Some happy year-end thoughts!

An interesting year on many fronts – financial and societal. But have I learned anything I can use in the future? From a financial perspective, I very strongly believe we are going to get more of the same in 2013 that we had in 2012 – notwithstanding the “fiscal cliff” nonsense taking place in the Untied States (deliberate). Resolved or not, my best assessment is that world markets will be slightly chaotic for at least the next 2 years before some level of stability re-appears. Am I psychic?? Absolutely not – but I am a fiscal realist. On a relative basis, Canada is better off that just about everwhere in the world with the exception of New Zealand. For my younger audience, NZ did go bankrupt as a country about 30 years ago – and ever since have kept things fiscally responsible.

Canada may be the best of a bad lot, but we are certainly not having the country’s finances managed in any way, shape or form in a conservative manner. Quite frankly (and I am not, have not been and never expect to be a member of ANY political party), our proclivite spending habits are much more reminiscent of Liberal and NDP spending patterns.

Over the past 18 months or so, there has been a real shift around the world to a more socialistic approach to all levels of government. Citizens of all countries are demanding more services and support from their governments yet no-one wants to pay the price. It is the same in North America, Europe, South America, the Far,Middle and Near-Easts plus the former Soviet states, the Indian sub-continent and Australasia. The people in the Sahara and sub-Saharan regions in Africa are facing even more serious issues of civil wars and genocoide, on one or more levels. The Scandinavian folks are much quieter about things in their part of the world, but they are facing the same issues as the rest of the Eurozone as our our friends in Iceland.

Governments have no money, unless they print more – which brings inflation back into the picture in a big way – something no-one in the world can afford. Some parts of South America are dealing with double-digit inflation now – but on a WEEKLY basis – not annually! So with no money for governments to spend, national debts are growing in leaps and bounds (regardless of the “blue” colours of some leaders), from where does the money originate?

People are still hesitant to invest for the long-term and are spooked every time a politician anywhere in the world, talks about defaulting, restructuring, devaluing or cutting deficits without raising taxes. All of which makes for choppy markets. Yes the Warren Buffet’s and George Soros’ of this world will always make money, because they take the long view.

I haven’t mentioned China and South Korea (or the rest of the Asian-Pacific Rim countries) because despite generally higher levels of “state” control over their economies, they are in no better shape. Closed and partly closed economies may appear to be doing better, but we never really see the complete truth – so in the absence of clarity, investors tend to shy away from them as well.

So what to do now? Stay happy and think positive thoughts! Stay short on the fixed-income side of things and use GIC or GIA ladders to protect yourself against upward movement in rates. Keep at least 5% to 7% in cash. In equities, for less than 15 years holding, stay with large caps that have good dividend histories, or mutual funds/seg funds that hold those stocks. For 15 years and longer – right now, your guess is as good as anyone’s! Have a safe and happy Christmas Season! Cheers Ian

Flow Through Shares

Back in the 50’s, about the same time the Leafs won their last Stanley Cup, an initiative was written up by the politicians of the day to spur on investment in Canadian resources.

The initiative, called Flow Through Shares, allowed companies to issue a special class of shares that carry with it some significant tax benefits for the investors. An investor may deduct the amount that they have invested from their income, hence saving some tax right off the bat.

Upon exit or sale, the same investor would receive a capital gain equal to the amount of the sale price. The reason for this is because the cost of the share, or ACB (Adjusted Cost Base) is zero.

This reminds me of the mechanic in the Fram Filter commercial. Pay me now, or pay me later, but you are going to pay me. The taxman will receive his share of tax upon sale, while giving up some deductions at the front end.

There are two basic structures when looking at flow through shares; single company shares and limited partnerships. The obvious strength of the limited partnership is that it has multiple shares in the portfolio, thus theoretically bringing down the overall risk.

Whether we are looking at mining, oil and gas, or alternative energy, there is volatility in the resource sector. Besides having a professional portfolio manager looking after your basket of flow through shares, another way to manage the risk is to have an ongoing and consistent investment strategy. One such strategy is to purchase a flow through share offering on a yearly basis. After a number of years, and various ebbs and flows, the portfolio will even out. If you are fortunate, you will even start to use the tax savings from previous years as your investment.

As always, a qualified exempt market professional should review any exempt market offering you are considering.

To check out a video on the topic, please click on the image below:

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.

“Value for Money” with KIA – Looks and Loyalty Locked-in

KIA Optima
KIA Optima

Cars with the most brand-loyal buyers

Forbes – Jim Gorzelany | Forbes
Keeping existing customers is a hallmark to success in any business, and it’s especially important in the automotive industry, where the average product costs well over $30,000 and the typical ownership cycle is five or more years.

While automakers in the luxury segment are often thought of as enjoying among the most loyal customers in the business, the top names in this regard are all mainstream makes, according to a just-released report based on second-quarter 2011 sales compiled by Experian Automotive in Schaumburg, Ill.

Data shows that Kia currently boasts the most loyal owner body, with nearly 48 per cent of buyers returning to the brand this year. Ford is second highest with 46.5 per cent repeat business. Chevrolet, Hyundai, Toyota and Honda all registered around 40 per cent brand loyalty, with Subaru bringing back buyers at the rate of around 36 per cent.

Among luxury automakers, the highest-ranking brands were Mercedes-Benz with 34.8 per cent repeat buyers, BMW at 31.7 per cent, Porsche at 23 per cent and Jaguar at 16 per cent.

Kia’s parent company Hyundai Motor Group posted a corporate loyalty rate of 49.6 per cent, according to Experian’s data, just edging out Ford Motor Co. at 48.1 per cent and General Motors at 47.6 per cent.

“According to our latest market report, Hyundai Motor Group has been making strides in customer loyalty for several years,” says Jeffrey Anderson, director of consulting and analytics for Experian Automotive. “In North America, both Kia and Hyundai have made improvements in vehicle styling and quality among both brands. This has clearly helped them gain and maintain a strong and loyal customer base.”

Three Kia models ranked among the top 10 vehicles having the most brand loyalty in Experian’s report, including the list-leading Kia Forte compact sedan at 68 per cent, along with the Soul compact wagon and the two-door compact Forte Koup.

Seven out of 10 of the models in Experian’s list were comprised of mainstream domestic-brand models, topped by the Chevrolet Cruze in second place with 64 per cent brand loyalty. The remainder were Ford models, including the subcompact Fiesta, the midsize Fusion sedan, the seven-passenger Flex crossover SUV, the Taurus full-size sedan and the compact Focus.

Experian’s study also concluded that among automotive segments, full-size truck owners were the most likely to purchase another big pickup, registering 58.6 repeat business during the second quarter of 2011. Owners of hybrid cars trade in for other hybrids at the rate of 43 per cent, as do those buying premium crossover SUVs. The least brand-loyal were found to sports car owners, with just 21 per cent buying another equally racy model, and those driving mid-range SUVs – a segment that been steadily losing traction to car-based crossovers in recent years – at 21 per cent.