.

When you and your advisor are putting together your financial tools to reach your retirement destination, it’s also a good idea to have as many tools working for you to give you the best chance to reach your goal.

With conventional investments, the structure of the tools is fairly uniform… mutual funds.

In the Exempt Market, the structure of the tools varies, which in a lot of ways provides a complementary relationship for the overall tool kit. Here are a few tools to help the drive to your retirement destination be as smooth as possible…

Mortgage Investment Corporations (MICs) are investment structures that collect money from investors and then lends that money out in the form of mortgages. These investments are generally lower risk with the protection of the capital coming from the collateral. Unfortunately, these investments pay dividends that are taxed as interest income, so it will take the full brunt from Revenue Canada.

Flow Through Shares are special type of share that allows certain expenses to “flow through” to the end investor. Companies in the mining, oil and gas industries will use these structures to obtain capital to fund their operations. The strongest elements of these types of investments are their tax effectiveness. One of the best ways to minimize your tax bill is utilizing flow through shares.

Real Estate Income Trusts (REITs) are a way to participate in real estate, without having to collect late rent cheques or clean toilets. The good manager of the REIT will manage the asset while ensuring that it is in good order and revenue is coming in on a consistent basis.

Private Equity allows investors to be part of the ownership of an operating company through structures such as preferred shares or limited partnership units. Companies who are looking for growth capital, finance assets or to buy out competitors will often come to the Exempt Market to fund their initiatives.

These are just a few types of investment tools in the Exempt Market. Future articles will include more types and the benefits associated with them.

 

Marty Gunderson is a self proclaimed Exempt Market geek. He has served in a variety of leadership positions in the industry, from sales to issuer to dealer. He is the founder of www.BetterReturns.ca, a site that highlights a few quality exempt market offerings.  To contact Marty, please email marty (at) idealeader.ca

Taxation and Financial Planning – Part 1 of 2

A topic we all love to hate – but it needs to be examined a bit closer when it comes financial and insurance/estate planning – but no, I am not going to turn this into an course on Income Tax – but rather I am going to present some points for consideration in your planning processes.

I am always amused at various federal and provincial politicians that stand up and brag that “we have removed the burden of taxation from those Canadians with the lowest incomes”. Sounds wonderful and some politicos may actually believe it – but I assure you it is completely false. Other tax goodies such GST/HST tax credits for low income earners, Climate Action credits, planned low income tax credits, etc. are simply political smoke and mirrors. I will clarify something right here – I never have been, am not and never expect to be a member of any federal, provincial or civic/municipal political party or action committee – my comments are completely apolitical. I lump all political parties together when it comes to these games, and frankly I don’t trust any of them to be completely honest – but then I am a cynic or so I have been told!

OK, back to my point – sort of. Every person in Canada who purchases anything is paying taxes to all levels of government in Canada plus additional taxes to foreign governments if the item(s) purchased were made outside Canada or the raw materials came from outside Canada. And this applies to EVERYONE – from the person at the top of Canada’s Wealthiest list to the person who scrapes by begging for handouts or receives social assistance of one type or another. Charities pay taxes too – and this includes religious organisations that, for whatever reason, have been given charitable status – money is being moved around to all levels of government.

Many people “rejoice” when tax-freedom day arrives – somewhere around the middle of the year according to several organisations – I contend this is a complete fallacy – and I’ll tell you why!

Assume I make and sell a widget. When I calculate the price for which I am willing to sell it, I have to look at all the TAX inputs – buying the raw material to make it – I am paying taxes to the seller of the raw materials who is paying taxes on those raw materials to government in the form of royalties, licence fees plus taxes on purchasing the equipment that they used to get the raw materials. I have to calculate in the selling price the amount of money I paid to the manufacturers of the equipment that I use to make my widget and they have included in their price of the equipment all of the taxes they had to pay. I have to calculate the labour costs included in each widget I make and that includes payroll taxes such as CPP, EI, Health Care etc.

Then I have to include the property tax I pay for the building that houses the equipment in which I make the widget – and if I lease the building and land, then I pay a pro-rata share of the taxes my landlord pays. Next I have to package the widget and pay taxes on the materials used in the packaging, then I have to ship it somewhere and pay taxes on that including road and bridge tolls, provincial, federal and local taxes or surcharges, fuel taxes, port taxes, customs duties etc. Finally I get around to paying me – and I have to figure in my tax bill to figure what I need to have left to take of me and my family and pay all of these same types of taxes on everything we consume or use.

Whether people want to recognise it or not, wealthy people do pay more total taxes than lower income earners – they like more toys, more vacations, more luxuries – guess what – there are taxes included in all of those items too – but then, to admit that would go against the current 1% versus the 99% protests! The simple fact is, there is no “tax freedom” day – everything we spend goes for taxes or raw materials – everything in between is taxes or becomes taxes in one form or another – but let’s not get depressed about it! How does this impact on financial and insurance/estate planning?

Stay tuned for Part 2 next week!