FORUM Magazine - December 2018 by Advocis

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The Magazine of Influence for Financial Advisors

How advisors can demystify money for the masses

ADVOCIS SYMPOSIUM TURNS 10! CCPC RULES UPDATE

ANNUITIES AND LOW INTEREST RATES ARE MULTIPLE WILLS TOO MUCH TROUBLE?

Publication Mail Agreement # 40069004

Here for you, so you can be there for your clients. At Canada Life, our Term Insurance products continue to provide the protection, flexibility and affordability that Canadians want and need. We’re pleased to offer: - Industry-leading pricing, so you can offer clients lower rates - Raised ‘no medical test’ limits, so clients can get coverage faster - Unparalleled wholesale support with more than 200 people across Canada To learn more, visit us at canadalife.com/do-business-with-us

Canada Life and design are trademarks of The Canada Life Assurance Company.

FORUM VOLUME 48, 6

NOVEMBER / DECEMBER 2018

ISSN 1493-826X

FEATURES

Learning About Finance

Kira Vermond speaks to five advisors who are dedicated to teaching financial literary today so children, youth, and adults will experience a brighter financial future tomorrow

The Case for Annuities

Even in a low-interest environment, annuities can serve as a solid part of an income portfolio. Richard Parkinson crunches the numbers

20 DEPARTMENTS

COLUMNS

28 TAX UPFRONT

EDITOR’S JOURNAL Drowning in debt is a reality in an “I deserve this” society

An update on how the CCPC rules will work

Lean into the Future

Advocis Symposium, now in its 10th year, brings together industry leaders who debate issues affecting advisors of tomorrow. They reveal how to adapt to regulatory and technology changes

BY JAMIE GOLOMBEK

OPENERS New insurance regulations; underwriting for alcoholrelated disorders; top concerns about living a long life

32 ADVOCIS NEWS Association updates and events

34 THE FINAL WORD Professional financial advice is key for all investors

COVER: ISTOCKPHOTO

BY GREG POLLOCK

Next issue: Business planning Publication Mail Agreement # 40069004 Return Undeliverable Canadian Addresses to FORUM Magazine Circulation Department, 10 Lower Spadina Avenue, Suite 600, Toronto, Ontario M5V 2Z2

29 ESTATE DILEMMAS Are multiple wills more trouble than they are worth? BY KEVIN WARK

31 TECHNOLOGY & SOCIAL MEDIA Using technology to help you win and retain business BY MASOOD RAZA

Avoiding Burnout

Hitting the wall with productivity is a sign to make changes in your life. Evan Thompson has seven suggestions NOVEMBER / DECEMBER 2018 FORUM 3

BY DEANNE GAGE

Drowning in Debt

just finished reading a Money Diaries column that shows materialism at its finest. The Wealthsimple online magazine story features forty-something couple Kate and Tom and their vast overspending: fancy house upgrade, private schools for their three kids (on discount, mind you), law school student loans, at least 10 credit cards, and a second mortgage. When bankruptcy looked like a possibility, their parents bailed them out, but now the couple find themselves even deeper down the debt hole. You don’t want to miss this fascinating piece since the couple don’t mince words about why they made their financial decisions. At first read, you may think Kate and Tom say things for shock value, but really, it’s a sad reflection of the “I deserve it” world we live in. Some ensuing generations believe they should be doing better than their predecessors by trying to live large or way above their means. Most intriguing is that their parents came from modest means and seemed to understand how to maintain a balance sheet and save for the future. For whatever reason, these philosophies just didn’t pass down to their offspring. “It’s not even like my parents are rich,” Kate said in the article. “They are just really good with what they make. My mother was a secretary for her whole life and just went down to part-time. I mean, she shops at Goodwill, she buys things at the dollar store. So she gave me $20,000 of her savings after making maybe $30,000 a year for her whole life.” Swallowing the debt reality and fixing it isn’t easy. No one wants to admit defeat or be the centre of neighbourhood gossip. Tom is concerned about not being able to land decent employment should he lose his job. If they were to declare bankruptcy, it would be on record for future job applications. Kate doesn’t care about that — she wants to be able to sleep at night without thinking about massive debt. If you happen to encounter a prospect like a Kate or Tom, point them in the right 4 FORUM NOVEMBER / DECEMBER 2018

FORUM PUBLISHER: Peter Wilmshurst advocisforum@gmail.com EDITOR: Deanne Gage dgage@advocis.ca COPY EDITOR AND PROOFREADER: Alex Mlynek ART DIRECTOR: Giselle Sabatini artdirector@forum-mag.ca ADVERTISING: Peter Wilmshurst advocisforum@gmail.com Tel: 416-766-4273 Fax: 416-760-8797

TFAAC BOARD OF DIRECTORS CHAIR Al Jones, CFP, CLU, ICD.D, ACCUD VICE CHAIR Abe Toews, CFP, CLU, CH.F.C., CHS PAST CHAIR Jim Virtue, CFP, CLU, CA SECRETARY Rob Eby, RRC, CFP TREASURER Catherine Wood, CFP, CLU, CHS CHAIR, THE INSTITUTE Stephen MacEachern, CFP, CLU, CH.F.C., CHS CHAIR, THE CLC David McGruer, CFP PUBLIC DIRECTOR Geoffrey Creighton, BA, LL.B, C.DIR, CIC.C DIRECTOR AT LARGE Eric Lidemark, CFP, CLU, CH.F.C, CHS DIRECTOR AT LARGE Kevin Williams, CFP, CLU, RHU DIRECTOR AT LARGE Patricia Ziegler, CHS, EPC

direction. You may not be the best person to help but can direct them to credit counsellors, a money coach, or even a therapist who specializes in debt issues. When/if they get back on solid footing, you can take pride that you did a good deed.

*** October and November were record months for reader comments! Thank you for the tremendous feedback about the cover story in our October issue. Many readers loved that our seniors and debt article went behind the curtain to explore the reasons for being in the red — reasons that have nothing to do with fancy lattes, exotic trips, and other materialistic pursuits. We are also pleased that you enjoy Richard Parkinson’s insurance articles and his Excel spreadsheets.

*** The FORUM team sends our deepest condolences to the family of Don Pooley. Don, a long-time Advocis member and former FORUM columnist, passed away in October. Stay tuned for a tribute to Don in our next issue.

PRESIDENT & CEO Greg Pollock, CFP FORUM is published six times annually by The Advocis Publishing Group, 10 Lower Spadina Avenue, Suite 600, Toronto, Ontario M5V 2Z2 TEL: 416-444-5251 or 1-800-563-5822 FAX: 416-444-8031 FORUM is mailed to all Association members, the subscription price being included in the annual membership fee. Address changes can be made through info@advocis.ca or by calling member services at 1-877-773-6765. The opinions expressed in articles and advertising are those of the authors/advertisers and not necessarily those of FORUM or the Association. Material of a technical or semi-technical nature may become invalid because of later changes in law or interpretation. The Association is not responsible for obsolescence of FORUM articles whose content should be checked by the reader before implementation. Requests for permission to reprint articles are to be addressed in writing to the editor of FORUM. ™ Trademark of The Financial Advisors Association

of Canada carrying on business as Advocis.

FORUM EDITORIAL ADVISORY BOARD MICHAEL BERTON, CFP, RFP, CLU, CHS Assante Financial Management Ltd. LEONY DEGRAAF HASTINGS, CFP, EPC deGraaf Financial Strategies NICHOLAS LANDRY, CEBS, CHS, RCIS BFL Canada - CSI ROBERT MCEACHERN, CFP, CLU, CH.F.C. McEachern Financial IZUMI MIKI-MCGRUER, CFP, CLU, CH.F.C., CHS Freedom 55 Financial

PHOTO: DANIEL EHRENWORTH

EDITOR’S JOURNAL

THANK YOU! TO OUR SYMPOSIUM 2018 SPONSORS AND BOOTH EXHIBITORS Symposium 2018 was presented by Regulatory Affairs, The Financial Advisors Association of Canada with the support of:

PLATINUM

GOLD

SILVER

BOOTH REPRESENTATIVES

OPENERS Fodder For the Water Cooler MORE TAXES AFFECT INSURANCE COST

nsurance premium taxes combined with multiple sales taxes are costing clients more all the time while lowering demand, a situation a report from the C.D. Howe Institute says should make Canadian governments revisit these plans. For many years, insurance premium taxes (IPT) were collected from insurers as an alternative to taxing their profits, says the C.D. Howe report. But this practice is long gone with Canadian governments taxing the corporate income of insurance companies, in addition to premium taxes and other taxes and levies. Most consumers don’t know they pay a provincial insurance premium tax of two to five per cent on top of their premiums, say authors Alexandre Laurin and Farah Omran. As well, five provinces charge a retail sales tax (RST) ranging from six to 15 per cent on top of the premium taxes for certain types of insurance. In Quebec and Ontario, the RST rates of respectively nine and eight per cent generally apply to group life and health insurance, and property and casualty insurance (although Ontario excludes auto insurance). Saskatchewan is the latest province to introduce an RST. Insurance is a financial service, so premiums are exempt from GST/HST. But Laurin and Omran say the taxes generate more than $7 billion of provincial government revenues — representing about seven per cent of all provincial taxes collected on goods and services. Not only are the premiums hidden, but they also add to the cost of insurance, reducing the demand for insurance. “We find that an increase of one percentage point in the provincial IPT rate leads to a 10 per cent decrease in the number of life insurance contracts sold,” states the report. “Reduced insurance coverage for natural disasters such as floods and earthquakes, other catastrophes, relief to a deceased’s family, or relief of the financial burden of illness and disability may lead to increased cost pressures on government budgets down the road.” — Susan Yellin

6 FORUM NOVEMBER / DECEMBER 2018

CLHIA TAKES STAND ON NEW INSURANCE REGULATIONS

he Canadian Life and Health Insurance Association (CLHIA) is asking all provincial governments to follow in Saskatchewan’s footsteps and enact legislation to ensure there is no public confusion about the use of life insurance policies. CLHIA is taking the step after the Saskatchewan government issued new regulations in late October to limit the amount of premiums a life insurer may receive or accept for deposit in certain life insurance policies and associated side accounts. It made the move in reaction to a court case brought by three limited partnerships. Ituna Investment LP, Mosten Investment LP, and Atwater Investment LP claim they bought side accounts from two insurers in the early 1990s that had no upper limit on the size of the investment. The plans allowed holders to invest in side accounts with guaranteed rates of up to five per cent in certain cases, a situation that could potentially cause great financial hardship for insurers. The firms that issued the policies were later acquired by Industrial Alliance Insurance and Financial Services and Manulife Financial. Manulife said consumers buying universal life policies and those companies issuing the policies, “never intended to have the policies function as deposit or securities contracts.” “In effect, Mosten is seeking to use insurance policies to invest sizeable sums that have no connection to the insurance coverage.” The case raised significant legal issues that would affect the entire Canadian life and health insurance industry, so the CLHIA intervened. CLHIA president and CEO Stephen Frank said the position taken by the limited partnerships runs contrary to the “nature and intended purpose of the product, fundamental insurance law concepts and Canada’s regulatory system.” iA Financial Group welcomed the new regulations. “Given these new Saskatchewan regulations, iA Financial Group believes that the substantial aspects of the Ituna litigation will be resolved. iA Financial Group fully supports the CLHIA’s initiative to request that other provincial and territorial governments take comparable steps to add clarity to the legislation and reinforce the insurance purpose of side accounts.” — S.Y.

UNDERWRITING POV BY CAROL NEUSS

UNDERWRITING FOR ALCOHOL USE DISORDERS

PHOTO: ISTOCKPHOTO

he majority of us enjoy a drink on occasion and are able to maintain a healthy relationship with alcohol. Moderate intake of alcohol may provide some health benefits like reducing your risk of developing heart disease or risk of stroke, but when alcohol consumption becomes excessive and a dependency develops, it poses a high mortality risk. The effects may be acute (risk of accident/trauma and arrhythmia) or chronic (cirrhosis of the liver, certain cancers, cardiomyopathy, and psychosis). Alcohol abuse is the excessive use of alcohol to a point where the client is having problems financially and in their interpersonal relationships, and they may even be experiencing harmful physical effects like high blood pressure and liver enlargement, but they continue to drink without restraint. When the disease progresses to alcoholism or dependency, the individual feels physically dependent on alcohol and will experience withdrawal symptoms when trying to quit. These may include insomnia, nausea, and headache and may progress to seizures and hallucinations. Alcoholics may use alcohol to reduce stress and anxiety and this makes it particularly difficult to quit drinking when faced with withdrawal symptoms. Binge drinking is heavy consumption of alcohol over a short period of time, which results in intoxication. This may not show up in an alcohol questionnaire but poses a very high accident risk. It is most often found in comments made by the doctor in the Attending Physician’s Statement (APS). Alcohol abuse is challenging for the underwriter because they’re relying on accurate disclosure from the client regarding alcohol consumption, and denial is a common characteristic in those who abuse alcohol. However, there are red flags that when looked at together begin to pull together pieces of the puzzle. Some common red flags: • Elevated liver enzymes • Elevated high-density lipoproteins (HDL) • High blood pressure • Accident prone • A record of driving under the influence (DUI) • Marital or relationship difficulties • Unstable employment • Financial difficulties • Depression or other mental health issues • Suicide attempt • Other substance use

• Participation in high-risk sports • Working at a bar or other employment with easy access to alcohol In combination, these red flags start to paint a picture. For example, your client presents with elevated liver enzymes along with high blood pressure, and is having financial difficulties. In isolation, these symptoms might appear harmless. However, the underwriter will start looking at the other disclosures in the application more closely with regards to alcohol use, or impacts it may be having on the proposed insured’s life physically and socially. They’ll also pay more attention to their occupation, and whether or not they’ve had accidents or DUIs. The underwriter will likely want an APS, to see if the doctor can provide insight into your client’s relationship with alcohol, and any criticism of alcohol overuse by the doctor would generally result in a decline decision. Determining alcohol overuse comes down to adverse symptoms and signs of excessive drinking, rather than on just the amount the individual is consuming. If your client is over age 40 and consumes what seems to be an excessive amount (four drinks per day), but they don’t have any adverse symptoms, they may be able to secure a standard policy. If your client has received treatment for alcohol abuse and/or has been abstinent for five years (with no relapse), then they can generally secure standard coverage as long as there is no other substance abuse, and there are no associated physical or mental impairments. Less time since recovery would generally result in a rating. If they are in recovery and continue to consume any amount of alcohol, they would be declined coverage. Complete abstinence is required in most cases to maintain sobriety. In summary, while alcohol abuse presents a very high mortality risk, it is also one of the more challenging diseases to underwrite. Social taboos make full disclosure problematic for some proposed insureds, and denial is a common characteristic of the disease. The underwriter needs to look at the evidence as a whole to put the puzzle pieces together and assess the risk appropriately. CAROL NEUSS is assistant vice-president and chief underwriter at Great-West Life, Canada Life, and London Life.

NOVEMBER / DECEMBER 2018 FORUM 7

OPENERS

DID YOU KNOW? Institutional investors were asked: Do you believe that integrating environmental, social, and governance (ESG) factors into your portfolio can help mitigate risk?

56%

are willing to make drastic sacrifices to become debt free, including:

Planning to never travel or vacation again (23%) Not eating out (21%) Embracing a no-spend diet (20%) SOURCE: CAPITAL ONE CANADA (CAPITAL ONE) AND CREDIT CANADA DEBT SOLUTIONS (CREDIT CANADA), 2018

TOP CONCERNS ABOUT LIVING A LONG LIFE:

19% AREN’T SURE 14% SAID NO

CANADIANS STRESS ABOUT THEIR FINANCES

67% SAID YES

1. Health problems/costs

51%

2. Financial security

47%

3. Being a burden on family

40%

4. Loneliness or no purpose

20%

5. Having nothing left to leave heirs

14%

6. Being a victim of abuse or fraud

13%

7. Other SOURCE: RBC ASSET MANAGEMENT, 2018

SOURCE: BMO WEALTH MANAGEMENT, 2018

PPI EXECUTIVE APPOINTMENT PART OF LONG-TERM STRATEGY James A. Burton, Executive Chairman and CEO of PPI has announced the appointment of Jim Virtue as President and Chief Operating Officer of PPI. Mr. Virtue was previously Executive Vice-President of PPI, and President and CEO of PPI Solutions, the company’s broad market division. This recent appointment is part of the company’s long-term strategy of building continuity of leadership for the future. Mr. Burton continues as Executive Chairman and CEO of PPI, and John McKay continues as PPI’s Executive Vice-President and Actuary.

A Chartered Accountant by training, Mr. Virtue holds his CFP (Certified Financial Planner) and CLU (Chartered Life Underwriter) designations. He is a member of CALU (Conference for Advanced Life Underwriters) and is the past Chair of the Advocis national board, where he is actively developing the ‘Professions Model’ for advisors. PPI, an insurance marketing organization, offers actuarial, tax and specialized expertise in all aspects of life insurance, and delivers estate planning and technical support for advisors that helps Canadians to plan ahead.

JAMES A. BURTON, ICD.D EXECUTIVE CHAIRMAN AND CEO, PPI

J.A. (JIM) VIRTUE, CA, CLU, CFP PRESIDENT AND COO, PPI

www.gamacanada.com/LAMP.html

COVER STORY

LEARNING About Finance

t 22 years old, Jessica Granofsky seems to have everything going for her: a new degree from Western University, a job in public relations in downtown Toronto, and an engaging and effervescent personality that’s sure to take her places. But, like a growing number of fellow Millennials in Canada, she’s also got something she wishes would go away: tens of thousands worth of student loan debt — and a vague plan for how she’s going to tackle it. Not that she isn’t trying. Granofsky saves money on rent by commuting a three-hour round trip to the city from her parent’s home in Richmond Hill, Ont., north of the city. She also funnels as much of her paycheque as possible toward her debt, a loan from her financial institution that bankrolled her education. In school, and caught within an inflexible government system, Granofsky 10 FORUM NOVEMBER / DECEMBER 2018

was considered ineligible for Ontario Student Assistance Program (OSAP) student loans. She calls the roughly hundred dollars she pays in interest each month today, “so depressing.” Granofsky is the first to admit that she knows next to nothing about retirement planning or saving up for a mortgage. So lately she’s been perusing finance blogs online and thinking about finding a financial planner to help her make sense of her options. She wouldn’t say no to attending in-person money management seminars either. Despite putting in some legwork recently, however, she’s convinced a lot of the financial pain she’s experiencing now could have been avoided if someone had just sat her down as a teen and taught her the ins and outs of personal finance. “I think that it’s a shame that life skills like that aren’t ever taught in school. I don’t get it,” she says.

PHOTO: ISTOCKPHOTO

Kira Vermond speaks to five advisors who are dedicated to teaching financial literacy today so children, youth, and adults will experience a brighter financial future tomorrow

Granofsky professes the only financial education she remembers receiving in class was adding and subtracting coins in elementary school. Forget learning about credit cards, compound interest, mortgages, or investing. “More education would empower people to make smarter choices,” she says now. Whether they’re young children, youth, people approaching retirement age, or seniors, helping Canadians make those more educated decisions about their money is at the core of what financial literacy is about. Canada has become a nation of borrowers — with people owing $1.69 for every dollar of after-tax income earned, up from one dollar 20 years ago — creating a tenuous situation for many families who could face hardship as bank interest rates keep climbing. Knowing even the basics about how to “snowball” debt payments or “pay yourself first” is becoming more important than ever. Not that elementary and high schools should necessarily have to take on the entire burden of teaching kids and teens about money, says Advocis president and CEO Greg Pollock, who was appointed to Canada’s National Steering Committee on Financial Literacy in 2017. A former educator and high school principal, he knows how thinly stretched schools already are. “I think that schools are one venue to assist, for sure, but schools are being asked to be everything: social workers and nurses, and also to teach basic math and science — and now financial literacy,” he says. What’s more, some teachers are struggling personally with understanding the difference between, say, dividends and diversification. “There’s always a role for experts and professionals to assist when it comes to dealing with some of these specific concepts that financial literacy deals with,” he explains, stating that Advocis members are in a good position to lend a hand. “There are lots of opportunities out there for us to collectively raise the financial bar. Whether they’re visiting schools through the Junior Achievement program, reaching out to vulnerable communities, or simply spending extra time with clients to explain basic concepts, here’s what five Advocis members are doing to fill the gap, fight financial ignorance, and put Canadian children, youth, and adults on the path to successful money management.

Jessica Granofsky

JILLIAN CARR Associate advisor, Riverview Insurance Solutions, St. Albert, Alta.

bout five years ago, an old friend approached Jillian Carr, now an advisor in St. Albert, Alta., and asked her to come speak to some of her classmates at the veterinarian college where she was going to school. Carr, who grew up show jumping horses competitively, leapt at the chance, knowing she could merge her animal background with financial planning. That first chat launched her career in a new direction: working primarily with vets. Today she continues to meet with clients one on one, but also runs numerous lunchand-learns at vet schools each year. Between 40 and 80 people show up. Her main focus at these sessions? Debt. “Most students are under the age of 25 and they’re not taught anything about their debt — but debt is the biggest elephant in the room,” she says. In fact, with many of them spending at least six years in vet school — and often longer — Carr says she’s worked with clients who graduate owing $300,000. She finds she often spends ample time teaching new grads techniques for paying down their debt quickly before moving on to saving and insurance. “I have to help them connect the dots,” says Carr, who jokes that she likes to tell students and new clients she will teach them “how to ‘hashtag adult,’ ” which always gets a few laughs. “But once they see what you can do with them and they’re dedicated to what the plan is, they’re totally on board and they feel so confident in themselves.” Carr, who admits that she didn’t even know how to open a savings account until she was in her early 20s, understands how important financial literacy is for helping everyone — even professionals who many would assume would already know how to manage their finances. But she’s learned that the best way to get the lessons to stick is to teach rather than tell. She works closely with clients to formulate a strategy that they themselves help create. With many of her clients now out of debt and buying homes, she’s seen first-hand what a solid financial education can do for Millennials willing to learn. “What we do is so much more than just sell products,” says Carr. “We have the opportunity to change somebody’s life.”

NOVEMBER / DECEMBER 2018 FORUM 11

COVER STORY WILLIAM BRITTON CFP, principal, Tidal Financial Management Inc., Kingston, Ont.

here are people who talk about problems and there are people who try to fix them. William Britton falls into the latter category. As a active Advocis member and financial planner in Kingston, Ont., Britton spends hours each month developing initiatives and helping create an informal financial literacy network in the city, which has gotten local advisors, schools, and community groups like Junior Achievement at the table together. He says building synergy and cooperation is the best way to move forward so more of the city’s children and adults can gain financial skills with lifelong impact. “There’s no shortage of material. I don’t think anybody needs to write another piece of financial literacy content ever again. It’s all there,” he says, mentioning there’s also an audience hungry for knowledge. “We’ve also got Advocis members willing to deliver the content. Putting all these things together seems to be the trick.” But delivering that content has to be done with care. How the material is delivered is nearly as important as what’s being delivered. “No kid wants to simply sit in front of a financial planner or accountant for any length of time,” he says. Instead, teaching is all about interactivity. Maybe that means hauling in a load of chocolate

bars into a classroom and showing kids that the stash is worth as much as an iPad. Or maybe it makes sense to get kids playing a financial app like one called Save The Camp!, a game created by Meridian Credit Union, in which players use money to buy and budget. In other words, no tokens. “All these kids are playing games anyway. Why are we so opposed to using actual real-life terms that would serve these kids later?” he asks.

AKWASI ANTWI Advisor, Sun Life Financial, Calgary

kwasi Antwi may be new to the industry, but he’s already bringing a new perspective to the field — direct from the football field. Antwi, a former CFL linebacker for the Calgary Stampeders, BC Lions, and Saskatchewan Roughriders, is now taking his personal finance expertise and using his sports background to reach untapped audiences. Each January he presents financial fitness seminars at local gyms to get members on track with their money for the new year. Considering that “get on top of my finances” ranks up there with “lose weight” as a top New Year’s resolution, the gym is the perfect location to teach people who are already primed to make changes in their lives. “As a former football player, that

12 FORUM NOVEMBER / DECEMBER 2018

world is my comfort zone,” he says. “I was thinking, ‘Well, I’ve been working out my whole life. Sports is sort of my thing, so why not bring what I know about money into that world?’” While he still has to prove to some

gym owners that he’s not selling products but simply teaching financial skills, the idea is catching on. Many people he meets there experience significant gaps in knowledge about everything from how their company pensions and group plans work to efficient and effective tax filing. He employs the same teaching skills he uses in his seminars and one-to-one dealings with clients, many of whom are in their 40s and 50s and thinking about retirement planning. Antwi explains that imparting knowledge always has to start with having a good heart-to-heart talk about goals. “You have to ask in-depth questions. That’s how you find out what’s really important to them,” he says.

DANIEL MARTENS Insurance and financial advisor, Hub Capital Inc., Stratford, PEI

tirred by his experiences as a teen working with people with intellectual and physical disabilities, Daniel Martens knew he was the right financial advisor to empower that community when he entered the financial advising and insurance profession seven years ago. After all, the federal government had only recently introduced its registered disability savings plan (RDSP) in 2008, which gave substantial three-to-one grants for families using the vehicle to save for their disabled loved one’s future. Knowing that many families in PEI probably didn’t know about them, he made it his mission to spread the word and educate as many people as possible. “That’s been great. I’ve been able to open many RDSPs for families,” says Martens who is also the treasurer of the PEI Association of Community Living and is well connected with relevant community groups and services. One of his RDSP seminars has even led to a strong friendship with one family who had been struggling while caring for their eight-year-old non-verbal, autistic son, Daniel. The parents attended one session, but left without leaving their names. Martens thought he’d never see them again, but a year later they reached out to him in desperation. They’d been forced to give up their son due to financial constraints. Could he help them? Quickly, Martens showed them that by renegotiating their debt, they could instantly save $300 per month in interest. Those funds were enough to help get Daniel back home and Martens used his connections to get the boy help at school. A few years later, Daniel visited Martens with his parents. He was talking up a storm and thanked him personally. “I said, ‘All I did was make a phone call,’ ” Martens recalls. “But he said, ‘No, I can speak because you took time to help me.’ ” It’s now a few years later, but that memory is still fresh. He pauses before finishing the story. “Yeah, I bawled in the office that day,” Martens says.

ROBYN THOMPSON CFP, CIM, president, Castlemark Wealth Management Inc., Toronto

hen Robyn Thompson walks into a grade 7 or 8 class as a volunteer with Junior Achievement, she knows what she wants: for every student to come away from the day with her remembering two or three important nuggets of knowledge that will perhaps change the financial decisions they’ll eventually make as adults. “We’re not going to make them financial whizzes in a seven-hour school day, but you can give them enough information to help them move forward,” she says. Most importantly, Thompson wants to make an impression on all students, particularly those who come from disadvantaged backgrounds. After all, Thompson freely admits that she herself grew up depending on the welfare system and food from a local church. And while some of her classmates taunted her, their teasing galvanized her to build wealth from an early age. She delivered papers, walked dogs, and worked at fast food joints. In short, she learned that money doesn’t define a person. It’s a lesson she still draws on. “As an adult, this is something I need to give to kids so they never have to go through what I went through, even though it made me who I am today,” she explains. “It’s necessary to give all children a leg up, so they can rise up and make sound financial decisions.” KIRA VERMOND is a writer based in Guelph, Ont. She is the author of The Secret Life of Money: A Kid’s Guide to Cash, which was nominated for the Red Maple Award. To receive a PDF of this article, email dgage@advocis.ca. NOVEMBER / DECEMBER 2018 FORUM 13

COVER STORY CLIENT HAND OUT

GUIDE TO MORE FINLIT According to a 2018 survey for insolvency firm, MNP LTD, 85 per cent of Canadians agree that financial literacy in this country is deficient and wish they’d had the opportunity to learn more about finance and the economy while in school. But no matter your age, it’s never too late to learn money management skills.

FOR KIDS AND YOUTH Talk With Our Kids About Money Day talkwithourkidsaboutmoney.com

reated by the Canadian Foundation for Economic Education (CFEE), this program helps parents, guardians, and teachers talk to kids about money — and to encourage and support them along the way. Any day is a good day to discuss cash with kids and youth, but this program focuses on one day a year — the third Wednesday in April — to get conversations started. Parents are encouraged to check out the home program online and share the book, movie, and game recommendations with their children. Peter Pig’s Money Counter app (free)

Young and Thrifty youngandthrifty.ca

✂

arn. Save. Live. Kyle Prevost and Justin Bouchard, two Gen Y writers, set out to empower Canadians with the money knowledge they need to make better financial decisions.

practicalmoneyskills.ca

ids ages 5 to 8 can practise identifying, counting, and saving money while learning facts about Canadian currency with this game. After completing sorting challenges, kids test out their new money skills by choosing whether to save or spend their winnings in a virtual store equipped with accessories for Peter Pig. This app is available for free on Visa’s financial literacy web site, Practical Money Skills, which also hosts a new tooth fairy app aimed at helping hapless parents determine how much cash the “fairy” should leave behind.

FOR EVERYONE ELSE MyMoneySmarts advocis.ca/finlit

ecently relaunched to offer financial advice for all ages and stages, the new website teaches users that budgeting, saving, and investing for retirement can happen while they have fun in the present. The association is also set to launch a new financial podcast to reach even more people who want to learn how to get the most out of their money.

FOR MILLENNIALS

Get Smarter About Money

Half Banked

getsmarteraboutmoney.ca

halfbanked.com

favourite site from the Ontario Securities Commission, this comprehensive offering has it all: information about managing money, retirement planning, investment products, and keeping yourself safe from fraud. Its simple and helpful calculators and tools alone are worth a look.

ccording to Desirae Odjick, a Millennial personal finance blogger, being “good at money” isn’t as hard as it seems — and no, you don’t have to give up your lattes to do it.

Jessica Moorhouse jessicamoorhouse.com

MoneySense

logger Jessica Moorhouse runs the popular Mo’ Money Podcast, which has grown to become one of the top personal finance podcasts in Canada and beyond, boasting more than 600,000 downloads and more than 160 episodes. She even hosts annual Millennial Money Meetups in Toronto so young savers and investors can look up from their phones and, gasp, chat in person.

moneysense.ca

14 FORUM NOVEMBER / DECEMBER 2018

oneySense the magazine may no longer exist, but its solid advice and calming influence on Canada’s beginning and experienced investors alike are still alive and well on the website. Articles and columns change frequently so check in often for the latest information. — Kira Vermond

INSURANCE

THE

CASE FOR

ANNUITIES

Even in a low-interest environment, annuities can serve as a solid part of an income portfolio. Richard Parkinson crunches the numbers

PHOTOS: ISTOCKPHOTO

â&#x20AC;&#x2122;m a huge fan of annuities. Iâ&#x20AC;&#x2122;ve completed considerable analysis of them for clients over the years and find they are ideal for the right application and circumstance. Some advisors refuse to consider annuities for clients because of their perceived poor value in a low-interest environment. I encourage them to check out Cannex to find the highest-paying provider of an annuity on any given day. It does cost an annual fee to get quotes, but is definitely worth it. The service publishes a table showing the monthly income for the current day you visit. At the top right I have picked the highest payor on the day I visited their site, October 14, 2018. These are monthly incomes based on a single-life male, 10year guarantee, and premium of $100,000 of non-registered funds. Payments will commence in one month.

AGE IN YEARS

Highest monthly income: Annual income:

$424.62

$469.13

$521.30

$579.70

$596.87

$678.01

$777.42

$5,095.44 $5,629.56 $6,255.60 $6,956.40 $7,162.44 $8,136.12 $9,329.04

Annual rate of return:

5.10%

5.63%

6.26%

6.96%

8.14%

9.33%

Given that I consider an annuity a conservative investment, these rates of return are quite attractive, especially since they are guaranteed rates. A quote I prepared on October 12, 2018 using Sun Life showed for a 71-year-old female an annual rate of return of 6.85 per cent before tax for a registered annuity: REGISTERED ANNUITY WITH LIFETIME INCOME, PAID ANNUALLY Guarantee period:

10 years

Deposit amount:

$100,000.00

Monthly income:

$571.11

Annual income before tax:

$6,853.32

6.85%

It also shows 6.53 per cent after tax for a non-registered annuity, as only 18.5 per cent of the income is taxable; the rest is considered return of capital, and not taxed. NON-REGISTERED PRESCRIBED ANNUITY WITH LIFETIME INCOME, PAID ANNUALLY Guarantee period:

10 years

Deposit amount:

$100,000.00

Monthly income:

$565.31

Annual income before tax:

$6,783.72

Monthly portion taxable:

$104.91

Annual portion taxable:

$1,258.86

Estimated average tax rate:

20.00%

Tax payable $1,258.86 x 20%:

$251.77

Annual income after tax:

$6,531.95

Based on a quote from Sun Life, created on Oct. 12, 2018, with a 10-year guarantee

6.78%

6.53%

NOVEMBER / DECEMBER 2018 FORUM 15

INSURANCE Most advisors would be reluctant to guarantee these returns with any other investment platform with such a low risk. So having justified that annuities are worth considering, let’s dive a bit deeper into some important details. Investing in most annuities means that once the annuity is purchased the money is locked in, and generally cannot be reversed. So, make sure your client knows this before they sign. A lifetime annuity is just that — a promise by the insurance company to pay the income promised for as long as you live, whether one month after you purchase or 80 years after. One concern expressed by clients is that should they die prematurely, they would hate to see their capital lost to the insurance company. For example, Sheila deposits $100,000 into an annuity, receives one $596.87 monthly payment, passes away, and her family receives nothing. Annuities do offer a solution to this concern by offering a guarantee period that can be any number of years based on 90 minus age (e.g., for a 70-year-old, the maximum guarantee period would be 20 years). What happens if the annuitant dies within the guarantee period? There are two options from providers, and a third from Equitable Life: a. The beneficiary receives the commuted value of the difference between the guaranteed payments and the original deposit. The calculation for this value is quite convoluted, and beyond the scope of this article, but I do have a spreadsheet I created that explains the concept and estimates the amount. b. A cash refund, which is simply the difference between the original deposit and the payments received thus far. As this sounds much simpler, why wouldn’t everyone just choose this option? Well because the cash refund option pays less, and only two to three companies offer it as an option. For example, I just ran a quote for a 71-year-old female for registered funds of $110,800. A 10-year guaranteed plan will pay $640.38 a month, while a cash refund plan only pays $589.22 a month, so there’s a considerable difference. c. Allowing the spouse of the annuitant to continue to receive the income until the end of the guarantee period.

leaving a legacy for family members, or maximizing income while he is alive. My own clients are about 50-50 on this, but for those interested in maximizing income while they are alive, a zero-year guarantee period will generally pay the highest income. For those interested in ensuring they get all of the money they have deposited one way or another, the guarantee period should be around 15 years. You will have to do some math to determine the right guarantee period. The table to the bottom left shows an example of how the guarantee period affects the monthly income. Make sure you have the client sign a “memorandum of understanding” that includes a discussion of this issue. The memo should state that once the money is invested in the annuity, it is locked in. It should also explain the guarantee options, show the numbers, and make sure the annuitant understands the implications, so that if you are challenged in the future, it can shut down a complaint quickly. In an extreme case, I had a client who was concerned about his family challenging his decision for the zeroyear guarantee period, given we were talking about a sizable investment. I suggested he may want to get a referral from his doctor for a psychiatric evaluation to verify he was of sound mind at the time of application, in part because he was also updating his will, which had some contentious issues as well. He thought that was a good idea and did pursue it. He is still living, so I don’t know if this extra precaution was warranted or not.

Registered versus non-registered funds Registered annuities are straightforward from a tax perspective in that 100 per cent of the income received is taxable, the same as interest income. With non-registered it is much more interesting. When the annuitant’s age at application is over 70, most of the income is considered return of capital, so as in a recent case for a 71-yearold female, only 18 per cent of the income was taxable. Comparing the traditional GIC solution to an annuity looks like this:

Traditional GIC

Single Life Annuity

$100,000.00

Rate of return:

3.00%

6.96%

Pre-tax annual Income:

$3,000.00

$6,957.12

Prescribed taxable income:

$3,000.00

$1,185.60

Capital invested:

But other considerations for the guaranteed period need to be factored into the equation. Ask your client if he is concerned about Registered Monthly Income

Amount Paid over Guarantee Period

Coverage Amount

Guarantee Period

Insurer

$110,000.00

Sun Life

$661.75

$0.00

$110,000.00

Sun Life

$659.39

$23,738.04

Client’s marginal tax rate:

20.06%

$110,000.00

Sun Life

$655.01

$39,300.60

Tax payable at client’s marginal tax rate:

$601.80

$237.83

$110,000.00

Sun Life

$634.84

$76,180.80

Net income after tax:

$2,398.20

$6,719.29

$110,000.00

Sun Life

$602.55

$108,459.00

$110,000.00

Sun Life

$569.18

$129,773.04

16 FORUM NOVEMBER / DECEMBER 2018

Improved % Cash Flow Improvement

Based on client’s total income under $25,000

$4,321.09

180.18%

Note: With the GIC, the $100,000 of capital is always available for heirs, whereas with the annuity, once beyond the guarantee period there is nothing left for the heirs. I have considered insuring the annuity with life insurance, however typically it does not make

annual premium of the life insurance policy. (Note: Make sure the life insurance policy is in force before buying the annuity.) $100,000.00 $100,000.00 • A lottery winner, regardless of age. Capital invested: There are many stories of lottery winners 3.00% 6.96% Rate of return: who are broke within two years, and/or the victims of scams or unscrupulous advisors. $3,000.00 Pre-tax annual income: $6,957.00 Convince them to invest 10 to 20 per cent $3,000.00 $1,185.60 Prescribed taxable income: of their winnings into a lifetime annuity, no matter their age, which will ensure they 20.06% 20.06% Based on client’s total income under $25,000 Client’s marginal tax rate: will have some income for life that can’t be $601.80 $237.83 Tax payable at client’s touched. marginal tax rate: • Copycat annuities. Some large corpo$2,398.20 Net income after tax (not insured): 180.18% $4,320.97 $6,719.17 rations, e.g., General Motors, have defined benefit (DB) pension plans. It is beyond $0.00 Life insurance annual premium: $3,941.00 the scope of this article to go into more Net income (insured prescribed 15.84% $2,398.20 $379.97 $2,778.17 detail, but some of these DB pension plans annuity): allow for the commuted value to be with$100,000.00 $100,000.00 Capital to heirs in estate: drawn, however some serious tax consequences can occur if not done properly. The annual after-tax advantage of the insured annuity in this case is a small 15.84%, but if the client is much older, the cost of insurance makes this option less attractive. One option is an annuity, and some insurAnnuity quote based on a 71-year-old (DOB: Oct. 11, 1947) female, selecting a 0 year guarantee of income - Desjardins Oct. 11, 2018. ance companies have staff who know GIC Rate 3.00% for 5 yrs. from Tangerine. the rules (e.g., the annuity you sell must Life insurance quote based on a 71-year-old female, Term 100 from Manulife, Oct. 11, 2018. duplicate the DB pension plan to the penny). So, tread cautiously if asked about sense. So if a legacy for heirs is an important requirement, perhaps an annuity as an option for a DB pension plan; make sure you do an annuity is not the right fit. thorough research. Make sure you understand the client’s total investment profile, • A term certain annuity to age 90 if you feel the spouse of the annuitant may outlive the annuitant, and the loss of income after as given the locked-in nature of an annuity, you would not want age 90 would not be a disaster. to have 100 per cent of their assets locked into this inflexible, nonliquid investment. There is no rule of thumb here, just be cognizant of their total profile. For senior clients, I try to encourage Annuities can be a viable solution in the right circumstances, the client to involve the child who helps them with their finances, just do the analysis, document your work and your recommendaif applicable, to be involved, as given they will be a beneficiary, tion, and have the client sign off, as if a challenge to your recomthey have a vested interest in the decision. mended plan happens after your client dies, they are not available to corroborate the plan they chose. Here are some other possibilities for annuities: • A court-ordered life insurance policy, where the client is RICHARD PARKINSON, CPCA, is an independent insurance broker based in required to guarantee a life insurance policy will be paid. The Vancouver. If you are interested in Richard’s Excel sheets that generated the tables for this article, email dgage@advocis.ca. annuity generates the annual premium necessary to cover the Traditional GIC

Single Life Insured Annuity

Improved Cash Flow of Annuity over GIC

ANNUITY CHEAT SHEET FOR YOUR CLIENTS

n annuity is a contract sold mostly by a life insurance company that provides fixed or variable payments to an annuitant, either immediately or at a future date. There are many forms of annuities, but they all have the following in common. Annuities are issued primarily by life insurance companies, are fully guaranteed income streams, for life if chosen, or a specific term period; they are creditor protected and tax efficient. There are many flavours of annuities, allowing the flexibility to meet the needs of virtually any requirement.

% Improvement

1. Term certain annuities provide an income for

a defined period. 2. Life annuities provide an income for your lifetime. 3. Life annuities with a guaranteed period provide an income for a guaranteed period of time, e.g., 10 years, to ensure some percentage or all of the initial deposit is returned. 4. Impaired life annuities provide a higher income for annuitants who have a less than average life expectancy. 5. Indexed annuities provide an income that can be indexed to account for inflation.

NOVEMBER / DECEMBER 2018 FORUM 17

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SYMPOSIUM

Lean into

the Future

Advocis Symposium, now in its 10th year, brings together industry leaders who debate issues affecting advisors of tomorrow. Read on to learn how to adapt to regulatory and technology changes

20 FORUM NOVEMBER / DECEMBER 2018

It was standing-room only in the RitzCarlton ballroom in downtown Toronto. And you could hear a pin drop during the debate about the Canadian Securities Administrators’ stance on commissions and reforms needed for our industry. Our panel was comprised of Debra Foubert, director, compliance and registrant regulation at the Ontario Securities Commission; Neil Gross, president of Component Strategies Consulting; and Dennis Tew, head of national sales, Franklin Templeton. Advocis president and CEO Greg Pollock moderated the discussion. Neil Gross: In terms of how you look at

these proposed reforms, I would hope that you see them as being designed to align regulatory requirements and your business practices with your customer’s expectations. I would hope that you would feel comfortable therefore in embracing these reforms rather than pushing back against them. I would hope that you see that if the right regulatory measures are put in place so that they are applicable to everyone in your business, that you’ll be able to embrace those principles without putting yourself at a competitive disadvantage.

PHOTOGRAPHY: RICK CHARD

Dennis Tew: We are concerned that the client-focused reforms may not achieve those goals or may achieve them with too many unintended consequences. We are regulating to the lowest-common denominator, and while that is a good thing, it’s not a one-size-fits-all. I’m concerned that the narrowing of choices of investment service providers, a reduction in the number and quality of investments available to clients, reduced competition and increased consolidation in any industry is going to be bad for consumers. That’s the one that really rests with me at the end of the day.

Greg Pollock

Debra Foubert: The emphasis about cost has really been on the fact that investors need to know what they’re getting and how much they’re paying for that. While cost is one factor that’s considered, the guidance is that when all things are equal then you would look at the cost. But we are not inhibiting professional judgment. We are not saying that every single conflict needs to be disclosed. What we’re saying is firms have to identify the conflicts, they have to manage the conflicts and address the conflicts in the best interest of the client, and those conflicts that are material and a client would expect to be disclosed have to be to disclosed to the client.

ON IMPROVING INVESTOR PRODUCT KNOWLEDGE DT: I absolutely agree with the regulatory

objective of increasing knowledge of the products that are in the investor’s portfolios. But the whole need to compare every product that’s recommended against the entire universe of similar products is

Debra Foubert, Neil Gross, Dennis Tew NOVEMBER / DECEMBER 2018 FORUM 21

SYMPOSIUM absolutely not practical. I think it has to lead to reduced product shelves, which is reduced investor choice. DF: That’s not the intent of the CSA. There was never an intent to have a wholesale reduction of a product shelf. The products need to compete on the merits of the product. It’s not a comparison of an entire universe of products. NG: I think it’s very important for this community to understand though, that we have spent a very long time portraying ourselves as professionals but not fully embracing the responsibilities that come with professionalism. Now it is incumbent upon us to make up for that and to make it clear that we understand the notion that there is a high level of responsibility that comes with it. That there are either going to be fiduciary duties, or fiduciary like duties, which come with a mantle of professionalism, and our business models have to adapt to that. But I think we must do it.

*** Our next panel examined the ethics of artificial intelligence and fintech. Speakers were Chelsey Colbert, associate, Fasken; Chadi Habib, executive vice-president, information technology, Desjardins Group; and James Leong, senior legal counsel at the B.C. Securities Commission. Jean-

Michael Hyatt

François Démoré of the Advocis Technology Task Force moderated the discussion. Chadi Habib: There is more and more data that can be analyzed to make investment decisions for your customers. There’s people already dynamically analyzing political information, weather information, and geopolitical aspects to make decisions, and machines are doing that and feeding into it. It’s no longer possible in some domains for a single human being to be able to analyze all that to make a good recommendation for their customer. At Desjardins, we do not believe in 100

Jean-François Démoré, James Leong, Chelsey Colbert, Chadi Habib

22 FORUM NOVEMBER / DECEMBER 2018

per cent virtual or automated advice. Millennials have told us that. Boomers have told us that. They have all said the following: There are moments in our lives where we want to have human interaction. We want to have that human interaction on our terms and conditions. But the Millennials don’t want you to force them to come to your office. Maybe they’re going to want to do it over Skype. Maybe we’re going to go to a nice gourmet coffee shop, have a seat beside each other and have a chat around this. They want to do it on their terms and conditions. It’s also a complete myth that older people cannot be digital. Boomers can be as digital as everybody else. They also want it to be on their terms and conditions and they want to be accompanied in this transition because that’s something we don’t do enough. I think if you’re able to find some type of algorithm that’s helping you to refine that type of decision and make it more streamlined, that’s an efficiency that you might be able to identify. It’s something that might improve the quality of your decision making because you may also step back and say, “Look, there are certain things that I might have in my decision making process and I’m trying to decide if something is suitable for my clients.” Maybe there are biases that you have that are hardwired into you that you just don’t recognize. Maybe some of those types of things can be identified or tested in a different way through an algorithm or through another product.

AI VERSUS ADVISOR MISTAKES Chelsey Colbert: I think that for me, it always has to go back to the human or the organization. I say that because in some places, there’s a push that if we program ethics into the AI, then the humans can take a step back and we’re not accountable anymore — the AI is accountable for it, the algorithm is accountable for it. Maybe we should make an artificial person. There are all of these ideas being floated around and I really disagree with that. I think that no matter which human or which organization, it always has to flow back to the human. James Leong: You always have to step

Chuck Grace, Hélène Samson, Jonathan Hoss, Kelly Gustafson

back as advisors and consider whether or not what you’re doing is really in the interest of your clients. From a regulatory perspective, we also have to go back and think about whether certain rules make sense in new circumstances where new processes may not necessarily address what we were thinking of initially.

“The winning perspective makes reality work for you. The alternative, of course, is the whining perspective. And the trouble with the whining perspective is that you force reality to work against you.”

*** After lunch and a keynote speech from entrepreneur Michael Hyatt from Dragon’s Den fame, we enjoyed a session about insurtech to learn how new developments are rapidly changing the insurance industry. This panel featured Kelly Gustafson, national director, sales innovation, IDC Worldsource Insurance Network; Jonathan Hoss, vice-president, innovation, GreatWest Life; and Hélène Samson, director, prudential oversight of financial institutions, AMF. Chuck Grace of Ivey Field Project moderated the discussion. Jonathan Hoss: This is not about technol-

ogy, this is about changing expectations, a changing world, and a new set of realities that customers and advisors are expecting when they deal with any organization. Insurtech is about solving problems, and meeting the unmet needs of customers. And I think that if advisors and regulators take that view of it they will realize that things will be OK, and this is actually a very exciting time. Kelly Gustafson: Who’s investing? Carriers

are investing. Third parties are investing. We’re seeing e-applications, an uptake in non face-to-face business, e-signature delivery, automated underwriting and lead generation programs. What does that

— Jim Ruta, coach, industry consultant

mean to you as an advisor? If you have not engaged digitally in some way, then it is like compound disinterest. You’re getting farther and farther behind. You should be disrupting yourself and identifying … your gaps, your inefficiencies, and then aligning yourself with the right technologies to try to fill those gaps.

331 statutes and 380,000 regulations in Ontario. Red tape is one of the single biggest holdbacks that we have. When I talk about red tape reduction, I’m talking about removing a hundred thousand pieces of red tape; 25 per cent reduction by 2022. FORUM: Why is the province of Ontario

EXCLUSIVE ONE ON ONE WITH VIC FEDELI, ONTARIO’S MINISTER OF FINANCE FORUM: Depending on where you stand

politically, we’re either overregulated or under-regulated. How do you marry the line between too much and not enough regulation? Vic Fedeli: We’re very concerned about the amount of regulation in Ontario. There are

against the CSA’s stance on deferred sales charges? VF: We believe that we need to have choices,

and one of the things that the previous government was going to do was remove one of our choices in the commission structure. [Taking away] the deferred sales charge was going to be eliminating one of the choice options, and we don’t believe that’s right. We’re going to consult for other options that protect the market and protect the investor, but we believe that we have to have a full array of choices available. NOVEMBER / DECEMBER 2018 FORUM 23

SYMPOSIUM FORUM: What are your suggested alterna-

tives? VF: Consulting with the industry. Let’s hear from them. They’re the experts, so let’s hear from them, knowing that we respect choice. FORUM: The CSA already has a proposal

in place with the other provinces, and now we’re going to spend more money on consulting. How much consulting do you plan to do? VF: This is not all about spending money. I mean, consulting can be a low-cost option, but we absolutely feel that we need to let people know that we’re open for business.

in improving productivity for a small business?

videos comparing household and government debt. But those aren’t quite the same thing. You can’t run government the same as your household.

VF: The best thing a government can do is

get out of the way. Governments don’t create key jobs. They’re supposed to create the environment for jobs. If you want to help by lowering corporate taxes from 11.5 per cent to 10.5 per cent, that’s good. Lowering small business taxes is good as well. Helping with red tape is also a big factor, and also making sure the federal government is a partner in all of this. The one thing that we did with our fall economic statement was say to the federal government, “You know that passive income tax that you were going to punish people with come January 1?” We’re not doing that. We’re not implementing that. It will not go through, and that will save more than 7,900 businesses up to $40,000 each. That’s what a government should be doing — clearing a path for business to go forward, be the job creators, and make it easier to either open or grow a business in Ontario, and hire people. That’s the role of the government. We’ve also written to Minister Morneau and have spoken to him face to face about an accelerated capital cost allowance. We believe that the government should mirror what was done in the United States. They are eating our lunch here with their massive tax cut. It was one of our few advantages. FORUM: I’ve seen your financial literacy 24 FORUM NOVEMBER / DECEMBER 2018

VF: Well, we should. We pay 12.5 billion dollars a year in interest, and we are borrowing 15 billion a year, that’s our deficit, and we’re actually borrowing 100 per cent of our interest. We’re borrowing every day just to pay our interest payments. Who can do that? What household can do that, or would have ever allowed it to get to that point? So the financial literacy videos stem from my private member’s bill that I released a couple of years ago, where it is my belief that every [high school] student should [take a] mandatory financial literacy course. If we had financially literate people running the government, it would stop that deficit from happening again. FORUM: How do we reduce the debt but pay for and encourage investment in the province? VF: It’s only been a few weeks that we’ve

been in government. In 11 weeks we’ve reduced the deficit from 15 billion to 14and-a-half billion, and we’ve returned 2.7 billion to the people in tax relief. FORUM: Do you have a timeline to complete your efficiencies? VF: It will be Goldilocks. Not too early, because no one will believe us. Not too

long because anybody can do that. It’ll be just right. FORUM: On a personal note, do you have a financial advisor, and if so, what qualities were important to you when you selected this professional? VF: My brother, Petey, is my financial plan-

ner. He’s given me spectacular financial advice all my life. He always puts my needs first. I found the sale of my business [an advertising company in North Bay, Ont.] to be all encompassing. My accountants and lawyers were all involved but my brother’s advice was the most important. It served me very well and allowed me, for quite a while, to enjoy the fruits of my labour. FORUM: What advice would you give advisors on how to best serve their clients? VF: Go for the long gain. Taking the short haul, taking the short gain, a quick win from somebody is never going to serve you well. You’ve got to show them the decisions you are making together are only for them, never to help you, never to make your number of the month or whatever you’re doing. It’s always about them. Don’t only tell them, but prove it to them. Be there for the long-term for them. Get to know them. Get to understand what they’re really all about and what their family’s needs are. It can’t be lip service; it has to be from the heart. You have to genuinely understand what they’re all about.

PHOTOGRAPHY: RICK CHARD

FORUM: What role does government play

Vic Fedeli

Together, we’re making a difference. We’re proud to have you in our corner.

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PRACTICE MANAGEMENT

Avoiding

Burnout

Hitting the wall with productivity is a sign to make changes in your life. Evan Thompson has seven suggestions

26 FORUM NOVEMBER / DECEMBER 2018

Sean, a financial advisor, had just earned his second promotion of the year within a large sales region of a major financial institution. He was signing up new clients weekly. While his managers celebrated his success and assets rolled in, Sean’s team couldn’t keep up with his changing demands and his lack of focus. After a year of unprecedented performance, Sean suddenly “hit the wall” and his productivity declined as new clients quickly became former clients.

PHOTO: ISTOCKPHOTO

igh-achieving financial advisors may not need to slow down — as long as they understand why they are speeding and why they need to set some speed limits for the benefit of themselves, their colleagues, and their clients — before they hit the wall. It involves understanding why you feel driven to succeed at everything you do and why you will dwell on your shortcomings versus on your overall success. Decades spent working as a communications consultant with financial advisors have shown me that some of the most successful tend to be entrepreneurial, driven people who sometimes can’t find an offswitch due to their need to stay one jump ahead of their nightmare — not winning or being the best in the pack. This pressure, combined with clients’ needs and the industry’s technological and legislative developments, keeps them awake at night and many can never feel content. A professional’s ability to stay in touch with themselves and manage their drive needed to succeed in this industry affects not only themselves but also their team members, families, and clients. Research released in 2015 led by Dr. Michael Freeman of the University of California, San Francisco, was based on a study of 242 entrepreneurs. Seventy-two per cent of the entrepreneurs reported personal mental health concerns, a proportion that was significantly higher than that of the comparison group. The entrepreneurs were significantly more likely to report a lifetime history of depression (30 per cent), attention deficit hyperactivity disorder (29 per cent), substance use conditions (12 per cent), and bipolar diagnosis (11 per cent) than were comparison participants. The findings of this study are relevant because they show a link between entrepreneurship and many of the behavioural differences associated with mental health conditions. The sooner you address the following issues, the better in terms of treating or possibly eliminating them from your life. Here are seven tips to help you make the most of your entrepreneurial spirit and reach your goals without creating undue stress for yourself, your colleagues, or your clients.

1. Stay in Touch with Yourself See your doctor if you notice a change in your sleep patterns, ability to concentrate, appetite, or energy level. (Heed the advice of family or friends who see changes in you.)

2. Get Out There Rather than just acknowledging the need for a healthier work-life balance, do something about it. Get involved in activities, such as yoga, cycling, or organized sports, where you can feel part of a group without having to lead it.

3. Change the Pace From time to time, talk with (and listen to) colleagues with different roles within your organization or team. This will take you away from your regimen while proving relaxing and informative, and will help you build relationships with others.

4. Develop a Circle of Friends Outside Your Business Network This means finding confidantes where you don’t feel the need to either compete or promote yourself. Make friends with those whose occupations have nothing to do with yours. This isn’t suggesting that you avoid networking all together, but try to step out of your role from time to time. I’ve heard advisors say, “I can’t stop networking because I love what I do and don’t want to do anything else.” They may really be saying, “It’s come to define me and I’m afraid to step away from it — even for a little while.”

5. Focus on Using Your Innate Skills in Another Area Do this even if it means learning something from scratch. You can still answer your need to succeed as you master a new skill while channeling your energy in another positive direction. One successful advisor I know spends part of his holiday time working anonymously as a server in a soup kitchen for the homeless. Another took up riding.

6. Hold More Team Meetings These conversations will allow you to get ideas from your colleagues and delegate more effectively. Be clear about the meeting’s purpose, what you expect from each participant, and the length of each meeting.

7. Try to Recognize Your Accomplishments Do that instead of focusing on your shortcomings. Hit the pause button after reaching a goal and reflect on what you did to achieve it. Try not to be like the student who scored 95 per cent on an exam and agonized over what happened to the other five per cent. Keep these points in mind when mentoring team members and give credit where credit is due to keep spirits high and avoid burnout. Building a financial advisory practice really is a marathon, not a sprint. Take time to celebrate and offer accolades frequently. EVAN THOMPSON is a business relationship and personal branding expert, writer, and head of Toronto-based Evan Thompson and Associates.

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TAX UPFRONT

BY JAMIE GOLOMBEK

CCPC Planning An update on how the CCPC rules will work

f you have clients who are either business owners or incorporated professionals, no doubt they are well aware of the significant changes to the tax rules that came into force earlier this year surrounding the taxation of Canadian controlled private corporations (CCPCs). Effective for 2018, new rules were put in place to block most attempts at sprinkling income among family members as shareholders of a CCPC. Rules were also put in place that may limit the ability for some CCPCs to claim the small business deduction (SBD) in 2019, based on their corporate passive investment income in 2018. It’s the passive income problem that provides an opportunity for advisors to add considerable value by suggesting a variety of investment and life insurance solutions to reduce the adjusted aggregate investment income (AAII), and help business owner and incorporated professional clients preserve as much as the SBD as possible in 2019, and future years.

BACKGROUND The tax rate on business income earned in a corporation is generally much lower than the top personal marginal tax rate for an individual who earns business income; consequently, until income is withdrawn from a corporation as a dividend, there is a “tax deferral” in the form of personal taxes that are deferred until a dividend is paid. Where active business income earned in the corporation is eligible for the SBD, a lower corporate tax rate (the SBD rate) applies. For this “SBD income” the tax deferral ranges from 35.5 per cent to 41 per cent in 2018, depending on the province. The amount of tax deferred in the corporation results in higher starting capital for investment, compared to an individual investor. So if the higher amount of aftertax business income is invested inside the corporation, a shareholder may end up with more after-tax income from the corpora28 FORUM NOVEMBER / DECEMBER 2018

tion (compared to investing personally) at the end of the investment period. The government considered this unfair and took steps to minimize the tax deferral.

THE NEW RULE (2019) The SBD rate currently applies federally up to the SBD limit, which is the first $500,000 of qualifying active business income of a CCPC. Starting next year, in 2019, the SBD limit will be reduced for CCPCs with more than $50,000 of certain investment income, or AAII, in the previous year. The SBD limit will be reduced by $5 for each $1 of AAII that exceeds $50,000 and will reach zero once $150,000 of AAII is earned in the previous year. This will decrease the tax deferral available on SBD income earned after 2018. Note that private corporations (including pure investment holding corporations with no active income) that do not have any income that qualifies for the SBD rate will not be impacted by this measure. The Ontario government has announced that it will not be following this federal tax change.

STRATEGIES TO REDUCE AAII First, business owners or incorporated professionals may wish to consider withdrawing sufficient salary from their CCPC by December 31, 2018 to maximize contributions to RRSPs and TFSAs. Previous studies have shown that RRSPs and TFSAs may provide a higher level of after-tax retirement income than leaving funds in the CCPC to be withdrawn as dividends in retirement. Receiving salary of at least $147,222 by December 31, 2018 will allow the maximum RRSP contribution of $26,500 in 2019. Reasonable salaries may also be paid to family members who work in the business to allow them to make contributions to their own RRSPs and TFSAs. When it comes to investments, business owners may wish to consider investments

that lean toward growth rather than annual interest or dividend income, as this way they can better time the recognition of a capital gain. In addition, since capital gains are only 50 per cent taxable, it would take $100,000 of realized capital gains to generate $50,000 of passive income that is counted toward the AAII test. It may also be possible to stagger dispositions of investments between calendar years. For example, if there will already be more than $150,000 of AAII in one year, consider triggering additional capital gains in that year, rather than the next, if that might reduce AAII below the threshold in the next year. Conversely, it may be worth triggering capital gains or losses in a specific year because capital losses cannot be carried forward to a future year for purposes of reducing AAII. As a result, capital losses and gains should generally be realized in the same taxation year. Finally, choosing to invest the after-tax income of the corporation into a corporately owned life insurance policy that insures the life of the business owner, or some other individual, may be an ideal solution. The death benefit may flow out partially, or perhaps even entirely, as a capital dividend that is generally tax-free to the shareholder. Income and growth on the underlying investments are tax-sheltered within the life insurance policy and are not included in the corporation’s income on an annual basis, so they don’t form part of AAII. JAMIE GOLOMBEK, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Estate Planning, with CIBC Financial Planning & Advice in Toronto. He can be reached at Jamie.Golombek@cibc.com.

Would you like to receive a PDF of this article or others in this issue? Please email the editor at dgage@advocis.ca.

ESTATE DILEMMAS

BY KEVIN WARK

Primary and Secondary Options Are multiple wills more trouble than they are worth?

PHOTO: ISTOCKPHOTO

“

robate” describes the process whereby the executor of an estate provides the “probate court” with documentation to establish the death of the testator, and that the will being submitted for probate is the “last will and testament” of the deceased. Probating a will often involves legal fees and delays in administering the estate. In addition, most provinces (with the notable exceptions of Quebec and Alberta) levy probate fees or estate administration taxes. Probate fees are determined as a percentage of the value of the assets governed by the deceased’s will, generally with no maximum limit. For example, the executor of a deceased who resided in British Columbia would be required to pay probate fees in the range of $5,000 on a $400,000 estate. Small business owners, at least those in Ontario and British Columbia, can benefit from a special probate planning technique. For these individuals, shares in a private

corporation can represent the single most valuable asset in their estate. Of course, if those shares pass through a will that requires probate, the estate will incur increased probate fees. But the transfer of shares in a private corporation on the death of a shareholder can usually be accomplished without the need for a probated will. An Ontario court decision has confirmed that it is possible to establish a separate will that only deals with certain assets, such as shares in a private corporation or personal property. This will does not require probate, therefore, there would be no probate fees or delays in distributing those assets. A recent British Columbia court decision has similarly sanctioned the use of a non-probated secondary will to govern such assets and by doing so avoiding the payment of probate fees. However, the recent Ontario court decision involving the estates of John and

Sheilagh Milne (referred to as the Milne Estate decision) has at least temporarily thrown a monkey wrench into some estate plans involving the use of multiple wills. The Milne Estate decision involves two testators who created two materially identical wills. The “primary will” settled upon the executors all property owned by the two deceased except any other assets for which the executors determined that a grant of probate was not necessary. In turn, the “secondary will,” which expressly did not revoke the primary will, included all property owned by the two deceased, including any other assets for which the executors determined that a grant of probate was not necessary. The executors (and it is assumed the beneficiaries) were the same under both the primary and secondary wills. The executors submitted probate applications for the primary wills upon the death of the testators, without making similar application for the secondary wills. The executors took the position that secondary wills did not revoke the primary wills and did not require probate. The issue argued before the court was whether a will that grants the executors the discretion to determine what property is subject to the will is valid and therefore can be admitted to probate.

THE COURT DECISION The court determined that a will (i.e., the estate) is a form of trust and must satisfy the “three certainties” required to form a valid trust. One of those three certainties is that the property committed to the trust must be ascertainable at the time the trust is created. The court questioned whether this condition had been satisfied. Counsel for the executors argued that it was not the role of the probate court to determine the interpretation of a will being put forward for probate. The court disagreed with this view, maintaining that if a will is invalid for any reason, probate should not be issued. The court then went on to hold that giving the executors the discretion to determine if a particular asset can go into the primary or secondary will means that it cannot be determined at the time of death which assets are to go into the primary will. As well, this is not a defect that can be Continued on page 30 NOVEMBER / DECEMBER 2018 FORUM 29

ESTATE DILEMMAS Continued from page 29 rectified after the fact by paying any additional probate fees or taxes otherwise owing. Given the fact that the secondary will could apply to all property of the testator unless “carved out” by the executors, the court found the primary will to be void. On the other hand, the court indicated the secondary will did not suffer from a similar defect and could be submitted for probate. Thus, while multiple wills are a “commonly unobjectionable estate planning tool,” the property that is governed by each will must be ascertainable without regard to the discretion of the executors. This decision of course defeated the original purpose of having two wills, since all the deceased’s assets would now be subject to probate and probate taxes. The Milne Estate decision has now been appealed.

WHAT TO DO Clients with multiple wills should (with some urgency) contact their estate lawyers

The executors took the position that secondary wills did not revoke the primary wills and did not require probate. The issue was argued before the court. to determine if the Milne Estate decision applies to their own planning. If their wills do fall within the scope of this decision, consideration should be given to redrafting those wills to specifically carve out any property to be governed by the secondary will. Alternatively, the client may choose to throw the dice and wait for the appeal court to make a final determination on the effectiveness of their planning. But for many individuals, this decision also creates

for dining travelling shopping celebrating be sure to check your perks

the opportunity to review and update their current wills to take into account more recent changes in their personal and financial circumstances. Since the writing of this article another Ontario court decision has been issued that relates to probating a primary will (and not probating the secondary will), which contains very similar provisions to the primary and secondary wills considered in the Milne Estate decision. In Re Panda Estate (“Panda Estate”) the court took issue with the decision in Milne Estate, indicating that it would be inappropriate for the court to make any determination regarding the validity of any powers conferred on the estate trustees. Based on this analysis the court granted probate to the primary will without requiring probate of the secondary will. It still remains to be seen how the Court of Appeal will deal with the Milne Estate decision given this conflicting lower court decision. KEVIN WARK, LLB, CLU, TEP, is the author of The Essential Canadian Guide to Estate Planning (2nd Ed.) and The Essential Canadian Guide to Income Splitting.

HOW TO REACH US ON TWITTER: @advocis@deannegage ON FACEBOOK: facebook.com/advocis ON LINKEDIN: linkedin.com/company/advocis

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TECHNOLOGY & SOCIAL MEDIA

BY MASOOD RAZA

Improving Service Using technology to help you win and retain business

oth independent and career agents are responsible for more than just providing sound financial advice. There is also a resounding need to become marketing, sales, and customer service experts to service your practice. Leveraging consumer-friendly technology that keeps your practice compliant is the best way to handle your business. Having a good customer relationship management (CRM) tool is a must-have today. If you are sending marketing messages to prospects and keeping records of your client activity, a CRM is the easiest and most efficient way of storing and retrieving that data. Not only is it a good idea to keep your client data stored in one place, it also serves as an incredible way to unearth new business opportunities. Popular CRMs like Salesforce will integrate with most marketing automation and customer service tools.

PHOTO: ISTOCKPHOTO

DISCOVERY CALLS Traditionally, consumers expect to meet their financial advisors face-to-face. In fact, most types of financial instruments require at least one in-person meeting to take place between the advisor and the client. For example, in life insurance sales, an advisor will need to meet the client to sign the application forms and again to deliver the policy. It’s highly unlikely an advisor can give sound advice without some sort of discovery process, usually in the form of a needs analysis. A great way to qualify candidates and scale the initial process could be running relevant webinars to address key topics. Clients who want to know how much insurance they need, learn about the process of obtaining coverage, or see comparisons of policy types could get all that information

in live or recorded webinars completely recorded and hosted using software like Join.Me or GoToWebinar. Once they’ve completed an informational webinar, you can call on them to book a video discovery call or opt-in for email messaging in the form of an educational drip campaign that provides relevant product information to prepare the prospect for purchase. Videoconferencing and collaboration tools such as High Five allow advisors to offer a more personable way to connect for an initial conversation than over the phone or Skype.

CREATING ADVOCATES Customers who love your brand will also spend more money with your brand. They will look to you for advice on future purchases, and eventually, should the need for your services arise again, the trust and authority has already been established. You can can start by engaging an audience

of existing customers in an active dialogue, speaking to the needs and wants of this particular customer group. Develop raving-fan customers who become advocates of your brand or product, and who represent your practice as if it was part of their own identity. The next step is to actively seek referrals. Take a good look your existing network. Make a plan to identify, score, and reach out to any potential referral sources. Segment your list into “advocates” and “acquaintances.” It’s the advocates who are eager to refer. Trust has already been established and they will go out of their way to connect you with their friends and associates. Regularly engage on your advocates’ social media — mainly Twitter and LinkedIn — invite them to events, and send them useful, personalized emails and personally deliver holiday cards or gifts. An acquaintance might refer, so keep in contact with them on occasion. Every so often engage them on social media (Twitter, LinkedIn), invite them to events, and send them useful and personalized emails. Try to provide value as much as possible. The goal is to eventually compel acquaintances to become advocates. All of the above mentioned tactics are part of a much greater strategy, to merge the silos currently separating your marketing, sales, and customer service practices. The future of financial services distribution, and sales in general, is to offer amazing content that delights prospects and instills trust in your brand, eventually leading them to become clients and evangelize your offerings. MASOOD RAZA is director of marketing with Crowdlinker, a digital product studio based in Toronto. He can be reached at masood.raza@crowdlinker.com. NOVEMBER / DECEMBER 2018 FORUM 31

AdvocisNews ASSOCIATION UPDATES AND EVENTS

CSA’s Stance on Changes to Mutual Fund Commissions

n September 13, the Canadian Securities Administrators (CSA) and the Ontario Securities Commission (OSC) released proposed rule changes to mutual fund commissions, including rules that would eliminate deferred sales charges (DSCs) for mutual funds. When purchasing a DSC mutual fund, investors avoid paying upfront fees and instead pay a sales charge when the mutual fund is sold. The amount of the DSC decreases according to a set schedule, with the sales charge becoming lower the longer the mutual fund is held. It is typically eliminated after five to seven years. In an unexpected move, Ontario Minister of Finance Vic Fedeli issued a public statement in opposition to the proposed changes. In the statement, Fedeli expressed concern that the proposal would discontinue “a payment option for purchasing mutual funds that has enabled Ontario families and investors to save towards retirement and other financial goals.” The statement also confirmed that Ontario is not in support of the proposal as currently drafted, noting that the proposals had been developed through a process initiated by the previous provincial government. Provincial securities commissions generally operate at arm’s length from government. However, they are ultimately accountable to their respective ministers of finance. In Ontario’s case, the minister has the authority to accept, reject, or return the rule to the OSC for further consideration. With the largest capital markets jurisdiction in Canada seemingly rejecting the rule from the outset, it is unclear whether other provinces will follow suit or attempt to forge ahead without Ontario. Advocis will be preparing a submission to the CSA, emphasizing the need for regulators to preserve Canadians’ choice in regards to how they access financial advice. We believe the best way to ensure that DSCs are properly used is to promote professionalized and accountable financial advisors. The public comment period closes on December 13, 2018.

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Stephen Pustai

tephen Pustai has not only been a member of Advocis for 65 years, he has also had a distinguished career with London Life for the same time period. Pustai has demonstrated a lifelong dedication to serving his community and profession, from his sponsorship of the St. Joseph’s Healthcare Foundation in Hamilton to his international speaking engagements, as well as 22 years reading an annual homily at his church. Pustai never envisioned that he would dedicate his life to the insurance business. It all started during a regular day at Silverwood Dairies where he worked as a junior milkman. His foreman, Don Mackenzie, looked at him and told him about a job opening at London Life. Pustai rejected the idea. Unimpressed by his response, Mackenzie stormed away, slamming the door. But what happened next was one of those life-changing moments for Pustai. Mackenzie returned to the room and said, “Take a look at me you young hotshot. I’ve been here for 34 years. Is this where you want to be 34 years from now, doing what you’re doing right now?” It wasn’t. That night, Pustai told his wife, Barbara, what had happened, and committed to making amends to Mackenzie the next day. He apologized to Mackenzie and asked him for the contact at London Life. Mackenzie eventually did so, and ended up being one of Pustai’s first clients.

PHOTO: ISTOCKPHOTO

REGULATORY AFFAIRS

MEMBER RECOGNITION

For Pustai, financial advice was never about making a sale and going home. What mattered was listening to people, treating them kindly, and ensuring they are cared for. His life was not without hardship. His son Rob died suddenly from a coronary at the young age of 35. Pustai, in the midst of a loss that still moves him to tears, took comfort in the knowledge that his son’s family would be well cared for since they practised what they preached in terms of financial planning. During the grieving period, Pustai began noting down loving recollections of family life and his reflections. The book, Dreams Can Come True, came out in 1996. His pastor Don Berry-Graham’s review of it captures much of the spirit of this lifelong Advocis member. “Stephen’s adult life was spent in the insurance industry,” he writes. “His goal was to serve people to make their lives better. To listen with compassion, to go the extra mile, and to be there when they needed him. Stephen became a member of the Million Dollar Round Table not by taking advantage of others but by caring for others. He served London Life as a manager where once again he put to work the central theme of his life, which was to serve others. His career as a manager was outstanding because once again he listened and focused not on the negatives but on the good qualities of those he worked for.” Pustai’s remarkable act of writing a life-affirming book of inspiration at such a difficult time teaches us that whatever obstacles we face can be opportunities for selfless service to others, an important lesson as we deal with our challenging moments and help our clients through theirs. In reflecting on the importance of Advocis membership, Pustai emphasizes the value of attending meetings and discussing ideas. He calls himself an “ideas man,” and he places such high worth on the opportunities meetings provide for learning and testing ideas that he requires members of his team to attend them.

Tyler Zaba, Tyler Financial Group, receives the Julia Award from Rita Steiner, a South Saskatchewan chapter member.

CHAPTER NEWS

Golfing For CF

he South Saskatchewan chapter held the 65 Roses Golf Challenge for Cystic Fibrosis on September 6. At the tournament, the chapter presented the Julia Award, named in memory of Julia Herbert, a cystic fibrosis ambassador. The award acknowledges groups or individuals who have made a sustained and ongoing financial contribution to the fight against cystic fibrosis. It is reserved for volunteers, not associates. This year’s recipient was Advocis member Tyler Zaba of Tyler Financial Group.

Advocis Ottawa recently hosted a social event with sponsors, partners, and family at an Ottawa Champions baseball game. Board, sponsors, partners, family, and the Ottawa Champions mascot pictured above. Ottawa Champions are one of Advocis Ottawa’s partners, in addition to long-term partners Cystic Fibrosis and Junior Achievement.

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FINAL WORD

Professional Financial Advice is Key for All Investors

BY GREG POLLOCK

dvocis has made great strides in our efforts to preserve consumer choice and protect the rights of advisors and small business owners across the country. As good as the past year has been, it’s the future we’re excited about. The new year will bring a series of changes for Advocis members that will propel our industry forward, while increasing consumer protection. On January 1, 2019, we are introducing new membership requirements to ensure that all members of Advocis earn and maintain a recognized designation. New members will need to have a designation when they apply, or earn one within their first three years of membership. Another new key aspect of membership is accepting the Advocis Attestation to observe and follow the principles of the Advocis/The Institute Code of Professional Conduct on an ongoing basis. Both of these new membership requirements provide consumers with the assurance that when they work with a member of Advocis, they’re in good hands. Along with our enhanced membership requirements, we have introduced a new designation. The Professional Financial Advisor designation (PFA) bridges the gap between theory and the success that comes with real-world practices within a regulatory and ethical framework. The PFA is the perfect stepping stone for newer advisors on the path to professionalism. The designation program provides comprehensive practical training in the business of financial advice, including client relationship skills; financial planning; regulatory knowledge; ethical practices; and sales, business, and marketing skills. These changes — the new membership requirements and the introduction of the PFA designation — move us closer toward industry professionalization. Like lawyers, accountants, and engineers, we believe every financial advisor should be a member of a professional body and be required to adhere to a common code of professional and ethical conduct, hold mandatory professional liability insurance, participate in ongoing continuing education, and be subject to a disciplinary process that has the authority to suspend an advisor who has wronged an investor. Since the regulatory framework in Canada is highly fragmented, with different regulators overseeing the sale

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of different categories of financial products, such as insurance, mutual funds, and other securities, there is no effective industry-wide oversight or disciplinary process to ensure the integrity and accountability of financial advisors. For example, if an advisor engages in misconduct so egregious in the course of selling a mutual fund that the Mutual Fund Dealers Association revokes their registration, there is nothing to prevent the same advisor from continuing to provide advice and sell segregated funds through their insurance licence. What’s more, under existing regulations, there is little assurance that an advisor’s knowledge is being kept up to date. Requirements for continuing education vary widely by product and even by province, and in some cases, there are no requirements for continuing education at all. While an advisor must demonstrate initial proficiency to obtain a licence to sell life insurance, mutual funds, or other securities, the industry is constantly evolving and an advisor’s understanding quickly becomes obsolete. In what is perhaps the most glaring gap of all, anyone in Canada (outside of Quebec) can call themselves a financial advisor — regardless of their lack of education, training, or accreditation from a governing professional body. As a result, investors are at significant risk of not only receiving poor advice, but also falling victim to unscrupulous actors posing as legitimate advisors. At a time when working families are shouldering record levels of household debt and less than one third of the workforce can count on an employer pension at retirement, we need regulations that expand access to reliable financial advice. In fact, academic research has consistently shown that those of us who work with a financial advisor accumulate up to three to four times more wealth than those who don’t. Advocis members are committed to improving the overall quality of financial advice Canadians receive, and industry professionalization is the way to do that. Let’s work together to raise the bar for financial advice and make 2019 the best year yet for our chapters, our clients, and our industry. GREG POLLOCK, CFP, is the president and CEO of Advocis.

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