Ten Tips for a Better Relationship with your Financial Advisor


You have done the research, understood the fee structures and finally hired a financial advisor. What now? For most of us, a good relationship with our financial advisor is a top priority.

To have the best relationship possible with your financial advisor, here are ten simple tips for you:

1) Be up front about what you expect of your advisor. If your expectations are unreasonable, it is the advisor’s responsibility to make sure that things are adjusted.

2) It is your right to respectfully disagree with your advisor and not take their advice, but if you find that this disagreement is very common, then there is a poor fit.

3) Judge your advisor based on their actions and not those of your previous advisors or “the industry.” It can weaken your relationship with your advisor and hurt communication if they always feel beaten up for someone else’s behaviour.

4) You have a right to know how you are doing. If you are not being given that information or are unsure, don’t be afraid to ask.

5) Measure your adviser fairly. This means basing it on trust over time, seeing them do what they say they will do, and comparing their performance against a reasonable benchmark. For investments, remember that the TSX is an aggressive equity index overweighted in metals, energy and financial services; even among stocks, it is not the appropriate benchmark for the conservative investor.

Tips for Communicating with your Financial Advisor

6) You should call or e-mail your advisor on occasion. This keeps the line of communication open, and keeps your advisor aware that you are interested in your finances.

7 ) Respect your advisor’s time. While you can ask questions and ask for reviews, a reasonable advisor can’t devote too much time to any one client without it negatively affecting other clients.

8) While it is always your money, and you have the right to fire an advisor who isn’t doing a good job – try not to hold your business up as a threat. It simply adds stress to the relationship that isn’t helpful to you as a client.

9) If your advisor is doing a good job, say thank you. If you are really happy and feel comfortable doing so, send referrals.

10) Be honest with your advisor about whether you are happy or unhappy with their service, and provide specifics about why you feel that way. This gives you the best opportunity to improve the relationship and results.

Like any relationship, the one you have with your advisor is a two-way street. Some of the most successful people out there get to that point because they have good advisors, and because they themselves are good clients.  You  can learn more about a good client-advisor relationship from this comprehensive Wharton Business School research report on The Financial Advisor-Client Relationship.

A Critique of the “Sequence of Investment Returns”

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Products like the Manulife Income Plus or Sunwise Elite Plus sell their solutions based on the concept of sequence of returns. The idea is that the sequence of your investment returns in a significant determinant of whether you outlive your money in retirement.

The math here works because by drawing out your savings each year, you are declining your overall asset base. So both good and bad returns in the earlier part of your retirement have a bigger impact. While the math is all true, the solution isn’t to pay high fees for a guaranteed income product.

But there is something significantly wrong with this concept.

The investment reality misses a key principle.

What is missing is the fundamental fact that after a year or period of poor investment performance, the market will overcompensate with stronger-than-average returns to get back to its “normal” level. What this means is that as long as you stick to your investment discipline, you will get better investment performance after poor performance, and it will then carry you back on target.

A Critique of the Sequence of Investment Returns

The most recent example has been 2008, 2009 and 2010. Based on the sequence of returns research, if your first year of retirement was in 2008, then you lost out on the sequence of returns. The investment industry says instead, you should invest a lump sum amount in a guaranteed product with high fees that will get charged every year of your retirement instead.

What actually happened is that after the TSX total return index returned -34 per cent in 2008, it has averaged 25 per cent returns over 2009 and 2010. Of course, if you invested in a guaranteed withdrawal benefit product, you wouldn’t have been able to invest in anything more risky than a balanced portfolio and you would have missed much of the strong returns of the past two years.

What the real message should be is: Don’t pull your money out of the market after it falls 20 per cent. Better yet, if you have other investments, it might be time to add to your stock position once the market drops 20 per cent.

The key to investment growth is to have some long-term discipline. When it comes to the sequence of returns affecting your retirement income, remember that even after a rough winter, spring always comes.

Benefits to Charitable Giving in Canada


Tax and Financial Benefits to Charitable Giving in Canada

When it comes to charitable giving in Canada many people believe, “My estate will handle it. They can have it when I die. What’s the rush now?”  Many people are losing the personal and financial benefits gained from charitable giving due to this attitude.

Asher Tward, VP of Estate Planning at TriDelta Financial writes, “The majority of Canadians do not have the knowledge  of their financial situation to create enough confidence to donate larger amounts of money while they are still alive. Many would be surprised to know how much they can afford each year! Without a plan for charitable giving while living, it could be financially costing you . You will pay more taxes than necessary, diminish the size of your final estate for your loved ones and give less to charity than you could have. There are many financial and personal benefits of charitable giving now, rather than waiting.”

Financial Benefits

1) Receive an immediate tax credit of roughly 45% or more, depending on the province you live in.

2) Save the tax on the growth of the money that you will never use in your lifetime. By giving it away now you won’t have to pay tax on the future growth.

3) Take advantage of additional tax benefits by the gifting of shares. You don’t have to pay capital gains tax on donations of qualifying shares.

4) Depending on how you donate, you may still benefit from the principal and be able to control the assets, while receiving annual tax benefits.

5) Eliminate paying some probate fees as you no longer own the asset.

Personal Benefits

1) See the impact and benefit of the wealth you have worked so hard to earn and save.

2) Involve and inspire others to do more and participate in giving.

3) Get more involved in things that make you feel good.

4)  Derive joy and a feeling of importance from seeing your name associated with a donation.

5)  Create a legacy and tradition of philanthropy.

We have a free and easy online tool called the Donation Planner.  It shows you how much more you can afford to donate each year, how much taxes you will save, and AFTER these donations, how much your estate will be worth.  Try out the Donation Planner so you can be in a position to decide whether you want to give more while you are living.

After trying out the Donation Planner, you may be interested in reading about how to leave a legacy without being wealthy.

Finding Bond Information for Canadian Investors


Finding information about the performance of your bonds and bond indices can be difficult.

For our clients’ portfolios, fixed income in the form of bonds or preferred shares will make up somewhere between 30% and 60% of assets. Multiply that by millions of investors and even for retail clients, that represents trillions of dollars invested outside of what most view as the stock market.

Yet, there does not seem to be readily available information on bonds. All investors know how the TSX is doing today, but what about the DEX bond universe? Most bond information is kept out of reach of the common investor.

Finding Information on Bond Performance can be Difficult!

To find bond index information, one of the best places to look is the PC Bond Analytics website. It is a business unit of the TMX Group, which runs the Toronto Stock Exchange.

To find preferred share information on the S&P/TSX Preferred Share Index, you can visit Standard and Poor’s here.

Another place to look is if you have your own brokerage account, their research tools may include bond quotes and preferred share information.

The question is:

Why are all of those indexes (outside of the stock market) so hard to learn about?

It isn’t an obscure investment. There are 40 bond funds in Canada that have over $1-billion invested. The TD Bond Fund has over $9-billion in assets. The RBC Balanced Fund has $8.4-billion in assets, with a third of that currently invested in bonds. Granted, the information might be more difficult to understand. In addition, because there is usually more buying and holding, the investment industry may be less interested in reporting on it (it is less profitable).

The problem with this lack of information is that many investors get too carried away with the TSX numbers and assume that if they aren’t beating the TSX then they are not doing well.  We often remind clients that the TSX has 79 per cent in financials, energy and materials. This is a concentrated index that carries higher-than-average risk. This isn’t the appropriate benchmark for most investors.

This performance information of bonds and preferred stocks however is key to many investors to get a sense of how they should be doing. These indexes and their performance numbers should be widely reported on all business media – but today, it simply is hard to find.

Visit my weekly Personal Finance column in the Globe and Mail, where this article originally appeared.

(Photo: JanKroemer)

Getting Mortgage Insurance? Consider This First


Mortgage iBe Wary of Mortgage Insurancensurance is one of the most important decisions when buying a new home, but unfortunately, many people do not consider it carefully.  Many mortgage representatives at the big banks will always tell you to get mortgage insurance. Stressed, vulnerable and without having shopped around for insurance, many new homeowners say “yes” without a second thought. After all, insurance is meant to protect you, right?

Not quite.

What exactly is mortgage insurance?

The bank’s mortgage insurance is also known as Creditor Protection. What this means is that the beneficiary of the insurance policy is the bank.  In the event of death, the bank is repaid the mortgage loan but surviving family members receive no funds from the insurance (except for a mortgage-free home). Depending on your mortgage and personal situations, it may not be in your best interests to pay off your entire mortgage. Concerns about property taxes and income may force your family to sell the house.

Important Facts about Mortgage Insurance

  • Bank mortgage insurance is usually more expensive than the same product through an independent insurance advisor.
  • It may be cancelled at the bank’s discretion if you move to another financial institution, default on or pay off your mortgage. The insurance is also not guaranteed at your mortgage renewal
  • The insurance only covers the value of your mortgage. For example, if you pay off your $400,000 mortgage to $250,000, upon death, you will only receive $250,000. However, the premium stays the same and does not decrease in conjunction.
  • The banks perform “Post Claim Underwriting” meaning medical issues are explored on claim (i.e. after a person dies), leading to a higher chance of a claim being denied

What is a better alternative?

The right type of life insurance product can ensure that your beneficiaries have enough funds to take care of your mortgage, property taxes and other financial needs as they arise, as well as the flexibility to use the funds as necessary. When in the market for a house, apply for insurance outside of the bank right away (and waive the bank’s mortgage insurance) to protect your home and family.  In addition to dealing with realtors, mortgage representatives and a home inspector, when buying a new home,  include a licensed Insurance Advisor who can help you with this.

If you liked this article, learn more about different insurance products: The Difference Between Critical Illness and Disability Insurance.