I Want Tax free Income

The LinkedIn discussion considered ROTH vehicles invested in equities and “cash value” Life Insurance as two ways to obtain Tax Free Income… something was missing.

Why not buy tax free muni bonds in the form of Closed End Funds (CEFs)…. more than 6% tax free, in monthly increments, plus the opportunity to take profits (taxable, yes) and compound the income until it is needed. Or spend it right away, for that matter.

The vast majority of Tax Free CEFs continued (raised even) their monthly payouts during the financial crisis, and no payments were missed.

ROTHs have a “lock up” period, and cash value life insurance…. someone please tell me how this provides tax free income and when.

If left in the ROTH vehicle, should one still be buying equities? or investing in income producers?

Experienced, taxable CEFs pay in the 7% to 8% range right now… and seemed to be financial crisis proof in 2008 through 2010.

Growing income portfolios is my business… can’t be done nearly as well with funds and insurance policies. For over 6% tax free income right now, create a diversified portfolio of tax free CEFs.

Yes, market value fluctuates, but with little or no impact on income production. I want tax free income too… and this is how I get it, both personally and for my managed portfolios.

The principles explained in this video webinar are equally applicable to the Tax Free Income building portfolio:

https://www.dropbox.com/s/b4i8b5nnq3hafaq/2015-02-24%2011.30%20Income%20Investing_%20The%206_%20Solution.wmv?dl=0

Close Talkers

 

I was watching a Seinfeld the other day. If there’s been a funnier show on TV, I can’t think of one. One of my favorite episodes is the one where Elaine starts dating a “close talker”. It’s a riot.

Thinking about the #1 benefit of the exempt market, I can say, without a doubt, that the industry is full of close talkers. Almost all investments in the exempt market have close talkers.

Does that mean that they all talk awkwardly close to you and invade your private space? No. I’ve met a lot of industry participants and I can assure you that most of them give you enough space to talk.

What I mean is that the people that ultimately make decisions about how your money is invested, are very close to you. Most issuers allow you as the investor to talk to the CEO, managing director, president, etc. about decisions that will impact your money.

Let me give you an example. William Santor is President and CEO of Productivity Media (disclosure: He signs my pay cheque). His fund provides senior loans to the media industry. The fund collects investment capital from institutions and retail clients in the exempt market.

Will leads the loan origination process and ultimately decides which project to provide financing for and which to decline. He has a number of partners and advisors who will provide advice on loan selection as well. As an investor, you may have questions about why a decision is made to finance a project. No problem. You can easily speak to Will about it. In fact, some investors have.

Now by contrast, try to do that with your mutual funds. You will need to speak to your financial rep, who talks to the mutual fund wholesaler, who speaks to the mutual fund head office, who speaks to the head advisor, who speaks to the sub advisor, who speaks to the analyst who ultimately did the research to determine that stock was the one they should buy. Reminds me of the elementary school game where students pass along a set message through the whole class.

Along with losing the message in translation, the costs of those layers add up. In fact, the Ontario Securities Commission has put out a study to analyze the mutual fund fees in Canada. We all know whose pocket those fees come out of.

So along with all the strengths of the industry, I think one most pronounced is being able to be closer to your money. I like what Jason Fried said:

“The closer you are to your money, the better off you’ll be.”

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. To contact Marty, please email marty (at) idealeader.ca

Making the Exempt Market Better

When a professional serves me, I’m thankful for the training that she has gone through.  Whether she is a fire fighter, doctor, professor, accountant or in another profession, it is critical that she learns as much as she can before applying her craft in real life.

That’s why I’m ecstatic that the Exempt Market Dealers Associations (EMDA) has taken the initiative to make the exempt market products course even more applicable and relevant.  It is a requirement for anyone interested in selling deals to the public.

In many ways, educating the people who are recommending to you specific investment strategies is helping to protect your money.  At the risk of sounding obvious, the more experienced and educated the financial advisor community is, the better advice they will likely give.

I believe the test also provides a filter for would be advisors who really want to dedicate themselves to the industry.  I’ve been involved in training many advisors and can tell you first hand the amount of work it takes to pass the industry exam.

Once again I’m proud to be involved with the EMDA.  We see education as critical to the industry.  Not only does the EMDA clearly outline it’s values, it also puts them into action.

 

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. To contact Marty, please email marty (at) idealeader.ca

Saving Tax in the Exempt Market

As a former financial advisor, I tried to curtail the mad rush of RSP contributions in February. Many investors feel the only way to save money on their taxes is to make a sizable contribution to their RSPs before the deadline.

In fact, the Exempt Market has a number of ways to allow you to save tax, but many of the activities require action before the year-end, NOT before RSP season ends. Here are a few ways that the Exempt Market provides solutions to lower your tax bill:

  • Flow Through Shares:

Investing in flow through shares allows the investor to claim additional tax deductions. A flow through share itself carries with it expenses for exploring and operating a company that is in the mining, oil/gas or alternative energy sector. These expenses “flow through” to the investor and could give her the ability to deduct the expenses personally.

  • Principal re-payment:

Many offerings give the investor the opportunity to receive back their own money instead of distributions, thus deferring any tax consequences until the investment comes to fruition.

  • Business losses

An offering that is in a limited partnership structure may be able to flow through business expenses to the investor. Many investors have been able to deduct these business expenses from their income in the year the expenses were spent.

 

As always, I recommend seeking professional tax advice. As the exempt market continues to grow in prominence, more and more accountants will start to seek alternative ways to bring their clients tax bill down by investing in the exempt market.

 

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. To contact Marty, please email marty (at) idealeader.ca

Why I Chose the EMDA?

I’m proud to be part of the Exempt Market Dealers Association as their newest board member. The current board members have a strong passion to see the exempt market industry flourish while ensuring that the industry continues to be responsible to its key stake holders – the investors.

To be part of this group of exempt market advocates is a tremendous honour for me. This group includes people in all facets of the exempt market, from service providers like legal professionals and compliance consultants, to exempt market dealer participants such as dealing representative and head office executives.

I believe it’s important to have a national activist group that advocates on the industry’s behalf. There are many issues that require national thinking such as the adoption of the offering memorandum across Canada. Restricting a certain portion of the Canadian population from participating in exempt market offerings based on where they live is not in the interest of bringing the country together. A national organization is best positioned to influence policy change.

The EMDA is passionate about education. They sponsor such events as the CFO Education Series put on by MNP. This certificate program outlines regulatory issues that all head office executive at EMD’s should understand. This will, no doubt, bring a higher understanding of key components of operating an EMD. I’m sure the EMDA will be featuring further educational initiatives in the near future.

I’m thankful there are a number of voices in the exempt market. From what I see most, if not all, of the mandated positions of these groups on important issues are similar. If we can affect change by approaching the issues from different angles, we will be better off as an industry.

If you would like further information on the EMDA or inquire about how to join the organization, please email me at: mgunderson (at) emdacanada.com

 

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. To contact Marty, please email marty (at) idealeader.ca

 

Wedding Crashers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I was at the Hotel MacDonald last week on their patio. The view of the river valley was absolutely stunning. Edmonton in the fall is a gorgeous time of the year.

When I walked through the hotel to leave, I noticed a room full of laughs and people enjoying themselves. My initial response was how do I get into that party? Maybe I pull a Vince Vaughn from the Wedding Crashers?

Alas, I walked past it, kind of saddened by the fact that I was missing a good time.

The party at the exempt market has some very restrictive rules surrounding who can be approached (or solicited) to purchase private investments. Who can be involved in this party has a lot to do with who you are and where you live. The key factors that will determine if you are able to participate in these offerings are:

  • What jurisdiction (province or territory) you live in
  • How much money you make
  • What your net worth statement looks like
  • How big of cheque you can write

Jurisdiction

Where you live, will determine the set of rules you are obligated to follow. In most provinces, you are able to purchase an exempt market offering with an offering memorandum (OM) if you are an eligible investor. The glaring exception to that rule is Ontario, where the OM exemption is not available. Thankfully, the good folks at EMDA and WEMA are lobbying the Ontario Securities Commissions to allow eligible investors to participate in exempt market offerings.

Your Income

If you are in a jurisdiction that allows the OM exemption (ie. most of Canada, outside of ON), you may be able to participate as a eligible investor. Your net income before taxes needs to be at least $75K individually or $125K household total, in each of the last two years.

In Ontario, you need to qualify as an accredited investor where the bar is significantly higher. An accredited investor makes over $200K individually and/or $300K as a household total, in the last two years.

Your Net Worth

In provinces that allow the OM exemption, eligible investors are those whose net assets are higher than $400K, thus these people may be able to participate. Without the OM exemption, accredited investors are those who have more than $1MM in net financial assets or $5MM in net assets.

Transaction Size

Another exemption that investors may use is the aptly named $150K exemption, where if you invest more than, you guessed it, $150K, you may invest in the exempt market.

 

Please note that this is not an extensive list of ways to qualify.  For accredited investors, the OSC has put a list of ways to qualify.  If you are looking for ways to qualify as an eligible investor, please view the page done by Venture Law Firm.   I don’t want to try to justify these rules, but just to make you aware of the rules. There is a lot of discussion from key stakeholders about whether these exemptions are appropriate.

Please bear in mind that these are only guidelines. A registered exempt market dealing representative should look over your whole situation to determine if investing in a specific security is suitable for you.

 

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

Do What I Say, Not What I Do.

 

When institutional fund managers, portfolio managers to high net worth clients, and pension funds want to decrease the market volatility and increase their investment return, what do they do? They move money out of the stock market and into private (or exempt) investments.

 

A great piece in the Investment Executive talks about the shift to assets that are not tied to the stock market. One quote basically sums it all up:

“(Institutional funds) are increasingly looking to the alternatives asset class for long-term assets that are better matched to their liabilities, and less tied to the swings of the stock markets”

When YOUR financial advisor, who may be working for one of these financial institutions, wants to decrease market volatility and increase YOUR investment return, what does he do? I contend that the simple “solution” of transitioning funds to another set of correlated funds that have may have performed better in the short term, is just plain poor advice.

If your financial advisor had an upgraded toolbox, she could reach into it and provide some investments that do NOT mimic the performance of the stock market. Doesn’t that sound like you are taking advantage of all the tools that you have available to you?

Calvin’s Dad: The world isn’t fair, Calvin.
Calvin: I know, but why isn’t it ever unfair in my favor?
– Calvin and Hobbes

The exempt market does not have the marketing power of mutual funds, nor does it have 50,000 sales agents who go out and advise clients to purchase funds. If you are interested in getting in front of qualified advisors who can offer this expanded toolbox of exempt market investments, seek out qualified dealing representatives who work with strong exempt market dealers.  A search tool to find all the exempt market dealers in Canada, can be found here.

 

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

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

Change For The Better

 

“Know what’s weird? Day by day, nothing seems to change, but pretty soon…everything’s different.” – Calvin from Calvin and Hobbes

I was just speaking to a loyal reader (read: Mom), about the change in the financial industry. Without getting too Presidential speech on you, I’m going to make a statement that will likely cause a polarizing effect.

The exempt market right now is where the mutual fund market was 20 years ago.

 

There I said it. This isn’t a guess like my super bowl picks of previous years. This is based on the following observation:

Mutual Funds: Everyone has them, but wonders why they have them
Exempt Market Products: Nobody knows about them, but will want to learn more about them.

There will be people who will fight this trend, to protect their self-interest. This battle reminds me of the CEO of Blockbuster who said downloading movies would have NO impact on their business. RIP Blockbuster.

Look to the Exempt Market for further product innovation that will increase the investor’s return, while minimizing risk. It can’t happen soon enough.

 

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

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