FORUM Magazine - September 2019

FORUM SEPTEMBER 2019 • $5.50

The Magazine of Influence for Financial Advisors

SHARE YOUR STORY

Incoming Advocis chair Abe Toews on why empowering advisors matters

7 HACKS TO FORGE STRONGER COI ALLIANCES PREVENTING DENIED INSURANCE CLAIMS

HOW TO MANAGE BUSINESS DISRUPTIONS (They’re coming!)

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FORUM VOLUME 49, 3

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SEPTEMBER 2019

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ISSN 1493-826X

FEATURES

8

Sharing Your Story

Incoming Advocis chair Abe Toews talks to FORUM about empowering advisors and why title protection is a game changer

14

Changes Are Coming

Advisors need to face the reality of business disruptions. Wayne Miller shows you how to come out strong on the other side

DEPARTMENTS

COLUMNS

4

23 TAX UPFRONT

EDITOR’S JOURNAL Sing the praises of advice

6

OPENERS Financial literacy classes start in Ontario’s grade 10 classes; summer debt survey results

29 ADVOCIS NEWS Association updates and events

31 THE FINAL WORD How to keep the momentum going with title protection

BY GREG POLLOCK

Retiring at age 65 may mean delaying your OAS application

BY DOUG CARROLL

24 ESTATE DILEMMAS

18

Shades of Grey

Some clients worry about denied insurance claims. Richard Parkinson explains how to improve the likelihood of an approved claim

Reviewing foreign insurance policies is more commonplace

BY KEVIN WARK

25 CORPORATE INSURANCE Donating and redeeming private corporation shares

BY GLENN STEPHENS

26 LEADERSHIP & GROWTH How the advisory business is similar to a marathon

BY MIKE JUURLINK

COVER PHOTO: ADAM REILAND

27 TECHNOLOGY & SOCIAL MEDIA November issue: Symposium 19 coverage

What’s changing financial product development?

BY MASOOD RAZA

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

Why the disability tax credit program is a broken system

BY GEOFFREY ZALDIN

20

Forging Stronger Alliances

Working effectively with centres of influence is a tricky process.

Patricia Giesbrecht and Kim Poulin provide a seven-step guide SEPTEMBER 2019 FORUM 3

BY DEANNE GAGE

Sing Your Praises

P

rofessional advisors solve complicated problems for their clients. I know this as I’ve heard, witnessed, and directly experienced the stories first-hand. But do all clients understand all that you do for them?

Over the years, I’ve interviewed many advisors who are uncomfortable shouting about their stellar services from the rooftops. They prefer to put their heads down, do the number crunching, prepare the reports, and let their work speak for itself. If they get a simple “thanks,” that’s good enough for them, and then it’s on to the next client challenge. Still, one veteran advisor confessed to me his frustration with clients who are won over by gloss over substantial, competent work.

The lack of advisor empowerment is something incoming Advocis chair Abe Toews hopes to change. He wants you to be proud of your services. Your advice changes financial lives for the better. Your advice impacts future clients and their ability to continue generational wealth. Toews’s story starts on page 8.

Capgemini’s latest World Wealth Report released in July confirms the importance of professional advice. Give it a read at worldwealthreport.com, there are many fascinating insights into global wealth trends from 2,540 high-net-worth (HNW) individuals worldwide, including 575 from North America. While overall individual HNW wealth is slightly down from last year, 82 per cent of global HNW individuals have high trust and confidence levels in their wealth managers. This is especially impressive considering our current volatile economic environment. In North America specifically, the trust number is even higher at 91 per cent.

The report attributes these trust numbers to wealth management firms’ embrace of new technology to improve clients’ overall experiences. “With the increased adoption of hybrid advice, firms are equipping wealth managers with the best tools to support it,” the report says. “Assisted by technology, wealth managers are providing 4 FORUM SEPTEMBER 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. 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

better client portfolio recommendations, which is evident by the increased allocation to assets other than equities. Additionally, wealth managers may have effectively set their HNW clients’ expectations about market declines to mitigate surprises.”

However, there’s still some room for improvement. Capgemini found that only 62 per cent of global HNWs surveyed are comfortable with fees charged by their advisors and firms. Since trust and confidence are well-established, this could mean a better explanation from advisors of why they charge what they do and a complete breakdown on precisely what clients are receiving for their services is in order.

Doctors, lawyers, and accountants all provide a grocery list style of fees, it’s time that advisors got on board, too.

Capgemini also mentions new challenges advisors and advisory firms are experiencing from competition, including BigTech firms (think Apple Inc.). You won’t want to miss Wayne Miller’s feature this month on how you can handle disruption to your business. It’s an inspiring read with actionable tips that you can adopt today.

Check it out starting on page 14. Finally, see Masood Raza’s column on page 27 for more about some of these new technologies coming your way.

DIRECTOR AT LARGE Kevin Williams, CFP, CLU, RHU 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

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OPENERS Fodder For the Water Cooler

M

ore financial advisors should take a page from the Ontario Ministry of Education and get involved in teaching financial literacy — not only to their clients but to their clients’ children, says a financial literacy advocate.

Terri Williams, who is on the boards of the Canadian Foundation for Economic Education (CFEE) and Credit Canada Debt Solutions, was reacting to an early July announcement by Ontario’s education ministry to strengthen math and financial literacy skills in grade 10.

“I’m glad to see this has finally happened,” says Williams. “It’s a good first step.”

This new course builds on the work

done by the previous Liberal government, who wove financial literacy into various subjects throughout the curriculum starting in grade 4, including mathematics, social studies, and Canadian studies.

Financial advisors could piggyback on the work being taught in schools to students, teaching them various ways to become financially knowledgeable. “It

FED ADVISORY GROUP ON IDENTITY THEFT RECOMMENDED: DESJARDINS

T

he federal government should create an advisory group to work on ways to protect Canadians’ information following the massive privacy breach at Desjardins, says the company’s CEO. Guy Cormier told a special sitting of the House of Commons Public Safety and National Security Committee in July that the advisory group should consider a new framework on digital data and identity theft, and should have the ability to work with members of the financial, telecommunications, and legal sectors to find new ways to protect Canadians’ information.

“We have to be really careful about the people, the companies, and how we manage this data,” Cormier told reporters.

Desjardins quickly discovered that the privacy breach, which affected 2.9 million clients in June, stemmed from the

6 FORUM SEPTEMBER 2019

would greatly help their clients, because hopefully the kids won’t be as reliant on them financially if they’re financially savvy,” says Williams. “There are financial advisors who are already doing this — they’re having seminars for their clients’ kids. I’ve even heard from some financial advisors that it’s in demand.”

The Ontario curriculum includes information on savings options, payday loan vendors, how to save through RRSPs and TFSAs, how credit cards work, and budgeting. The information is crucial for young people to get a handle on everyday financial issues, but Williams says it needs to be reinforced at an older age by schools and financial advisors as students head off to university or college. “The actual personal finance skills they need for everyday living is a little different when you’re older than grade 10.”

— Susan Yellin

unauthorized and illegal use of its internal data by a single employee, who was then fired. Information about PINs, passwords, and security questions was not leaked.

The same day the committee met in Ottawa, Desjardins announced it would automatically protect both personal and business caisse members against identity theft at its expense.

“We’re sending a message to all of our members: don’t worry — we’ve got you covered. If your identity has been stolen, give us a call. Desjardins is here for you. And we’re going to continue to support you, like we always have,” Cormier says.

The company said that as always, members’ assets and transactions at Desjardins are protected. If unauthorized transactions are made in Desjardins accounts, members will be reimbursed.

Restoring a person’s identity will receive personalized support from lawyers Desjardins caisse members will be reimbursed up to $50,000 for expenses related to identity theft, said the company. This could cover salary loss, document notarization, legal or accounting fees, and other types of related expenses. — S.Y.

PHOTOS: ISTOCKPHOTO

ONTARIO SCHOOLS ALL IN FOR FINANCIAL LITERACY

DID YOU KNOW? 2019 Summer Debt Survey

38%

of Canadians living with debt admit it was because they lived beyond their means

1 4

indebted Canadians in admit to making poor progress on paying down their debt

19% 9%

are not able to break the debt habit

have no clue how much they spend on average, every month

Source: CNW Group/Manulife Financial Corporation

Awareness and attitudes related to provisions to protect vulnerable investors and investment firms/advisors

Don’t know 29%

Do you have a “trusted contact” person identified with the investment firm/advisor through which you invest?

Yes 22% No 49%

Source: IIROC, 2019

How prepared are you for retirement?

Pre-retirees with plans

Pre-retirees without plans

Financially

88%

43%

Emotionally

79%

64%

Socially

84%

67%

Physically

89%

67%

Source: Fidelity Investments Canada, 2019

J.G. Taylor Award Nominations The Institute for Advanced Financial Education needs your help! Nominations for the 2020 J.G. Taylor Award are being accepted until November 30, 2019.

NOMINEES MUST MEET THE FOLLOWING CRITERIA:

• The individual is an example • The individual exemplifies to others who want to have a tangible impact on their profession and on the public they serve.

• The individual has had a positive impact on their community, outside of the work they’ve done for and in the industry.

The Institute’s code of professional conduct.

• The individual has participated in the industry, either with Advocis or The Institute, or within other professions in the financial services industry.

Nominees must be Institute designation holders (CLU and CHS) in good standing.

Please note that current members of the TFAAC Board of Directors or Institute Board of Trustees do not qualify for the award.

If you have any questions about the J.G. Taylor award or the nomination process, please contact Member Services at 416.444.4449 or 1.877.773.6765, or email info@iafe.ca

COVER STORY

Sharing Your Story

A

be Toews has worn many hats over the decades, from agriculture to construction to financial advice. He started his life on a farm with his parents and five siblings just outside of Winnipeg. Farm life wasn’t for him, so he dabbled in construction in Manitoba and northern Ontario and a few other jobs before giving financial services a try in May 1981. His brother had worked at Mutual Life and referred him to a manager. “I really wasn’t sure if it was the career for me, but I wanted a change, so I accepted an offer and started working,” Toews says.

“Now, 38 years later, I’m still here.”

After just two years as an insurance advisor, Toews was promoted to management at Mutual Life, and then later, at Great-West Life. Eventually, he accepted the regional director role at Great-West Life’s Regina office in 1993.

8 FORUM SEPTEMBER 2019

But Toews missed interacting with clients and providing advice, so he started his own firm, StoneCreek Financial Group. Today, he’s a chartered financial consultant at Beyond Wealth Management, and works in large part with business owners. “Being an advisor is the best career in our industry,” he says.

“That’s where you can really help clients and get a real sense of satisfaction from doing so.”

Community involvement has always been a must for Toews. He’s the past chair of The Caring Place and past president of the Manitoba Chamber of Commerce, the Wascana Country Club, and GAMA Canada. Before serving Advocis on its national board of directors, Toews was the president of the South Saskatchewan and Brandon Advocis chapters.

Toews is active with CALU and the Canadian Association of Farm Advisors. He holds the CFP, CLU, CH.F.C., CHS, and ICD.D. designations.

FORUM caught up with Toews during the summer to learn more about his plans for the upcoming year.

PHOTO: ADAM REILAND

Incoming Advocis chair Abe Toews talks to FORUM about empowering advisors and why title protection is a game changer

SEPTEMBER 2019 FORUM 9

COVER STORY

“My theme for the year is the year of the advisor: The courage to stand in the gap. Advisors have earned the right to be proud of what we do.”

FORUM: How did you get started with Advocis?

FORUM: What are your goals as incoming chair?

Abe Toews: The day I started with Mutual Life, two pieces of paper were on the table. One was my contract and one was my Advocis membership (then called Life Underwriters of Canada], and I couldn’t start working there if I didn’t sign both documents. So, it was pretty obvious that I was going to be a member from day one. It was just expected. It was part of the culture at that time, that you belong to the association.

AT: My theme for the year is the year of the advisor: The courage to stand in the gap. The industry issues always seem to boil down to the role of the advisor and the compensation of the advisor.

And we’re so focused on compliance and regulations at every turn.

But there are also great opportunities to focus on advisor successes.

Advisors have earned the right to be proud of what we do. No one else can do what we do for our clients and their families. I think we as advisors need to stand up and say, “We are proud of what we do every day.”

AT: I believe if you’re going to be a professional financial advisor, you have to belong to a professional association of some kind. It’s fundamental to who we are. I don’t know of any other profession out there that doesn’t have the requirement of belonging to a professional organization. If we are going to call ourselves professionals, we have to keep that in mind. With lawyers, you must belong to the bar. You don’t have a choice. With the Financial Professionals Title Protection Act being passed by the Ontario government, some of that is already coming. If you’re going to call yourself a financial planner or financial advisor, you probably won’t have a choice, you will have to belong to a professional association of some kind.

FORUM: Why should more advisors join Advocis?

AT: It’s really about advancing and enhancing your knowledge and your credibility as an advisor. And having an organization that is advocating on your behalf. I personally look at my Advocis membership fee as a practice insurance fee.

10 FORUM SEPTEMBER 2019

FORUM: So, a more empowered advisor. Are advisors hunkered-down on their work as opposed to getting out there and telling their stories?

AT: Yes. You really don’t know the power of this business until you have delivered a beneficiary cheque, or a death claim cheque, because you’ve seen the difference that can make in people’s lives.

When I say, the courage to stand in the gap, I’m talking about our clients. Every day we advocate for our clients, we are there. I also say that Advocis stands in the gap for our members. Every one of them could give us a story about how their services, and what they’ve done, have helped the client. Everyone has a story. It would make a fascinating book.

FORUM: What’s your story?

AT: I was working with a young professional woman. She was a public speaker by trade. We put life insurance in place for her

PHOTO: ADAM REILAND

FORUM: Should all advisors belong to an association?

Together, we’re making a difference.

We’re proud to have you in our corner.

C O R P O R AT E PA R T N E R S

C O R P O R AT E S P O N S O R S

We couldn’t do all we do for financial advisors in the best interests of their clients without you.

Your investment in Advocis helps us build a strong community of professional financial advisors across Canada … helps us make sure advisors get the continuing education they need to succeed … helps us make sure Canadians have trusted-expert advice to help them make the best decisions for their financial interests … helps shape the future of our industry. A big “thank-you” to all our 2019 corporate partners and sponsors.

For information on the Corporate Partnership Program or to become a corporate partner or sponsor, please contact Celia Ciotola at cciotola@advocis.ca

COVER STORY family, along with critical illness, disability, and we did some retirement planning. Two years later, her husband passed away from cancer. He was in his late 30s. Three years later, my cellphone rings and it’s my client. She had just been diagnosed with cancer.

She starts receiving disability insurance, then critical illness insurance, and she re-does her will. A few years later, she passes away.

That was 10 years ago, and I still work with her two sons. They were the beneficiaries of her life insurance policy and both are well-established; owning their own homes and raising young families. The legacy that their mother left is still going on.

FORUM: Let’s go back to title protection. The Ontario government recently passed legislation that protects the titles “financial planner” and “financial advisor.” Do you think other provinces will follow suit?

AT: We know that many of them have indicated that they believe it’s important to do so. There’s a big disconnect. Advocis did a survey that found that more than half of Ontarians surveyed thought there was legislation to regulate the advisor titles. Well, there isn’t.

FORUM: What’s the best thing about being an Advocis member?

AT: I look to Advocis for my ongoing education and to keep me current on what’s happening in the marketplace. I have my

designations from Advocis. I also look to Advocis to protect me against the things that I don’t even know I should be protected against. They advocate on my behalf to the different regulators across the county. Some advisors don’t realize what they are getting for their dues. Advocis also looks ahead to the future about some of the things on the horizon that may affect advisors, such as our ability to manage our practices, and also what will affect our clients. We do need an association standing watch over items that may be some distance away, but will come. Finally, I love the Advocis community. Over the last 38 years I’ve made many friends from both ends of the country. I know that I could ask any Advocis member for help, and they would help me with information or whatever I needed. If they were capable of doing it, they would.

FORUM: How do you best advise your client base?

AT: A large part of my business is working with business owners and farmers on transition planning. It’s a lot easier to get into a business than it is to leave the business. So we deal with our clients on how to position themselves, either through a family transition, key employees, or to selling to a third party. We help them to be ready to get out if the opportunity arises.

FORUM: Is transitioning also a challenge for financial advisors?

AT: Absolutely. Advisors have the same issues as any other business owner. The biggest issue is they’re so intimately connected to their clients. To move that relationship to another advisor gets very difficult. The only way you can do it is over time.

Earn 6 CE Credits Update 2019 explores areas of vulnerability for the advisor’s practice and their ability to serve their clients well.

Update 2019 addresses such areas as: • Investment Planning, in an uncertain world • Today’s Senior Clients, using foresight to reduce risk • Facing Senior Client Issues, head-on • Decumulation Planning, without running out of money National Webinar will include two days to pick from - November 27 or 28.

Interact with online discussion groups using case study activities.

Plus, earn up to an additional 6 CE credits upon successful completion of the 3 online self-study segments available to you with your webinar registration.

Registration October 1st: advocis.ca/update2019

Improving the lives of Canadians in so many ways.

Abe Toews CFP, CLU, CH.F.C, CHS Chartered Financial Consultant Beyond Wealth Management

We celebrate our advisors investing in their clients, community and the industry.

We want to congratulate Abe on his appointment as incoming Advocis chair.

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

99-12331 08/19

INDUSTRY

Changes Are

Coming Advisors need to face the reality of business disruptions.

Wayne Miller shows you how to come out strong on the other side

14 FORUM SEPTEMBER 2019

PHOTO: ISTOCKPHOTO

T

ake a moment to consider this advice from one of the world’s most renowned business leaders, Jack Welch, former CEO of General Electric: “Change before you have to.”

What Welch meant can be summarized in two words: be proactive.

Get ahead of any big change that could disrupt your business. If you wait until the change occurs, you’ll be in catch-up mode, with the possibility that your business will never fully recover.

Now the big question: Is our industry on the cusp of such a change? Are financial advisors at risk? I think it’s clear that change is already happening, and that many financial advisors will be challenged to maintain the status quo. But I also think our industry — and individual advisors — can address these challenges head on and prosper. The key is to be proactive — starting now.

“Disruption” is the buzzword of our time, and for good reason: So many businesses have faced it. Apple disrupted the way people interact with technology.

Twitter disrupted the way people communicate and news is shared. Uber disrupted the taxi industry.

Companies like Airbnb, Expedia, and Trip Advisor disrupted the travel industry. And where do you start with Amazon, the disruptive elephant in the room?

While it may seem like technology is driving this change, it’s really people’s needs doing the driving.

Technology is the great enabler, but the true genius of successful disrupters is identifying the pain points in the customer experience and creating a solution to overcome it.

Look at Amazon. They’ve been a successful disruptor for many reasons, but I believe two big ones are that they: • Eliminate pain points (everything from long delivery times to finding parking to lack of choice), and make an unhappy experience a happy one.

• Restore trust (with strong guarantees and consistent service levels).

Are there pain points and trust issues for people seeking advice relating to investments, insurance, or financial planning? You bet. Consider these: • Skepticism due in part to the gap in financial literacy: I see a wide financial literacy gap — and people are skeptical of advice and advisors, and fearful of being “taken.”

• Lack of understanding of the role: It’s been my experience that people don’t know what advisors can do for them, and they also don’t know where to go for help, or how to find a good top-rated advisor.

• Lack of trust: Canadians face a barrage of ads that suggest advisors are taking away from people’s savings — and that the cost of working for an advisor is not worth what they get in return. The impression that’s

left? Advisors are salespeople, with the primary goal of lining their own pockets.

Disruption is Coming I know many in our industry felt that commission disclosure and CRM2 would be a significant disruptor of our industry. While the fear of this happening was both real and uncomfortable, I don’t believe it has hurt most advisors on the mutual fund side. At least, it hasn’t yet.

Disruptors see a specific opportunity — or something lacking in the marketplace — and they take advantage of it. While CRM2 didn’t lead to immediate cash outflows from mutual fund–based practices, it did provide fuel for the robo-advice firms to launch an aggressive campaign that continues to plant doubt in the minds of financial services consumers about value for money.

The aggressive nature of the campaign is no surprise given comments by digital wealth management companies. In an article from Financial Planning magazine back in 2012, Andy Rachleff, co-founder, executive chairman, and CEO of robo-advisor firm Wealthfront, laid down the gauntlet in succinct terms: “Making airline reservations was expensive and the reservation system was only available to travel agents…. What Expedia and Kayak did with travel reservations, we can do with financial advice.”

But here’s the thing. While the travel industry has seen disruption, and the number of travel agency retail locations has certainly decreased, the agents who have remained are doing well. They’ve defined their category of travel or target market, they provide exceptional advice and service, and they’ve developed a very loyal and trusting client base. In other words, the great agents of yesterday are still great agents today.

And that’s where we can throw the gauntlet back down at the feet of robo-advisor firms. The good financial advisors of yesterday and today will continue to thrive into the future, provided they continue to offer the expertise, advice, and service that robo-firms can’t match. It’s the advisors who don’t currently operate at this high level who are in danger.

This applies to the insurance side of our business as well. Insurance is ripe for the kind of disruption that has roiled many other industries, from retailing to travel to banking.

No insurgent has yet achieved the critical mass necessary to become a power player in a major insurance market. There’s no Apple or Google of insurance visible on the horizon. Insurance is a highly regulated industry, creating barriers to entry.

But as innovators have shown in other industries, such obstacles can be overcome. Incumbent insurers can’t afford to be complacent. Their customers, especially young, digitally savvy ones, are very open to taking their business to a newcomer.

SEPTEMBER 2019 FORUM 15

INDUSTRY Trust as a Key Competitive Advantage While there are many elements to being a top advisor, the one element that encapsulates all others is trust.

There needs to a base level of trust before someone will meet you, agree to work with you, and give you their business. Trust doesn’t come from a cool online presence, local sponsorships, or mailings and calls — although these all can help.

Trust comes from three things that, when delivered conveniently and when the client is ready, can form the basis for creating a client for life.

1. Expertise: People need to feel confident that you have expertise in the areas in which you’re helping them. This will be based on a combination of experience and credentials. And while we may want to help in all areas of a client’s financial life, it’s counterproductive to be all things to all people, because none of us are experts in everything. Be clear about what you can and cannot do.

2. Customization: No one wants to be sold a product or a concept that you pitch to everyone. Clients want to know that you’ve taken the time to get to know them and will propose a set of recommendations that are personalized to them. While there will be overlap in products and recommendations for different clients, personalizing your recommendations to the individual client is important from a trust perspective.

3. Results: Over time, your results will speak for themselves. On the investment side, has a client’s average level of return and volatility been consistent with expectations? On the insurance side, is a client’s anxiety (and risk) level lower than it was at the start? If the proper insurance is in place, it will be.

Moving Forward Good advisors will embrace change and disruption. Those who don’t could be forced out of the industry. But like the travel industry, the good ones will survive and thrive.

An example of change that could be coming soon is the greater use of apps to find qualified advisors. A pain point we hear is the difficulty people have in finding an advisor, even with more than 100,000 of them in Canada. An app with ratings puts the user experience front and centre. It’s convenient, easy to use, and helps save time and effort.

The use of ratings may make some advisors uncomfortable.

But, ultimately, these ratings will filter out the bad advisors we know are out there — the ones who thwart our efforts to build trust with consumers across our industry.

In addition, Sun Life’s experience with individual ratings in many areas suggests that people are generous in their assessment of service. For example, Sun Life reviewed more than 10 million ratings of health-care providers: Massage therapists, dentists, chiropractors, and more. The vast majority (87 per cent) rated their provider five out of five. This suggests that any culling of advisors as a result of ratings will likely be at the bottom end of our industry — where it should be.

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With the use of apps comes a greater online presence — and one of the best ways for you to prepare for change and disruption is to use this platform to articulate how you add value. Specifically, consider an online profile that clearly explains the following: • Why you do what you do: Organizational consultant and author Simon Sinek built his career on a simple idea: “Start with your why.” Explaining why you do what you do links to the part of the brain that controls emotions and decision making. Articulating your why will help you connect to clients. Because as Sinek states, “People don’t buy what you do, they buy why you do it.”

• Who you work with: If you don’t work with everyone, in every location, at every income level and life situation, don’t pretend that you do. Potential clients want to see themselves in your profile.

So be clear about things like age range, net worth, profession, or any niche market that you serve.

• How you work — your process: Remember — people are highly skeptical of our industry because of the perception of a sales focus.

You need to highlight the advice focus, which starts with learning, listening, thinking, and then advising. Product sales are the result of good advice, so explain the process you follow with clients — from the first meeting through a lifelong relationship.

• What services you provide: Top advisors do not do all things for all people. They are very specific with their specialty and refer to other advisors when clients need things they do not provide.

Examples include: -Protecting family and income from life’s risks -Creating a financial plan for the future -Planning retirement -Turning savings into retirement income -Budgeting and debt management -Managing a business’s financial and protection needs -Estate planning While a top advisor may have experience in several of these, they will refer their clients to others when the need strays outside of their area of expertise. For this reason, advisors who work in a multidisciplinary firm, or who maintain a reliable network of other trusted advisors, will be in a position to best serve their clients.

In the end, it won’t be changes like commission disclosure, online trading platforms, or robo-insurance (if it comes) that will disrupt our industry. It will be the failure of advisors to communicate the value they bring, and to deliver consistently on that promise. Only once the value of advice is articulated can we address the false assumption that advisors are salespeople first, and trusted advisors second.

It’s time for all good advisors to express their why, how, and what, so when prospects seek an advisor, they will love what they see and welcome the relationship. If you’re doing all the right things to create a great client experience, disruption can’t touch you. Make it happen, and watch your business grow.

WAYNE MILLER, ASA, ACIA, is associate vice-president, strategic business development at Sun Life. To receive a PDF of this article, email dgageforum@gmail.com.

INSURANCE

Shades of Grey 18 FORUM SEPTEMBER 2019

insurance. So, let’s consider each of the four types of individual insurance plans: Life, disability, critical illness, and long-term care.

Life Insurance and Claims Life insurance claims for individual policies are certainly faster than group plans; I suspect this is because group plans have more people involved in the process.

I’ve had about 25 death claims in my 16 years in the business, which is probably not a lot by other agent’s standards, and many of them were for policies I inherited rather than sold personally.

In general, if the policy is more than two years old, and the incontestability clause has expired, it has been two weeks or less from

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I

was recently asked if my experience with insurance claims is better or worse than in the past. It got me thinking about the statistics the organizations such as LIMRA or the Canadian Life and Health Insurance Association (CLHIA) provide, and the general lack of information provided by the insurance companies themselves.

According to the CLHIA 2018 fact book, Canadian insurers paid close to $92 billion in claims, a number that includes death claims, disability benefits, cash surrenders or dividends, health insurance benefits, and retirement benefits.

So insurance companies are clearly paying claims, and the time between claim submission and the cheque in hand has not changed much. Of course, that will be different for each type of

Some clients worry about denied insurance claims. Richard Parkinson explains how to improve the likelihood of an approved claim

the time the claim is submitted until my client has the cheque.

I have had a couple of exceptions, with the worst case being a six-year-old policy, with no complications in my opinion, and the company took 2.5 months to settle it. Their claims department was totally disorganized, and they asked for information I felt was unnecessary and were foot dragging. I have chosen not to deal with this company again, because of this claims experience.

Each company has their own procedures, which unfortunately may change from year to year due to circumstances beyond our control as advisors. To minimize claims denied, let your clients know some basic steps: • The client’s beneficiaries should know about you. Give them your business card, and suggest that should your client die, they can call you so that you can assist them with the claims paperwork, getting it organized and into the insurance company as soon as possible.

• The more the paperwork is completed with accuracy and all information requested, the more it will minimize delays in processing.

• Keep your client’s executor informed of progress and keep contact with the claims department on a regular basis to make sure the claim is being worked on.

So, to summarize, for life insurance claims, my experience is the time between claim submission and cheque in hand has not changed much, and is very company specific.

Disability Insurance Claims During the sales process, review the actual contract with clients so they know the definition of disability (some contracts are better than others), and the all-important limitations and exclusions. I also review the claim form for the specific company, since in one case, the claim form asks questions the application does not. If this is the case, I submit the claim form question and the client’s answer as an addendum to the application, so the company can’t deny a claim based on information not asked in the application in the first place.

Make sure the client understands when she can expect to get her first cheque. For example, if she chooses a 90-day elimination period, she likely won’t see her first cheque until four and half months after her date of disability. With a zero-day elimination period, she likely won’t see the first cheque for two to three months, given it will take that long to process the claim.

The claims process may be very quick, or can drag on for months, depending on whether doctors’ reports are required, and the experience of the underwriter. One bright spot is underwriters are more diligent today before denying a claim, realizing their denial will likely be challenged in court, which also means several months, if not years, for a claim to be settled, one way or the other.

Critical Illness Insurance and Claims I have heard from a few wholesalers that approximately 80 per cent of claims are paid, while 20 per cent are not. The reason why claims are not paid include: • The condition claimed for is not covered by the policy — An insured was denied a claim for aplastic anemia; the policy she had purchased didn’t have that disease as a covered condition.

• The condition the insured has does not meet the definition — Under the new definitions that most companies use, a cancer

must be life threatening. Some are non-invasive and non-life threatening.

• Diagnosis not clear cut — The condition can’t be confirmed, or does not match the definition in the contract.

• Material fact misrepresentation — The insured does not disclose a pre-existing condition that would cause the insurer to not issue the policy in the first place.

• Incomplete documentation — The paperwork filed with the claim is missing information, and after a reasonable time is not provided to the insurance company.

• The claim is not made within the time period specified — Some companies have a maximum 180 days to file a claim, after which the claim would be denied because the time limit to claim has expired.

So how to minimize your client’s claim being denied? Review the contract with the client in detail so she understands what is covered and what is not. Only three companies I am aware of cover acquired brain injury. If your client plays amateur contact sports rides a motorcycle, or participates in activities that have the potential of impact on the body (e.g., karate, judo, etc.) I would strongly recommend this client consider a policy that includes this option.

Retain a copy of the sample contracts for every critical illness policy you sell. Over the last 10 years, CI policies have evolved. Most since 2016 have been using the new 2015 CLHIA definitions, so it’s important to realize that a policy issued in 2010 will likely not cover all of the illnesses available today. Certainly the definitions will be different and a claim will be judged based on the contract of the client’s policy, not what is available in 2019.

Ensure the client knows to involve you in the claims process.

This is beneficial for two reasons. It helps the client improve her odds of getting the claim paid, and improves your understanding of the claims process.

Long-term Care (LTC) Insurance and Claims I have never experienced a LTC claim, so this is new territory for me, and I suspect for many of you reading this. What I do know is, much like the other insurance plans already discussed, the contract matters. Probably the most difficult part of future claims will be that where we had six or more companies offering long-term care insurance in the past, there is only one major vendor left. So, finding someone at an insurer that has experience in LTC claims will be more difficult, and suggests longer approval times for claims.

LTC, as well as disability and critical illness claims, require a doctor’s report, and insurance company doctors often interpret data and information differently than the client’s personal doctor.

For all three of these living benefit plans there have been documented cases where the doctor confirms the client qualifies for the claim, but the insurance company doctor disagrees, so the claim is denied. In this scenario, it generally requires the courts to decide, which means long delays for the claim to be settled, and potentially not in the client’s favour.

Ultimately, as you can see, life insurance is the easiest to satisfy in terms of a claim. The insured is either dead or alive. The three living benefits plans are fraught with shades of grey, so our job as advisors is to minimize these nuances at claim time.

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

SEPTEMBER 2019 FORUM 19

COMMUNICATIONS

Forging Stronger Alliances Working effectively with centres of influence is a tricky process.

Patricia Giesbrecht and Kim Poulin provide a seven-step guide

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C

entres of influence (COIs) are people who may never become clients but have the ability to introduce you to people who can. In a U.S. study of financial advisors and certified public accountants (CPAs), 90 per cent of the 500 financial advisors polled wanted to ask for introductions from CPAs, but were uncertain about how to proceed. Out of the 63 CPAs questioned, 73 per cent wanted introductions from advisors but, again, weren’t sure how to ask.

So, each group of professionals wants the same thing but isn’t sure of the decorum around how to do so. We believe seven requirements need to happen to develop stronger relationships with centres of influence.

1

HAVE AN INTRODUCTION MINDSET

In nearly all things, thought and attitude breed success — or lack of success. This is particularly applicable when asking for introductions. We have to examine our own thoughts, feelings, beliefs, and experiences about introductions before we can effectively market our services. We can overcome introduction aversion by reminding ourselves that affluent people want to benefit from meeting financial professionals.

How does your next client want to meet you?

From a cold call, direct mail, or phone book? Not likely. From a trusted advisor? Absolutely!

A healthy mindset includes knowing that you provide a valuable service to clients and that you are worthy of an introduction. If this is an issue for you, take stock of your value. Seriously reflect on all the services, expertise, wisdom, time, and effort that you put into your work with your clients.

Recall the ways that clients have expressed their gratitude for your work or prepare a client survey and ask questions about satisfaction. If you’re uncertain about any aspect of your work process, improve it. Most importantly, learn to think about introductions as a way to help people, not you.

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2

HAVE A SOLID UNDERSTANDING OF YOUR IDEAL CLIENT PROFILE

Your ideal client profile (ICP) refers to a collection of objective, factual, and statistical data related to clients with whom you do your best work. They have similar issues, concerns, desires, and life or business situations. They also may communicate with each other. Having an ICP is important for targeting your marketing initiatives to achieve better results. It’s important to know your COIs’ ideal client profiles and that they understand yours. Speak in specific terms as you describe your ICP and the types of circumstances in which you would like to be introduced to their clients.

Your COIs may not have identified their ICP, so ask them, “How can I know if someone I’m talking to would be a good prospect for you?” Be sure that the COI knows what kinds of financial events or circumstances would trigger the need for them to introduce you to people. Many COI relationships are reciprocal, so it is important for both parties to recognize good prospects for each other.

DISPLAY CONFIDENCE IN ARTICULATING YOUR VALUE

Since gaining the confidence of COIs is an important part of your marketing process, you need to be able to concisely explain your services and value. Don’t leave COIs with any questions about your practice and its services.

In the book, Mirror Mirror on the Wall Am I the Most Valued of Them All? authors at Pusateri Consulting and Training, a binational company that works with advisors and financial institutions, say that you need to answer these Value Ladder™ questions to differentiate yourself.

1. Who are you? (personal and professional background, credentials, and experience) 2. What do you do? (services provided, value proposition, and area(s) of expertise) 3. Why do you do what you do? (business beliefs) 4. How do you do what you do? (systematic process by which you define your client experience and provide layers of value throughout a new client relationship) 5. Whom have you done it for? (individuals or market segments with which your organization has done business and had success. Present client successes that “prove” your client success) 6. What makes you different? (knowledge used to set your organization and your products/services apart from the competition) 7.Why should I do business with you? (the ultimate emotional and logical connection you make with COIs and clients that align your value to the value that they are seeking) Pusateri now adds an eighth question: How much does this cost? Be prepared to discuss how you are compensated, including how you will be paid for advice, transactions, and any other services.

The Value Ladder™ is a tool to reduce vulnerability and uncertainty for COIs and turn them into confident advocates.

SEPTEMBER 2019 FORUM 21

COMMUNICATIONS

4

IDENTIFY WITH WHOM TO NETWORK

Accountants, lawyers, financial planners, and investment advisors are the “influencers” and “counsellors” who no doubt are great potential COI sources.

But why stop there? Many other possibilities exist so do not limit yourself to the obvious. Consider approaching some of these individuals: • real estate/mortgage brokers professionals, particularly for exclusive properties • property and casualty owners/advisors • retired business people who are still active in the community and may be sitting on a board or two • members of your golf club, community organization, or social club • people who boat at your marina • exclusive car dealers • professionals in the not-for-profit world • presidents of community charities • human resource professionals and executive outplacement firms • travel consultants The quickest way to identify potential COIs is by asking your clients, who else provides your professional services? Who is their accountant, investment advisor, real estate agent, etc.?

If they don’t have one, do they need one? Refer one!

5

BUILD RELATIONSHIPS

BY NETWORKING

When making a new connection, start with small talk and try to hit upon a topic that is of interest.

Ask, “Do you go to a lot of these events?” If the answer is yes, then they likely do have a significant network. After five or 10 minutes of chatting, ask, “Would it be OK if I give you a call to continue our discussion and learn more about one another?” If they agree, call them the next morning. In the process of getting to know them, try to figure out if their network caters to the type of people that you want to meet (your ICP).

The best way to build relationships is to ask questions and listen intently to the responses. Ask how you can be helpful to the COIs. What do they need? What are the problems you can help them solve? Remember non-business areas as well.

Find out what’s important to them and their family members.

Show them you care about their success.

Goodwill gestures go a long way. Find out the COI’s busiest time and offer some stress-relieving perks like care packages or pizza sent to the office. It will build goodwill and nurture the relationship.

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6

DEMONSTRATE YOUR VALUE

Encourage the COIs to experience how you work. This will help alleviate any fear of introducing you to their contacts. Invite the COI to participate in meetings with mutual clients. You want them to see you in action ... or become their client. If your COI is a lawyer, get your estate work done, or if it is a mortgage broker, go to them the next time your mortgage renews.

This allows you to interact with several different professionals, thus broadening your network. They won’t get to experience your process or services, but they’ll get a better feel for who you are as a person.

Be sure to ask your COIs if they have clients who would benefit from the work you do. If they do, ask them to identify one client you could introduce your process to. After COIs see the quality of your work, they will likely give rave reviews about your services to other potential clients.

7

COMMUNICATE YOUR VALUE THROUGH MARKETING

Market yourself by publicizing the value that you provide in meeting the needs of the clients that your COIs serve. You can do so by: • using your marketing tools (LinkedIn, newsletters, brochures, marketing emails) • accepting speaking engagements and seminars designed specifically for the niche (lunch and learn sessions, etc.)

• writing articles in the media of interest to your profile (i.e., trade magazines) • requesting that the COI write an article for your own marketing publications to advertise • sending regular e-communications on subjects you believe are of interest to the COI or to their clients Have a contact and relationship strategy for each of your COIs. Just like how you have a strategy for your own clientele, if you have a strategy of developing COIs, then this will help you maintain your focus. You’ll want to stay in regular contact with them in order to nurture the relationship and remain top of mind. Be proactive, create an annual plan, and make sure you follow through!

PATRICIA GIESBRECHT and KIM POULIN are business coaches at The Personal Coach. To receive a PDF of this article, email dgageforum@gmail.com.

TAX UPFRONT

BY DOUG CARROLL

Starting OAS Retiring at age 65 may mean delaying your OAS application

M

y friend Janet has decided to tie the bow on her career next March when she turns 65. To be clear, her decision to retire has more to do with pursuing life interests than mere age attainment.

Still, she’s pumped to be finishing on a high note. She’s landed some big deals lately, pushing her income to more than $140,000 the last two years, about 50 per cent beyond her historical norm.

She plans to give her work notice later in the fall, then commute her pension when she leaves in the new year. The timing is quite deliberate. According to the pension administrator’s figures, the taxable part of the commuted value on its own exceeds her current income, and will push her into a higher tax bracket.

Janet has long been a conscientious saver and investor. She also understands her spending habits, both now and expected in future, and projects that about $60,000 taxable income in current dollars will comfortably meet her retirement living needs.

DEFAULT OR DECISION

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On top of her personal savings, Janet has calculated what she expects from the Canada Pension Plan and Old Age Security.

She understands that she could elect to defer either or both, but has determined that it makes sense in her situation to start it all at age 65 … probably.

It tallies fine when viewing each source on its own, but she’s now rethinking her OAS application.

Service Canada recommends applying for OAS six months ahead of one’s intended start month, but Janet’s wondering if being so timely with her application could lead to a permanent financial forfeiture.

CALCULATING OAS CLAWBACK In round terms, a full OAS pension is just over $7,200 in 2019, indexed on a quarterly basis.

her actual income last year and her expected income this and next year will each exceed the maximum clawback threshold, even with indexing.

On quick calculation, that’s about $16,000 lost. After that, she’d be collecting the regular full amount.

DEFERRING, WITH THE PREMIUM

The concern with OAS is the recovery tax, more commonly known as the “clawback.” It’s a 15 per cent reduction of the pension once income exceeds the prescribed dollar threshold. That’s an annually indexed figure that stands at $77,580 in 2019. At that current rate, a person would lose their entire OAS once income exceeds $125,937.

To make sense of those figures though, one has to look deeper at how that formula is applied over time.

FOLLOWING THE OAS PROGRAMMING YEAR Like many government programs, the OAS year runs from July 1 to June 30 of the following year. This is to allow for tax filing information from the preceding April to be factored in to qualified payments.

This connects up three calendar years, with last year’s income being reported this year, affecting OAS out to the middle of next year: • 2018 income affects OAS from July 2019–June 2020 • 2019 income affects OAS from July 2020–June 2021 • 2020 income affects OAS from July 2021–June 2022 Thus, if Janet applies for her OAS to begin the month after her birthday next March, potentially she still won’t see any OAS pension until after June 2022 — that’s almost three years from now! That’s because

Of course that’s what would happen if Janet wasn’t paying attention, but she is.

She knows that for every month anyone defers taking OAS, there is a 0.6 per cent premium increase to the otherwise base figure. That can go as far as 60 months to age 70, yielding a maximum 36 per cent premium. It’s a trade-off between money in the hand, and future money if you live a long life. There is no right or wrong choice; it’s mainly a preference based on your money needs and your expectancy of your own life.

However, in Janet’s case, there is a right answer.

Given that her income for the next couple years will keep her from collecting anyway, it doesn’t make sense to start her OAS any earlier than July 2022. By pushing that out 27 months, she will be entitled to a 16.2 per cent premium. In current dollars, that’s over $1,150 more OAS every year thereafter.

Whether you look at it from the perspective of the lump sum loss above, or the annually recurring loss just mentioned, Janet would be better to defer.

In her case, the pension commutation adds another year, but even without that, a one-year deferral offers a 7.2 per cent premium. That’s good to know for anyone whose income is in clawback territory when thinking about retiring near their 65th birthday.

DOUG CARROLL, JD, LLM (Tax), CFP, TEP, is practice lead for tax, estate, and financial planning at Meridian.

He can be reached at doug.carroll@meridiancu.ca.

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ESTATE DILEMMAS

BY KEVIN WARK

Insurance for Immigrants Reviewing foreign insurance policies is more commonplace

I

t should come as no surprise that Canada’s population growth is being driven primarily through immigration.

Over the past 10 years more than 2.5 million people have taken up residence in Canada, with a million more newcomers expected over the next three years.

Immigration is critical to the Canadian economy, driving demand for housing and other goods and services, contributing essential skills to our labour force, and serving as a new source of tax revenues to fund essential government services.

For the advisory community, recent immigrants to Canada can also represent a significant business opportunity, as these individuals will often require Canadianspecific advice and financial products.

However, many new Canadians will already own investments or insurance products purchased while residing in another country. As their advisor, you will need to consider a number of issues in respect to these products, including: • Do they continue to fit with the client’s current needs?

• What is their tax treatment in the foreign jurisdiction and in Canada?

• Are they administered by trustworthy institutions that are governed by a robust regulatory system?

Let’s review key Canadian tax issues that can arise where the client owns a permanent life insurance policy issued by a foreign insurer.

Please note that additional issues may arise where the policy is owned by a non-resident corporation that is controlled by the client.

Tax issues specific to non-resident corporations are beyond the scope of this article.

TAX IMMIGRATION RULES In general, new immigrants are subject to Canadian tax rules that revalue their assets 24 FORUM SEPTEMBER 2019

immediately before becoming a Canadian resident. These provisions also apply to life insurance policies issued on the life of a non-resident person. As a result, a foreign life insurance policy will be subject to a deemed disposition and reacquisition at its fair market value (FMV). For purposes of these rules, the FMV of a policy is deemed to be its cash surrender value (CSV) immediately before immigrating to Canada. The CSV of the policy will also represent the adjusted cost basis (ACB) of the policy for tax purposes. The ACB is relevant for determining future gains on the disposition of the policy, as well as tax reporting if the policy fails to meet the exempt test rules (see discussion below). Note that similar rules may apply in the country where the individual originally resided, which may trigger tax liabilities in that country.

QUALIFICATION AS AN EXEMPT POLICY Canadian tax rules differentiate between “exempt” and “non-exempt” insurance policies. The vast majority of life insurance policies issued in Canada are designed to meet certain tests relating to policy reserve accumulations, and therefore qualify as exempt policies. Failing the exempt test rules results in the policy being non-exempt, with accumulating gains in the policy being subject to annual tax reporting (including on death).

A life insurance policy does not have to be issued by a Canadian life insurer, or cover the life of a Canadian resident, to qualify as an exempt policy. However, it is unlikely that a foreign insurer will offer policies that are designed to meet the Canadian tax rules.

Therefore, there is a high risk that a foreign permanent insurance policy may fail the exempt test, or alternatively, the policyhold-

er will not be able to satisfy the Canada Revenue Agency (CRA) that the policy qualifies as an exempt policy. This will result in the policyholder being subject to accrual tax reporting and require the policyholder to “manually” determine the amount of income that needs to be reported.

The CRA was recently asked to provide guidance on how to apply the exempt test in these circumstances. The CRA acknowledged that the exempt test rules are very complex and will require actuarial calculations and policy information that only the non-resident insurer will possess. The CRA also noted these tests must not only be met when the policy is issued, but also on each policy anniversary date. However, the CRA emphasized that the onus remains with the policyholder to establish that a policy qualifies as an exempt policy on an annual basis. This would include providing supporting evidence to the CRA that the insurance policy satisfies the exempt test requirements.

Given the CRA’s position, a recent Canadian resident who owns a foreign insurance policy must consider various options to satisfy the CRA, which include: • Managing the policy to minimize cash accumulations, which would support an assertion that the policy is exempt (although a policy may still be non-exempt even though it has nominal cash values).

• Contacting the foreign insurer to see if it has the capability to determine if the policy is exempt for Canadian purposes (some foreign insurers owned by Canadian resident insurers may be able to provide this service).

• Engaging an actuary familiar with the Canadian exempt test rules to provide an opinion that the policy is exempt.

Given the potential compliance costs and tax uncertainty associated with owning a foreign life insurance policy, it might be advisable for the policyholder to replace the coverage with a policy issued by a Canadian resident life insurer. In making this decision, the product features of the current policy and the client’s current insurance needs and insurability will need to be reviewed.

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.

CORPORATE INSURANCE

BY GLENN STEPHENS

Giving Back S

Donating and redeeming private corporation shares

uccessful entrepreneurs and other wealthy individuals are increasingly looking at methods of “giving back” to society. Many donors choose to make significant donations during lifetime, so they can see their donations at work and enjoy the public recognition that often follows. There are, however, many strategies that can be used to benefit charities on an individual’s death, and a number of ways in which life insurance can be used as part of the planning.

There are simple methods of using insurance for philanthropic purposes. A policy can be donated to charity, with the donor receiving a tax receipt equal to the policy’s fair market value. A tax receipt is also available for premiums paid by the donor after the policy is gifted.

Alternatively, the individual might decide to retain ownership of the policy and designate a charity as beneficiary. In that case, the tax relief comes at the time of death, when the estate receives a receipt for the amount of the proceeds.

More sophisticated planning is available to those individuals who own shares of private corporations. This involves the use of corporate-owned life insurance to fund a redemption of shares on death, the proceeds of which are used to benefit a charity of the shareholder’s choice (often a private foundation).

Consider the example of Herbie, a widower, who is the sole shareholder of a successful haberdashery, Herbie’s Hats Inc. (the “Corporation”). Herbie has built significant equity in the Corporation and eventually would like to use some of that wealth to support his foundation, The Herbie Fund (the “Foundation”). Herbie’s shares are worth $5 million and he would like to use these shares to fund a $1-million gift to the Foundation on his death. His insurance and tax advisors have suggested the following plan: • Herbie will convert his common shares into $5 million of redeemable and

retractable preference shares. Properly planned and documented, the conversion of shares will take place on a tax-deferred basis. Herbie (or perhaps a family member or family trust) will subscribe for new common shares, which at that time will have no fair market value. These shares will reflect any future increase in corporate value.

• Herbie will amend his will to provide that, on his death, his estate will make a $1-million gift of the preference shares to the Foundation.

• The Corporation will acquire a $1-million permanent insurance policy on Herbie’s life. The Corporation will pay the premiums and be the beneficiary of the policy. There is an agreement between the Foundation and the Corporation that the insurance proceeds will be used to redeem the shares gifted by Herbie.

• Shortly after Herbie’s death, $1 million of preference shares will be gifted to the Foundation under the terms of his will.

Immediately thereafter, in accordance with the above agreement, the insurance proceeds will be used to redeem the shares. No capital dividend is declared on the resulting deemed dividend. After the redemption, Herbie’s estate and/or his beneficiaries will be the only shareholders of the Corporation.

The tax consequences arising from Herbie’s death, and the gifting and redemption of his shares, are as follows: • On Herbie’s death he will be deemed to have disposed of his preference shares for their $5-million value. Before taking into account the impact of the charitable donation, the tax liability relating to these shares will be in the range of $1.25 million.

• The Foundation will issue a $1-million tax receipt, which will result in approximately $500,000 of tax savings. The savings may be applied against capital gains tax and other taxes payable in Herbie’s final tax return. (Assuming Herbie’s estate is a graduated rate estate, it would also possible

to use the tax savings in the year prior to his death, or in the taxation year of the estate in which the shares were donated.)

• The insurance proceeds will be taxfree to the Corporation. The amount of the proceeds less the adjusted cost basis (“ACB”) of the policy will be credited to the corporation’s capital dividend account (“CDA”). Assuming the policy has an ACB of zero, this will result in a CDA credit of $1 million. Insurance companies will be able to provide ACB information and projections for both in-force and new policies.

• The redemption of $1 million of preference shares will result in a “taxable” dividend being received by the Foundation.

However, this will result in no tax payable, as the Foundation is a tax-exempt entity.

• The payment of a taxable dividend to the Foundation on the share redemption means that the Corporation’s $1 million CDA is unaffected. This CDA credit remains for the benefit of the Corporation’s new shareholders (Herbie’s family).

The use of life insurance has allowed Herbie to achieve his philanthropic goals on a cost-effective and tax-effective basis.

It also allows him to benefit his family through the preservation of corporate assets and the creation of a CDA credit that will result in future tax savings.

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

HOW TO REACH US On Twitter: @advocis @deannegage On Facebook: facebook.com/advocis On LinkedIn: linkedin.com/company/advocis SEPTEMBER 2019 FORUM 25

LEADERSHIP & GROWTH

BY MIKE JUURLINK

Personal Best How the advisory business is similar to a marathon

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running all of their mileage at the same pace. Over time, the body becomes efficient at running, and that everyday pace feels comfortable. To improve as a runner, you have to ensure you break out of this comfort zone. Some of the time you spend running is going to be fast paced, which also means it is going to be hard. You will want to slow to a walk and end the pain.

However, if you push through this discomfort, you will emerge a stronger athlete.

In our business, complacency can creep in. You can become very good at maintaining the status quo. If you want your practice to grow, you have to be willing to be challenged. Perhaps that means teaming up with a junior advisor, or scaling up your ideal client profile. Know that this disruption may have the short-term impact of reducing your productivity.

Akin to a muscle damaged from a hard workout, once your practice recovers, it will be stronger and capable of more.

Running can be a lonely pursuit for some, especially on a cold February night.

Enter running groups that make tackling something difficult more manageable. Our business can also be a lonely enterprise. If you are a sole practitioner, you can feel like you are on an island. How do you become part of a group that will act as a support while you grow your practice? Many successful advisors have formed a study group of like-minded individuals. Surrounding yourself with colleagues who share your desire to improve, as well as share the challenges you face, will provide you with the support you need on this journey.

Engaging a coach is a great way for a runner to gain focus and direction. Not only will one help you structure your plan and arrive at your goals, a coach is also a natural accountability partner. In our business, coaches come in many forms. Perhaps your firm provides this support through a management team, or you engage the services of a professional business coach. A senior advisor can also serve as an excellent mentor.

Running well is not complicated. For both the weekend warrior and the Olympian, the secret to being your best is running a lot of mileage at different speeds, but keeping most of your running at a consistent, easy pace. In our business, you will also benefit from keeping it simple. You need to see people, help them understand their needs, and provide solutions. Avoid overcomplicating the recommendation you make to a client.

A final challenge: Before you turn the page, commit to adopting at least one of these training tenets. Experience how an athletic mindset can generate new personal bests for you.

MIKE JUURLINK is the managing director of the Atlantic region at Freedom 55 Financial. 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.

PHOTO: ISTOCKPHOTO

W

hen we think of professional athletes, we often think of words such as driven, focused, and competitive.

Undoubtedly, these are words that also apply to successful advisors associated with your firm. Approaching your financial practice with an athletic mindset can propel you to new heights. The following lessons learned from a marathon runner will help magnify your business.

Goal setting is critical to success. A marathon runner needs to set result goals.

For example, this might mean running a time to qualify to run for the Boston Marathon. These goals add purpose to training and provide direction for the athlete. However, even after months of training, runners won’t know if they have met their goals until they cross the finish line.

For that reason, it is more important for the runner to set achievable activity goals that can be measured over the short term, for example, the goal of running 80 kilometres a week.

Advisors also recognize the importance of goal setting. An advisor may seek to exceed an income target or qualify for MDRT. However, goal-driven advisors need to determine which activity measure will ensure they track toward this target.

Similar to an athlete’s weekly mileage goal, an example of a strong activity goal for an advisor is the number of client meetings per week.

A marathon runner understands and appreciates the need to be consistent.

Reaching a new personal mileage goal is rewarding, but it is not impactful unless those kilometres are consistently run, week after week. Similarly, booking 16 client appointments for next week is great — for next week. But you should strive to reach a consistent number of appointments, or whatever activity metric resonates with you, week after week.

Many runners develop the habit of

TECHNOLOGY & SOCIAL MEDIA

BY MASOOD RAZA

Marketing Shift What’s changing financial product development?

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ere’s the thing about the future of marketing: No one knows how things will go. But advisors should understand the trends concerning financial product development and how they affect their practices and relationships with clients.

Let’s consider three ways client behaviours, interests, and purchasing patterns have evolved.

1. MACHINE LEARNING (ML) Consider how artificial intelligence (AI) and ML are changing the financial advisory practice for good.

We are now able to create expert systems that can run their own experiments and learn autonomously with limited human intervention. Once a system is taught the mechanism of how to come to a decision, it can begin to teach itself how to develop algorithms that serve consumers, sometimes better than humans.

Advisors are subject to human error, biases, oversimplifying, overcomplicating, or preconceived prejudices that can impact their advice.

The application of AI and ML in the stock market is clear proof of this. Human traders simply cannot outperform algorithmic bots. The University of ErlangenNuremberg has put this theory to the test by developing a series of models that reproduce real-time trades based on accumulated historical data.

From 1992 to 2015, one algorithmic model accounted for an annual return of 73 per cent, dwarfing the nine per cent per year return on investment that was achieved by the actual market in that time frame. The results during periods of high uncertainty were even more profound. During times of extreme volatility, the models produced much higher profits, proving the superior effectiveness of quantitative models over human advisors, who were subject to emotions and biases.

According to Hacker Noon, in the market shocks of 2000 and 2008, the algorithmic systems produced yields of 545 per cent and 681 per cent, respectively.

2. PERSONALIZATION Personalization is another big buzzword these days, but is it worth all the hype? The key lies in how you use “personalization” to achieve your marketing and business objectives. If marketers take the time to learn about their audiences — where they live online and which problems they are trying to solve — that is a good start.

From there, a good advisor will plan the onboarding journey for their product or service with great care. The key is to use the data they acquired in learning about their ideal client to create a compelling experience. Whether your client’s buying journey is purely online, offline, or both, the next step is to constantly measure the results and make continuous improvements. Ask your customers how they met their needs before engaging you, how they felt when they got the product or service, and what could have changed about the experience to make it better.

The final step is to take your learnings and iterate on your client engagement process. This series of steps can be applied to almost any marketing channel imaginable, so experiment freely. Personalization comes in when you have a large enough book of clients. You will start to notice common demographic factors, behaviours, and interests among certain segments of clients.

Millennials who work downtown may prefer a more digitized solution, whereas a single suburban mother of three may prefer that her advisor directly show her options based on her schedule. Segment your clients based on their similarities, and create personas based around their problems and objectives, then market to similar prospects in the same manner.

3. CONTENT MARKETING Google is not playing nice. They are scraping anything that can fit into a knowledge box and are taking away so many of your precious clicks. According to the clickstream data provider Jumpshot, in the first quarter of 2019, Google pulled in more than 150 billion searches, and an astounding 49 per cent of those searchers solved their query without a click. More than seven per cent of the searchers clicked on paid results, and around 12 per cent of the searches had clicked on Alphabet-owned websites like YouTube and other Google properties.

So how can you compete? Leading with empathy when approaching content creation is key. Shooting in the dark and hoping for the best result is never a good strategy, as consumers have less and less patience for being served misplaced or untimely messaging.

Want to get into the minds of your clients? Conduct interviews, tests, and surveys. Once you have a firm understanding of which products your clients were using initially and their underlying issues, you can create content that speaks to their needs. Try to illustrate through your messaging that you understand why it is they have this problem in the first place. If you can articulate what they stand to lose if they don’t solve their problem, and how your product or service is the best solution, you will win their attention.

MASOOD RAZA is director of marketing with Crowdlinker, a digital product studio based in Toronto.

He can be reached at masood.raza@crowdlinker.com.

HOW TO REACH US On Twitter: @advocis @deannegage On Facebook: facebook.com/advocis On LinkedIn: linkedin.com/company/advocis

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GUEST COLUMN

BY GEOFFREY ZALDIN

Special Concerns Why the disability tax credit program is a broken system

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“work” should be listed as a basic activity of life (and I suggest the ability to attend education should also be included).

Another problem that arises with the application process is people with nonphysical disabilities, especially those with mental functions, have more issues when applying for the DTC and have a much lower acceptance rate.

In addition to the issues I mentioned above, there are the also significant hurdles in the actual process of applying, appealing, and having to reapply for the DTC. This should be rescinded for those individuals with a lifelong physical or mental disability. While I understand the need to ensure that the program and utilization of the DTC is not abused, in the absence of fraud or significant warning signs I believe that the Canada Revenue Agency (CRA) should not be able to ignore the confirmation of qualification as certified by a medical practitioner. If the CRA is that concerned about abuse, this can be handled by imposing significant negative consequences to any medical practitioner found to be abusing their ability to certify for the DTC. I am aware of many instances whereby an individual has had to apply multiple

times to be qualified, even when their circumstances have not substantially changed, and it seems like they should have been approved the first time. What is even worse is if a person appeals instead of reapplying, they could end up limiting the time period that they would be eligible to refile their previous tax returns (down from 10 years on an application to seven years on an appeal). Appealing is also often difficult, as the CRA does not provide the reasons for not approving the claim, so they do not in fact know what they need to provide further to ensure that the CRA has the necessary documentation.

Many doctors now either charge or refuse to sign the DTC forms, as they are aware that many times there will be follow-up questions from the CRA that will negatively impact their practice and time they can devote to other patients. For a few of my clients, their primary doctor not wanting to sign the DTC has been a major problem for them.

While I applaud the changes to the registered disability savings plan (RDSP), where an individual will no longer be required to close an RDSP and lose up to 10 years worth of grants and bonds if they no longer are eligible for the DTC, it seems like this was done as either a stopgap or to avoid dealing with the larger issue of the rules of the DTC and the process used to apply, reapply, or appeal.

Let’s hope that the government will proceed further with the recommendations of the Senate report and make it a little bit easier for those with disabilities to receive some extra assistance. That combined with changes to the RDSP as recommended in the Senate report can help ease some of the challenges families with special needs individuals have.

GEOFFREY ZALDIN is co-founder of Special Needs Financial in Toronto. He can be reached at Geoffrey@specialneedsfinancial.ca. Have an idea for a guest column? Email dgageforum@gmail.com.

PHOTO: ISTOCKPHOTO

A

s per the CRA Form T2201, the disability tax credit (DTC) is a non-refundable tax credit that helps people with disabilities or their caregivers reduce the amount of income tax they may have to pay. The disability amount may be claimed once the person with a disability is eligible for the DTC. This amount includes a supplement for persons under 18 years of age at the end of the year. Being eligible for this credit may open the door to other programs.

To qualify for the DTC, an individual must have a medical practitioner certify that they have a severe and prolonged impairment in physical or mental functions. The medical practitioner also needs to describe the effects of the person’s impairment. As per the CRA publication RC4064, the impairment must either markedly restrict them from one or more of the basic activities of daily living (at least 90 per cent of the time) or significantly restrict them in two or more of the basic activities of daily living. Because of the DTC being a tax credit, many individuals or families are not able to fully utilize the tax credit as they do not earn enough to be able to use all or in some cases any of the tax credit, available. It seems common sense that the lower an individual or family’s income, the greater the need, and therefore, the more reason they should benefit from something like the DTC, but unfortunately that is not always the case.

Another major issue is those who live with episodic disabilities such as epilepsy and multiple sclerosis. Most of these individuals do not qualify for the DTC even though they have lifelong and potentially degenerative disabilities that negatively affect their ability to perform the basic activities of daily living in very meaningful and disruptive ways. In the Senate standing committee on social affairs, science and technology’s Breaking Down Barriers report, they suggested that the ability to

AdvocisNews ASSOCIATION UPDATES AND EVENTS

REGULATORY AFFAIRS UPDATE

MFDA Releases Proposed Changes to Discretionary Trading Rules

O

n April 4, 2019, the British Columbia Securities Commission published for public comment proposed amendments to Mutual Fund Dealers Association Rule 2.3.1(b) (Discretionary Trading). The proposed amendments would allow MFDA Members to engage in very limited discretionary trading within dealer-administered model portfolio programs. Conforming consequential amendments to MFDA Rule 2.2.5 (Relationship Disclosure) are also proposed.

If the proposed amendments are implemented, members will be permitted to engage in limited discretionary trading of mutual funds within the model portfolio, provided the member and any approved person has been appropriately registered under securities legislation to provide discretionary portfolio management services or has received an appropriate exemption. The discretionary trading available to the member would be limited to fund substitutions and changes to portfolio asset allocations, within the pre-established parameters of the mutual fund model portfolios offered by the member.

Under the proposed amendments, the member would be subject to a portfolio manager standard of care in respect of any discretionary trading done in the model portfolio(s) in which the client was invested. Also, a description of the extent of discretionary authority must be included in the member’s relationship disclosure to clients.

Advocis staff submitted our response to these changes to the MFDA and the BCSC, which was due on August 2. It is our position that if implemented appropriately, the proposed amendments could enhance investor protection while reducing regulatory burden on financial advisors and their clients.

Windsor Poor Boy Luncheon: The 43rd annual Poor Boy Luncheon hosted by Advocis Windsor was held on Friday June 7, 2019. The Windsor Chapter raised $1,867 for Cystic Fibrosis from the 50/50 and the raffle table at the event.

SYMPOSIUM 2019: Register Now!

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dvocis’s Regulatory Affairs Symposium will take place on Tuesday November 12 at the Ritz-Carlton Hotel in Toronto.

Symposium 2019 will feature keynote speaker Preet Banerjee, financial panelist on CBC’s The National and Global TV’s The Morning Show. Symposium is an exciting opportunity to learn from industry experts and inspiring leaders as they discuss issues essential to the financial advice profession. This year, our discussions will include title protection, regulatory burden reduction, and the impact of changing demographics on financial advice. Please visit https://symposium.myadvocis.ca to learn more and to register.

SEPTEMBER 2019 FORUM 29

AdvocisNews

The Institute for Advanced Financial Education presented the Advocis Vancouver Island Chapter with the 2018 deHaerne Trophy at this year’s National Conference Leader’s dinner. The deHaerne trophy symbolizes “integrity and knowledge.” It is awarded annually to the local chapter that has made the most outstanding contribution to the furtherance of CLU studies.

Advocis Greater Vancouver thanks Jim Rogers for his outstanding service with Advocis. He received his 50th year award at their Greater Vancouver Building Blocks for Success event.

MEMBER APPRECIATION Murray Robins, CLU, Advocis Member since 1954

M

urray Robins did not grow up wanting to sell life insurance. He stumbled into that role. Robins’s uncle lived next door to Oscar Smith, a manager at Canada Life.

One day, his uncle suggested he talk to Smith about work.

When Robins found out that he could get a free trip to Toronto to learn more about Canada Life and the insurance business, he figured he might as well. It was a life-changing decision.

Robins’s first years in the business weren’t easy. He was a newcomer to Calgary and didn’t know many people.

Everything was cold calls. Someone else might have become disheartened and given up. But Smith, Robins’ manager, had a special characteristic that rubbed off on Robins and kept him in the business until today. He was a patient and trusting mentor. But most of all, he believed deeply in the miracle of life insurance.

Robins credits his success in the business to that belief. “I totally, totally believe, and my manager started this, in the miracle of life insurance,” Robins says. What is that miracle?

It’s that for pennies on a dollar you can provide security to your loves ones, your business partners, and yourself in case of death, illness, or disability.

Bypassing digital technologies that can sometimes distract us from the real impact insurance has on real people, Robins’s whole purpose is to focus on “the basics”: Helping people get

30 FORUM SEPTEMBER 2019

the security they need before they need it, so that when the unexpected or inevitable happens, the burden is not too heavy to bear. At a time when many are talking more and more about financial technologies, Robins works to ensure that the new advisors he mentors do not lose sight of the basic human realities that underlie the numbers. Like his manager before him, he is instilling belief in the miracle of life insurance to a new generation.

Robins has been an Advocis member for 65 years and has held the chartered life underwriter designation for 56 years.

Advocis regrets omitting Murray Robins’s name from the recognition of long-standing CLU designation holders in the May 2019 edition of FORUM magazine. We extend our thanks to him for his many decades supporting the association and the industry.

FINAL WORD

Keeping the Momentum Going

BY GREG POLLOCK

2

019 has been a year of major developments for our association and our industry — and it’s not over yet. Now that Ontario has set a precedent, provinces nationwide are taking a serious look at title protection legislation. Advocacy and education have combined to advance our long-standing goal of raising the professional bar. How did we get here, and what can we do to keep the momentum going?

In 2013, Advocis released a paper called Raising the Professional Bar. In it we proposed a Professions Model approach to the financial advisor industry. Our position was and still is that financial advice should be treated as a true profession, with substantive educational requirements, an obligatory code of conduct and ethics, mandatory professional liability insurance, a fair and impartial disciplinary process, and the requirement of membership in a professional governing organization. Title protection is a key part of that model. Recent surveys in five provinces conducted on our behalf by Abacas Data have shown that most Canadians think that the title of financial advisor is protected.

And when they learn that it isn’t, an overwhelming majority support legislation to that effect. But in the absence of title protection legislation, Canadians lack the protection they have come to expect when dealing with a professional financial advisor.

Now, six years later, countless conversations with government representatives and advocacy efforts following the release of that paper have culminated in the historic inclusion of title protection legislation in the 2019 Ontario budget.

Title protection is now working its way into law in Ontario.

Accordingly, no one in Ontario will be able to use the titles “financial advisor” or “financial planner” unless they have received a qualifying credential and are in good standing with an approved credentialing body. As we had hoped in 2013, a sizable part of our population is now afforded the protection that comes from raising the professional bar on financial advice.

But what about the rest of the country? On average, nearly 90 per cent of the more than 3,500 Canadians polled would support title protection legislation. Politicians have taken

notice of those surveys and of the action taken in Ontario to this effect. Provinces across the country are considering adopting similar legislation. It is popular and smart — a win-win for everyone involved, except for those unscrupulous individuals who use the lack of title protection to exploit unsuspecting investors.

Advocis has known for a long time that professionalizing the industry is the right thing to do. We’ve led the charge from the beginning, and we’re thrilled to see results.

Though momentum is growing, we have to keep it going. Advocis will be working closely with governments, regulators, and stakeholders across the country to keep advancing the professions model.

Additionally, we will continue to lead the way forward on other fronts, including education. Last year we launched the Professional Financial Advisor (PFA) designation. The PFA is designed to bridge the gap between initial licensing and advanced designation, helping advisors get off to a good start early in their careers and ensuring that they meet professional standards from the outset. Hundreds of trailblazing advisors have participated in the program so far. Early in the new year, the PFA shifts from the one-year advanced launch to the full two-year program. That marks another step in our journey towards the professionalization of the industry.

These developments are not the result of a day’s work.

They reflect the diligence and dedication of every level of our association, which together is committed to improving the quality and availability of financial advice. I want to thank everyone — new members and old — for all that you have done to fulfill that commitment.

I’d also like to take this occasion to say a special word of thanks to Al Jones, chair of our board for the last year. Al has been an inspiration to all of us who have talked with him or heard him speak about our industry and our association.

Our new chair, Abe Toews, comes to the table with a deep appreciation for the value of the financial advisor and a lifetime of knowledge in the industry. He will continue to help us keep the momentum going into 2020.

GREG POLLOCK, CFP, is the president and CEO of Advocis.

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You take care of your clients.

We’ll take care of currency.

ALL-NEW

Fidelity Systematic Currency Hedged Funds fidelity.ca/currency Ask your Fidelity representative.

Read a fund’s prospectus and consult your financial advisor before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions and may experience a gain or loss.

Fidelity systematic currency hedged funds use derivatives to mitigate the funds’ exposure to changes in exchange rates between the U.S. dollar and the Canadian dollar. While the systematic currency hedged strategy, a quantitative model used by the funds, aims to achieve the optimal exposure to the U.S. dollar at a point in time, there is no assurance that the strategy will be effective. The funds’ returns will differ from the local currency returns of its underlying funds. Fidelity systematic currency hedged funds may also have exposure to other foreign currencies (such as the euro or the yen), which are not hedged. The funds’ exposure to other foreign currencies may change at any time and the funds may choose to hedge these exposures in the future Fidelity Investments is a registered trademark of 483A Bay Street Holdings LP. Fidelity Investments Canada ULC is indirectly owned by 483A Bay Street Holdings LP. 203734-v2019814