New Investor 2018

2018 | MINDSET AND DISCOVERY

New Investor NAVIGATING THE LANDSCAPE

MYTH BUSTERS: INVESTMENT ILLUSIONS THAT HOLD YOU BACK

ROBO-ADVISING: CONVENIENCE, CONNECTIVITY AND THE COST OF ADVICE

REAL ESTATE REALITY CHECK

SMART RISK: MANAGING RISK AND PLANNING FOR RETIREMENT

ADVICE AND LESSONS LEARNED

SPONSORED CONTENT

Saving for your

Retirement Latte

If you’re like most people, saving and investing money can be overwhelming. There are so many different plans, investment options, and decisions to make. It seems much easier to worry about it tomorrow and enjoy your extra hot Grande caramel macchiato in peace, right? However, if you want to enjoy that macchiato thirty years from now, you may just want to keep reading!

back to your SMART goals. When you retire, do you want to eat Kraft Dinner everyday and never leave your house or do you want to explore the world with your granddaughter?” Ludwar asks. “Everyone has a different lifestyle in mind and it’s important to save for your unique goals, not someone else’s.”

First, take a deep breath. Saving is not nearly as scary as finding that spider lurking in your garage.

According to Shaun Ludwar, Investment Advisor at Prospera Credit Union, it’s easy to get started.

“The most important question to ask yourself, really, is what you’re saving for,” says Ludwar. “Whether it’s a new car, a trip to Greece or retirement, knowing what you are saving for is the first step to setting your goals.”

What if you already know what your goals are, but you’re living paycheque to paycheque? Where do you even begin? Ludwar suggests starting with everyone’s favourite financial word… a budget. It may seem time consuming, overwhelming, or something your grandparents did, but it’s really quite simple once you get started. Knowing how much money is coming in versus how much is going out can be a real eye-opener. It can help clarify your basic needs and make sure they are met, while uncovering ways to tuck money aside each month.

Ludwar recommends setting SMART goals to help you develop a personalised plan. SMART stands for specific, measurable, achievable, realistic and timely.

If this seems daunting, an advisor like Ludwar can help you set SMART goals, and then work with you to develop a plan to achieve them.

Don’t feel that you need to figure it all out on your own, either. Certified Financial Planners like Ludwar have the expertise to help you develop goals and set a plan in place to achieve them. Think of it like having someone in your corner every step of the way to help you reach your financial dreams.

One very common goal is saving for retirement, which raises a big question - how much is enough?

“Truthfully, there’s no magic number and it all comes

Speak with a Prospera advisor today, and keep on enjoying that macchiato!

We help you solve the money puzzle.

contents 2018 | MINDSET AND DISCOVERY

New Investor NAVIGATING THE LANDSCAPE

MYTH BUSTERS: INVESTMENT ILLUSIONS THAT HOLD YOU BACK

ROBO-ADVISING: CONVENIENCE, CONNECTIVITY AND THE COST OF ADVICE

REAL ESTATE REALITY CHECK

SMART RISK: MANAGING RISK AND PLANNING FOR RETIREMENT

ADVICE AND LESSONS LEARNED

features Investment illusions

4

Charting your investment course

8

Real estate reality check

12

Profiles: Bonnie Foley-Wong, Ryan Spong

14

Investing with insight

14

Recommended reading

16

How to be financially smart so you can retire well

18

Fintech: the banking sector’s new battleground

20

Recommended Reading

16

President: Alvin Brouwer Editor-in-Chief, Business in Vancouver, and VP Editorial, Glacier Media: Kirk LaPointe Editor: Hayley Woodin Design: Randy Pearsall Production: Rob Benac Writers: Glen Korstrom,

Investment illusions 4

Albert Van Santvoort, Hayley Woodin Proofreader: Meg Yamamoto Director, Sales and Marketing : Pia Huynh Sales Manager: Laura Torrance Advertising sales: Benita Bajwa,

Dean Hargrave, Blair Johnston, Aileen Mortimer, Corinne Tkachuk, Chris Wilson Operations Manager: Michelle Myers Administrators: Katherine Butler, Marie Pearsall Research: Anna Liczmanska, Carrie Schmidt New Investor 2018 is published by BIV Magazines, a division of BIV Media Group, 303 Fifth Avenue West, Vancouver, B.C. V5Y 1J6, 604‑688‑2398, fax 604‑688‑1963, biv.com.

Copyright 2018 Business in Vancouver Magazines. All rights reserved. No part of this book may be reproduced in any form or incorporated into any information retrieval system without permission of BIV Magazines. The publishers are not responsible in whole or in part for any errors or omissions in this publication.

ISSN 1205-5662

Column

How to be financially smart so you can retire well

Chris Catliff—6 Column

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Return undeliverable Canadian addresses to Circulation Department: 303 Fifth Avenue West, Vancouver, B.C. V5Y 1J6 Email: subscribe@biv.com Cover: oekka.k/Shutterstock

Ian Russell—7 Column

Fintech: the banking sector’s new battleground

20

Maili Wong—17 Column

Murray Leith—22

4 | New Investor 2018 published by Business in VAncouver

Investment

illusions

Four common investment myths that can downgrade investors’ prospects

Albert Van Santvoort

By owning real estate as a rental property rather than for personal use, investors can build equity in a home and avoid being tied down to a certain location

T

here is a time and a place for advice, and all new investors must decide the extent to which they will allow professional advice, insight from trusted advisers and their own research to shape their investment journey. There are, however, several pervasive investment myths that are worth being challenged by new investors. Here are four broad investment themes investors should consider as they formulate their investment goals and strategies.

Myth 1: It’s always better to buy than to rent ■ “You build equity as an owner and throw away

paycheques as a renter” is a common retail investment warning often thrown out during casual conversation.

While there is no doubt that real estate can be a good investment, does being a “good” investor require owning the home in which you live? There are inherent benefits to both renting and buying a home. The most obvious one is that home ownership allows investors to build equity through owning an asset that historically is likely to increase in value.

However, owning your own home can tie investors down to a specific location, making it difficult to pick up and move if an opportunity presents itself. It comes with higher upfront and higher unexpected costs than does renting, and a home is expensive to acquire and to sell.

Home ownership is often the single largest investment decision an investor will make in his or her lifetime, and as a result, it comes with the opportunity cost of tying up funds that could have been invested elsewhere. More importantly, a home’s value may not increase, particularly in the first few years of ownership or as a result of the location and economics of the region.

There is an opportunity to gain the advantages of owning a home while avoiding some of home ownership’s pitfalls. By owning real estate as a rental property rather than for personal use, investors can build equity in a home and avoid being tied down to a certain location.

This option can also help generate a revenue stream to deal with unexpected maintenance and repair costs.

This does not mean owning your home is a poor choice to make: homeowners in a city like Vancouver have seen their investment appreciate significantly in recent years.

However, it is important to consider personal investment goals, income level, risk appetite and life situation before committing to what is ultimately an investment decision – one that may not be the smartest or most effective investment decision for everyone.

Myth 2: The more diversified the mutual fund, the less risk there is ■ This belief has

more to do with the definition of investment diversification. Some investors and advisers tend to think that the more names you have in your stock portfolio, the more diversified and thus safe your investment portfolio is.

However, holding equity in different companies is only

| 5

one small aspect of portfolio diversification. A truly multi-faceted portfolio would include different types of asset classes like bonds, real estate and commodities.

If investors are over-invested in the stock market by holding many different types of stock, or are simply invested in mutual funds, their portfolio runs the risk of simply moving up – and down – with the overall market.

When this happens, investors get the same return as an index fund, minus the fees and commission charged by brokers, advisers and managers. Diversification across asset classes is just as important, if not more so, than diversification within a class.

Myth 3: Timing the market to buy low and sell high ■ Buying low and selling high is a worthy

aim, but not always a realistic one.

Many investors miss their mark and end up selling low and buying high. New investors allured by the potential gains of successful retail “day trading” often quickly discover that closely monitoring the market takes time, experience and an understanding of your level of risk tolerance. Fees associated with trading can also quickly add up and eat away at gains made.

Moreover, simply searching for the highest total return isn’t necessarily the best overall investment strategy. Higher returns can come with higher volatility, and a myopic focus on total returns can result in overlooking the costs of that volatility. This is particularly relevant for those saving for retirement. When ma ki ng net w ithd rawa ls from investments, such as during retirement, investors will on average lose from the swings i n t he m a rket b ecause they’re taking money out when

Stocks that have already experienced a correction or that have had no short-term exaggerated growth can be a more stable investment that provides better returns in the long run

needed rather than strategically timing the withdrawal.

The other overlooked cost of volatility is that a gain has to be twice as large as the loss to break even. If a portfolio falls 50 per cent, it will have to increase by 100 per cent to return to its original value. It’s not a matter of simply timing the market: there is a measurable cost to the market’s ups and downs on your portfolio.

Myth 4: Look for upward sloping lines on financial graphs ■ Looking for a stock that has

simply followed an upward trend line for the past number of weeks isn’t necessarily the greatest investment strategy. Individual stocks fluctuate and correct. Recent rapid growth could also be a sign that the stock is about to go through a correction and fall in price.

Stocks that have already experienced a correction or that have had no short-term exaggerated growth can be a more stable investment that provides better returns in the long run. There is risk to investing in stocks that have experienced rapid growth in their stock price but have not yet proven their resilience and ability to come back from uncertain or challenging markets. ç

6 | New Investor 2018 published by Business in VAncouver

The everyday wealthy mindset Chris Catliff | Investment options and strategies for the new investor

F Take stock of sustainable strategies to build wealth

or new investors, trading on the stock market may appear to be the most exciting and quickest way to wealth. While do-it-yourself investors can buy and sell stocks cheaply through online brokerages, it takes experience and wisdom to succeed. The allure of day trading can be irresistible, with the potential to make a profit of thousands of dollars within the span of a single day, yet the potential for big losses due to a poor decision or bad timing is pervasive. Investors that prefer money managed on their behalf can choose to work with financial advisers or the new “robo” digital advice platforms just emerging for smaller accounts.

The average individual investor underperforms a market index by 1.5 per cent per year with active traders underperforming by 6.5 per cent annually, according to research published in The Journal of Finance.

A common pitfall is that many retail investors often overreact, executing emotional decisions that ultimately eat away at potential profits in the long term. The “dot-com bubble” is a testament to the fickle nature of retail investors. Bitcoin stocks last year and cannabis stocks this year are the latest fad straying from the fundamentals.

Before piling in as a new investor on the latest craze, take stock of sustainable strategies to build wealth.

Slow and steady wins the race: have the everyday wealthy mindset ■ We all want

to achieve financial wellness, and the secret is simple. The everyday wealthy mindset focuses on achieving sustainable financial growth over 10-, 20- or 40-year time horizons by building healthy financial habits, like never missing a credit card payment.

A CIBC survey last year found 85 per cent of Canadians are not saving enough. Young investors should open a tax-free savings account,

then a registered retirement savings plan (RRSP) as early as possible.

Always pay your investment account first by adjusting your expenses to automatically transfer 10 to 20 per cent off each paycheque. Earning tax-sheltered returns through the magic of compound interest is a no-brainer for an earlier, more secure retirement.

Based on individual needs and preferences, investors can be supported by advisers or pure digital solutions.

A hybrid approach to financial advice is being launched soon, combining the best of both worlds with advisers supporting their clients through the use of mobile services.

Living off the land: mortgages not commonly known of ■ Owning real estate, whether

for residential or rental purposes, is one of the most popular alternatives to investing in stocks, and it is, in general, an excellent long-term and stable investment in almost every location. It provides investors with healthy after-tax and net-of-inflation returns. In fact, the tax system is set up to make this a winner.

A mortgage allows investors to leverage their investments given that often 70 to 80 per cent of the investment is borrowed. For residential property owners, money that would have gone to a landlord is now going back into paying down an appreciating asset, forcing investors to save monthly. The key criterion for a wise investment is the cash-oncash return. This refers to whether the net rental amount that comes to you after all costs, together with the paydown of principal in the mortgage, earns you a positive return when divided over the amount of your cash down payment. If so, you are getting a positive return even before any capital appreciation that might happen (or not) in a given year.

The simple way is to find rental real estate with greater net returns than

the mortgage rate you are paying.

This tends to exist in areas where there are strata properties where the land value is less than 50 per cent of the total value.

There are alternative forms of mortgages available, and they can be wealth creators. A re-advanceable mortgage means that as the principal is paid down, or the property appreciates, another loan can be added without mortgage fees. The split rate mortgage, which can partially be a floating rate and partially a fixed rate on a single property, has two benefits. It allows investors who are tempted by the potential cost savings of a variable rate mortgage, but are concerned interest rates may rise over the term of the mortgage, to hedge their bets. Additionally and more importantly, if rates go up, at the anniversary date the investor can pay down the floating portion only, which is now costing more. But if rates go down, the investor can pay down the fixed portion only and save money with the lower floating rate.

This allows investors over time to have their cake and eat it too. Doing this can pay down the mortgage principal years faster, much like choosing to pay the mortgage on a biweekly basis versus a monthly basis.

Entering the world of financial markets can be both exciting and daunting for new investors. While the stock market may be the most obvious strategy to build wealth, be careful of the latest hype and don’t underestimate the value of popular investment alternatives.

Getting started now, if not already, is key. ç Chris Catliff is the president and chief executive officer at BlueShore Financial.

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The changing face of the wealth management business Ian Russell | Significant demographic shifts require the industry to evolve

T While the consensus is for a positive outlook for the wealth management business, it masks an undercurrent of change

here has been an unprecedented increase in savings and accumulation of financial assets in the 10 years since the financial crisis, buoyed by the tailwind of a bull market. Much of the increase in savings has been channelled into the investment industry by baby boomers to build retirement nest eggs. Client financial assets held by investment dealers vaulted 85 per cent since 2009, reaching $1.6 billion in 2017. Revenue earned from retail operations virtually doubled in the period, accounting for almost two-thirds of total firm revenue, up from a roughly 50 per cent share in 2008-09.

W h i le the consensus is for a positive outlook for the wealth management business, it masks an undercurrent of change driven by stiff competition, fee compression, regulatory obligations, evolving investor needs and preferences, and applications of new technologies. In this environment, industry operating costs have escalated, and margins have been squeezed.

Further, there is no end in sight to rising costs.

How do wealth-focused investment dealers position themselves for a new phase of grow th and profitability?

First, they need a solid understanding of emerging client bases, including millennials and women, and their needs, preferences and behaviours.

Second, they need to assess and invest in emerging technologies and analytics – “big data,” artificial intelligence, robotic process automation and blockchain – that are at the cusp of transforming the wealth management business and can improve productivity and the adviser-client experience.

Third, and most importantly, they must not lose sight of the adviser.

Millennials (individuals born between 1980 and 2000) account for

the largest share of Canada’s population. They will receive the greatest transfer of inherited wealth ever.

The financial crisis has made members of this generation relatively cautious when it comes to investing.

They are not as financially knowledgeable as previous generations, they hope to achieve life goals at the same age their parents did, they demand greater transparency in fees and they are increasingly demanding socially and environmentally responsible investments. But what distinguishes this group more than any other is that they grew up with technology and have often been called digital natives. Consequently, they are quick to use technology and online platforms to obtain and use financial advice. Yet they also value face-to-face advice. When it comes to wealth management, they want both. In other words, access to hybrid advice models.

Women are fast becom ing an i mp or ta nt cl ient seg ment for wealth-focused investment dealers, with unique needs and preferences.

According to Investor Economics Inc., by 2026, women in Canada will account for about half of all accumulated financial wealth. Their financial needs and objectives, attitudes towards risk and willingness to plan and engage with professional advisers are generally different from those of men. Research shows that women prefer human interaction. Face-to-face advice takes precedence over investment products. They want advisers to understand their life goals – getting married, buying a house, paying for children’s education, funding retirement – and how to attain them.

Achieving personal goals is more important than investment performance. They are open to digital platforms.

These trends demand a new business model – one that provides holistic advice, access to an array of

customized products and services, tools and software, and an integrated multi-channel experience.

The adviser-client relationship becomes central and key to a firm’s competitiveness. Dealers need to focus on promoting professional accreditation, training in specialized financial products and services, and techniques for effective client communication. Meeting the expanding and evolving needs of the client can be realized only if the adviser can understand, identify and articulate the utility of financial products and services to the client.

Dealers need to retain high performers and recruit and integrate younger advisers and women advisers into teams to transition from older advisers, many of whom are approaching retirement age. The transfer of wealth from baby boomers to their children will upset many established adviser-client relationships, and this must be managed well.

Regulators have an important role to play. First, the existing proficiency standards for advisors need to be updated. Second, regulators should recognize existing rules and requirements can interfere with advisers carrying out their responsibilities across an integrated wealth platform. Registration requirements should be streamlined and legal barriers removed so that advisers have the scope to meet the needs of their clients. Finally, while new rules should encourage best-interest, client-first conduct, care should be taken not to obstruct the flexibility of advisers. ç Ian Russell is president and CEO of the Investment Industry Association of Canada.

8 | New Investor 2018 published by Business in VAncouver

Charting your

investment course

A number of tax strategies and shelters are available to help investors reach their goals

Albert van Santvoort

From Canada’s HPB to the AMT, from a TFSA to an RRSP, the following chart is designed to help new investors make sense of the alphabet soup of investment vehicle

options that are readily available to them. The 10 tools featured here serve different functions and may be more or less beneficial to certain investors depending on their age, their level of income and their overall investment goals.

Name

Description

Pros

Cons

Limits

Who best

Registered retirement savings plan (RRSP)

A special type of investment account designed to help Canadians save for retirement and that offers special tax benefits

Deducts contributions at the individual’s top marginal tax rate

Turns tax-preferred income (like dividends and capital gains) into fully taxable income

Eighteen per cent of the previous year’s earned income to a maximum $26,230 (2018 limit)

Anybody saving for retirement, particularly those currently in a higher tax bracket than they expect to be when they retire

Money earned within the RRSP is not taxable annually

Can invest only in qualifying investments (you can’t invest in your own company or lend to a relative)

Permits income splitting: a spouse in a lower tax bracket can pay taxes on withdrawals Home Buyers’ Plan (HBP)

Registered retirement income fund (RRIF)

Allows first-time homebuyers to take up to $25,000 (2018 limit) from their RRSP, taxfree, to make a down payment on a home

A special type of retirement account that provides a steady stream of income and is funded by either an RRSP or a pension plan

Creditor protection Use your RRSP to help purchase your first principal residence without having to pay taxes on the withdrawal If purchasing a home with another firsttime homebuyer, both can access $25,000 from their RRSPs for a combined total of $50,000 Spreads RRSP tax burden over multiple years of retirement Avoids paying tax on entire RRSP savings in one year when you turn 71 A $2,000 pension deduction Creditor protection

Withdrawing from the RRSP results in lower future tax-deferred returns

Up to $25,000 per first-time homebuyer (2018 limit)

First-time homebuyers needing a down payment to buy a home and who already have an RRSP

Can invest only in qualifying investments (you can’t invest in your own company or lend to a relative)

People aged 71 with an RRSP (can begin using at 65)

Must be paid back to RRSP over the following 15-year period If the funds aren’t paid back they are taxable

A calculated minimum amount must be withdrawn each year after age 71 and is subject to income tax

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Name

Description

Pros

Cons

Limits

Who best

Tax-free savings account (TFSA)

Transforms investment income into nontaxable income

Any investment income is tax-free

Unlike RRSPs, TFSA contributions are not deductible

Annual contribution limit: $5,500

Anyone saving or making investments that are unlikely to suffer a loss

Unlike investments outside the TFSA, losses are not deductible No creditor protection

Registered education savings plan (RESP)

Capital gain inclusion rate Capital gains exemption

Principal residence exemption

Estate freeze and family trust

Alternative minimum tax (AMT)

A special type of savings account that allows parents or grandparents to save for a child’s or grandchild’s postsecondary education with government assistance and tax benefits

An income tax rule that limits taxation to 50 per cent of a capital gain A maximum lifetime tax exemption for gains on the sale of shares of a qualifying small business corporation, farm property or fishing property

Government will match 20 per cent of your annual contribution up to a maximum of $500 (Canada Education Savings Grant, CESG)

Contribution is not deductible

Can invest only in qualifying investments (you can’t invest in your own company or lend to a relative) Maximum cumulative CESG per child is $7,200

To take advantage of the plan the child/ grandchild must go to a college or university

Lifetime RESP contribution limit per beneficiary is $50,000 (2018)

When the money is withdrawn it is taxed in the child’s/grandchild’s hands and presumably at a much lower tax bracket

If the child/grandchild does not go to school and the plan cannot be transferred to another child, the CESG government contribution must be returned

Contributions can be made up until the child/ grandchild turns 17

Fifty per cent of all gains on the sale of an asset are tax-free Lifetime total of $848,252 in capital gains (2018, indexed each year) are tax-free

If you have multiple personal properties you can apply the exception to the one with the larger capital gain By freezing the value of On a person’s date of death, he or she is deemed the shares, the owner limits the amount of to have disposed of taxes the estate pays his or her assets at fair on gains from the market value. Estate freezes allow you to freeze frozen value, since all of the gains after the current value of a an estate freeze are company prior to death taxed in the hands of so that all future growth is considered to be earned the children or family trust, rather than the by the new common original owner’s estate shareholders, either the children or a family trust Used to reduce or eliminate any capital gain for income tax purposes on the sale of a principal residence

Provision under the Income Tax Act that limits the utilization of tax preferences by charging a refundable tax

Lifetime contribution limit: $57,500 (as of 2018) People in higher tax brackets Contribution limit carries receive greater overall investment benefit over year to year

If you earn non-taxpreferred income over the subsequent seven years, you can recoup the AMT paid

Difficult to sell private shares because buyers often want a company’s assets without associated debt and liability exposure

If there is a capital loss you cannot deduct the loss

If the trust is not set up properly, control of the company could be lost or the trust could be subject to the Family Law Act, meaning spouses could potentially have claim to the value of the shares If a child dies before the original owner, then the gain may be taxable on the child’s death – tax exposure the estate freeze is designed to avoid If you take advantage of too many of the above tax shelters in a single year you may be subject to AMT If you do not have income or are not taxable in the next seven years, the AMT is lost

Can invest only in qualifying investments (you can’t invest in your own company or lend to a relative) Capital losses are deductible only against capital gains Lifetime limit of $848,252 (indexed)

Investors with children or grandchildren

Any investor selling an asset

Shareholders of an active Canadian-controlled Applies only to Canadian- private corporation and owners of qualifying farm controlled private corporations with greater and fishing properties than 90 per cent of their assets in an active business in Canada Homeowners and cottage owners

Can freeze only up to the current fair market value of the shares of the business or property

Owners of private companies that want to pass future growth on to their children and reduce the tax burden on their estate

People utilizing the above tax strategies and shelters

SPONSORED CONTENT

Mackie Research Capital Corporation

W

e get it; investing can be overwhelming. Even the most seasoned and experienced

be challenging terrain from time to time.

But, if you are a new investor or young endless array of advice, products and options can seem daunting.

Gone are the days of putting aside some modest savings for a rainy day and living on a pension to get you through the golden years. Today, the need to plan for your future through investing has become necessary. But where do you start? If you are a new investor, a young investor or even an experienced investor, these tried and tested tips are a great starting line to help point your investing compass in the right direction.

DO CHOOSE TO WORK WITH AN INVESTMENT PROFESSIONAL WHO ‘GETS’ YOU It’s been said before that choosing an investment advisor can be like going to the local animal shelter and picking out be compatible with, who will listen to you Think of it this way; you wouldn’t hand over your toddler to just anyone to babysit, so why is handing over your hard-earned ent? Take some time to think about what your objectives are, what style of investor you might be and what is truly important

to you. Then, do your homework. Be prepared to spend some time researching investment advisors in your area. Ask friends for referrals and make appointments to interview potential advisors. Ask about

advisor based on their merits and values rather than their address.

services focused on things like charitable giving, responsible investing and new and emerging markets. Find one who aligns with your personal values. This will give you a much greater chance at creating a long-lasting relationship with someone who shares your values and is committed to your investment success!

You’re new to this, right? Then get your feet wet under the guidance of someone who has been in the industry and knows the landscape. It might seem attractive to try and save a few bucks just starting out, but would you feel comfortable performing open heart surgery after watching a You-Tube tutorial? Probably not. In investing, it’s as much about the journey

DON’T JUST GO WITH A BANK BROKERAGE BECAUSE YOU WANT TO KEEP EVERYTHING UNDER ONE ROOF Sure, it’s easy if you are new to investing to have your banking, mortgage and investments all managed together. However, be prepared that the investments you may end up owning could not be the most benown investment products and that is what they focus on selling. Look at the names of the investment products sold by banks; if they start with the bank name that is a red

and services that can be tailored to your the relationship with your advisor more than the convenience of having everything in one location, you’ll be glad you chose an

DON’T LET DISCOUNT ONLINE BROKERAGES OR ROBO DVISORS LURE YOU INTO THINKING YOU CAN DO IT YOURSELF

mindset should be committed to investing for the long-haul and working with learning opportunity you will have. It’s also wise to remember that investing is not just about numbers; there is a highly emotional ment advisor is going to be able to talk appears to be going wrong and give you options that a robo-advisor or discount that can replace the human component of building your investment portfolio.

DO REMEMBER THAT ROME WASN’T BUILT IN A DAY, AND YOUR PORTFOLIO WON’T BE EITHER This is important because many new investors feel like their savings or the money that they have to invest isn’t ‘big’ enough or worth enough. Nothing is farther from the truth. There may be advisors or brokerages who won’t work with investors who don’t meet the ‘house minimum’, meaning they don’t have enough for the brokerage or advisor to open their account. If that happens, run – don’t walk – away. Your business, no matter how large or small, is worthy and everyone has to start somein 1994, he had 3 computers and worked out of his garage. Today he is the world’s wealthiest person. Remember your worth and what your potential could be.

Andrea Barendregt is the National Marketing Manager for Mackie Research Capital. Based in Toronto, Mackie Research Capital is one of Canada’s largest independent, fully integrated investment

12 | New Investor 2018 published by Business in VAncouver

Real estate

reality check Policy, price uncertainty underscore property landscape

Hayley Woodin

Alex Avery Author, The Wealthy Renter

It’s a very expensive housing market that now faces the prospect of further government intervention

N

ew investors eyeing property in Greater Vancouver are coming into the market in a period of uncertainty. Driving some of that is the question of cost: will residential real estate prices coming off record highs see a major correction, or is now the time to invest before interest rates and prices both rise?

“The experience of the immediate past of the last 10 years has been that real estate’s a great investment,” explains Adil Dinani, a real estate adviser with Royal LePage.

The region is in an adjusting market. In August, home sales were more than 25 per cent below the 10-year sales average for that month and down nearly 37 per cent yearover-year. September sales were 36 per cent below the month’s 10-year average and close to 44 per cent below 2017 levels.

Prices, however, have not followed suit, and that is particularly true for housing products at the more affordable end of the spectrum. The value of condos in the region rose 9.5 per cent in the third quarter of this year, compared with last year. The median value in Vancouver reached nearly $800,000. The median price in Surrey is half that, but prices rose by close to 26 per cent.

“You’re either making a compromise on where you’re going to move, or two, you’re putting a pause on the search, and you’re waiting to see once this dust settles,”

says Dinani, who points out that despite shifting market conditions and affordability concerns, research by Royal LePage shows millennials still have a deep desire to move toward home ownership.

“It’s not all rosy; there are challenges getting into this market,” says Dinani, who adds it is a much better time to get into the market today than it was six months ago.

If investors can afford their mortgage payments without compromising lifestyle, and can comfortably do the same if rates are two or three per cent higher, Greater Vancouver real estate can be a prudent investment decision.

“You have to believe in the narrative. You have to believe in why you’re buying the home,” he says.

The narrative that home ownership is a necessary part of an investor’s portfolio is one Alex Avery challenges. He wrote The Wealthy Renter: How to Choose Housing That Will Make You Rich in 2016, and he says that what has transpired in markets like Greater Vancouver over the last couple of years has reaffirmed his view.

| 13

Samantha Gale CEO, Canadian Mortgage Brokers Association B.C. chapter

I would advise anyone looking to invest in a private mortgage not only to use a mortgage broker but to use one they trust Samantha Gale, CEO, Canadian Mortgage

Alex Avery, author, The Wealthy Renter

Brokers Association-B.C. chapter

“It’s a very expensive housing market that now faces the prospect of further government intervention,” says Avery, who adds that at a certain point, the financial and lifestyle cost of owning a property isn’t worth the investment. There is also the opportunity cost of having funds tied up in a home versus another investment vehicle.

“I think the TSX [Toronto Stock Exchange] will continue to provide a better return over time, particularly given how expensive housing is in a market like Vancouver, on a price-to-income metric,” says Avery, pointing out that from an investor perspective, government policies around housing have made real estate investment a riskier prospect in the region.

“What you’ve seen so far hasn’t really resulted in a dramatic re-pricing of the market, but it has certainly eroded confidence.”

That erosion in confidence comes from a sweeping number of changes at municipal, provincial and federal levels of government intended to address demand and supply – many of which were introduced and implemented relatively quickly.

Regulatory changes put forward by the Canada Mortgage and Housing Corp. (CMHC) have had an impact too.

Borrowers face a stress test, regardless of the amount of their down payment. It means would-be homebuyers need to show they can afford their payments at a higher level of interest.

It restricts borrowing capacity, explains CMHC market analysis manager Eric Bond, because an investor’s income now has to be able to service potential mortgage debt at the higher rate of interest.

“It basically means that the home you can purchase, you’re looking at a purchase price that’s 15 to 20 per cent less than it was before the implementation of the stress test,” says Bond. “Your buying power has basically been

decreased by 15 or 20 per cent.”

Samantha Gale, CEO of the Canadian Mortgage Brokers Association B.C. chapter, says the new CMHC rules have completely changed the space for those looking to invest in property.

“It has transformed,” says Gale. “What that means is that we’ve had some growth in the private mortgage lending market. It’s more robust than it’s ever been before.”

Gale says private mortgage loans are very popular, and very common. CMHC stress test rules don’t apply in the private lending business, where an investor could theoretically get a mortgage for 150 or 200 per cent of the value of a home.

It’s not wise, but it’s possible. And comes with a cost.

“I would advise anyone looking to invest in a private mortgage not only to use a mortgage broker but to use one they trust,” she cautions. This applies too to investors who – instead of buying their own property – are interested in putting up funds for a borrower. “With private mortgages, quite easily you could get seven or eight per cent, even more.”

The CMHC, Canadian real estate brokerages and real estate boards all issue housing market updates and statistics, and sometimes offer forecasts of where real estate markets are expected to head.

New investors are advised to do their homework and keep in mind the many moving pieces that ought to be considered when looking at real estate as an investment, be it how an investor’s buying power has been impacted by new mortgage regulations or how government policies can affect housing.

“It’s very, very important if you’re going to put the vast majority of your net wealth into a single investment that you understand the influence of government policy on house prices,” says Avery. ç

14 | New Investor 2018 published by Business in VAncouver

Profiles

Bonnie Foley-Wong: Investing with impact Lessons from an integrated investor and venture capitalist Hayley Woodin

B

onnie Foley-Wong is the founder and CEO of Vancouver-based Pique Ventures, has more than 20 years under her belt as an investor and corporate financier, and has financed over $1 billion of alternative investments across Europe and North America. Foley-Wong is the author of Integrated Investing: Impact Investing with Head, Heart, Body, and Soul, and in an interview with New Investor, she shared her investment philosophy.

Investing with impact ■ My view of impact in-

vesting is using investing as a way of taking care of the village. By that I mean choosing to invest in businesses that help give us access to resources that we all need to survive, strive and be happy. It’s a much more holistic view of things.

Integrated investing ■ Two of the key pieces are how we make decisions, and then how we evaluate opportunity. There are lots of different things that we need to bring together to make investment decisions. It’s not impact or financial returns, it’s impact and financial returns. I’m a huge advocate of integrating analysis, emotion, body and intuition.

Why ■ I’m just as interested in being able to invest in interesting opportunities as I am about managing risk, so I developed a framework to be able to do it efficiently.

There are lots of different things that we will feel passionate about, and it’s actually OK – if not impactful – to let those emotions influence our investment decisions.

picking. Emotions are what drive us. If you have a mainly analytically led decision, you’ll get a mainly analytical outcome. That’s part of the problem with a lot of investment decisions at the moment: they might be financially lucrative, but they might be in companies that are destroying communities.

How to start ■ Start to form your own vision or

statement around what impact is important to you. If you know what you want, you’re more likely to be able to identify it when you see it. When you meet an adviser, ask them. That’s a starting point for understanding what their lens is, what their approach is.

What comes next ■ I like to split up the decision

into two phases. One is a discovery phase. Gather information; learn about impact investing. I think that’s the common mistake that people make. They rush into a decision when they’re still in a discovery phase.

The questions an integrated investor asks ■ What should I do? Does this investment make

sense? Should I invest in it? The emotion part is: what do I want to do? The intuition piece, that’s: what do you know to do? It’s a reference to that inner knowing.

Looking back ■ When I looked at those early investments that I made as a new grad out of university, they had done nothing in 15 years. I wish I had known to get more knowledgeable about what’s going on in the world. I actually did better when I was more active in my decisions. It was fun too. I got control over this piece of my life, and never turned back.

Emotion ■ Whoever first said “Don’t let emotions

affect your investment decisions” – they were cherry

This interview was edited and condensed for clarity.

Investing with insight

The lessons learned and insights earned by B.C. business leaders

W

hat are the investment habits o f B r i t i s h C o l u m b i a’s to p and emerging business leaders? New Investor asked winners of Business in Vancouver BC CEO Awards, BC CFO Awards and Forty under 40 Awards to share the investment advice they would give their younger selves, and the biggest investment-related lessons they’ve learned.

he biggest investment lesson T is to bet on the best people Justus Parmar, managing director, Fortuna Investment Corp.

I ’ve used a long investment time horizon strategy to my advantage. I started buying stocks in Grade 8 with my babysitting money – true story Kylie McMullan, principal, Finch Media

ime is your most scarce resource, T not money. Invest in companies that you are looking forward to spending a lot of time with so you can enjoy the journey together Fraser Hall, managing partner, VFF

Eighty per cent people, 20 per cent product Manny Padda, founder, New Avenue Capital

now what commission rates you’re K paying at all times and negotiate rates.

There is always room to negotiate Karina Hayat, president and co-founder, Prizm Media

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Ryan Spong: Managing risk How an investment banker turned entrepreneur considers risk Hayley Woodin

R

yan Spong is an investment banker turned entrepreneur who started his career licking stamps in the mailroom of an online trading platform. Before founding the Vancouver-based boutique financing company Mainstreet Advisors, he structured high-grade bonds for Barclays in New York. He is the owner of Tacofino Cantina and the co-founder and CEO of Foodee. He shared his thoughts on managing risk with New Investor.

Starting out ■ In January 2001, everything went

off a cliff. The dot-com bubble burst. I watched clients who had become paper millionaires owe us millions of dollars, pleading with me. It was really, really brutal. It was formative, and I think I’m still a market bear, just because of that experience. It’s made me very cautious, which is counterintuitive to being an entrepreneur.

What that means ■ I’m really risk-averse in my

personal investments. As an entrepreneur, you’re by and large taking on a fair bit of risk in your personal life.

It’s risky enough to forgo the economics of being an investment banker. As an entrepreneur, I’m always trying to find something that’s somewhat recession-proof.

Evaluating opportunity ■ The first business

I got into was Raincity Rock & Waterscapes: high-end pools and natural landscapes. That’s not a product that people go for when times are tough. We got through it, but it’s not something that thrives in a recession. I learned that the hard way with Preform Construction.

As soon as the market turned, we were out of work for six months. At Tacofino, people won’t just stop going out for food. I think that’s fairly recession-proof in that world.

reate rules and criteria for evaluating C and deciding whether or not to make investments. Be disciplined and vigilant in adhering to said rules, even when other indicators or emotion may be telling you otherwise Mike Mackay, president, Strand

ou can lose money on real estate. I had Y a front-row seat to the U.S. subprime crisis, and the impact experienced by homeowners was brutal. It makes me nervous when I hear people in Vancouver promote buying real estate as if it’s a risk-free investment Salima Remtulla, vice-president of operations and corporate strategy, Leith Wheeler Investment Counsel

Mistakes ■ I think the biggest mistake you can make as an investor, assuming that the market is a level playing field, is that you have equal access to information.

Almost all of my money is either with a fund manager that I trust or with a broker who I think has access to better information than everybody else.

Perspective ■ A really good [venture capital firm]

is returning one good investment out of 10, but they’ve also got a hundred analysts fresh out of school that are combing through thousands and thousands of investments to get to those 10 investments. You’re not.

If you’re going to do it yourself, make sure that it’s something you get more of a return out of than just a financial return.

Entrepreneurial risk ■ It dials back my risk as

an entrepreneur when I’m not the creative force and the force behind the business itself. Even though you think you might be a creative person, you really have to fight that urge. There are more creative people out there.

The future ■ I’m 42, I’ve got three kids, my wife’s busy with them and Vancouver’s an expensive place. I sometimes get the question: aren’t you worried, being an entrepreneur, if everything goes sideways? Once you have your playbook down, no one can take it away from you. If I was a middle manager at an investment bank right now, someone else is in charge of whether or not I stay there in a downturn. The thing about entrepreneurship is you take the power back. In that way, it’s a lot less risky.

This interview was edited and condensed for clarity.

ocus on the reported numbers, not F what management forecasts Brian French, president, Peregrine Retail Design Manufacturing

strict, relentless commitment A to a percentage, not a number, every month. No questions Mark Starkey, managing partner and CEO, Victory Creative Group

earning on your own through the L school of hard knocks is a long, gruelling, tiring process. Use the people around you who are successful or find the specialists and learn from them Justus Parmar, managing director, Fortuna Investment Corp.

I nvest heavy in what you know really well. Partner with those who know more than you in areas you are weak.

Share the love and success together Jon Sharun, managing partner, Venexo Capital

ur education system doesn’t do a O great job teaching the principles of finance or investing. Eighty per cent of Canadians still learn more of what they know about personal finance from their parents. Take it upon yourself to learn the basic principles of investing Natalie Cartwright, co-founder and COO, Finn AI continued on page 16

16 | New Investor 2018 published by Business in VAncouver

Recommended reading What B.C. business leaders read on wealth and investing New Investor asked winners of Business in Vancouver BC CEO Awards, BC CFO Awards and Forty under 40 Awards about the books, blogs and content that have informed their views on wealth and investment. Here is a comprehensive list of their recommendations, starting with the five books that were recommended multiple times.

Most recommended Fooled by Randomness, Nassim Nicholas Taleb Principles: Life and Work, Ray Dalio Rich Dad Poor Dad, Robert T. Kiyosaki The Intelligent Investor, Benjamin Graham The Wealthy Barber, David Chilton Also recommended

Buffett: The Making of an American Capitalist,

Roger Lowenstein Building Social Business, Muhammad Yunus Hedge Fund Market Wizards, Jack D. Schwager Incerto, Nassim Nicholas Taleb Irrational Exuberance, Robert J. Shiller Onward, Howard Schultz Own It, Sallie Krawcheck Poor Charlie’s Almanack, Charles T. Munger The Clean Money Revolution, Joel Solomon The Enigma of Capital, David Harvey The Long Twentieth Century, Giovanni Arrighi The Millionaire Next Door, Thomas J. Stanley and

Other recommended sources

A. Gary Shilling’s INSIGHT newsletter Becausemoney.ca Bloomberg Businessweek Buffett Partnership Letters 1957 to 1970 Entrepreneur Fast Company Freakonomics podcast HBR’s 10 Must Reads on Managing Yourself Moneysense.ca SmartBrief on Leadership newsletter SOCAP blog The Economist Toniic.com What the Elle newsletter

William D. Danko The Most Important Thing, Howard Marks The Secret, Rhonda Byrne

Investing with insight | continued from page 15 ou’re never smarter than the market Y and you need to be proactive in your investment decisions at all times.

Buy and hold, in my opinion, is not a good strategy as it can take years for a sector to recover, or a stock may never recover from large losses.

It’s important to cut losses early Lori Pinkowski, founding partner, Pinkowski Wealth Management

y advice to my younger self would be M to start saving and investing early, even if it is with small amounts of money.

Starting a discipline and over time increasing the amounts that you save will yield great results over a lifetime John Hanna, CFO, Vecima Networks

I lost a lot of money investing in ideas that were, looking back now, destined to fail. Research the market and people behind a product or similar companies before ever investing Natalie Boll, propriétaire, Bauhaus Restaurant

ay attention to what is happening in P the investment community and don’t get caught up in fads or trends. The best approach is to remember that life is long, and the best strategies can come from borrowing ideas from highnet-worth individuals and advisers Joel Abramson, CEO, Fully Managed

now the difference between K an asset and a debt. Investing in real estate is generally an asset whereas investing in a brand new car (depending on the situation) is a depreciating asset so more like a debt Ravi Beech, COO, Valley Acryllic

I f you can, set up as big of a direct deposit as you can, even if it hurts a little. In my experience, over time you don’t miss that money and it forces you to be more conscious of what you’re spending on in other areas in your life Kylie McMullan, principal, Finch Media

ry to buy on bad news and T sell on good news Brian French, president, Peregrine Retail Design Manufacturing

e fastidious with underwriting B and evaluating investments, including your potential partners.

Bad people can ruin good deals Mike Mackay, president, Strand

ake it a point to understand the M power of compounding. You don’t have to take big risks; you just have to put money to work over time. The earlier you start, the easier it’ll be Salima Remtulla, vice-president of operations and corporate strategy, Leith Wheeler Investment Counsel

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Smart risk investing Maili Wong | Having funds for retirement means saying goodbye to purely ‘gut-based’ investing

F I’ve seen people nearing retirement age fall into many familiar traps, such as hanging on to losing stocks for too long

or many people, the idea of retirement can be a sca ry proposition. You could be leaving behind not only a career you love, but also the daily camaraderie and familiar routine you may have shared with others.

The thought of retirement can also evoke serious concerns related to your financial situation.

Questions like the following are quite common: •Will I have enough income in retirement to live the lifestyle I’m used to?

•Will I outlive my savings and retirement investments?

•Shou ld I consider sel l i ng my home?

The low rate of return on interest-bearing investments – such as cash and government bonds – has made it difficult for people to live off of savings or guaranteed income streams. Another challenge is the rising Canadian health-care costs, which have increased by almost 70 per cent during the last two decades, according to data from the Fraser Institute report Comparing Performance of Universal Health Care Countries. Yet stock market volatility and the risks associated with other types of investments – which can produce higher returns under the right conditions – have many people worried about jeopardizing their money.

In my own wealth management practice at CIBC Wood Gundy, I’ve seen people nearing retirement age fall into many familiar traps, such as hanging on to losing stocks for too long, chasing high-flying stocks to unreasonable prices and maintaining too many separate investment accounts at different institutions. Many of these decisions are often based on emotion, rather than sound reason.

My own approach to portfolio management was shaped by my experiences from working on Wall Street in the early 2000s. I learned to build investment portfolios designed to provide regular, pension-like income for many of our wealthy New York clients.

Years later, after I joined CIBC Wood Gu ndy, I i ntroduced my clients to a new way of investing – the “smart risk investing” method – which is designed to provide a clear investment road map using a sound, dynamic and systematic approach. Smart risk investing involves: • g atheri ng i n formation about various investments;

• weighing the likelihood, or probability, of each outcome; • comparing these outcomes with your tolerance for each; and • t aking step-by-step actions to increase your chances of reaching your financial goals.

In short, it can help you make reasonable decisions that stack the odds of success in your favour over the long term.

A s le ad er of t he “sm a r t r i sk revolut ion,” I hop e to i n spi re thought-provoking conversations about a new way to think about risk. Many of the old “gut-based” methods of investing have become outdated as new technologies and data transparency have become more prevalent in recent years.

This allows us to better balance the use of technology and human ex per tise to broad ly d iversi f y across global investments using an evidence-based approach that tilts portfolios towards sources of higher expected returns, ultimately leading to well-diversified and cost-effective portfolios.

It’s important that you understand all aspects of your portfolio and overall financial strategy. If you have questions, clarify things with a qualified investment adviser. ç Maili Wong, CFA, CFP, FEA, is first vicepresident and portfolio manager at CIBC Wood Gundy.

She is the bestselling author of Smart Risk: Invest Like the Wealthy to Achieve a Work-Optional Life.

18 | New Investor 2018 published by Business in VAncouver

How to be financially smart

so you can retire well Simple habits can make the difference between scraping by and living comfortably

Glen Korstrom

John Vermeulen Wealth adviser, Vancity

You’re only going to be successful over the long term if you’re disciplined and you make it a habit

V

ancouver’s high cost of living likely has many millennials believing that achieving the financial security necessary to one day retire will be nothing more than an elusive dream.

The key, according to some financial advisers, is to adopt financial habits that become second nature.

Vancity credit union wealth adviser John Vermeulen has helped many clients become financially stable with simple rules to live by.

First, he recommends that clients pay off debt.

“It doesn’t make sense for someone to carry debt on a credit card and be paying 20 per cent interest if they are paying money every month into an RRSP (registered retirement savings plan) that is likely to return a five per cent gain,” he says.

“Simple math would tell you that the opportunity cost there is fairly high.”

When debt is necessary, the key is to pay as low an interest rate as possible and to pay off the debt as soon as possible. Consolidating various debts into one that carries a lower interest rate could be one strategy.

Regardless, it is important to realize that it rarely makes sense to have debt when you are saving money

because the interest rate on debt is almost always going to be higher than what someone might reasonably expect to achieve from an investment.

Once debt-free, the best way to generate long-term growth is to pay yourself first each time you get a paycheque, Vermeulen says.

He then refers to how that lesson is drilled home in investor and philanthropist David Chilton’s 1989 book The Wealthy Barber: The Common Sense Guide to Successful Financial Planning, which is one of the best-selling Canadian books of all time.

Chilton recommended that readers take 10 per cent of their salary and put it towards savings before they pay any other bills.

Vermeulen says that this target may be unreachable for some people but that the important lesson is to put something away each time a paycheque arrives.

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“Saving is a habit, just like going to the gym,” he says.

“You’re only going to be successful over the long term if you’re disciplined and you make it a habit. The nice thing about being able to automate your savings is that you don’t have to lift a finger. With going to the gym, you have to get up and motivate yourself and make sure that you’re eating properly and hydrated and all that. Saving is easy because you can have somebody at your bank or credit union set up an automatic transfer every payday.”

To maximize available income, Vermeulen suggests that clients read their workplace benefits manual or have a chat with the company’s human resources representative to ensure that they understand what benefits they are entitled to.

Because some workplace health plans cover massages or chiropractor visits, it would be silly to pay for a massage if one could be covered by a health plan.

Vermeulen adds that some workplace health plans allow employees to select a plan from a number of options. If an employee needs only a basic plan and will not need some of the extras that are covered in a deluxe plan, opting for the basic plan may mean extra dollars added to his or her paycheque.

Once the money is saved, the key is to understand what you are saving it for.

Someone who is saving for a down payment on a home with the aim of having the money saved in five years is going to have a different investment strategy than someone who is socking the money away for retirement decades from now, Vermeulen says.

Long-term investors, he suggests, are able to take more risk because they have a longer time period to recover and they can ride out volatility that can take place if stock or housing markets crash.

Stock markets and the Vancouver housing market have historically far outperformed bonds and term deposits, so those investments might be worth investigating for those seeking more risk and more reward, he says.

“Real estate, more than anything else, is about commitment,” Vermeulen explains. “If you believe that you’re going to live in one area for an extended period of time, that you want to put down roots in an area and that you are comfortable with the responsibility of being a homeowner, compared with fewer responsibilities associated with being a renter, then owning a home is something you’d want to consider.”

Renting, however, may financially be the most feasible option if you believe that you will move frequently, he adds.

Smart investing in the stock market could mean picking a hot stock that soars, but given that stock picking is very risky, a smarter way to guarantee long-term returns is to buy exchange-traded funds (ETFs). Those funds carry a small management fee but are attractive to many investors because they are invested in a basket of stocks.

Vermeulen suggests that investors seek professional advice. For those who want to cut that cost, there are many discount brokerages that enable customers to buy a stock for a nominal amount less than $10 and sell it for the same amount.

There is also the question of what account to use to buy that stock or ETF. If the person earns more than

Vancity wealth adviser John Vermeulen suggests some habits that can help someone become financially independent by retirement | Chung Chow

$46,000, each dollar more than that amount carries a 28 per cent tax. If the person buys $5,000 worth of Royal Bank of Canada stock, for example, and the investment is in their RRSP, they get immediate tax relief in that the Canada Revenue Agency would tax them $1,400 less ($5,000 times 0.28) in that year. They would then pay tax on that money later in life, when they remove the money from their RRSP. Another option is to buy the shares with money that is in a tax-free savings account (TFSA). In this scenario, the person pays tax on the money to be invested in the year that it is earned and does not pay any future tax on that money.

Investing in a TFSA makes particular sense for those earning less than $46,000 because they are in a lower tax bracket and can therefore justify paying tax up front instead of years into the future, when their income may be higher.

Other tips that could result in a healthy financial future include investing in education or training. That spending has the potential to make a person more valuable to employers and could ultimately lead to a higher salary.

Keeping a diary of spending is another option. Writing every expense down could provide the psychological incentive not to spend money in frivolous ways.

Another option for those who do not want to go over all expenses at the end of each day is to put all spending on a debit card, or a credit card that provides cash back or points. That way each transaction is visible for future reference.

“There are many online tools now that can aggregate someone’s spending from credit cards into different categories,” Vermeulen says. “You don’t need to record as much on your own today as you did years ago.” ç

20 | New Investor 2018 published by Business in VAncouver

Fintech: the banking sector’s new battleground What are the real costs of no-fee trading and robo-advising services?

Albert van Santvoort

Tea Nicola co-founder and CEO, WealthBar

I think that the natural evolution of robo-advice will be hybrid advice where there is a human involved in some level

F

intech’s deceptively diplomatic connotation masks a battle brewing between traditional finance firms and the new financial technology generation. Technology has introduced a more user-friendly experience to the financial sector, businesses and consumers, and that is rattling the walls of the traditionally staid banking sector.

However, as the tech industry has learned, a user-friendly experience is not the same as a user-focused one.

Consider robo-advising. The use of computer algorithms and artificial intelligence to take the trader out of trading has opened the doors to low-fee trading options that offer financial and trading services to low-value investors. But the lower fees might still not be low enough.

In late August, Canadian online investment management firm Wealthsimple Financial Inc. and the Boston-based Fidelity Investments Inc. began offering investors no-fee trading options.

But the no-fee description is open to debate. The pricing structure of these trades includes a percentage fee on the assets under the firm’s management.

In addition, the exchange-traded fund used charges an additional annual percentage. The total charges for the investment are roughly the same as standard industry fees.

“In total your fees are getting up to 0.6 or 0.7 per cent depending on how much money you have in your account,” says Matthew Unger, founder and CEO of

iComply Investor Services Inc. “The interesting thing is, this is no different than what most Investment Industry Regulatory Organization of Canada firms do.”

Unger adds that removing per-trade fees and introducing algorithms aren’t necessarily new to the financial industry. Lower trading transaction fees were introduced roughly a decade ago with the widespread adoption of e-trading.

Unger says that back then, banks were implementing pricing structures similar to what Wealthsimple is using today.

Companies ranging from Vancouver fintech startups to large established banking titans are now employing robo-advising strategies.

Unger says robo-advising eliminates the traditional personal adviser who takes into consideration an investor’s unique tax and estate situation. Low-fee and no-fee advising relies on algorithms to balance portfolios. If a stock goes up by a certain amount, the algorithm will sell off the investment and put the money into one of the funds that is down.

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WealthBar, a Vancouver-based online investment firm, addressed these shortcomings early on. The company was started with the goal of democratizing investing and financial planning and making it more accessible to low-value investors – a goal it believed was unachievable through artificial intelligence and robo-advising alone.

As a result, Tea Nicola, WealthBar’s co-founder and CEO, set out to create a company that combined the strengths of robo-advising technology and traditional financial planners, essentially developing a business plan that has been adopted by other industry players.

“I think that the natural evolution of robo-advice will be hybrid advice where there is a human involved in some level,” says Nicola.

The service gap between robo-advisers and traditional brokers has led some fintech companies to partner with traditional finance industry players. Soon after it was founded, WealthBar partnered with Nicola Wealth Management, whose CEO, John Nicola, is Tea Nicola’s father-in-law.

Tea Nicola says each sector can bring its expertise to the developing industry. The tech industry understands how to create an intuitive user experience that would be difficult for an established financial firm to create in-house, while financial services companies bring a

customer base and distribution that would be difficult for a tech startup to establish.

WealthBar is not the only company attempting to combine these functions and services. Earlier this year, a merger was announced between two traditional finance industry firms and an online trading fintech company to create Aviso Wealth, a company aimed at bridging the gap.

The Vancouver based online e-trader Qtrade Financial Group partnered with Credential Financial and NEI Investments to offer low-fee online trading alongside a product combining new and traditional forms of financial advice.

According to Catherine Wood, vice-president of Qtrade Investor, by combining traditional financial planning with robo-advising, the company can compete with the big banks and their hybrid investment service offerings.

The popularity of no-fee trading and robo-advising is increasing but debate continues over their long-term viability.

“It wouldn’t be surprising to see the no-commission offering catch on with a niche of stock traders,” says Wood. “However, most self-directed investors still expect a robust service that includes a variety of tools along with good client services and educational support.” ç

Tea Nicola, WealthBar’s cofounder and CEO | Rob Kruyt

22 | New Investor 2018 published by Business in VAncouver

Sound investment strategy doesn’t change Murray Leith | Success is in the batting average, in not overreacting and in staying invested

T

We remained invested during good times and bad

he top-of-mind question at the beginning of a new year is always some version of: “How is the future going to be different from the past?” Our answer has always been: “Not different enough to change our investment strategy.”

We are sorry to disappoint, but that is our answer again for 2019.

While there are always nuances regarding the stocks and sectors that we favour at any particular point in time, we are always most focused on the two things that don’t change: human nature and sound investment strategy. Because the two don’t mix well, understanding and managing one’s emotions is key to long-term investment success.

Human beings are not good investors because we are emotionally hard-wired to do the wrong thing in the face of volatile markets. It is easy to say “buy low and sell high,” but our emotions often cause us to do the opposite. We are more comfortable and confident buying stocks when the economy is doing well and stocks are rising, and we tend to panic and sell when the opposite is true.

These days, it is easy to get the feeling that you might be missing out on the next great thing, whether it be Bitcoin, marijuana stocks, artificial intelligence or electric vehicles. While it’s always important to be mindful of new developments, our experience has taught us to think twice before embracing the popular stocks or evolving trends. Because change is often slow

– evolutionary rather than revolutionary – it can be costly to chase the hot stocks or themes.

Investment success, and not letting your emotions get the best of you, comes from adhering to a few time-tested principles: Have a plan ■ Determine the long-term asset mix – stocks, bonds, real estate and cash – that makes sense for you relative to your goals and tolerance for risk. This mix can change slowly over time as your age and circumstances change, but it shouldn’t change meaningfully year to year.

Know what you own ■ The stock market can be bumpy, and the more familiar and comfortable you are with the businesses you own, the greater the chance you won’t sell at the wrong time. It might seem exciting to buy Bitcoin when its price is rising rapidly, but ask yourself if you understand how it is valued and how you will react if and when its price drops dramatically. In our experience, when people don’t fully understand the assets they own, they tend to panic in the face of poor performance.

Think long term ■ In this day and age, we are overwhelmed with advice on what is going to happen next week or next month. Everyone is trying to outsmart the other guy, and nobody is consistently good at it. Ignore the hype and think about where the economy and businesses are going to be in three to five years, or even longer term.

D on ’t time the market ■ ​ Those who jump in and out of the market, trying to avoid the next recession or market correction, invariably do much worse than those who stay invested. This is because they spend too much time missing

out. You might make a few good calls over a lifetime, but you will blow it enough times that you will significantly undermine your longterm returns. Those who accept volatility tend to do much better in the long run than those who try to anticipate it.

Have reasonable expectations ■ If you are going to invest

in stocks, you are going to own some losers. It’s the batting average that matters, and you will do very well over time if you simply have more winners than the alternative. The best year for the Odlum Brown Model Portfolio was the year 2000.

We were up more than 40 per cent, and yet we lost money on one-third of the stocks in the portfolio that year.

You also have to expect corrections from time to time. We have a great track record, in large part because we remained invested during good times and bad. ç Murray Leith is executive vicepresident and director of investment research at Odlum Brown.

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