Notes From the Editor: I Can’t Afford to Retire! RALPH CRAWFORD BA., DMD (Editor)
Accidental Death and Dismemberment Insurance DR. IAN WEXLER
Recognizing Lease Flaws as Opportunities IAN TOMS B.Sc. (Hons)
New Trends In Contemporary Practices DR. RON WEINTRAUB
In Sickness and In Wealth DAVID CHONG YEN CFP, CA
Advice to My Son or Daughter Graduating From Dental School GRAHAM R. TUCK H.B.A. C.A
Tips on Negotiating Non-Competition Agreements BARRY SPIEGEL LL.M., Q.C
How to Prepare for the Most Successful Sale of Your Practice MARK McNULTY BA, CFP, CIM
The
Professional
Advisory For Dental Professionals
The Professional Advisory consists of a group of seven independent professionals who provide services to the dental profession, each of who specializes in a different field. They have gathered to keep each other informed of the latest developments relating to the profession, and to produce this publication which is designed to provide expert information and advice solely for dentists and their advisors.
I Can’t Afford to Retire! RALPH CRAWFORD
BA., DMD (Editor)
Last spring I attended the celebration of the 50th anniversary of earning my BA degree. It was a small affair because the college was not a mainline campus and besides, it was 50 years ago and some classmates aren’t with us anymore and others couldn’t make the trek across the country. Two of my classmates were still working full time. One because “it was still fun” and the other because “I can’t afford to retire”. It was this response that bothered me. He is a professional in a usually well remunerated area and when I tactfully inquired of the circumstances I got a pretty vague answer, “I guess I didn’t prepare well enough for the future”. Attempting to be polite I didn’t pursue the conversation. On our way home from the class reunion we stopped off in beautiful Jasper to take in the CDA/Alberta dental convention. As usual, I mingled with “my era” of dental graduates from 40+ years ago and surprisingly, the “I can’t afford to retire” comment was heard two more times. I thought to myself, “Where are we (they) going wrong? Dentists as a group are surely not low income earners. This shouldn’t be happening?” I then recalled my class reunion confrere’s comment, “I guess I didn’t prepare well enough for the future”.
Every article provides a segment of a sure fire recipe to avoid what none of us ever wants to hear: “I can’t afford to retire”. Surely, as Graham Tuck points out in Advice I Would Give My Son or Daughter, it should start at graduation and continue right up to and beyond Mark McNulty’s advice regarding the Successful Sale of Your Practice. And how do you “prepare well enough” if you can’t recognize the Lease Flaws pointed out by Ian Toms or follow the sage advice of Barry Spiegel’s legalities about Tips on Negotiating NonCompetition Agreements. No plan for the future can ever be complete without some recognition to those allimportant – and often unexpected – health issues. In this regard David Chong Yen guides us through health’s taxation side In Sickness and In Wealth, and Ian Wexler deals with the unexpected we never want to encounter – Accidental Death and Dismemberment. Being static and complacent never seems to work well in planning the future, thus the significance of Ron Weintraub’s New Trends in Contemporary Practices. This particular issue – or any issue – of The Professional Advisory won’t by itself entirely prevent the sad lament “I Can’t Afford to Retire” but it’s a start and as Ron Weintraub wisely concludes in the last line of his article, We should think carefully and consider professional advice.
How then do you prepare for your retirement future? This month’s Professional Advisory provides numerous suggestions for financial stability now and into retirement.
crawford@dccnet.com
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Accidental Death and Dismemberment Insurance DR. IAN WEXLER Chances are, you have either purchased or been approached to purchase Accidental Death and Dismemberment Insurance (AD&D) at some point in your life. You may have purchased AD&D as a rider on your disability plan, as a continuation of the “New Grad Package” offered through CDSPI and the Canadian Dentists’ Insurance Program, or maybe even your bank. The big question is that in light of all the money you
spend on insurance premiums, do you really need AD&D coverage? For most, I believe the answer is “no!” For some however, AD&D may be worth considering. Here is how AD&D works and how to decide whether it is necessary to add it to your insurance portfolio. How AD&D Works In the event of a fatal accident or accidental bodily injury,
you would be entitled to receive a lump sum tax-free benefit. Depending on the plan specifics, you would be entitled to the total benefit or percentage of the benefit from a list that may include: • Loss of sight (one or both eyes) • Loss of hands, feet, legs, and certain fingers • Loss of hearing • A combination of the above • An enhanced benefit for paralysis (e.g., quadriplegia or paraplegia) Some plans may also include: • Education benefits for dependent children after the insured’s accidental death • Hospital cash • Rehabilitation benefits The amount of benefit is generally purchased in units of $25,000 up to a specific limit such as $250,000 or $1,000,000. This is the maximum amount that would be paid for any one accident. Once the benefit is paid, the plan is terminated. Generally AD&D, which provides 24 hour worldwide coverage, is considerably less expensive than long term disability, critical illness, or basic life insurance. The primary reason why AD&D is sold is to protect against the financial loss as the result of sustaining a severe injury. What AD&D Does Not Cover Here are some general stipulations that will vary from plan to plan, where no benefit would be paid: • If the injury is not caused by external and violent means or if it is caused by war • The loss is directly or indirectly due to sickness, medical or dental treatment, including surgery for the sickness • As a result of suicide or attempt at suicide while sane or insane
• Intentionally self inflicting an injury • Where death does not occur within a certain time frame after sustaining an accident. Why Not Purchase AD&D? For the majority of dentists, AD&D may be unnecessary. Despite being inexpensive, statistically there is a small chance of collecting the AD&D benefit. In my twelve years in the insurance business and hundreds of dentist clients, I have yet to encounter one AD&D claim. One of the primary reasons for not needing AD&D is that it is more practical and cost-effective to apply your insurance dollars to other forms of insurance such as: • Long term disability • Business overhead expense • Critical illness • Life insurance (a standard policy) Who Should Consider AD&D? • As an additional benefit for those who regularly participate in extreme or hazardous activities, including teenagers and young adults between the ages of 16-25 • For those who; 1. Are uninsurable for conventional disability or life insurance benefits due to health or other reasons.This is because underwriting for AD&D is typically less stringent than for conventional life and disability insurance. 2. Have a disability or life insurance plan that contains an “exclusion” for extreme or hazardous activities, e.g., heli-skiing or skydiving.
Dr. Ian Wexler is Canada’s leading authority on insurance issues for dentists. He is the President of Protect-a-dent and Protect Insurance Agencies Inc. in Toronto which provides life, disability, critical illness, and healthcare insurance products and services to professionals, executives, and business owners across Ontario. He can be reached at (416) 391-3764 or drwex@protect-ins.com.
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Recognizing Lease Flaws as Opportunities IAN TOMS
B.Sc. (Hons) -
www.iantoms.com
Is the glass half full? Is it half empty? Or do you really care because it is about to fall off the table! Like the dilemma of the half full glass, tenants are frequently faced with seemingly hopeless lease problems. The tendency is to become fixated on the problem and struggle on, quietly enduring the issue. Or worse, spending a great deal of time, money and emotional energy chasing the problem rather than the solution.
The challenge is to re-focus the thinking to develop a fresh new perspective and implement a cost effective resolution. First, put the problem in context. Perhaps your lease has many positive qualities, some or all of which you may not even be aware and therefore not taking advantage of. Second, identify a crafty strategy to resolve the remaining “problem” - possibly even using an interpretation of the “problem” as the solution! What
exactly is the problem, and how many strategies are available to neutralize its effect on your practice? In both cases, you need to have your lease reviewed in order to understand what it really says, and have a list of the facilities you do have available to counter the problem. A limitation may be equally offset by an advantage. Consider the following examples. Capitalize on an excellent area with low rental space but no signage - A tenancy with a very modest rental rate is located in small space within a large medical professional building. In choosing the location and negotiating the lease, the tenant had assumed the new patient flow would be generated by referral from within the building, so signage had not been a consideration For whatever reason, there was very little referral traffic from within the building, and as a result the tenancy was was in trouble. Instead of continuing to battle with the landlord and the municipality for that prized sign on the exterior of the building, the practice elected to allocate funds saved by low rental payments to alternate modes of marketing. New patient flow increased dramatically and the practice became very successful. Capitalize on an excellent location with no parking A tenancy was experiencing negative patient growth because there was no parking, which is typical for very high traffic areas. After fighting the landlord to no avail for an extended period of time trying to secure dedicated and cost effective parking spaces, tenant shifted its focus to offering limousine service, the cost of which
was passed on to the patients through marginal increases in fees. The practice has grown dramatically because the patients appreciated the service, and as it turns out, were willing to pay for it! Make use of additional rent and amenities provided by landlord - Tenant was paying a high rent, in large part because the additional rent was very high. Because the heating, ventilation and cooling (HVAC) provided by landlord and paid for by tenant through additional rent was inadequate, tenant had elected to supplement the HVAC with its own equipment, and pay for the utilities used directly to each provider. What resulted was that tenant paid a very high additional rent and very high utilities partly because the landlord and tenants HVAC systems were competing with each other. A proposal to eliminate all costs of HVAC and related utilities from the additional rent because tenant was paying on his own, was declined by landlord. Tenant elected to implement an alternate strategy which involved improving the landlord’s HVAC facilities related to the premises, and eliminating his own HVAC system and utility accounts, resulting in a savings of almost $2,000 per month! In summary, enlist the help of an expert to provide you with alternate strategies, and focus on the solution, not the problem. Based on more than 20 years business experience Mr. Toms, B.Sc. (Hons) acts as a tenant advocate on behalf of select retail and professional tenant clients primarily in the Greater Toronto Area. Mr. Toms is licensed as a Real Estate Broker and can be reached at (705) 743-1220, by e-mail at iantoms@pipcom.com, or through his web site at: www.iantoms.com
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New Trends In Contemporary Practices DR. RON WEINTRAUB New trends in contemporary dental practices are creating a buzz. The emergence of innovative purchases of practices by third parties is contributing to the rise of group practices with multi-providers. Additionally, influences of sophisticated aesthetic dentistry affect the practice and the patient. These dynamic trends produced lively discussion with the Professional Advisory group at our recent meeting. We agreed the direction of today’s dental practices reflects changes in the business and fiscal management and in the introduction of new services in running our offices.
resulting in one feasible practice with a critical mass of patients. This type of practice allows them to offer technology and hygiene services formerly unattainable as individual practitioners. One of the criteria for success of this type of endeavor is having a wellmanaged office. Multi-provider practices enjoy many benefits in addition to providing a broader range of in-house treatment options. It is especially important in group practices to have a pool of talent with communication skills to deal effectively with the interactions required among practitioners.
Group Practices Are Gaining in Popularity One new trend is practitioners who want to own four to six practices and manage them off-site. In some cases, Third Party Purchases Are Popular they purchase two or three underperforming practices Another growing trend in our practices today is the start in the same area and merge them into one location of a movement from owner/operator practices to third
party ownership. Third party ownership enjoys a corporate entity with many locations and a clearly defined business structure. These offices may be in different cities. Since owners rarely practice on-site, the practice requires strong, well-defined management systems, clear job descriptions, and a dependable pool of associates.
expertise we provide. Our commitment to detail and patients’ perceived appreciation of the quality of our surroundings give them confidence in their choice to proceed. In addition, with the future viability of the sale of the practice in mind, we should remember the importance of projecting a contemporary image.
Both types of practices require a clearly defined practice The consensus of the Professional Advisory group philosophy and a strong practice management system. is that these trends have the possibility of affecting Moreover, they present the danger of total reliance on our practices and we should think about them in our having a high quality base of associates. decision-making. Change requires adhering to a carefully planned path to enjoy success. In order to Current Emphasis On “Aesthetics” Another obvious trend is adding the “aesthetic” component protect our financial investment in the practice and in of dentistry to our practices. In order to make patients the working arrangements of our associates, we should entrust an emotionally laden part of their personality think carefully and consider professional advice. to the dentist, the office should reflect an artistic sensibility of good taste consistent with the service requested. For example, in the deliberate attempt to Ron Weintraub is a founding partner with the Bayview Village & change the appearance of a smile, (cosmetic dentistry Downtown Dental Associates and brings over thirty-five years of knowledge and experience in the practice of general dentistry to the such as, porcelain veneers, gingival plastic surgery, Professional Advisory. Large companies such as Patterson Dental, and composite bonding) patients’ confidence in us is Ash Temple Ltd, Henry Schein Arcona, & the former Canadian Dental paramount. Patients often relate our ability to satisfy Co. have benefited from his insight. As a consultant to Innovative their cosmetic dental needs with how we design our Practice Solutions, Ron advises dentists on practice enhancement, practice purchases, sales, location evaluations, associate buy-ins, working environment. We should try, therefore, to plan and business mergers. Dr. Weintraub can be contacted at (905) 470our facility to reflect the same high-quality care and 6222 Ext. 221 or drronips@rogers.com.
In Sickness and In Wealth DAVID CHONG YEN CFP, CA In general, Canadians may claim their medical expenses in their annual personal income tax returns. Medical expenses can include payments for prescriptions, dentist, chiropractor, massages, travel insurance premium, laser eye or cosmetic surgeries. You can claim medical expenses incurred for yourself, spouse, common law partners or other adult dependents (subject to certain restrictions). The tax savings is usually minimal, if any, for higher income individuals. Why? The higher your taxable income, the less of a tax break you get for medical expenses.
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based on the above is not necessarily the most tax efficient way.
Have you heard of a Private Health Service Plan (PHSP)? What is a PHSP? A PHSP is an effective and legal way for a self employed dentists to convert personal health, vision, medical and dental expenses into a fully tax deductible business expense. This can result in very significant tax savings for you. If you are at the highest tax bracket of 46.40 per cent, you will save $464 for every $1,000 health premium. This is much better than the few dollars you would have saved by claiming them For example, if your income (including professional as medical expenses in your personal return as per the earnings) after deductions such as professional example above. expenses, RRSP and interest etc., is $100,000, your medical bills for any 12 month period ending in 2007 For a self employed dentist (whether as a sole proprietor must be over and above $1,926 to get any tax break or in a partnership) who only has family member at all. For example, if you have incurred medical bills employees, you may deduct, subject to certain other of $2,000, you are only eligible to claim $74 of these limitations, medical/dental plan premiums up to $1,500 expenses ($2,000 minus $1,926). That translates to for each of you, your spouse and other adult dependents approximately $16 of tax savings. You do not get any living with you and $750 for each of your children who is tax break for the first $1,926 of medical expenses once under the age of 18. The health premiums could be for your income reaches a certain level. some traditional medical plan (eg., Blue Cross) or for the If you are self employed, claiming your medical expense cost plus program offered by insurance companies.
For those who have employees including nonfamily members and you pay 100 per cent of their premium, you might deduct more than the limit permitted above. That means if the annual premium calls for example, $1,700 per person, you can deduct the full $1,700. Please note if you pay less than 100 per cent of the premium for each employee, your deduction will be limited. Remember, the premium is not taxable in the employees’ hands. This is an extra tax-free perk for your employees. Consult your insurance advisors on the details of the medical health plans available in the market and decide which plan works best for you and your employees. Also, don’t forget, it is possible to have different levels of coverage for part-time, full-time and executive employees (for example dentists).
Remember, the Canada Revenue Agency always has the right to review and challenge your tax deductions. They might surprise you with a tax bill if your coverage is unreasonably high as compared to that offered to other employees. If this works well for you, introduce this concept to your patients who are self employed. Why? Because if they can deduct their dental bills in a far more tax efficient way, they may be more willing to pay for those long overdue dental procedures.
David Chong Yen, CFP, CA with an international firm background and more than twenty-six years of experience, advises healthcare professionals and owner-managers. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or E-mail david@dcy.ca. This article is intended to present tax saving and tax planning ideas and is not intended to replace professional advice.
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Advice to My Son or Daughter Graduating From Dental School GRAHAM R. TUCK
H.B.A. C.A
When you graduate from dental school there is much more to think about than “where can I get an associateship”. It is important to remember that dentistry is also a business and good business practices are very important. Consider the following: • It is important to find a good associateship even if there is no hope of buying into the practice or buying the practice. Pitfalls would be signing an overly aggressive non-competition contract that is going to eliminate owning a practice in the same community if that’s the community where you would want to practice down the road. • Find an associateship that will give you broad experience. Broad experience can also be obtained by joining study groups or taking additional courses. Working in under serviced communities can also give you the experience you need and the cost of living should be lower. • Before you purchase a practice you have to feel comfortable with all the various phases of dentistry. That relates to both techniques and speed. Once you own a practice it is more difficult to take a week off to attend additional courses because the overhead continues. Dentists with greater depths of dental education are more successful in their careers. • Live within your means. The flashy car should not be high on your list of needs. Get your school debts to a controllable level. You do not want your school debt to limit the purchase of a practice when you are ready
to purchase. New start-up practices have problems of low cash flow. • Find an accountant – one with a number of dentists as clients – who will help get you started, set you up with sound accounting principles and conservative spending habits. Many dentists do not live within their means and find out too late what they should have done when they started their practice. • Use an experienced lawyer who has a number of dentists as clients before entering into any material contract – whether an associateship, a lease or the purchase of a practice. • Try to find a mentor dentist as the principal in your associateship practice – one who would give you advice and direction to avoid as many pitfalls as possible. • Treat each patient as if they were family. Recommend procedures you would give to a family member. First, show that you care. The rewards will follow. • Don’t judge yourself by what others say that they can do. There are all kinds of exaggeration of accomplishments. Be true to yourself and by constantly improving your techniques through continuing education you will arrive at a position of confidence in all your accomplishments. • Marry the right spouse, who will be supportive in your career. This will account for more than 90 per cent of your joy or sadness in your life. It is more important
than money or fame. So there it is. Experience tells us that life in general, and the practice of dentistry in particular, isn’t always simple. But by following the above basic guidelines – augmented of course with good common sense – your chances of being rewarded both spiritually and
materially with a lifetime of happiness and accomplishment will be greatly enhanced. Graham Tuck, H.B.A., C.A. is the broker/owner of Professional Practice Sales (Ontario) Ltd., which specializes in the valuation and sales of dental practices. He can be reached at (905) 472-6000 or 1-888777-8825 or e-mail at: grtuck@gmail.com
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Tips on Negotiating Non-Competition Agreements BARRY A. SPIEGEL
LL.M., Q.C
Courts of law do not like restrictive covenants since they act as a restraint on one’s ability to practice his/ her profession or trade, and unless they are reasonably necessary for the protection of the recipient, they may well be struck down or voided. Dentists often have to negotiate them when purchasing or selling a practice, entering partnerships or cost-sharing arrangements, and most frequently when entering associate agreements – whether as a principal or as the associate.
no threat at all if they leave within a trial period of, say, three months, and generally only a minor threat if they leave within one year. I suggest you consider drafting a “phased-in” clause having no application for the first three months, one year if the departure occurs within one year, and two years thereafter. Many associate agreements that I review unreasonably provide for two or even three years of non-competition even if the associate leaves or is terminated shortly after starting.
This article will deal only with points to consider in the non-competition aspects and not with the non-solicitation of patients and staff. These comments are intended only for general practitioners since there are different rules that may apply for specialists. And none of the tips and comments are applicable if you are dealing with Conrad Black.
After a year or two away from the practice, a departing dentist will not likely be any real threat to the principal. Therefore, a two year covenant in most cases is usually adequate. The courts, logically enough, tend to permit a longer period of time where the dentist giving the covenant has sold the practice for a substantial sum, and a shorter period where the dentist was solely an associate. I suggest that five years is the maximum time, only to be used in special cases.
Many associate agreements that I review unreasonably provide for two or even three years of non-competition even if the associate leaves or is terminated shortly after starting. A non-compete covenant will only be enforced if it is reasonable both as to the area of non-competition and to the amount of time the agreement will be in force. As a rule of thumb, I believe that the recipient of the covenant is entitled to protection in the area in which, say, 80 per cent of the patients reside. That may be only one or two kilometres in a densely urban practice or 30 kilometres or more in a rural setting. Remember, that if the area of non-competition is to be a circle with a radius of 10 kilometres, then if the departing associate opens an office just over 10 kilometres away from your practice, patients living five kilometres away are equidistant from both practices. The amount of time the clause remains in effect is also important. In the case of new associates, they will be
Some non-competition clauses try to terrorize the other party into complying by providing for payment of an outrageous fee, (eg., $100,000) in the event of a breach, or payment of an exorbitant sum of money (eg., $2,000) for each former patient who is treated by the departing dentist. Courts will only enforce a genuine pre-estimate of real damages but will not enforce a penalty and such clauses would likely be struck down. I still see clauses that I consider a little neurotic. They provide that one cannot compete within the Province of Ontario, but if the courts find that unacceptable, the area is reduced to 150 kilometres from Toronto, but if the courts find that unacceptable, then the area is reduced to...etc,. The courts will likely strike the entire clause out since the clause is unclear, unfair and is intended to strike fear in the donor of the clause. Don’t make a costly mistake. Consult your lawyer! Barry Spiegel Q.C. is a senior lawyer with Spiegel Rosenthal Professional Corporation whose practice is devoted to corporate, commercial and business law, with special emphasis on advising and consulting for the dental profession. He can be reached at (416) 865-0330; or fax to (416) 203-8592 or e-mail to barry@drlaw.ca
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How to Prepare for the Most Successful Sale of Your Practice MARK McNULTY
BA, CFP, CIM
There are three areas of your life that must be organized now to prepare for the most successful sale of your practice. The first is your finances. The second is your practice. And the third is your personal life. After all, what are you going to do with the 2,000 or more hours a year that used to be taken up with the practice? You don’t have to decide right away on a specific transition model. Generally you have two broad choices. You can sell your practice outright or do a staged transition. In either case, there are many variations. The ultimate choice will be heavily influenced by your personal preferences. With respect to your finances, you can’t have what is considered a successful transition if you don’t have the resources to maintain a satisfactory lifestyle thereafter. Let’s look further at defining what I mean by finances. How much will you need on an after-tax basis to maintain a satisfactory lifestyle? Given some reasonable assumptions that relate to tax, investment returns, longevity, inflation, etc., your financial advisor should be able to establish a specific sum you will need to accumulate. Next, you’ll have to assess your current financial position to determine if you have the resources to meet your retirement objective. If an analysis of your present financial resources indicates you won’t have enough to support your retirement lifestyle, you’ll have to develop strategies to make up the deficit. In this case, the more advance planning you do the better, since one of the primary ingredients of a successful wealth creation strategy is time. Another justification for advance planning is the opportunity it provides to organize your affairs in the most tax-efficient manner. This can easily take 10 years. There are the pros and cons of various incorporation strategies. Special RRSP contribution rules, Individual Pension Plan (IPP) and a Retirement Compensation Arrangement are other examples of tools that can be useful in reducing or deferring your tax liability on transition. To get maximum benefit from these tax strategies, the groundwork must be established years in advance.
Time is also a key factor when it comes to getting your practice ready for your transition. It’s a good idea to get a professional evaluation so that you understand what the value is today and what, if anything, can be done to enhance that value. Many factors can influence the future value of your practice. Some experts feel very bearish about the outlook for practice values. This is largely fueled by demographic statistics that seem to indicate there will be a substantial increase in the supply of practices for sale as baby boomers age. Who knows? It’s interesting how many times factors such as changes in the economy, culture, or accessibility of credit affect the accuracy of such predictions. From a planning perspective it’s fair to say that wellrun, profitable practices should continue to attract a premium over poorly-run offices – no matter what changes take place. Your practice is an investment. Regardless of future market conditions, enhancing the return you can expect from that investment between now and transition will usually improve its market value. Even if the sale value doesn’t increase, the resulting additional income will make the exercise worthwhile. Finally, if you’re going to fill those 2,000 or so extra hours that come with retirement, you may need some time to develop other interests, hobbies, or volunteer work. If you already have a burning passion or activity that fills your leisure time, you’re very fortunate. If you don’t, there are consultants who can help guide you in this area. Or, you can start experimenting on your own with alternative activities for this exciting phase of your life. Regardless of the transition type you choose, a successful practice sale and retirement happen by design, not by default. You may be retired for quite a number of years, so it’s worth taking the time now to plan for a quality transition experience. Good Luck! Mr. Mark McNulty, BA, CFP, CIM is a financial advisor with Raymond James Ltd., Independent Financial Services - Member CIPF. This is for informational purposes only. The opinions expressed by the author are not necessarily those of Raymond James Ltd. He may be contacted at 905-470-6222ext 209 or mark.mcnulty@raymondjames.ca
The views expressed in any article are those of the author alone. They should not be acted upon without the advice of your “professional advisors”.