FORUM Magazine - December 2019

FORUM NOV / DEC 2019 • $5.50

The Magazine of Influence for Financial Advisors

Digital Life After Death

Bitcoin. Social media.

Online-only accounts.

Inside the complexities of today’s estate planning

SPOTTING RED FLAGS

IN SHAREHOLDER AGREEMENTS DECONSTRUCTING LONG-TERM CARE INSURANCE

ADVOCIS SYMPOSIUM ’19

How Changing Demographics Affect Advice Giving Publication Mail Agreement # 40069004

Pathways segregated funds

Designed to perform The best thinking from the best fund managers: introducing Canada Life Pathways segregated funds.

Access to leading institutional fund managers with proven track records can make a real dierence to portfolios over the long term. New Pathways segregated funds are exceptional building blocks for a solid portfolio, giving your clients the beneďŹ t of investments with high conviction and concentrated mandates. All in funds that proudly carry the Canada Life name.

To learn more, visit canadalife.com/segfunds

Tracy Chen, Brandywine Global

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

FORUM VOLUME 49, 4

|

NOVEMBER / DECEMBER 2019

|

ISSN 1493-826X

FEATURES

8

Death in the Digital Age

Digital assets can make estate planning more complex. Deanne Gage investigates how advisors can help clients be better prepared

12

Generation Shift

Susan Yellin reports on how changing demographics are impacting financial advice, and other insights from the sold-out Advocis Symposium ’19

DEPARTMENTS

COLUMNS

4

25 CORPORATE INSURANCE

EDITOR’S JOURNAL Examining the “why” behind retirement woes

6

OPENERS Government needs to prioritize long-term care; more women named to boards of directors

29 ADVOCIS NEWS

How shareholder agreements can be unique among family businesses

BY GLENN STEPHENS

26 ESTATE DILEMMAS Tips and traps of a corporation’s capital dividend account

BY KEVIN WARK

Association updates and events

31 THE FINAL WORD Huge leaps forward for regulating advice

27 TAX UPFRONT Are commissions on an advisor’s life insurance policy taxable?

BY JAMIE GOLOMBEK

BY ABE TOEWS

COVER PHOTO: GETTY / ISTOCK

28 LEADERSHIP & GROWTH How clear communication leads to stronger relationships and better results February issue: Financial messes

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

BY JONATHAN SCHJOTT

18

Alternative Savings

Clients don’t tend to buy long-term care insurance. Richard Parkinson explains how you can build the case

22

Uncovering Pitfalls

Gary Clark shows how advisors can demonstrate value to business owners by revisiting nuances in shareholder agreements NOVEMBER / DECEMBER 2019 FORUM 3

BY DEANNE GAGE

The Why behind Retirement Woes

A

t the end of the year, many workplaces host not only holiday gatherings, but also retirement celebrations. It’s generally a happy time where soon-to-be retired folk marvel at the next chapter of their lives.

Contrary to the media’s portrayal of hitting the links and travelling overseas, most retired people I know are just thrilled their hour-long commute is a thing of the past. They revel in spending more time with the grandkids or volunteering in the community. They’ve ditched the alarm clock, stay an extra hour in bed, and leisurely sip coffee while reading a page-turner. As many advisors have told me, retirement is essentially about doing what you want, when you want it, without having to answer to anyone.

But a new study from Sun Life found trouble in retirement land. Here’s a stat of note: 72 per cent of investors felt retirement wasn’t what they expected. While the insurer didn’t specifically ask why the respondents felt that way, they have clues based on the results of the other findings. For example, 59 per cent believe there’s a risk they’ll outlive their savings, and 81 per cent are experiencing high levels of stress.

Sun Life believes the increased cost of living and longer life expectancy has people worried that they have not saved enough to get them through a lengthy retirement span.

But perhaps the issue has nothing to do with a lack of savings. It could be about a lack of planning out your day, month, and year in retirement. Consider my mother, who has been retired for 13 years. In the early years, she said “yes” to all sorts of projects, thinking she had tons of time to work on everything. But instead, all the commitments made her feel like she was back at work. Today, she has a better handle on the kinds of projects she wants to do, and has learned to say “no, thank you.”

The retirement uneasiness could also be about doing things you just hadn’t envisioned at all. Sure, you wanted to spend 4 FORUM NOVEMBER / DECEMBER 2019

FORUM PUBLISHER: Peter Wilmshurst advocisforum@gmail.com EDITOR: Deanne Gage dgageforum@gmail.com 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 Abe Toews, CFP, CLU, CH.F.C., ICD.D VICE CHAIR Rob Eby, CFP PAST CHAIR Al Jones, CFP, CLU, ICD.D, ACCUD SECRETARY Catherine Wood, CFP, CLU, CHS TREASURER Eric Lidemark, CFP, CLU, CH.F.C., CHS CHAIR, CLC John McCallum, CFP, CHS CHAIR, THE INSTITUTE Stephen MacEachern, CFP, CLU, CHS, CH.F.C. DIRECTOR AT LARGE Wendy Playfair, CLU, CFP, CHS DIRECTOR AT LARGE Patricia Ziegler, MBA, FLMI, CHS, EPC, ACS, ARA, AIAA DIRECTOR AT LARGE Kevin Williams, CFP, CLU, RHU

time with grandchildren, but maybe not as much as your children desired. If you have to care for aging parents, that can be a job in and of itself. Or, you could have a serious illness and regret not retiring sooner when you could have enjoyed more time doing the things you loved. Many reasons abound.

Let’s never stop asking “why.” The answers may surprise you and not quite fit into the standard narrative.

Note from Tax Upfront columnist Doug Carroll: In my September 2019 article in FORUM on page 23 about commencing Old Age Security at age 65, I incorrectly stated that OAS income in a year is dependent on the preceding year’s income. The numerical example that followed was in turn faulty.

Correctly put, it is the OAS recovery tax that is calculated based on income in a given year, with that recovery tax then deducted from the 12 OAS payments that begin in July of the following year. The principle remains that one must be careful if starting OAS immediately upon retirement at or after age 65 if the total year’s income will exceed the clawback/recovery tax threshold.

PUBLIC DIRECTOR Geoffrey Creighton, BA, LL.B., C.DIR., CIC.C PRESIDENT & CEO Greg Pollock, CFP FORUM is published four 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

YOUR LINK BETWEEN. As an advisor affiliated with PPI, you can now build your Link Between.

A site full of content to help your clients understand insurance. With your own custom URL, a branded site with your logo, and your contact info on every page, turn The Link Between into your secret weapon for building your business.

To learn how you can start sharing valuable content with your clients, visit www.ppi.ca and contact your local PPI office today.

Unparalleled Resources. At Your Command.

AdvisorTalk.ca | TheLinkBetween.ca

Vancouver Burnaby Surrey Calgary

Edmonton Winnipeg Kitchener Mississauga

Toronto Ottawa Laval Montréal

Brossard Québec City Halifax St. John’s

OPENERS

GOVERNMENT NEEDS TO PRIORITIZE LONG-TERM CARE ACCESS: REPORT

T

he National Institute on Ageing is calling for policy- and decision-makers to address future government expenditures related to long-term care (LTC), urging them to develop options as a high national priority.

“It is a complex challenge, with no simple solution,” the report stated.

In the report entitled The Future Co$t of Long-Term Care in Canada, authors Bonnie-Jeanne MacDonald, Michael Wolfson, and John Hirdes highlight the “serious omission” of governments that overlook the issues and ensuing expenditures, especially with the number of Canadians over age 85 expected to more than triple over the next 30 years.

The report states that if public policy on LTC stays on its current track, public sector costs for senior care will more than triple by 2050, to $71 billion from $22 billion. If all unpaid hours of care inside the home are instead paid by government at $30 an hour, 6 FORUM NOVEMBER / DECEMBER 2019

another $27 billion would be added to the public sector bill. Pressure will also be put on unpaid caregivers, generally a family member.

While there is private long-term care insurance, it hasn’t worked as well as intended and “is unlikely to work in the future,” states the report. It blames the inadequate amount of purchased private LTC insurance on the false belief by many Canadians that LTC is fully funded by government. Fewer people buying the product will drive up costs for insurers who then make the premiums too high for most of the general population.

A lack of available out-of-pocket care could also put pressure on personal support worker wages, making them unattainable to many Canadian seniors.

The report urges Boomers to take a long look at their own personal circumstances and plan ahead to the extent that they have the health and financial means to better protect their futures.

“The time is now to find workable solutions that will avoid unmet needs for care and unsustainable burdens on unpaid caregivers while also balancing the fiscal implications — with the important goal of enabling Canadian seniors to age with support and dignity,” states the report. — Susan Yellin

PHOTO: ISTOCKPHOTO

Fodder For the Water Cooler

DID YOU KNOW?

INSURERS MOVING TO PROVIDE VIRTUAL HEALTH CARE

MORE WOMEN NAMED TO BOARDS

A

• The total number of board seats occupied by women increased to 17% in 2019, up from 11% in 2015 • 73% of issuers had at least one woman on their board, an increase from 49% in 2015 • When board vacancies were filled, one-third of those positions were filled by women • 5% of issuers had a female chair of their board • 50% of issuers adopted a policy relating to the representation of women on their board Source: Canadian Securities Administrators, October 2019

CANADIANS FEEL STUCK IN A DEBT RUT • 53% of Canadians continue to live paycheque-to-paycheque, and debt remains overwhelming for 25% • 27% still don’t have enough for their needs, and less than half 42% have enough money to spend on their wants.

• During the past year, more Canadians have fallen behind on saving for retirement, with 69% feeling that even if they save, it won’t be enough — an increase of 5% since 2018 Source: BDO Canada Affordability Index, Sept. 2019

60%

of working Canadians with a mental health issue aren’t using their workplace benefits

Mental Health issues have increased by 7% since 2017

2 out of 3 Millennials

52%

59%

2017

2019

61%

have experienced a mental health issue

SOURCE: SUN LIFE FINANCIAL, 2019

n increasing number of Canadians are expected to make use of virtual health care, as demand increases and more insurers are stepping up to the plate to meet those needs.

A recent report by the Canadian Medical Association found that seven in 10 Canadians would take advantage of virtual physician visits, seeing them as more timely and convenient, as well as overall better care.

And a recent report by PwC indicates that nearly two-thirds of Canadians would consider using virtual health care for themselves or those they care for.

“Doctors and patients all over the world not only believe the virtualization of health care is coming, but that it will improve the delivery of care when it does,” states the PwC report. “For the Canadian health care sector to remain competitive as a leader in medical services, new delivery methods need to be explored and implemented.”

Great-West Life (now Canada Life) led the way in virtual health care when it was introduced about two years ago, followed by Sun Life Financial in March 2018 and Manulife in early 2019.

Medavie Blue Cross announced in October its Connected Care program, a digital health platform that includes a virtual health care service, as well as other options. “It’s a time saver that offers access to various health services,” says Shane Reid, Medavie’s director, product, pharmacy, and provider management. “By partnering with leading digital health providers, we are helping our plan members make the most of their benefit plans. The online doctor’s service, for example, brings medical care right to the fingertips of Canadians irrespective of where they live, and eliminates exposure to illnesses from visiting a clinic or emergency room.”

Reid says research indicates that about 70 per cent of common illnesses can be diagnosed through virtual care, although he notes there are physicians who do require patients to see them in person.

Medavie’s digital health platform also allows its members to order personalized pharmacogenetic testing and engage a professional for internet-enabled cognitive behavioural therapy (iCBT), a commonly used therapy for a wide range of mental health concerns. “[Connected Care] allows our members to choose what makes the most sense for them and make use of those various offerings. Not every member will use every service, but as we gradually gain an awareness and get more traction, I would expect deeper penetration,” notes Reid. — S.Y.

of

Millennials



76%

who have experienced a mental health issue are not taking advantage of their workplace mental health benefits

39%

haven’t accessed free therapy

have spoken to their loved ones about it

have not received professional help

76%

and e-therapy programs funded by the government

NOVEMBER / DECEMBER 2019 FORUM 7

COVER STORY

8 FORUM NOVEMBER / DECEMBER 2019

Death in the

Digital Age Digital assets can make estate planning more complex for executors. Deanne Gage investigates how advisors can help clients be better prepared

PHOTO: GETTY / ISTOCKPHOTO

M

aking sense of your digital assets probably ranks somewhere below cleaning the dust bunnies under your bed — not a top priority. Perhaps that’s how it was for QuadrigaCX co-founder and CEO Gerald Cotten. QuadrigaCX was believed to be Canada’s largest cryptocurrency exchange, and 30-year-old Cotten handled more than $190 million in cryptocurrency transactions directly through his encrypted laptop. He held the private keys — the important passwords to retrieve those holdings.

No passwords, no access to the money.

When Cotten died suddenly on his honeymoon in India almost a year ago, no one could access the investors’ cryptocurrency holdings. While Cotten had a will, no one knew or could figure out his passwords. Cyber security experts have hacked into Cotten’s laptop to no avail, meaning more than 100,000 investors in QuadrigaCX find themselves out significant cash. Lawsuits are currently ongoing, and QuadrigaCX ceased operations.

Although an extreme situation, the QuadrigaCX story serves as a wake-up call to estate lawyers, executors, advisors, and clients alike. Everyone’s digital footprint — whether that’s assets, liabilities, or intangibles — keeps growing, and people need revised estate plans that detail how to access, transfer, or obliterate digital assets upon

their deaths. Sharon Hartung, TEP, and Vancouver-based author of Your Digital Undertaker, calls the situation “a digital tsunami” that will affect a growing number of estates in the next five to seven years.

Hartung had an epiphany when she compared her deceased mother’s inventory of assets to her own.

Executors traditionally rely on a paper trail to build the estate inventory, by checking the deceased’s mail and hard copy files at their home, and Hartung was no exception. She easily found all her mother’s important paperwork in her condo.

Now, as more people store key documents and photos on their computer, tablet, phone, or in the cloud, it’s harder to track these documents down. Hartung, a former technology executive, is no exception here as well.

“You start to self-reflect and I realized I have made no provisions for all the technology in my life,” she says.

Enter financial advisors who can provide much-needed guidance. Your first step is to probe and get clients thinking about solutions. “Advisors need to tell clients that their executors aren’t just going to be able to find all their assets so easily,” Hartung says. “It’s on clients to leave a physical inventory, as well as a digital asset inventory.

But if heirs cannot transfer their loved one’s digital assets they are going to be upset with the financial advisors and estate planners who didn’t advise their parents to create that digital inventory or help them with it.”

Still, getting clients to cough up the complete invenNOVEMBER / DECEMBER 2019 FORUM 9

COVER STORY tory can be a struggle. “Everybody’s got accounts squirreled away that they forget or don’t tell you about,” Hartung says.

Hartung segments digital assets into three categories.

Money: Cryptocurrency fits into this space, along with onlineonly bank accounts, gift cards, travellers’ rewards points (which can total thousands of dollars), store rewards programs, PayPal deposits. You may also have business websites through which you directly earn money.

Memories: Consider the family photos that live in the cloud, and personal Facebook, Instagram, Twitter, and other social media pages.

Records: This is essentially all the important data stored online.

If you own a business, you may store your business plan, invoices, and spreadsheets of inventory, assets, and liabilities solely on your computer or tablet. You may also have key documents on software such as Dropbox that are password protected.

Executors are personally liable if they fail to locate, properly secure, and accurately report all of the deceased’s assets. Unfortunately, adding digital assets into the mix means a further layer of complexity for them. For example, probate fees may be due on a specific digital asset.

And if beneficiaries get wind of anything amiss and assets not transferred to them, they will sue, says Mark O’Farrell, president of the Canadian Institute of Certified Executor Advisors. Executor liability fines are steep. In Ontario, fees start at $1,000 and go up to three per cent of the overall estate. “They have a vested responsibility for successful estate settlement because they’re the ones that are going to be left holding the bag from illprepared estates,” he explains. “Digital assets are as important as any other asset.”

Sharon Hartung, TEP

needs to know about its existence, if anything, to close that account to prevent possible fraud. “It’s not that unusual to see identity theft of a deceased person,” Butler notes. “If your information is just out there and never get closed, one day it may get hacked and then someone else is using it.”

When estate lawyer Lynne Butler of St. John’s, Nfld., meets with Advisor Victor Godinho’s approach is to discuss estate planning clients to draft or update their wills, she receives shrugs, words of each year as part of clients’ overall business planning. He got wise to digital assets’ significance when a close friend’s family member indifference, or straight denial of a digital footprint worth worpassed away and the heirs could not access the digital accounts. rying about. Some will say an email account is the extent of their digital presence. That is Butler’s cue to dig a little deeper.

“There was money tied up that could not be freed up,” says “Do you use email? Do you ever do your banking online? Do Godinho, CFP, CLU, managing partner and wealth advisor at you have a Facebook profile? Do you collect Air Miles?” she’ll ask Kismet Wealth Group Corp. in Toronto. them. “These are digital assets. Clients need Passwords are also part of the ongoing chats to hear this message pretty often, and how it with his Millennial business-owner clients. “We go through the list of digital passwords, their applies to them personally. They always seem subscriptions, memberships and try to capture to think of it as something that applies to all of that information, and then we essentially other people.” build a password protected file that we then Butler always adds a digital clause to her client’s wills and powers of attorney, which reference in the will,” he says. “We work with a will give executors the right to use, access, lawyer and there are instructions that note whom delete, or close accounts. “I try to give enough will receive access.” width to cover everything they might have to Still, passwords remain a thorny issue, as do, because they might want to close somethere’s not one solution that is foolproof. Some thing or transfer something else,” she says. prefer to write them down in a book and update as they go along, and keep the book in a file cab“The clause has to be broad enough to allow inet or safe. As Godinho says, “We have yet to a bit of discretion to deal with each individual find a platform that might be able to provide that asset that’s on there.”

Even if no significant balance turns up on security to clients and obviously maintain their Victor Godinho, CFP, CLU that online bank account, an executor still privacy.”

DIGITAL DENIAL

10 FORUM NOVEMBER / DECEMBER 2019

HELPING CLIENTS ORGANIZE How can advisors get clients to create a simplified digital estate plan that can be built upon later?

Narrow the list. What sort of assets can they not afford to lose?

Give examples such as photos, social media, rewards points, and cryptocurrency. Hartung recommends getting them to narrow down their top three must-keep picks, and asking again every year, as the answers may change.

Find out where and how the information is stored. It’s not just about the assets but the actual devices holding the information, Butler says. The information is probably on a computer, tablet, and/or phone — all with passwords, and sometimes, logins. Clients need a plan for their passwords and that should be revisited often, as they change.

Have an access plan. The client strategy for handling these items depends on the asset. Take cryptocurrency, which is very different from traditional investments. How do you ensure the executor has secure access to the series of passwords? “If you own an unregulated cryptocurrency and you don’t leave that private key, the name of the exchange, and the public key in a manner that the executor can get to securely, no one is getting into that cryptocurrency,” Hartung explains. “There is no central authority [like a bank] that will transfer it with the right documentation. You’re officially locked out.” But in the case of most rewards points, it’s often just a matter of presenting the will and proof of executorship and you can transfer the rewards to the heir in question.

Noah Weisberg, an associate at Hull & Hull LLP in Toronto, finds that property distribution tops the list of contentious estate issues, which has now trickled down into digital assets. “They need to consider who may have certain sentimental attachment to their digital property like they would about Grandma’s china,” he says.

Before, a family squabble may take place over a photo or artwork,

but now it’s about who gets to decide what to do with Dad’s Facebook page and other social media accounts, Weisberg explains.

For instance, “Should these accounts be deactivated or preserved?”

Weisberg notes that Facebook and Google have put in procedures that allow executors to take over so they can manage these matters.

Have clients look closely at terms of service. Some clients collect massive loyalty points but may not be allowed to transfer them to another individual. Some points may also expire after a specified period of time. That’s why Glennis Walsh’s mother insisted that her Air Miles be redeemed before she passed away. One month before she died, “my mom made sure my brother and I used them all up,” says Walsh, who served as her mother’s executrix.

SEEK OUTSIDE ASSISTANCE Hartung is part of a special interest group for the Society of Trust and Estate Practitioners to bring its members up to speed on digital assets. The group created a digital asset inventory that advisors can use with their clients. All advisors can join free of charge. Go to www.step.org/digital-assets for more details. Those holding the CEA (Certified Executor Advisor) designation help executors understand the role they are undertaking and their responsibilities, says O’Farrell. Go to www.cicea.ca for more information.

Ultimately, offering digital asset advice is one way that good advisors can solidify their role as a trusted advisor for heirs. As O’Farrell notes from an Investor Economics study, “98 per cent of heirs don’t intend to leave assets with their parents’ advisors.” He suggests you aim to be the exception. “You can talk about legacy issues and values. Not only are you retaining assets but you are also tapping into all of those underfunded needs that heirs have.

It’s the biggest opportunity for advisors in a lifetime.”

DEANNE GAGE is editor of FORUM and can be reached at dgage@advocis.ca.

THE NUMBERS BEHIND DIGITAL ASSETS

PHOTO: ISTOCKPHOTO

I

n 2014, Deloitte Canada predicted the average person would have about $10,000 in digital assets by 2020. But that amount has likely grown on average for all Canadians, and exponentially for some, as cryptocurrency wasn’t factored into the original research, says Duncan Stewart, director of research, technology, media and telecom, Deloitte Canada. He says a 2017 Bank of Canada study found that five per cent of Canadians hold cryptocurrency. “But for that five per cent, the value could be six figures or more for many,” Stewart notes.

Many people ignore rewards points,

but they can mean big — and often hidden — money. Stewart uses the example of a travel warrior who never cashed in her points because she planned to use them when she retired. “We’re not talking about the five dollars on your Starbucks card. We’re talking about the five-figure numbers,” he says.

And assets are just the starting point of a person’s digital footprint. Stewart notes that the average digital liabilities upon death are probably bigger than digital assets were six years ago, and they were also not factored into the 2014 research. So, for every PayPal deposit, there may be 10 to 12 subscriptions and digital obligations to such services as Amazon Prime, a registered charity, Netflix, podcasts, and so on.

There are also liabilities that come with investments such as bitcoin, he adds. “We tend to think about bitcoin as strictly an asset but somebody could have incurred a significant capital gains loss on bitcoin, too,” he explains.

“Losses can still be quite useful. If the executor finds losses, they could crystallize those and use them to offset other taxes in that year.” — D.G.

NOVEMBER / DECEMBER 2019 FORUM 11

SYMPOSIUM

Generation

Shift

B

oomers, Generation Xers, Millennials — each demographic is demanding more from their advisors these days. Whether it’s extra one-onone retirement planning for older investors, tweaking old methods to fit new ways of saving for Gen-Xers, or mentoring young clients on how best to reach their financial goals, advisors now have to adapt.

“There have been so many shifts in the economy and the new financial landscape as well as a changing demographic, that we have our work cut out for us as advisors just to stay relevant,” Shannon Lee Simmons, a financial planner and founder of the New School of Finance told delegates of Advocis Symposium ’19.

“To keep that human connection piece is so vital to us in the future.”

12 FORUM NOVEMBER / DECEMBER 2019

Simmons’s clients are a mixed bag of all these cohorts. Each has its own needs and plans. Boomers — aged about 55 and over — are increasingly asking financial advisors to crunch the numbers for them on their strategies for the future. Not only are they looking for help with their own retirement plans, they also want to chip in on paying down their adult children’s university debt or aid with a down payment for a house in some of the country’s most expensive cities. Many Boomers also want to leave money to charities.

Most aren’t prepared for longevity risk later in life and want their financial plans updated to include the time when they can no longer live at home, with costs that currently range from $40,000 to $50,000 a year for retirement and nursing home care, said Kevin Wark, managing partner at Integrated Estate Solutions and tax advisor for the Conference for Advanced Life Underwriting

PHOTOGRAPHY BY RICK CHARD

Susan Yellin reports on how changing demographics are impacting financial advice, and other insights from the sold-out Advocis Symposium ’19

Greg Pollock, CFP

Clare O’Hara, Ali Ghiassi, Glen Padassery

(CALU). Many insurers have bowed out of the long-term care insurance market, and by the time Canadians realize they need it, they most likely won’t be eligible. “This is a risk we see with some of our clients and we have to deal with it in different ways,” said Wark, who is also a FORUM columnist.

The demographic most involved continues to be those in the middle of the multi-layered sandwich generation who take on financial responsibility for older parents, as well as a supportive role for the younger generation — not to mention their own savings plans. This can cause great strain within the family as funds flow up and down to meet immediate needs.

Wark said he sits down with Boomer parents so they can agree on how they can accomplish these tasks without feeling uneasy about their own futures. He also likes to talk with the adult children

and help them with their financial literacy skills, including getting a will and life insurance, especially if they have become parents themselves.

Millennials, those born from 1981 to 1996, are coming to advisors laden with university debt often in the neighbourhood of $20,000 to $30,000. They’re finding it hard to find jobs, particularly as the 60-year-olds hang tight to their positions. And while the financial landscape is not hopeless, Simmons said it’s “definitely scary” for this generation.

Many younger clients have high hopes of buying a house. This is where creative navigating is required on the part of the advisor.

Simmons often suggests Millennials continue renting but make sure they put in the maximum savings for their RRSPs and TFSAs. These clients, who Simmons calls “HENRYs” (high earners, [but] not rich yet), need advisors to teach them important financial literacy skills like diversifying their savings rather than putting them into safe, but low-interest plans.

Contrary to public opinion, she said, Millennials don’t want to do everything by themselves. They want a trusted source to help them differentiate between products, and would rather have a literacy lesson than a sales pitch, said Simmons.

Financial literacy is essential for many younger investors who tend to gravitate toward risky investments like bitcoin, said Preet Banerjee, founder of MoneyGaps.com.

Some fintech companies can give young people the push they need to start saving in the first place, but it’s up to advisors to guide them as their savings grow. “If you get them trained to the ups and downs of the market you can set them up for a really successful long-term career as an investor,” said Banerjee.

Another demographic is made up of clients who work for themselves and whose paycheques come in sporadically. They cannot put money away on a monthly basis — a concept difficult for many advisors to grasp, said Simmons.

In these cases, it’s up to the client to teach the advisor how their new world works and up to the advisor to develop ideas that suit the quirky needs of these clients.

Like the younger generation, the Boomers and many a Generation Xer don’t want to show up to their annual advisor meeting just to hear the advisor tell them how their investments are doing. They want real financial planning, said Simmons. Rather than the typical hour-long meeting, make them shorter, but more frequent to help cement ideas and allow clients to ask more questions on the financial planning side, she suggested.

Rick Hancox, CEO of the Financial and Consumer Services Commission of New Brunswick, said his department has formed a network of banks, credit unions, and non-profit organizations and brought them all together to leverage each other’s expertise in the name of greater financial literacy skills.

The network has taken over coffee shops for a day, buying the coffee all around while teaching customers topics like how to budget and how not to fall prey to the never-ending fraudster calls, said Hancox.

He’s also sat down with English and French teachers in the province and built resources that show them how they can improve both their own skills and those of their students.

A key element is ensuring parents have the information necessary to discuss money with their kids. “We often hear that parents are more comfortable talking to their kids about sex than about money,” he told the Symposium.

NOVEMBER / DECEMBER 2019 FORUM 13

SYMPOSIUM As clients live longer there are many issues that can crop up for seniors, particularly in terms of financial exploitation and cognitive impairment.

Many seniors have built up healthy savings and other assets, making them prime targets for fraudsters. Different provinces have developed recommendations on how to ensure older seniors are not taken advantage of financially.

Hancox said his government department recently came up with 21 recommendations to address this, including legislation and collaboration with different agencies.

Like other provinces, New Brunswick is contemplating protection for professionals, such as the ability for financial advisors Minal Upadhyaya, Brad Beuttenmiller, Curtis Findlay, to put a hold on an uncharacteristic buy Debra Foubert, J.D., Naizam Kanji or sell request. The pause will allow the advisor to first get in touch with a family member or trusted family contact to determine the reasoning behind the request.

“The interesting challenge for us is that Rod Burylo, nowhere is there a definition of financial CIM, FCSI abuse — it’s not in social development legislation or financial legislature. That’s one of the things we’re looking at,” said Hancox.

But tracking a lack of capacity can be a slow procedure, said Wark. If there are unusually large withdrawals or someone the advisor has never seen before shows up to meetings with the client, the best thing to do is sit down across from the client without anyone else around and ask why they want to withdraw funds, he suggested.

Provincial regulators have come up with tools for advisors to help raise awareness of elder financial abuse, including scams, and how they can deal with them.

Robyn Mendelson Both the Canadian Securities Administrators and the Ontario Securities Commission (OSC) have also created initiatives to reduce the reduce the regulatory burden. One is the use of digital platforms amount of regulations advisors deal with on an everyday basis. that have allowed at least one IIROC member to transition an The OSC in particular has set up a task force to identify ways entire book of clients from one dealer to another in just six days to enhance competitiveness, said Brad Beuttenmiller, senior asso— compared to the industry average of three months. ciate general counsel, legal, at Franklin Templeton. “The OSC says “This is a game changer,” said Curtis Findlay, president of it wants to reduce the regulatory burden in Ontario to improve the investor experience,” he said. “We want the OSC to succeed Compfin Management Ltd. and chair of Advocis’s investment and we want to help them succeed.” sub-committee. “If you’re not talking to your dealer about getting digital, you need to start putting a little pressure in that direction.”

The OSC task force began about a year ago and recommendaU.S. software Riskalyze provides tools for analyzing investment tions are expected shortly, said Naizam Kanji, director of the office risk, said Findlay, adding that he hopes the product will be available of mergers and acquisitions, and special advisor to the chair, in Canada soon. regulatory burden reduction at the OSC. In the past, said Kanji, “Instead of it becoming a burden to do a simple thing like a the focus has been on policy and rulemaking, but this initiative is much broader, with stakeholders coming up with a total of about risk analysis, all of a sudden it becomes part of your whole pre200 suggestions. Its report is expected shortly. sentation. It’s built in; it’s part of what you do.” More than that, he said, good digital products will give advisors more time to talk Other tools are available for financial advisors to help them 14 FORUM NOVEMBER / DECEMBER 2019

Sam Febbraro, Rick Hancox, Shannon Lee Simmons, CFP, CIM Kevin Wark, LL.B, CLU, TEP

Preet Banerjee

Shannon Lee Simmons, CFP, CIM

to clients over and above regulatory requirements, and determine what is on their minds and where they want to take an issue.

Debra Foubert, director of compliance and registrant regulation at the OSC, said the regulator is trying to cut down on some documentation and have fewer requirements. For example, there is no longer a regulation to have a “wet” signature on documents.

And her department is looking at ways to use information they already have to complete compliance oversight reviews.

While technology is part and parcel of living in the 21st century, it’s not something that should threaten advisors, said Rod Burylo, associate portfolio manager and business development manager, Western Canada, at Croft Financial Group.

Some may see the rise of technology as giving away value. But Burylo said advisors need to focus on their value proposition and the importance of integrity in the advisor-client relationship.

“We have to get better at communicating about integrity and values because that’s the form of competition … we’ll be facing soon,” he said.

Integrity is at the heart of what Advocis president and CEO Greg Pollock called a “long-overdue” move to restrict the titles of “financial advisor” and “financial planner” to those holding recognized credentials. The Ontario government made such an announcement in its April 2019 budget speech.

But many questions still need to be answered before the bill is enacted. What will the credentials and curriculum look like? Will other provinces follow suit? What kinds of educational requirements will advisors need?

Glen Padassery, executive vice-president, policy at the Financial Services Regulatory Authority of Ontario (FSRA) said when the bill comes in force, it will be up to FSRA to “defend the perimeter” NOVEMBER / DECEMBER 2019 FORUM 15

SYMPOSIUM and be responsible for enforcing those without the proper qualifications. Those who have the required accreditation and don’t follow the rules will instead face a credentialing body.

For national carriers, having the rules harmonize with other provinces is particularly important, especially when it comes to a code of conduct and conflict of interest, said Ali Ghiassi, vice-president, industry affairs and government relations at Canada Life.

The same can be said for educational requirements and rules regarding grandfathering.

Pollock said the CFP and CLU are examples of current designations he expects will likely come forward to be recognized — but not all designations will get the nod. Insurance titles aren’t on the list for title protection, but anyone who wants to work solely in that field

can call themselves an insurance advisor without issue, said Pollock.

Quebec already has rigorous regulation of the title “financial planner.” But Pollock said he has met with most other finance ministers across the country over the past eight months and “all of them … have supported this concept of title protection in order for the public to understand and recognize whom they deal with.”

The formal consultation period with industry and consumers is expected to take place in the first half of 2020, with the earliest the bill coming into force being at the end of 2020, to give everyone a chance to give their input, said Padassery. As he put it: “You can bring the greatest idea to the centre and you can implement it, but if you don’t give people time to react and reflect on what the new rules are, you are just setting yourself up for failure.”

SUSAN YELLIN is a Toronto-based financial writer.

SYMPOSIUM EXCLUSIVE: INTERVIEW WITH ROD PHILLIPS, ONTARIO MINISTER OF FINANCE

FORUM: Why did the government decide to legislate both “financial planner” and “financial advisor” for the Financial Professionals Title Protection Act? Minister Rod Phillips: We took the best advice from experts in the area about what made sense in terms of defining the titles. We consulted not only people in the industry, but also consumers to make sure the government had a clear understanding of why the two titles make sense.

FORUM: On what sort of timeline can we expect the Act to be rolled out?

MRP: What’s most important is to get

it right. So I won’t commit to a timeline. I’ll commit to making sure that we take the time to make sure that it’s clear and that we take the time to have worked with stakeholders so

16 FORUM NOVEMBER / DECEMBER 2019

FORUM: What message do you have for small business owners about staying competitive?

that they have the necessary time to make adjustments. When you start to bring these sorts of designations into place, it’s going to affect thousands of businesses. And we want to make sure that we get it right, but also that there’s the appropriate time for any transition.

FORUM: In your fall economic statement, you announced lowering the corporate income tax rates slightly. Why did you make that decision when the focus is balancing the budget?

MRP: We’re balancing priorities, including the priority of putting money back into the pockets of individuals. And in this case, the reduction of 8.7 per cent of the small business tax cut will save up to $1,500 for 275,000 small businesses.

MRP: We understand that small business employs almost two million Ontarians; that’s one-third of all the private sector employees. And we are systematically making sure that we put those small businesses, and larger businesses, into more competitive situations. So whether it’s our acceleration of the capital cost allowance, whether it’s what’s happened on WSIB premiums, we’re looking by the end of this year at $5.6 billion in relief for those businesses.

Now we’re doing that because we support business. But we also believe and understand that business is the engine that drives employment and drives prosperity. So one of our priorities is rebuilding the essential link between a growing economy and people being able to live and enjoy the lives they want and us being able to afford the public services that people need.

We’ve got quite an aggressive approach in terms of getting rid of red tape and unnecessary regulation.

Our target is to reduce compliance costs for business by $400 million by the end of next year. We have a bill going through the legislature right now — and there will be successive bills each and every term — that will look to address unnecessary regulation.

Stand out.

In today’s wealth planning world, being like everyone else won’t cut it anymore. You need a superior line of attack – one that helps you deliver deeper knowledge to diagnose and overcome complex challenges. Be smarter. Instinctual. More agile. Find your fierce with a CLU ®.

Learn how a CLU helps you build unbreakable trust with your clients.

Call 1-877-773-6765 or go online to:

https://info.advocis.ca/clu

Advocis, CLU, “Chartered Life Underwriter” and “Join the deeper conversation” and their associated design-marks are registered trademarks of The Financial Advisors Association of Canada.

The CLU is conferred by The Institute for Advanced Financial Education.

INSURANCE

Clients don’t tend to buy long-term care insurance.

Richard Parkinson explains how you can build the case

Alternative

Savings Compare Sun Life LTCI monthly rates based on Oct. 2019 rates–with best inflation option $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0

AGE 25 MALE

AGE 35 MALE $250.00

AGE 45 MALE $500.00

AGE 55 MALE

AGE 65 MALE $750.00

18 FORUM NOVEMBER / DECEMBER 2019

AGE 70 MALE $1,000.00

AGE 75 MALE

They may have friends, even close friends, but won’t want to burden them with having to take care of their needs, whether that’s doctor’s visits, lab tests, or personal care.

Single people with immediate family or people wanting peace of mind: While family is more willing and devoted to pro-

viding in-home care, the fact remains this sort of care is a burden on them as well, especially for adult children who have their own lives and pressures, hence the term “sandwich generation.”

Women: Visit any retirement, nursing, or LTC facility and you’ll see the predominance of women over men in these facilities.

At some point, your client or their children may determine that they are approaching the need for some assistance in day-to-day living. There are essentially five stages of health that government health authorities use to determine the care required.

Stage 1: At this stage, the individual is self-sufficient, but might need occasional help with medication management, meal preparation, and housekeeping. Whether it is provided in their home or they choose to move to an assisted living facility, LTC insurance doesn’t cover this category.

Stage 2: A person in this category needs more assistance, which may require more technical apparatus such as Amazon’s Alexa, home monitoring systems, medical life alert, etc. At this stage, the interest in moving into an assisted living facility is more likely.

Although in my experience, most people prefer to stay in their homes as long as possible.

Stage 3: People at this stage are dealing with some serious physical issues requiring more intensive in-home care, perhaps a nurse visit multiple times per week, if not daily. Generally, this is the time when either the government or the family strongly insists the indi-

PHOTO: ISTOCKPHOTO

L

ong-term care (LTC) insurance is probably the leastwell-known type of insurance (at least to our clients) in the “living benefits” category. It pays a benefit if an insured becomes unable to perform two of the six activities of daily living — specifically, eating, bathing, dressing, toileting, transferring (walking), and continence.

The best age to apply for LTC insurance is at a younger age, given the rates increase exponentially at older ages. How do you best market LTC? A good place to start is with the ideal candidates.

I have three target areas.

Single people with no immediate family: People in this situation don’t have a built-in caregiver such as a spouse, son, or daughter.

vidual move to a care facility. It is usually at this stage when the government will also consider subsidizing the cost of a care facility.

Stage 4: Here, the individual requires constant care, which is generally not practical for in-home care. Often, dementia is also beginning its onset, and for the well-being of the individual, a care facility is necessary.

Stage 5: An individual in this stage is in a nursing home, and needs constant care, also referred to as palliative care. This often is their final home.

Not all individuals will progress through all five stages. Instead, someone may progress from stage 1 to 5 directly. In any case, all these stages of life cost money, and the big question is who is going to pay for care, and what will the care look like? Government-subsidized facilities are in short supply, and while they try hard, providing the quality of life most Canadians are accustomed to is not likely feasible. This is where the concept of providing for your own destiny comes in, as does the LTC solution.

So, what will be the costs of in-home care be 20 years from now when they might have a claim? This question is impossible to answer because it will depend on so many variables, such as what support is needed, whether it’s 24-hour nursing care, daily nurse visits, cooking, cleaning, or transport. Care could range from $50 per day to $500 per day, and is influenced by how much volunteer help is available. Facility care is easier to estimate, and there are three categories.

Assisted living — This is for seniors who are generally self sufficient, but have access to group activities, shared transportation, meals, housekeeping, etc., and access to a live-in nurse, if required.

Continuing care retirement — These facilities are for those who generally need some basic nursing care, but are otherwise selfsufficient. As patients need more intensive care, they can be moved to a different wing or floor of the same facility. Cost range will likely be higher than the assisted living centre, if a dedicated facility, or

SOURCE: SUN LIFE FINANCIAL

DETAILS

less if in a community where you rent the home, and pay a monthly fee for the nursing services required.

Nursing home — These facilities are for those who need 24-hour care, and typically cannot do two or more of the activities of daily living. These facilities will be the most costly, due to the higher requirements for staff (e.g., more registered nurses, and a higher staff-to-patient ratio).

To keep the math simple, let’s assume your client is a 65-yearold woman and is asking about her options. You will need to calculate an estimate of when she may have a claim for LTC insurance and how long she will need the services of the in-home care or facility. Remember to qualify for LTC insurance she needs to be unable to perform two of the six activities of daily living. Below is a very basic scenario. On the right side of the table, it shows two options for Sun Life’s LTC plan, with no inflation, and below with their best inflation option, which increases the weekly benefit by two per cent while paying premiums, and three per cent once on claim.

On the left side of the table below, there’s an option to selfinsure, an attempt to mitigate risk themselves, which makes several assumptions, and clearly is just one possible scenario. Just saving the money directly excels if the individual never goes on claim.

However, it’s not the best option if the person files a claim earlier than expected, or is in a facility for more than the average three years. For example, my mother-in-law was in a nursing facility for five years, and back in 2002, the fee was $4,500 a month. So LTC insurance provides peace of mind, plus, the monthly, annual cost is typically less than saving directly.

LTC is not a well-served market. As advisors, we need to better understand the challenges seniors face as they approach needing the services LTC insurance was designed to address.

RICHARD PARKINSON, CPCA, is an independent insurance broker based in Vancouver. To receive a PDF of this article, email dgageforum@gmail.com.

SELF-INSURANCE OPTION

LONG-TERM CARE PLAN

Item

Annual

65

Weekly benefit amount

$925

Estimate age when on claim (Sun Life experience April 2019)

79

Annual premium - no inflation option

$6,824

Years before going on claim

14

Monthly income for life at issue date

$4,000

Estimated monthly care cost in today's dollars

$4,000

$144,000

Expected inflation rate

1.89%

Income received over the 3 years no inflation option

Estimated years they will be on claim (Sun Life experience April 2019)

3

Due to inflation, monthly amount needed today to provide $4,000 monthly 14 years from now

$5,199

$62,385

Due to inflation, monthly amount needed today to provide $4,000 monthly 15 years from now

$5,297

$63,656

Annual premium - best inflation option

$9,593

Due to inflation, monthly amount needed today to provide $4,000 monthly 16 years from now

$5,397

$64,766

Monthly income for life in year 14 due to inflation option

$5,185

Total amount of capital needed for the 3 years on claim future dollars in today’s dollars, i.e., NPV

$190,716

Income received over the 3 years

$192,323

Annual deposit required to self fund, i.e., have $191,000 available 14 years from now assuming a net 3% return after inflation, and no taxes paid on the gains

$14,300

Break-even years when cumulative income equals premiums paid

2.16

Item

Monthly

Client age today

Annual

$48,000

NOVEMBER / DECEMBER 2019 FORUM 19

THERE’S ONLY

ONE GOLD

GAMA INTERNATIONAL CANADA’S

2019 Management Awards recognize the achievements of leaders in the financial services industry

2019 GAMA INTERNATIONAL CANADA MANAGEMENT AWARDS The 2019 GAMA International Canada Management Awards recognize the highest leadership achievements in Canada’s financial services distribution industry.

National Builder Award (NBA) WINNERS The National Builder Award (NBA) recognizes outstanding achievement in agency-building, production and field development. ● NBA Gold Award Winners

Deepesh Ahuja, CHS ● Taha Al-Dabagh, CFP, RRC Stacy Arseneault, CFP, CHS Perry Badham, CLU, CHS Chris Benjamin, CFP ● Jamie Benn, CFP, CLU, CHS ● Lisa Beutel, CFP, CHS, CLU Greg Brow ● Jessica Buley ● Adam C Lind, CFP Chanchal Chakrabarti, CLU, CHS Herman Chan, CFP, CHS ● Roshan Charles, CHS Zhong Chen, CHS Perminder Chohan ● Daniel Chuang ● Annadette Clarke-Moore ● Stephane Cyr ● Sarah Decker ● Mark Dickson ● Bruce Dube, CHS, EPC ● Clarke Duncanson Sam Eason Luong, CHS ● Nuzhat Fathima, CLU, CHS ●

David Feldberg, CFP, CLU ● Gerard Feliciano Angela Fu, CFP, CLU ● Peter Gillespie ● Ted Girard, CFP, CLU, CHS Nubia Gomez, CLU, CHS ● Susan Hoffart, CFP, RHU Darren Howe, CFP, CLU, CH.F.C., RHU ● Muhammad Iqbal, CLU, CHS Kevin Jessup ● Brian Kilback, CFP, CLU, CH.F.C. ● Rik Kraushar, CHS, FPSC ● Karl Krokosinski ● Barbara Kwasnik ● Shalini Lal-Mishra ● Nina Lau-Choy ● Philip Lawrence, CFP Marco Levesque Craig MacTavish, CHS ● Lacey Maston ● Alvin Matthew ● Dennis Mavrin ● Minetta McDonald, CFP

Djebran Mehdawi, CLU, CHS ● Gemma Mendoza, CLU ● Maria Mendoza CLU, CHS Cristina Mendoza CLU, CHS Katina Michelis ● Rhonda Milton Jimmy Nijjar, B.Comm. ● Dorothy Olaes Stephanie Paille, RHU ● Ioannis Panago, CHS ● Craig Pelletier ● Paul Pinel ● Esther Po Yin Chu ● Matthew Pomeroy, CHS ● Jason Poulton, CFP ● Gregory Powell, CFP, CHS, EPC ● Anne-Sylvie Purcell ● Bruce Rayment, CLU, CHS Jarrett Robertson Alfred Roissl, CFP, EPC ● Darren Rosenberger, CFP ● Leo Rumel, CLU, CHS ● Kristine Sales

Sonny Sangemino, CHS Jonathan Schjott, CFP, CLU, CHS ● Wesley Scott Ajay Sehgal Nadeen Shaaban, CHS ● Rajesh Sharma ● Bhagwant Sidhu, CFP ● Joshua Simpson, CFP ● Kimberly Skermer ● Eddy Tong, CFP, CLU, CHS ● Alfred Tran, CFP Blanche Tse, CFP, CLU, CHS, EPC ● Jennifer Tweddle, CFP, CLU, CHS, TEP ● Glen Ungar, CFP, CLU, CH.F.C. ● Bradley Unraw, CFP, CHS ● Jesse Van Dalfsen Kevin Wong ● Scott Woodman, CFP, CLU ● Jeff Wu Shanshan Wu, CLU, CHS Nicolas Zabaneh ● Runlin Zhan

NATIONAL ACHIEVEMENT AWARD (NAA) WINNERS The National Achievement Award (NAA) represents the very pinnacle of management excellence among GAMA International Canada members. ● NAA Gold Award Winners Paul Alapatt, CHS Stacy Arseneault, CFP, CHS Perry Badham, CLU, CHS ● Jamie Benn, CFP, CLU, CHS ● Greg Brow ● Jessica Buley Wilma Calderon Darin Calderwood, CFP ● Chanchal Chakrabarti, CLU, CHS Herman Chan, CFP, CHS ● Perminder Chohan ● Daniel Chuang ● Stephane Cyr ● Donald Der, CFP, CLU, CHS, CH.F.C. Sarah Decker ● Mark Dickson ● Bruce Dube, CHS, EPC ●

David Feldberg, CFP, CLU ● Joe Ferreyro, CFP ● Brian Gebbie, CFP ● Peter Gillespie ● Ted Girard, CFP, CLU, CHS Nubia Gomez, CLU, CHS ● Darren Howe, CFP, CLU, CH.F.C., RHU ● Brent W. E. Huston ● Kevin Jessup Brian Kilback, CFP, CLU, CH.F.C. ● Karl Krokosinski ● Kris Kubin ● Barbara Kwasnik ● Dean Lariviere ● Philip Lawrence, CFP ● Craig MacTavish, CHS ● Dennis Mavrin ●

John McCallum, CFP, CHS ● Izumi McGruer, CFP, CLU, CH.F.C., CHS ● Djebran Mehdawi, CLU, CHS ● Geoffrey Ollson, CLU, CHS ● Ioannis Panago, CHS ● Craig Pelletier ● Matthew Pomeroy, CHS ● Adam Powell ● Gregory Powell, CFP, CHS, EPC ● Jerome Pusung, CLU, CHS ● Bruce Rayment, CLU, CHS ● Mark Roberts, CFP, CLU Jarrett Robertson ● Alfred Roissl, CFP, EPC ● Darren Rosenberger, CFP ● Leo Rumel, CLU, CHS Shawn Smith

Heidi Samuel Jonathan Schjott, CFP, CLU, CHS Wesley Scott Bhagwant Sidhu, CFP ● Joshua Simpson, CFP ● Greg Taylor, CFP ● Eddy Tong, CFP, CLU, CHS ● Blanche Tse, CFP, CLU, CHS, EPC ● Brett Tucker, CHS ● Glen Ungar, CFP, CLU, CH.F.C. ● Bradley Unraw, CFP, CHS ● Jesse Van Dalfsen Kevin Wong ● Scott Woodman ● Runlin Zhan Yaguang Zhang, MBA ●

NATIONAL MANAGEMENT AWARD (NMA) WINNERS The National Management Award (NMA) honours achievement in agency management, particularly increases in production.

Paul Alapatt, CHS Stacy Arseneault, CFP, CHS Perry Badham, CLU, CHS Jamie Benn, CFP, CLU, CHS Greg Brow Jessica Buley Chanchal Chakrabarti, CLU, CHS Herman Chan, CFP, CHS Perminder Chohan Daniel Chuang Annadette Clarke-Moore Stephane Cyr Sarah Decker Donald Der, CFP, CLU, CHS, CH.F.C. Mark Dickson Bruce Dube, CHS, EPC

David Feldberg, CFP, CLU Joe Ferreyro, CFP Peter Gillespie Ted Girard, CFP, CLU, CHS Nubia Gomez, CLU, CHS Darren Howe, CFP, CLU, CH.F.C., RHU Brent W. E. Huston Kevin Jessup Brian Kilback, CFP, CLU, CH.F.C. Wayne Kiryk, RHU, EPC Karl Krokosinski Barbara Kwasnik Philip Lawrence, CFP Craig MacTavish, CHS Dennis Mavrin

Minetta McDonald, CFP Djebran Mehdawi, CLU, CHS Ioannis Panago, CHS Craig Pelletier Matthew Pomeroy, CHS Gregory Powell, CFP, CHS, EPC Jerome Pusung, CLU, CHS Bruce Rayment, CLU, CHS Jarrett Robertson Alfred Roissl, CFP, EPC Shawn Smith Jonathan Schjott, CFP, CLU, CHS Wesley Scott Ajay Sehgal Rajesh Sharma Bhagwant Sidhu, CFP

Learn more at gamacanada.com

Joshua Simpson, CFP Eddy Tong, CFP, CLU, CHS Blanche Tse, CFP, CLU, CHS, EPC Brett Tucker, CHS Glen Ungar, CFP, CLU, CH.F.C. Bradley Unraw, CFP, CHS Jesse Van Dalfsen Kevin Wong Scott Woodman, CFP, CLU Runlin Zhan

SHAREHOLDER AGREEMENTS

Uncovering

Pitfalls

Gary Clark shows how advisors can demonstrate value to business owners by revisiting nuances in shareholder agreements

22 FORUM NOVEMBER / DECEMBER 2019

is either no agreement in place, a drafted but unsigned agreement, or a signed agreement that is not tax efficient. In any case, many unsigned and signed agreements need to be revisited.

When insurance has been placed and there is no signed agreement, a deceased’s estate would not have to sell the shares and the heirs would participate in the insurance proceeds. Alternatively, the executor of the estate could argue that the shares have increased in value by the receipt of the insurance increasing the purchase price. Until the agreement is signed, one possible solution is to develop an interim death agreement that may be put in effect until a fully documented agreement can be developed. The agreement would specify that to the extent life insurance was received by the corporations, the proceeds will be applied to purchase the deceased’s shares. If for any reason the insurance is not payable, no purchase would take place. Most insurance companies’ estate planning departments should be able to provide assistance in this regard.

When reviewing shareholder agreements, the following are some common pitfalls that the advisor may uncover.

Stop-Loss Rules One of the most troubling issues found in a shareholder agreement is it ignores the impact of the stop-loss rules. Prior to April 26, 1995, a deceased shareholder could have their shares repurchased by the corporation, tax free, to the extent of the CDA created in

PHOTO: ISTOCKPHOTO

A

unanimous shareholder agreement is an invaluable legal document for the protection of the shareholders.

The advisor who has an understanding of the tax implications on the various corporate tax structures, the role life insurance can play, and the impact of the capital dividend account (CDA) will be able to make recommendations that would substantially improve the existing agreement.

An advisor’s involvement can provide a fresh look at the relevance of the agreement and its impact on the succession plan.

Agreements are often out of date with regard to who the buyers and sellers should be. They may be constructed in a manner that creates an unnecessary tax liability. Despite any change in tax laws, some lawyers don’t see it as their responsibility to recommend to their clients any modifications to the agreement.

For years, I didn’t understand that the shareholder agreement is for the company and not the shareholders. This is the reason shareholders are advised to seek independent legal advice before signing (which is rarely done). The agreement is simply a set of rules and a backstop if shareholders can’t agree on another alternative. I’ve discovered that agreements are like wills: once they are signed, they are rarely readdressed.

When working with business owners, an advisor may find there

the corporation by the insurance proceeds. The repurchase of shares is considered a deemed dividend and, by agreement, that dividend is to be elected as a capital dividend. The stop-loss rules limit the tax-free repurchase of shares to 50 per cent of the dividend, making the remaining 50 per cent taxable.

The Conference for Advanced Life Underwriting (CALU) negotiated grandfathered status for shares owned prior to April 26, 1995. The grandfather rules apply to private corporations preApril 1995.

Shares — Grandfathered by Agreement Shares are grandfathered when a signed shareholder’s agreement was in place prior to April 27, 1995, calling for the repurchase of a deceased’s shares. Insurance can be added at any time, but the agreement cannot be significantly altered. For example, changing a class of shares to a preferred class would cause loss of their grandfathered status.

Shares — Grandfathered by Insurance The grandfather rules apply to Canadian private corporations.

Shares are grandfathered when a corporation is named the beneficiary of life insurance on or before April 26, 1995, and a main purpose of the insurance was to repurchase shares. An agreement may be added.

• Shares can be rolled into a holding company and the holding company shares retain their status.

• Shares may be exchanged for a different class of shares (section 51 of the Income Tax Act) • Shares may be organized under an internal and external “freeze” (sections 86 and 85) or as the result of an amalgamation (section 87).

• The insurance can be replaced, increased, and cancelled with new insurance purchased later and the shares remain grandfathered.

It’s the insurance that creates the grandfathering status of the shares, not the insurance itself. Records should be maintained for subsequent proof that the shares are grandfathered. It is recommended that old agreements and insurance company/advisor records be kept for proof of their status.

Where Shares are not Grandfathered Lawyers unfamiliar with these rules often draft agreements calling for the repurchase of shares without knowledge of their grandfathered status. Most agreements today are for companies incorporated post April 26, 1995. Without planning around the rules, a deceased shareholder leaving their shares to a spouse will not escape 50 per cent of the capital dividend being taxed because the spouse was not a party to the agreement.

50 Per Cent Solution: Preserving 50 Per Cent of the CDA When the shares are not grandfathered and are repurchased with CDA insurance proceeds, 50 per cent can be purchased tax free, and the balance will be taxed as a dividend to the estate. This solution preserves 50 per cent of the CDA for the surviving shareholders. The tax payable by the estate will be either as an eligible or ineligible dividend (or partial of each). In Alberta, the percentages are 31.71 per cent or 42.64 per cent. Unfortunately, most agreements don’t specify which dividend pool will apply. This dividend rate is

greater than when taxed as a capital gain (24 per cent — Alberta).

100 Per Cent Solution — Benefitting the Estate of the Deceased Shareholder Shares can be repurchased by applying 100 per cent of the CDA to the estate. Fifty per cent will be tax free and the balance will be taxed to the estate as a capital gain. Special elections will need to be made. However, 50 per cent of the CDA has been wasted.

Planning around the Stop-Loss Rules for Individually Owned Shares A deceased’s estate can have their shares purchased tax free if the deceased shareholder has a surviving spouse to whom shares are transferred under a valid will. The agreement would provide for the surviving spouse or personal representative to “put” the number of shares equal to the available capital gains exemption (can be doubled for both spouses) to be purchased by the surviving shareholders and the balance “put” to the corporation for repurchase within 180 days. If the “puts” had not been offered within the time period, the surviving shareholders would have the right to call for the purchase and the spouse forced to sell. The repurchase of the deceased’s shares under the “call” option enables the “put” shares to be purchased by a tax-free dividend (CDA). The deceased’s estate by this arrangement can be bought out tax free.

Shares Repurchased from a Holding Company If the shares of the operating company are owned by a holding company, there is no need for “puts and calls,” as the stop-loss rules do not apply. The repurchase can occur tax free to the deceased’s holding company to the extent the agreement is life insured. When insurance is to be applied to the repurchase of shares by the corporation from a corporate shareholder, the agreement should be a “mandatory” repurchase.

The surviving spouse inheriting the shares of the deceased’s holding company is able to withdraw the funds out of the company as a tax-free capital dividend. If shares of the holding company are not left to a surviving spouse, or if there is no spouse, then 50 per cent of the shares can be repurchased tax free and the balance taxed as a capital gain. In most provinces, this will be less than the dividend rate.

It should be noted that shares that are repurchased from a family trust or from an individual who owns shares other than the deceased, can occur tax free to the extent of the CDA. There is no deemed disposition.

Enhanced Capital Gains Exemption Shares Personally Owned Another common omission in an agreement calls for the corporate repurchase of shares without recognizing the availability of $866,000 enhanced capital gains exemption (ECGE), or how it can be doubled upon the demise as a shareholder.

A deceased can leave shares to a surviving spouse and, in fact, the exemption could be doubled if the agreement calls for “put/call” options on shares left to a surviving spouse on a rollover basis. The surviving spouse is then allowed their own $866,000 exemption along with the deceased’s. The arrangement could provide the surviving shareholders with a cost base equal to the purchase price and the deceased’s estate with up to $1.732 million tax free (ECGE increases by CPI to a maximum of $1 million).

This arrangement can also be applied in a hybrid buyout strucNOVEMBER / DECEMBER 2019 FORUM 23

SHAREHOLDER AGREEMENTS ture in which the agreement provides for both a cross-purchase (between shareholders) to the extent of the ECGE, and a corporate repurchase (between the shareholders and the corporation) on the balance of shares. One planning strategy is to have the shares purchased by the surviving shareholder(s) come from a separate class of shares with the same rights.

Reviewing Insurance — Adequacy and Ownership Reviewing an agreement also provides an opportunity to review the ownership, amount, quality, and sustainability of the existing insurance coverage.

Often the insurance to fund an agreement is owned by the corporation. Due to certain circumstances (e.g., a drop in oil prices or another market) the value may be greater or lesser at the time of a shareholder’s demise. To protect the deceased’s estate, the purchase price should be greater of the life insurance received and fair market value.

When insurance is used to fund an agreement, the life insured often owns the policy and the corporation is named as the beneficiary. This arrangement enables the life insured to control the insurance on their life. The policy owner pays the premiums out of any dividends received or is reimbursed by the corporation for the cost of the insurance as agreed to by the parties. (A word of caution: the Canada Revenue Agency (CRA) may deem the reimbursement as a “benefit to the shareholder.”)

Another reason for this structure is to allow owners a different funding option for term insurance, or to provide an opportunity to accumulate tax-sheltered funds through whole life/universal life policies.

A potential drawback could occur when an insurance policy owner might change the beneficiary without the knowledge of the

other shareholders. On death, the corporation would be left without the funds intended to purchase the deceased’s interest. One possible solution here would be to have an irrevocable beneficiary designation. While this is a sound strategy, it could be problematic in a situation where there is conflict among shareholders. Another strategy would be for the purchase price on death to be reduced by the amount of insurance redirected from the corporation.

Dividend Tax Versus Capital Gains Tax Many pre-2006 shareholder agreements provide for the corporation to repurchase a deceased’s shares out of the CDA created by the receipt of insurance proceeds. Any shortfall on the repurchase is taxed as a separate dividend.

In 2006, the CRA introduced two dividend pools on the aftertax income earned of a private corporation. An “ineligible” dividend is paid out of the low rate income pool, based on the aftertax corporate earnings below $500,000 of small business income.

An “eligible” dividend is paid out of the general rate income pool (GRIP) on the after-tax corporate earnings in excess of $500,000.

When the agreement is underfunded, the dividend on the shortfall could be taxed at rates in excess of the capital gain rate.

For example, in Alberta, the dividend rates are 42.64 per cent for ineligible and 31.71 per cent for eligible. The capital gain rate is 24 per cent. Ontario has a much greater spread between dividend and capital gain rates.

If it is not specified in the agreement, which pool will the dividend be elected from? Would the remaining shareholders save the eligible dividend pool for their own benefit?

The agreement’s structure should be flexible enough to provide the best outcome for all shareholders as how to apply dividends or for a purchase of any shortfall by the surviving shareholders.

GARY CLARK, CLU, TEP, is president of Clark Insurance Advisory in Edmonton and is a founding member of CALU. He can be reached at gary@clarkadvisory.ca.

10 COMMON OMISSIONS IN SHAREHOLDER AGREEMENTS 1. The agreement restricts the transferring, selling, or assignment of shares of the operating company but not of a holding company.

Therefore, the sale of holdco would circumvent the agreement.

2. The value of the business is established by the corporation’s accountants. This creates a conflict of interest, as the accountant’s client is the corporation, not the deceased’s estate.

3. The stop-loss rules are

misinterpreted.

24 FORUM NOVEMBER / DECEMBER 2019

4. Life insurance is not excluded in the valuation formula in determining the fair market value of the company.

5. There’s no CDA election

in the repurchase of shares.

Also, it doesn’t consider there may be other CDA from other transactions.

6. The agreement doesn’t specify

from which pool the eligible or ineligible dividend will be paid.

Therefore, who decides?

7. The agreement calls for the corporate repurchase of shares from an individual shareholder without considering the availability of the enhanced capital gains exemption.

8. The estate must sell shares on an initial down payment, often with no recourse for default.

9. A withdrawing shareholder is entitled

to acquire a policy on their life owned by the corporation for its cash value or balance of annual premium. This transfer must occur at fair market value.

10. When the corporation owns the insurance and a shareholder has died, and the value of the business has reduced, the deceased’s estate will not receive what it expected. — G.C.

CORPORATE INSURANCE

BY GLENN STEPHENS

Succession Planning How shareholder agreements can be unique among family businesses

I

nsurance advisors who work in the corporate market are familiar with shareholder agreements and their importance in business succession planning. The use of corporate-owned life insurance to fund these agreements is a staple of the business market. In many cases, the advantage of a shareholder agreement is that it provides for a sale of shares to surviving shareholders who are active in the business, rather than allowing the shares to pass under the deceased’s will to nonactive family members. This is a valid consideration in cases where the shareholders are unrelated, but is not necessarily as important if the business is family-owned.

This does not mean that shareholder agreements for family-owned businesses are unnecessary. They can be vital to business succession planning, and limit the possibility of disputes that could damage personal relationships. Any family corporation that has two or more shareholders, with the possible exception of a corporation wholly owned by spouses, can benefit from a comprehensive shareholder agreement.

Let’s review a number of issues.

Death: The death of one or both shareholder parents may trigger buy/sell obligations. In some cases, shares owned by parents are simply gifted to their children.

In other cases, however, the shares will be sold to one or more children as a means of generating funds that can be used to provide bequests for non-active children.

The premature death of a child should also be contemplated. In that case, a sale to the surviving siblings pursuant to an agreement may be preferable to having those shares pass to the deceased’s spouse or other beneficiaries.

Disability: The agreement may contain

provisions relating to the purchase and sale of shares owned by a disabled shareholder, but only within certain parameters. For example, the disability of an elderly parent should not normally trigger a purchase and sale of his or her shares.

However, a buyout could be provided upon the disability of a child who is active in the business.

Permitted Transfers: The agreement might

provide that certain transfers of shares by family members will be permitted without the approval of other shareholders. This might encompass transfers that would not normally be permitted in arm’s length agreements, such as transfers to children, spouses, or family trusts.

Distribution of Profits/Compensation Policy: This can be a critical issue in family

corporations where, for example, shares may be owned by non-active children, or parents whose involvement in the business has diminished or ceased. In these circumstances, there should be clear guidelines regarding the payment of dividends to the various shareholders. Similarly, the agreement might contain rules that concern the compensation of active family members.

It could stipulate, for example, that family members’ compensation be limited to what an arm’s length employee having similar responsibilities and experience would receive.

Valuation: This is a critical aspect of any

shareholder agreement, but even more so in the case of a family business. Where shares are bought and sold between parties not dealing at arm’s length (such as family members), the deemed proceeds of dis-

position would equal the shares’ fair market value notwithstanding the purchase price determined under the agreement.

This could result in significantly greater tax liability to the deceased’s estate.

However, the purchaser’s cost for tax purposes would only reflect the actual purchase price, i.e., it would not mirror the estate’s deemed proceeds of disposition.

This could result in double taxation on a future sale by the purchaser. Therefore, the family shareholder agreement should clearly state that transactions take place at fair market value, and that a qualified, independent business valuator be used. A price adjustment clause should also be included, which would allow the price to be changed to reflect a successful challenge from the Canada Revenue Agency.

Role of Life Insurance: Corporate-owned life insurance can of course play a critical role in enabling family businesses to transition smoothly to the next generation.

Here are some examples: • Insurance on the older generation (single life or joint last-to-die) can be used for the payment of tax and other liabilities that arise at death. If this insurance is held within the family corporation, the shareholder agreement should provide for the payment of the proceeds, via the capital dividend account, to the estate of the deceased parent.

• If the insurance on the life of the parent(s) is to be used to fund a purchase of shares on death, the transaction (including the role of the capital dividend account) should be clearly laid out in the agreement.

• Insurance on the lives of the younger generation of shareholders should also be obtained as a means of funding the purchase and sale of shares in the event of a premature death.

• The corporation could also obtain key person insurance coverage that would be used to indemnify the business for any financial losses resulting from a shareholder’s death. The insurance should be clearly identified in the agreement as being separate from any policies acquired for buy-sell purposes.

GLENN STEPHENS, LLP, TEP, FEA, is the vice-president, planning services at PPI Advisory and can be reached at gstephens@ppi.ca.

NOVEMBER / DECEMBER 2019 FORUM 25

ESTATE DILEMMAS

BY KEVIN WARK

CDA Basics Tips and traps of a corporation’s capital dividend account

A

private corporation may acquire life insurance on the life of a shareholder for a number of business purposes, such as collateral insurance for corporate debt, to fund a buy-sell agreement, or to provide liquidity to a shareholder’s estate.

It is often assumed that all or most of the life insurance proceeds will be credited to the corporation’s capital dividend account (CDA). However, recent tax changes and interpretations may reduce what is actually credited to the CDA and available for distribution as a tax-free capital dividend. Let’s review several of these changes and provide some helpful planning ideas and tips.

Essentially, the credit to a corporation’s CDA is equal to the insurance death benefit less the adjusted cost basis (ACB) of the policy. For example, if a corporation receives a $500,000 death benefit and the ACB of the policy is $50,000, the credit to the CDA will be $450,000. This amount can be distributed to shareholders as a taxfree capital dividend.

While many factors can influence a policy’s ACB, in many cases it will be equal to the cumulative premiums paid, less the cumulative annual “net cost of pure insurance” (NCPI) charges for the policy.

The NCPI is a notional annual mortality cost associated with the policy as determined under the Income Tax Act. For a level cost insurance policy, the ACB generally increases in the early years as premiums will exceed the NCPI charges, and will decrease in later years as the NCPI charges grow larger. As a result, the ACB of a policy typically declines to zero as the insured reaches life expectancy.

2017 TAX CHANGES In 2017, significant changes were made to the life insurance tax rules that govern policies issued after 2016. One impact is a 26 FORUM NOVEMBER / DECEMBER 2019

general reduction in the annual NCPI charge for any given policy. Thus, for policies issued after 2016, the ACB will generally be higher and remain positive for a longer period of time, which could result in a lower credit to the CDA. However, the impact of this change can vary depending on the type of policy, the premium payment pattern, and the type of mortality costs deducted under the policy. Thus, through careful product design it may be possible to “manage” the ACB of a policy issued after 2016 to maximize the credit to the CDA. These rule changes don’t apply to policies issued before 2017. But it is possible for a pre-2017 policy to lose its “grandfathering” due to a policy change, such as increasing the insurance coverage. If this happens, the policy will become subject to the new NCPI calculation. Caution should therefore be exercised in making changes to a pre-2017 corporate owned policy as it could negatively impact the CDA credit.

MULTI-BENEFICIARY POLICIES Certain changes were made in budget 2016 to prevent the “stripping out” of a policy’s ACB by having a different corporate owner and corporate beneficiary. These changes will apply to policies in force prior to the budget, and thus the CDA may be lower than expected.

This change may also result in the ACB of the policy being “double counted.” For example, assume Holdco owns a policy on the life of its shareholder (Ms. A) with a death benefit of $1 million and an ACB of $100,000. If Holdco was the beneficiary of the policy, the CDA credit on the death of Ms. A would be $900,000. Now let’s assume Opco, which is wholly owned by Holdco, requires $500,000 of insurance on Ms. A’s life. Rather than purchase a new policy, Holdco could designate Opco

as beneficiary for $500,000. On Ms. A’s death, Holdco and Opco will each receive $500,000 of insurance proceeds. However, the ACB of $100,000 will used in determining the CDA credit of both companies, resulting in an aggregate CDA of $800,000, exposing an additional $100,000 to tax on distribution. It might be advisable to have just one corporate beneficiary under the policy to avoid this issue.

MULTI-LIFE POLICIES Corporate owned multi-life policies issued before 2017 suffer from a similar “double counting” issue, as the ACB associated with all coverages will be taken into account in determining the CDA credit on the death of each life insured.

Consideration might be given to separating the coverages into different policies to avoid this result. However, there may be administrative restrictions or adverse tax implications that prevent this. The situation for multi-life policies issued after 2016 is somewhat better, as there is now a mechanism to adjust the ACB of the policy after the payment of a death benefit under a coverage.

POLICY TRANSFERS Prior to budget 2016 there were tax advantages that might arise where a shareholder transfers a personal insurance policy to a private corporation at its fair market value.

These tax advantages no longer exist for transfers made after March 21, 2016.

As well, any tax benefits arising from a policy transfer made after 1999 and before March 22, 2016 will reduce the CDA credit available to the corporation on the death of the life insured. Unfortunately, there is very little that can be done to avoid this result.

The rules for determining the CDA credit from corporate owned insurance have recently become more complex, and careful planning is required. Advisors looking for more detailed information on these rules can refer to Tax Folio S3-F2-C1 (Capital Dividends).

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.

TAX UPFRONT

BY JAMIE GOLOMBEK

Tax Court Case Are commissions on an advisor’s life insurance policy taxable?

T

he taxation of commissions on the sale of advisors’ own policies has always been a hot topic, as there still appears to be some confusion among advisors as to whether such commissions are indeed taxable. A recent tax case (Ghumman v The Queen, 2019 TCC 125) shows that this issue is still misunderstood by some insurance advisors.

The Canada Revenue Agency (CRA)’s long-standing published administrative position on the taxation of insurance commissions is articulated in T4130, “Employers’ Guide — Taxable Benefits and Allowances,” which states: “Commissions that sales employees receive on merchandise they buy for personal use are not a taxable benefit. When life insurance salespeople acquire life insurance policies, the commissions they receive are not taxable as long as they own the policies and have to make the required premium payments. This only applies where the income received is not significant and the insurance policy has no investment component or business use.”

This administrative position is based on the analogy that the commission income is akin to an employee product discount, where effectively, the amount of the commission received by the advisor is netted against the premium payable.

TAX CASE The recent case involved a life insurance broker who provided life insurance brokerage services on behalf of, and as an employee of, his corporation. The commissions in respect of any life insurance policies placed through the services of his corporation were paid to, and received by, his corporation, which in turn paid him a salary for the services that he provided on its behalf.

In 2014, the taxpayer purchased a life insurance policy on his own life with a death benefit face amount of $1 million.

His corporation was paid a first-year commission in the amount of $20,822.41 and

a bonus commission in the amount of $36,439.22, for a total of $57,261.63.

For that tax year, his corporation paid him a salary of $111,617. Relying on the CRA’s administrative policy outlined above, in computing his income for 2014, the taxpayer deducted from his salary the amount of $57,261.63, representing the total of the commissions he received in respect of his personal policy. The CRA reassessed him, disallowing this deduction and he took the CRA to Tax Court.

An important reminder to all insurance advisors: The commissions received on personal policies generally need to be included in income.

The CRA advised the taxpayer that its administrative policy did not apply to him because the CRA was of the view that the amount of the commissions (i.e., $57,261.63) was “significant.”

The taxpayer wanted to know the difference between “a significant commission and an insignificant commission.” As the judge remarked, “When he asked to know where the dividing line was, the CRA could not provide him with any specific indication.”

Nonetheless, the judge was unable to rule in the taxpayer’s favour, and explained the basic theory behind the taxation of insurance commissions and where the CRA was coming from in its occasional nonenforcement of the rule.

He explained that “a commission received

on a sale is by its very nature taxable,” yet the CRA views some of these commissions as “a privilege for the seller who receives it.

Thus, just as an employer may sell merchandise to employees at a discount, so can an insurance company offer a discount to its sellers if they acquire a personal life insurance policy from it, according to the CRA. In such cases, the CRA views the discount as a privilege related to employment or profession, and agrees to treat the benefits as non-taxable.”

The judge went on to point out, however, that this only reflects the administrative policy of the CRA that, to his knowledge, cannot be in any way derived from the Income Tax Act. As he wrote, “there is nothing in the provisions of the [Act] exempting from taxation this type of privilege.”

The bottom line is that commission income earned by a life insurance broker (at least on permanent insurance policies) is generally taxable, unless the CRA determines that a particular commission qualifies for the favourable treatment set out in the CRA’s administrative policy above.

In dismissing the taxpayer’s appeal, the judge concluded, “While the CRA’s denial of its administrative policy to (the taxpayer) without a satisfactory explanation was unfortunate, this Court cannot provide the relief that the taxpayer is seeking.”

It’s an important reminder to all insurance advisors that the commissions received on personal policies generally need to be included in income.

JAMIE GOLOMBEK, CPA, CA, CFP, CLU, TEP, is the managing director, tax and estate planning at CIBC Financial Planning and 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.

NOVEMBER / DECEMBER 2019 FORUM 27

LEADERSHIP & GROWTH

B Y JONATHAN SCHJOTT

Improved Frequency How clear communication leads to stronger relationships and better results

T

he best managers communicate with their advisors with greater frequency and greater clarity. As a leader, every piece of verbal and non-verbal communication sends a message. Your intentionality should come from a robust communication plan that touches your people across all mediums — face, phone, email, and text. In today’s fast-paced world, you cannot afford for your message to be misinterpreted or misunderstood.

So, what are three critical approaches that a manager must use to strengthen communication with their team?

1. GET TO KNOW YOUR PEOPLE. How well do you know the advisors on your team? Like really know. What is their spouse’s name and occupation? Can you name each of their children? What about their pets? I would argue that unless you can confidently answer the above questions, you don’t know them well enough.

And while these questions may not have a lot to do with business, they have everything to do with trust and the relationship you have with your advisors. You see, to build a trusting relationship, it takes more than chit-chat. Just because you are chatting, doesn’t mean you are building a relationship or helping advance their business.

One of the least complicated and most effective ways to get to know your advisors and build trust is through weekly one-onone meetings. These meetings help improve performance and retention. They will also help you get to know your advisors at a deeper level. Managers who know how to get the most out of their advisors achieve better results.

Through structured one-on-ones, you’ll learn about your advisor’s strengths and 28 FORUM NOVEMBER / DECEMBER 2019

weaknesses. You’ll learn what motivates them. This information will help you create more effective skills development plans for them. You’ll also be able to key in on what really motivates your advisor. Carrot-andstick motivators do not work. The single greatest long-term motivator is helping your people make individual progress every single day.

2. OVER-COMMUNICATE EXPECTATIONS. Your advisors will evaluate you based on the quantity and quality of your communication. For most professionals, it’s simple: Hearing from their manager more often about how they are performing improves performance. This truth shows that in many cases we are only getting a small percentage out of our advisors’ true capabilities.

That is why it’s necessary to over-communicate performance expectations and performance feedback.

You over-communicate your expectations to avoid ambiguity and to help ensure you and your advisors are on the same page. You must make it clear that results matter and that there are no rewards for effort alone. It’s tempting to be the cheerleader. It’s tougher to look people in the eye and tell them that their performance is unacceptable or that they need to upgrade their skills. If you don’t find a balance, you risk ending up with a happy team that doesn’t get anything done.

It’s for this reason that you must overcommunicate performance feedback. If performance communications are rare, then each takes on greater significance. If you don’t point out a mistake, your advisors will assume that you don’t care enough to correct them. Or worse, they may assume they are doing things acceptably. To get your

message across, you should make every effort to be 10 times clearer than you think you should be when it comes to feedback.

3. ESTABLISH YOUR COMMUNICATION PLAN. Great communication does not happen by accident. As leaders, we must be deliberate in how and when we talk to our advisors.

For one-on-ones, it’s best to conduct them weekly. The simplest reason is that you structure your work life in weekly increments. You’ll also gain time by holding them weekly.

If you are like most managers, you get interrupted. A lot. Those interruptions will decrease when you meet with your advisors weekly. Over time, and with your guidance, your advisors will begin waiting until their one-on-ones to bring up non-urgent issues like case preparation, financial plan reviews, and one-off questions. If you have your one-on-ones biweekly or monthly, you lose this benefit.

When it comes to communicating about performance expectations and giving performance feedback, more is better. Think about professional sports. Most of us would prefer to watch a professional league rather than a high school game (unless your child is playing) because the calibre of play is much higher.

The underlying reason is elite athletes are provided performance feedback their entire career. These principles are the same for your advisors. If you want high performance, you’re going to have to talk to your advisors frequently. I recommend giving feedback once daily for each of the advisors whom you work with directly. And with so much technology at our disposal, there is no excuse. While face-to-face is best, a timely text or email is also effective.

Communication is at the heart of building great relationships with your advisors.

Becoming an elite communicator won’t happen overnight, but implementing this guidance will lead to stronger results and stronger advisors.

JONATHAN SCHJOTT, CLU, CFP, CHS, is regional vice-president, insurance brokerage at RBC Insurance. GAMA International Canada, a conference of Advocis, provides professional development and networking opportunities for leaders in the financial services industry. For more information, visit www.gamacanada.com.

AdvocisNews ASSOCIATION UPDATES AND EVENTS

LEGAL AND REGULATORY AFFAIRS UPDATE

CSA Releases Proposals to Reduce Regulatory Burden

O

n September 12, the Canadian Securities Administrators (CSA) released eight proposals to reduce regulatory burden for investment funds. While most of the proposals are aimed at investment funds, some also have the potential to directly impact financial advisors. According to the CSA, the proposals are only the first stage of the burden reduction plan. This stage focuses on changes that the CSA expects can be implemented quickly.

The proposals include a number of exemptions from the requirement to deliver Fund Facts documents in three specific scenarios. First, delivery of Fund Facts will no longer be required for mutual fund purchases made in managed accounts or by permitted clients that are not individuals. Second, after initial purchase, Fund Facts will not need to be delivered for subsequent purchases of mutual fund securities under model portfolio products and portfolio rebalancing services.

Finally, Fund Facts delivery will no longer be required for purchases of mutual fund securities made under automatic switch programs. These are programs where investors purchase a class or series of securities of a mutual fund, and on predetermined dates, automatic switches are made to a different class or series of the same fund based on the balance in the investor’s account or group of accounts meeting the minimum investment amount of the other class or series.

The proposals also include a requirement that investment funds designate a website where they will post regulatory disclosure. This requirement is intended to create possibilities for regulatory disclosure currently found in printed documents to be moved to an online format, which may potentially reduce burden and costs for investment fund managers and investment funds.

Advocis staff will submit our response to these proposed changes to the CSA on December 11.

CHAPTER NEWS

Greater Vancouver Chapter:

T

he Greater Vancouver chapter held its fourth “Ted Talk” seminar on June 6. This edition was called Building Blocks for Success. Held at the River Rock Resort, 13 speakers gave tips and suggestions on how to grow a successful financial services business. Topics included technology, selling insurance stories, succession, update on designations, and practice management.

At the seminar, long-standing Advocis member Jim Rogers, RFP, CFP, CH.F.C., CLU, and founder of Rogers Group Financial (now RGF Integrated Wealth Management) was recognized for 50 years of membership.

Advocis VP named to new FSRA committee FSRA, the Financial Services Regulatory Authority of Ontario has announced the appointment of Ed Skwarek, vice-president, legal and regulatory affairs, Advocis, The Financial Advisors Association of Canada, to the new Life & Health Stakeholders Advisory Committee. Ed will be tasked with providing input and advice to FSRA’s board of directors on its life and health insurance–related priorities and budget, on behalf of Advocis members.

NOVEMBER / DECEMBER 2019 FORUM 29

SLUGTYPE HERETK AdvocisNews

O

n June 19, Advocis Greater Vancouver hosted a luncheon event where members learned about financial planning considerations for their lesbian, gay, bisexual, transgender, and queer (LGBTQ+) clients. The event featured an expert panel comprised of two local financial planning professionals, as well as a wills/estate/fertility lawyer, each of whom regularly encounter unique planning opportunities for their LGBTQ+ clients. The discussion covered such topics as creating a welcoming practice, legal considerations for blended families, and comprehensive fact finding.

Ottawa Chapter

N

early 100 members of the Ottawa chapter gathered on September 26 to participate in lively discussion at Update 2019. Moderated by board member Erin Meisner, CHS, Update 2019 focused on issues related to seniors, such as client-advisor communications, income sustainability, and the identification of a Trusted Contact Person.

Calgary Chapter

O

n October 2, the Calgary chapter participated in an Under 5, After 5 event that focused on building a sustainable practice.

Under 5, After 5 events are a fantastic opportunity to meet other chapter members while receiving guidance on career and business growth.

South Saskatchewan Chapter

T

he Advocis South Saskatchewan Chapter held its 65 Roses Golf Tournament on September 5.

Golfers enjoyed a beautiful day at the Tor Hill Golf Course and raised more than $21,000 for Cystic Fibrosis Canada. This event has brought in $325,000 over the past 23 years.

The chapter is committed to partnering with Cystic Fibrosis South Saskatchewan, and will be increasing the organizing committee for next year’s event.

30 FORUM NOVEMBER / DECEMBER 2019

FINAL WORD

Huge Leaps Forward for Regulating Advice

PHOTO: ADAM REILAND

2

BY ABE TOEWS

019 has been a very eventful year for Advocis in fulfilling our mission to “provide a superior platform of knowledge, advocacy, community, and protection that advances the value and professionalism of financial advisors and planners.”

We’re leading the field in education through expanded course offerings, ranging from our new Professional Financial Advisor (PFA) designation, to new CE-accredited courses on topics such as Strategic Selling with Social Media.

This year we’ve also taken Financial Literacy Month to a new level, with a redesigned financial literacy website, a new podcast episode, and an interactive 30-day challenge that encourages members, clients, and regular Canadians to take charge of their finances (visit financialadviceforall.com to learn more).

Our community is stronger than ever, and with your support, we are coming across loud and clear on the value that a professional financial advisor brings to the table.

I am especially proud of the success we’ve achieved through our advocacy efforts. In the last 12 months, our members have participated in seven legislature days across the country and have engaged with more than 100 elected officials, including premiers, ministers of finance, members of the provincial parliament, members of the legislative assemblies, and members of the house of assembly. And these meetings have yielded concrete results.

For more than 10 years, Advocis has been advocating for a Professions Model, a model in which financial advisors are officially recognized as a profession. We want to see a profession with a mandatory code of professional and ethical conduct, enhanced initial proficiency standards, ongoing continuing education requirements, a best practices manual to guide advisors, mandatory professional liability insurance, strong disciplinary processes, and an accessible public database where consumers can easily verify an advisor’s credentials and history.

Title protection is a key component of the Professions Model. With the exception of Quebec, anyone across Canada can refer to themselves as a financial advisor or financial planner, regardless of their education or licensing. A recognized profession simply doesn’t permit that. You can’t just call

yourself a doctor, lawyer, or accountant because you feel like it. And yet, for those of us responsible for safeguarding the financial health of so many Canadian households, there are no guarantees that the person providing financial advice is actually qualified to do so.

Polls we commissioned in seven different provinces confirmed that the majority of Canadians believe the titles of financial advisor and financial planner are already regulated. An overwhelming majority would support title protection once they learned that there is no regulation in place.

In May 2019, Ontario passed the Financial Professionals Title Protection Act, legislating title protection for financial advisors and financial planners, along with the establishment of criteria for credentials and credentialing bodies to oversee them. This announcement marked a huge step forward for our association and the professionalization of our industry. We are proactively engaged in discussions with regulators and other stakeholders on the implementation process, and are using this legislation as an example of how we can proceed in other jurisdictions. I’m pleased to report that these conversations have been extremely positive.

A regulator once said to us, “If you want to be seen as a professional association, start acting like one. The regulations will catch up.” It was good advice, and we’ve followed it. As an Advocis member, you have voluntarily agreed to abide by our code of conduct and to meet minimum educational and continuing education requirements. We are already ahead of the curve, and we are leading by example. On January 1, 2019, we introduced new membership requirements. We also introduced the PFA to bridge the existing gap between initial licensing and advanced designations like the CLU, CFP, and CH.F.C. After a successful pilot program, registration will be accessible for all very early in the new year.

Now is not the time to become complacent. We’ve made significant progress and we must continue to work together and support each other as a community. Because after all, we have — and will continue to — set the bar for our industry.

ABE TOEWS, CFP, CLU, CH.F.C., ICD.D, is chair of Advocis.

He can be reached at abe@beyondwealth.ca.

NOVEMBER / DECEMBER 2019 FORUM 31

Fixed income ETF solutions from fixed income experts.

Talk to your Fidelity representative about Fidelity Systematic Canadian Bond Index ETF Fidelity Canadian Short Term Corporate Bond ETF Fidelity Global Core Plus Bond ETF Fidelity Systematic U.S. High Yield Bond ETF

fidelity.ca/fixedincome

STAY AHEAD

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in ETFs. Please read the ETF’s prospectus, which contains detailed investment information, before investing. ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated.

Fidelity Investments Canada ULC’s fixed income ETFs are sub-advised by Fidelity Management & Research Company and its affiliates. The ETFs are not sponsored, endorsed, sold, or promoted by FMR Co., Inc. FMR Co., Inc. makes no representation regarding the advisability of investing in the ETFs. © 2019 Fidelity Investments Canada ULC. All rights reserved. Fidelity Investments is a registered trademark of Fidelity Investments Canada ULC. 209493-v201993