The Renaissance Advisor by renaissancemag

The Renaissance QUARTERLY FUND PROFILES / PRACTICE MANAGEMENT / OUTLOOK / OPINION

Q4 â&#x20AC;&#x201C; DEC. 31, 2013

The Keys to Success in 2014 Jamie Golombek on Hitting the Right Tax Notes with clients ALSO INSIDE:

Grant Shorten Q&A: Impact Themes for 2014 How to Use Floating-Rate Loans in Portfolios

For Advisor Use Only

A CLEAR VISION ISN’T CREATED BY THOSE WHO STOP HALFWAY.

TAX & ESTATE INSIGHT If you’re spending all your time sifting through information, how do you expect to focus on what matters to your business? We chip away the complexity from tax and estate issues to uncover clear and practical insights – so you can spend more time defining your success.

2013-2014 Tax Toolkit Now Available Renaissance can help you complete a clear tax picture for your clients. Download your toolkit today at:

renaissanceinvestments.ca

Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc.

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In this issue

14 NOW AVAILABLE 2014 market forecast Perspectives from CIBC Asset Management

Renaissance Investments

Economic Outlook Canada: Better But No Home Run

Back of the Napkin Impact Themes for 2014

Jamie Golombek â&#x20AC;&#x201C; Hitting the Right Tax Notes with Clients

READ NOW

Thanks to Our Supporters Providing a Steady Hand

Solution Highlight How to Use FloatingRate Loans

Give and You Shall Receive

Brain Calisthenics

Letter from the National Sales Manager

Beyond Products – Delivering Ideas for Your Business Welcome to the winter edition of The Renaissance Advisor. My hope is that your RRSP season is a successful one and lays the groundwork for business building throughout the spring. This issue of our magazine is purposely focused on ideas for your business that are not only product related. Of course, partly due to timing, we are focusing on tax and there is plenty of information from our tax expert, Jamie Golombek. Additionally, our resident practice management guru, Grant Shorten, shares some insight on issues that will impact all advisors’ businesses. We hope that these two topics offer a brief glimpse of other valuable advice your partners at Renaissance can provide to you and your clients. Ben Tal’s contribution to this quarter’s magazine rounds out Renaissance Investments’ third area of expertise that will assist you in discussions with loyal customers and prospects. Our efforts at Renaissance Investments are not unlike yours as an advisor. We are both building relationships to become the trusted advisor to our clients. Part of this process involves making solid investment recommendations that will provide peace-of-mind for the long term. However, it extends beyond performance that ensures the financial well-being of the people that rely on us. It is foolhardy to believe that our portfolios or recommendations will be the top-performing vehicles at all times. There will always be a better-performing solution at any moment in time. All you need for confirmation is to read the newspaper or browse the Internet (as our clients do) to find a “better performer.” So while we trust our product solutions will perform admirably over time, we want to compete on more than just returns. That is where our three areas of expertise – tax information, practice management and economics – can assist you in securing the relationship with your clients in all market scenarios, and maintain your status as their trusted advisor. The moral of the story is let’s make knowledgeable investment recommendations that perform well and secure our clients for life, based on valued advice. It will better serve our clients and ourselves over the long term. I would appreciate your comments and feedback on these or any other topics. Renaissance Investments will always commit to earning your trust and support and as always, I want to thank you for your business.

Sincerely,

Dave Wahl National Sales Manager Renaissance Investments 416-943-6959

Providing a Steady Hand THANKS TO OUR SUPPORTERS

Without the support of advisors like you, Renaissance Investments would not enjoy the privilege of helping so many Canadians realize their investment goals. Here is one of the outstanding professionals we are so very proud to work with.

Best tips for gaining new clients: Service your existing clients; remind them from time to time what you do for them; and be straightforward in your dealings. Favourite hobbies: Watching my kids play hockey, travelling and good food.

What do you love about the business? I really enjoy the sense of satisfaction that I get seeing clients move from their working years to their retirement years. Helping clients successfully navigate this transition gives me a sense of accomplishment. It is a very uncertain time in people’s lives, and they are looking for a steady hand.

One item I can’t be without: My team.

What is your strategy to strengthen client relationships in 2014? I will continue to focus in on existing clients and getting to know them better and deepen my relationships. I want to be my clients’ “Trusted Financial Advisor.” I want to ensure I am top of mind for clients when it comes to any financial matter or life event. Are there areas or themes of financial or investment planning that you plan to focus more on this year? I will continue to rebalance portfolios as the returns from asset classes last year were quite divergent. I will also continue to rely on my partners (estate planning, insurance, private wealth) to be sure I am letting clients know about all of our offerings.

Laura Cameron Firm: CIBC Wood Gundy Location: Oakville, ON Years in Business: 19

What are the most common client concerns you hear currently, and how do you address them? People are unsure about how much they need to save for retirement. I make sure every client has a financial plan, and I stick to conservative projections. I remind clients to focus on their long-term objectives and to block out the day-to-day “noise.”

No. of Team Members: 1

www.renaissanceinvestments.ca/en/jamie_golombek/

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Canada: Better But No Home Run

ECONOMIC OUTLOOK

For Canada, 2013 was a year of déjà vu. In line with our forecast, it was the second year in a row that the economy tracked a cool 1.7% pace. It was also the second year the Bank of Canada had been warning of potential rate hikes, only to finish the year without making good on that threat. A delayed acceleration in global growth and weak commodity prices hit both exports and business capital investment. Looking to 2014, there likely won’t be enough economic momentum to pull the Bank off the sidelines, but with firmer global growth and an uptick in commodity prices, there should be enough help from abroad to get the economy to expand by 2.3%.

Improved Global Conditions Will Ignite Exports and Business Investment A key ingredient in our Canadian forecast is the expectation that global growth will improve in 2014 and non-energy commodity prices will recoup recent losses. As a result, exports and business capital spending will lead the pack. Exports have been the sore point in Canada’s economy recently. While shipments to the U.S. increased in the past year, largely due to rising production of crude oil, languid eurozone demand and weaker growth in emerging markets saw shipments to the rest of the world fall yet again. Looking ahead, with Canadian petroleum producers eyeing a 7% increase in production and with U.S. growth set to accelerate, we see exports to the U.S. gaining speed. While factory line closures are limiting the upside to auto exports, shipments of other categories including machinery, lumber and metals should improve. Rising growth in the rest of the world, particularly in the eurozone and emerging markets, should see exports to those regions gain for the first time in three years. After stripping out price movements, exports could be up by roughly 5% next year – hardly a boom, but enough to help nudge growth forward.

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Year-Over-Year Export Growth

To Rest of World

To United States

6% 4% 2% 0% -2% -4% -6%

2012

2013

2014F

Source: Bloomberg, CIBC

As for capital investment, an improvement there will not be a direct function of extra cash on the balance sheet, which is now a more permanent feature of the capital market. Rather, increased spending will be driven by a revival of profitability. There is an unmistakable correlation between Canada's National Accounts operating profits and the Bank of Canada’s commodity price index. When commodity prices fell by 6% in 2012, corporate profits declined proportionately. In 2013, flattening commodity prices coincided with a muted profit trajectory. Given that commodity producers account for only 30% of operating profits among non-financial corporations, it is clear that this correlation is largely due to the fact that commodity prices act as a good proxy for the cyclical forces impacting the Canadian economy. Accordingly, and based on our latest commodity forecast, we expect corporate profits to rise by 8% and 11% in 2014 and 2015 respectively. If history is any guide, this improvement in profits should lead to a 5% to 10% increase in annual capital spending in the coming two years. Already, we have seen a spate of announcements that have given a green light to earlier-delayed projects in the oil patch. While greater capital spending will leak into higher imports, overall, we don’t see import growth as a significant impediment to progress in net exports. On average a 1% acceleration in business investment in machinery and equipment (M&E) leads to an estimated 1.2% acceleration in the volume of M&E imports. That increase in imports will be partly offset, however, by our

expectation that consumer-related imports, which account for close to 30% of total goods imports, will soften somewhat in the coming year. In addition to a generally soft pace for consumer spending, the recent acceleration in import prices (well beyond what the Canadian dollar can explain) could help hold back import growth in 2014. Don’t Count on the Consumer and Governments And just as net exports and business investment are set to accelerate next year, consumer spending could head down a less promising path. Subdued inflation has helped Canadians stretch their earnings power in spite of relatively weak wage growth. On net, that has seen consumer spending actually accelerate in 2013. But that lift to spending may not last for very long. Ex-autos real consumption growth has been roughly unchanged in the past two years, and it’s been volatile auto demand that has accelerated, pushing up the overall pace of household spending. But there’s a risk that consumption growth could cool in 2014 as auto demand softens after an outsized pick-up in 2013. Note that a key factor driving the acceleration in auto demand has been rising credit, despite the broader trend of subdued economy-wide consumer credit. Real Consumption 10%

Ex-autos

y/y growth

Autos

outright savings. With real estate prices likely to track no better than flat, this important dis-saving mechanism will diminish. And don’t look for the public sector to compensate for that weakness. Unlike Canada’s neighbour to the south that has taken an active approach to cutting public spending, Canada has been more gentle in pruning its fiscal largesse. Real government spending has grown over the past year, but at a sub-1% pace that has tracked well below the tempo of the last decade, seeing the public sector continue to gradually shrink as a share of the overall economy. Budget releases in the spring should provide a clearer picture of the trajectory of Canada’s austerity-lite approach. But with some provinces acknowledging challenges in reaching budget targets in light of weaker-than-expected growth and tax revenues, a continued modest approach to fiscal restraint is in the cards for next year. That could see government spending growth tracking roughly in line with the past year’s moderate pace. Add it all up, and Canada’s economy is yet again waiting for a helping hand from abroad to push growth forward in 2014. Business spending and exports should accelerate, but with consumer spending, homebuilding and government outlays all set to underwhelm, growth of 2.3% in 2014 will trail the U.S. pace. Fortunately, for investors, the Toronto index is heavily tilted towards stocks levered to global growth. The improved pace abroad could still see Canadian equity markets playing catch-up to those south of the border.

Q3-2013

Q2-2013

Q1-2013

Q4-2012

Q3-2012

Q2-2012

Q1-2012

Q4-2011

Q3-2011

Q2-2011

Q1-2011

Q4-2010

-5%

Q3-2010

Source: Bloomberg, CIBC

Another factor that might soften consumer spending is our expectation that the savings rate will rise during the course of 2014, largely due to the diminishing impact of the real estate wealth effect on consumer spending. We estimate that over the past year the real estate wealth effect singlehandedly cut a full percentage point from the savings rate, with consumers building de facto net wealth positions via higher house prices rather than

Benjamin Tal is Deputy Chief Economist for CIBC. Described as one of Canada’s leading experts on the real estate market by the International Monetary Fund, he is responsible for analyzing economic developments and their implications for North American fixed income, equity, foreign exchange and commodities markets. www.advisor.ca/togo Podcast > Prepare Clients for Interest Rate Hikes www.renaissanceinvestments.ca/en/economy/ www.renaissanceinvestments.ca/en/economy/

Renaissance Investments 5

Impact Themes for 2014 Q&A with Grant Shorten on key themes for advisors this year and beyond

BACK OF THE NAPKIN

As we enter 2014, what industry trends, or emerging themes, should advisors be thinking about?

In my opinion, there are three core themes that will not only impact 2014, but will in fact carry serious implications for many years to come. In no particular order, those three themes are: 1. The Black Hole of Wealth Transfer 2. The Fee Transparency Revolution 3. The Rise of the Affluent I think it would serve advisors extremely well to keep these top-of-mind when developing their business plans and marketing strategies.

The first theme sounds ominous! What do you mean by “The Black Hole of Wealth Transfer”?

I’m referring to the tidal wave of money-in-motion which is headed our way as we speak. Briefly stated, a whopping $895 billion will be changing hands over the next few years, and it’s going to affect everyone engaged in the business of managing money for aging clients. To give you a better sense of the scope of the move, this nearly $1 trillion is expected to transfer in the form of a staggering 1.3 million individual transfer events – with the vast majority of those events coming from households aged 75 years and older. The average transfer package from this group is likely to reach a record level of nearly $700,000 per transfer. Naturally, most of the beneficiaries of this broad-based shift of wealth will be the adult children (and other family members) of the deceased.

So, how will advisors be affected by this surge in inter-generational wealth transfers?

Well, we have a small problem on our hands… A recent study by PricewaterhouseCoopers confirmed a harsh reality that many of us already suspected based on personal experience…

6 Renaissance Investments

“Only 2% of adult children keep their inheritance money with their parents’ advisor.”1 And the reason we have this problem is because we, as an industry, have failed to “own” the family matrix. In other words, we will often have a working relationship with the patriarch or matriarch of the family, but we chronically have little or no relationship with their adult children or their grandchildren. So, the advisor of today faces the very real challenge of trying to secure those assets-at-risk…before they disappear. The solution will require advisors to find a way to set up an introduction to the beneficiaries of this money-in-motion, make an emotional connection, and turn those beneficiaries into trusted clients. This past year, I developed the “Family Matrix Strategy” to help advisors accomplish just that, by implementing a simple six-step process. ➤ Contact your Renaissance Representative for your copy of the strategy.

The second theme you highlight is “The Fee Transparency Revolution.” Can you talk about this in the context of mutual fund trailers?

Sure. As we are so often reminded by the financial press, our Canadian regulators are moving rapidly toward legislating the unbundling of investment fees, which will render them completely visible to our clients. And, since most advisors generate at least some of their revenue from mutual fund trailer fees, we will see a growing number of clients objecting to these charges as they are laid out in plain view.

How should advisors respond to these objections?

I don’t think the majority of clients will aggressively complain about their fees, but they will certainly start asking more questions. And when confronted with a client’s challenge to a visible fee, an advisor will essentially face two options. Either they can react by discounting their fee, or they can proactively increase their client’s awareness of their value.

PriceWaterhouseCoopers Global Private Banking / Wealth Management Survey 2011.

Which approach do you recommend?

Each situation is unique, but elite advisors will often agree that the discounting of fees can be fraught with disaster. A knee-jerk reduction of a client’s fee can set a “bargain hunting” precedent in a relationship, and quickly begin to undermine an advisor’s “worth” in the eyes of a client. And, when it comes to trailer fees (which are normally set by the mutual fund companies) a discounting mechanism may not even be available in the first place. In most cases, a more resourceful strategy for an advisor is to mindfully increase the perception of their value, so that their fees are openly received as fair and justified. Most reasonable investors understand that “cost is only an issue in the absence of value,” but it will be the advisor’s responsibility to clearly articulate that value. In order to increase their perceived value, the advisor will need to educate their clients in three simple ways: 1. Explain why there is a fee in the first place 2. Explain what they are getting for that fee 3. Explain the benefits of a percentage fee on assets I cover these elements in more detail in my article entitled; “Fee Transparency and You.” ➤ Contact your Renaissance Representative for a copy of the article.

Your third important theme for 2014 is “The Rise of the Affluent.” This sounds like a tagline from a Terminator movie!

(laughing) That’s right. We are in the midst of an affluent invasion. According to industry researcher, Investor Economics, the number of high-networth households in Canada is set to nearly double by the year 2022. By that same year, a mind-blowing 80% of all the personal wealth in Canada will be controlled by the upscale and affluent segments of the marketplace! The truth is, the wealthy are coming, and they bring with them a tremendous opportunity for those engaged in the business of delivering sound advice. At the same time, the competition for these assets will continue to heat up, and the landscape will begin to resemble a battleground, with clear winners and losers.

So, what can advisors do to position themselves to compete in the HNW space?

In order to capture the attention of the affluent investor, and to differentiate themselves from the masses, an advisor will need to have more than just sophisticated product solutions at their disposal. They will first need to gain a deeper understanding of the psycho-emotional makeup and the subtleties of the high-net-worth mind. Unfortunately, there is still a measurable disconnect between what the advisory community assumes to be true…and what the wealthy are actually experiencing on a day-to-day basis.

What are the most important “mind” elements for the advisor to focus on?

There are four that stand out above the rest. In fact, I would go as far as to say that the advisor who understands and addresses these four things, will quickly and easily place themselves in a position to dominate. The four critical aspects of the HNW mind are these: 1. Their primary fears 2. Their financial priorities 3. Their expectations (and demands) 4. Their deal-breakers (relationship killers) As the affluent wave continues to gain momentum and the competition intensifies, there will be a select group of advisors who will separate themselves from the crowd. And those who understand the emotional needs of the wealthy, will be able to capture more business and deliver a more robust service model. ➤ Contact your Renaissance Representative for Grant’s articles on “The Secret Fears of the Wealthy” and “The Demands of the Affluent.”

Grant Shorten is Director of Strategic Insights at Renaissance Investments. He offers insights and approaches that will work with your clients and have an immediate impact on your practice. www.advisor.ca/togo Podcast > Tackle CrossGenerational Planning www.renaissanceinvestments.ca/en/practicemanagement/

Renaissance Investments 7

Jamie Golombek Personal tax guru with a passion for music

8 Renaissance Investments

Hitting the Right Tax Notes with Clients

+ – x –

Jamie Golombek, Canada’s personal tax guru, says advisors don’t need to be tax experts, but they can use holistic tax thinking to elevate their client relationships. Discover Jamie’s Top Three Tax Strategies for 2014, the best sources to stay up-to-date on tax developments, and on a personal note, learn about Jamie’s lifelong passion for music.

From an early age, Jamie Golombek has been a wiz with numbers. After graduating high school with near perfect marks in all three math subjects, a defining moment occurred while working at a high-end Toronto grocery store before heading off to McGill University to obtain a Commerce degree, and afterwards, his CA designation. In his cashier role, Jamie was keenly aware of the products’ prices and any irregularities. When the grocery chain’s COO toured the store one day, Jamie seized an opportunity and recommended that he hike the price of chocolate milk to align with the store’s premium pricing. This brazen move paid off. Three days later, Jamie received a promotion to assistant store manager. Jamie reflects on this scene and says, “It was at an early age that I recognized opportunities and how important it is to speak up. You have to be your own biggest advocate in terms of your strengths.” Fast forward to 2014 and Jamie’s strength continues to be numbers – in particular, tax and integrated financial planning. After carving out a unique niche as a personal tax guru, Jamie came on board at CIBC about six years ago. Today he continues to spread indispensible tax advice to CIBC clients, financial advisors and the media.

Advisors Can Set Themselves Apart with Sound Tax Knowledge “I always emphasize that advisors don’t need to be tax experts,” says Jamie, acknowledging they should rely on accountants and lawyers for tax advice. However, he advocates that advisors develop a good general knowledge of basic tax considerations, as they affect investments. “Depending on the province that you live in, tax can take away half your returns. The ability to maximize the tax-savings opportunities and minimize the actual tax brings tremendous real value to the client relationship,” he adds.

Today, Canadians have more financial products to choose from than ever, and Jamie suggests that having tax knowledge offers a real opportunity to differentiate your practice. “Beyond having a good understanding of all available registered plans, advisors should understand strategies that can be used throughout the entire year to reduce their taxes, whether it’s income splitting, appropriate use of debt in a tax-effective manner or small business tax strategies. There are lots of ways to add value and boost your client relationships.”

How Advisors Can Stay Up-to-Date on Tax Keeping abreast of tax changes is a full-time job, but there are some shortcuts that Jamie recommends for advisors. Jamie spends hours per week sifting through tax cases and changes, and shares pertinent insight via Twitter to almost 2,500 followers (@JamieGolombek). As well, he produces regular reports for advisors on many topics such as the federal budget, year-end tax planning and small business issues – all found on Renaissanceinvestments.ca and at JamieGolombek.com. Jamie also suggests that advisors register for daily e-newsletters from sites like advisor.ca and investmentexecutive.com that often include pertinent tax insight.

Importance of Tax in Portfolio Construction As Jamie tells his MBA students at the Schulich School of Business at York University, where he has been teaching an MBA course on personal financial planning for the past 13 years, the first step is to understand your clients’ financial goals and consequent timelines. Once that’s achieved, you can build an investment portfolio and look at various tax considerations. For example, if bonds are held in the portfolio, it may be advantageous to hold them inside of a tax-sheltered environment. Or if equities are part of the plan, holding them outside of registered plans may provide benefit from favourable capital gains tax treatment. As well, Canadian equities can likely benefit from the Canadian dividend tax credit available outside of registered plans.

Renaissance Investments 9

Jamie’s Top Tax Update Sources

Biggest Tax Planning Misconception Jamie believes that tax planning is not just for the wealthy. It’s for everyone – no matter what their income level. To prove his point he uses the example of a 20-year-old who has just started his first job and wants to invest in an RRSP. “We generally suggest that a low-income earner prioritize contributing to TFSAs. For someone making under $40,000 a year in Ontario, the tax rate is about 20%, so why put money into an RRSP to likely later take it out at a higher rate? When this individual takes out the money in the future, he will probably be in a 30 or 40% tax bracket. Why not put that money in a TFSA, pay the 20% tax up front, and pay no tax when withdrawals are made later in life?”

• Public releases by the Canada Revenue Agency (CRA), bulletins, conference statements • CRA technical interpretation letters to taxpayers (database of 20,000+ letters)

Talk Tax Year Round

• Department of Finance updates for new and proposed legislation

“I’ve always said that tax planning should be a year-round effort,” advises Jamie. At the beginning of the year, tax advisors should sit down with their clients and look at the entire tax planning year ahead to maximize future tax efficiency. “Unfortunately there is very little you can do in March or April to save tax on the previous year’s tax return. When you file the return, some small things can be done, like combining spouses’ donations together or pension income splitting, but it’s too late at that point to do much about the previous year’s taxes.”

• Summaries of relevant personal tax cases

Jamie’s Top 3 Tax Strategies for 2014 Maximize all Registered Plans

NEW

“It’s predicted that within the next generation, 90% of Canadians will have all of their money in tax sheltered plans, whether it’s the RRSP for retirement, the RESP for children’s post secondary education, the TFSA for anything at all, and the RDSP for someone with a severe and permanent disability. An enormous amount of room is being built up across all these plans. The cumulative TFSA limit already is at $31,000 for 2014 for a Canadian resident who’s been at least 18 years of age since 2009 and has never contributed to a TFSA. There’s really no excuse for non-registered money sitting around when clients have not maximized their registered plans. Similarly with RESPs – we find that many clients are just putting in the bare minimum each year to get the 20% matching Canada Education Savings Grant. Why not contribute excess funds? You can put in up to $50,000 per child. It’s a great tax shelter and the contributions can be withdrawn tax free. In addition, most of the income and grants may effectively come out tax free through the use of the child’s various tax credits.”

Jamie’s Tax Insight available at:

renaissanceinvestments.ca

Invest Tax Efficiently “Look at where investments are located. Try to minimize the amount of tax on investment income using strategies like dividend investing – Canadian dividend funds have a lower effective tax rate than interest-bearing investments and capital gains are effectively taxed at half the normal rate. And it may be preferable to hold fixed-income investments inside registered plans, like RRSPs and TFSAs.”

1. How Tax Planning can Elevate Your Business 2. Top 3 Tax Strategies for 2014

Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC Wealth Advisory Services. He works closely with advisors to help them provide integrated financial planning solutions for their high-net-worth clients. Jamie is frequently quoted in the media as an expert on taxation. www.renaissanceinvestments.ca/en/jamie_golombek/

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Look at the Total Family Picture “The clients’ entire family situation should be analyzed to minimize tax. For example, it may be beneficial to use income-splitting techniques that could allow investment income to be taxed in the hands of family members (such as a spouse, common-law partner or children) who are in a lower tax bracket. On January1, 2014, the CRA’s prescribed rate for income-splitting loans just dropped back down to 1%, which is the lowest rate possible. The nice thing about locking in a loan like this is that the rate never needs to be adjusted – no matter what happens to future prescribed rates. It’s a big opportunity. You can also use this strategy to help fund a child’s education. For example, money loaned to a trust for a child could be invested in a Canadian dividend fund to get tax-free income into the child’s hands, assuming the child has no or minimal other income.”

PLUS

Full coverage of what the 2014 Federal Budget means to you and your clients

Follow @JamieGolombek www.advisor.ca/togo Podcast > Don’t just talk tax during RRSP season

Getting to Know Jamie

music A PERSONAL PASSION

Instilled at a young age, Jamie’s passion has always been music. His grandfather would visit him in Toronto when he was a child, and bring a variety of string instruments from his Florida home. Jamie began piano lessons at a very early age to reach grade eight in the Royal Conservatory program. He says, “I play by ear and sight read. I now have the Steinway baby grand piano that my grandparents had in their home.” Jamie used to play classical music but now prefers to play popular music, Broadway tunes and jazz. At age 12, Jamie went to his first rock concert – Hall & Oates. This outing sparked a lifelong habit to see live entertainment. About once a week Jamie goes to a live music, play or sporting event. “If I’m out of town speaking, I’ll sometimes go see a show after a client event. “Recently, I have seen P!NK, the Eagles, Drake and the Keith Jarrett Trio at their 30th anniversary show at Carnegie Hall in New York City. My favourite group is the Dave Mathews Band and I spent part of last summer following him around. I also enjoy classic rock. I went to see Yes at Massey Hall last year and also saw Rush on their recent Toronto stop. My musical taste is all over the map,” he says. Jamie has collected and catalogued every ticket stub, now amounting to thousands, for every show he’s seen over the past 30 years. He has about 800 CDs, but in the past decade has now turned to downloading songs on iTunes and owns about 12,000 individual tracks, enough for about two months of non-stop listening. “My main motto on the personal side is to spend money on experiences rather than on physical things,” says Jamie. And he passes on this belief to his family by taking them to diverse music, theatre, sports and other events. “I think of happiness in terms of putting together a series of fun experiences that are memorable and meaningful. That’s more important to me than anything,” he concludes.

Jamie’s Favourites Jazz pianist: Keith Jarrett Group: Dave Matthews Band Sports Team: Toronto Maple Leafs Broadway Musical: Next to Normal Movie: Annie Hall Book: The Catcher in the Rye Vacation Destination: New York City

Renaissance Investments 11

How to Use FloatingRate Loans SOLUTION HIGHLIGHT

Proven Rising-Rate Protection

FOR ILLUSTRATION PURPOSES ONLY

CASE STUDY

With central banks around the globe looking at tightening monetary policy in 2014, most experts agree that this era of record-low interest rates has reached an end. Rates will eventually rise and may impact the returns of your clients’ portfolios. Offer clients the protection they need in a rising-rate environment with floating-rate loan exposure. When Rates Rise, Floating-Rate Loans Outperform Since 1992, the floating-rate loan asset class has proven its value over longer duration fixed-income assets in the three rising-rate periods experienced. Outperformance During Rising-Rate Periods – Cumulative Returns (USD)

A Balanced Approach to Floating-Rate Loans As history suggests, adding exposure to floatingrate loans in client portfolios may enhance returns. So, in a balanced portfolio, what is the optimal allocation to floating-rate loans? Sample Portfolio Globally Diversified Balanced Asset Mix 1

30% Canadian Equities 30% World Equities 40% Domestic Fixed Income 0% Floating-Rate Loans

20% 17.52% 16%

CASE STUDY RESULTS

15.90% Floating-Rate Loans*

Floating-Rate Loans Can Improve Risk/Return Potential

Traditional Bonds** 12%

10.29% 7.90%

Access the Floating-Rate Loan Asset Class with Renaissance

Pure Play: Renaissance Floating Rate Income Fund

3.97%

Dec. 1993 – Apr. 1995 (U.S. federal funds rate rose 309 bps)

4.07%

Jan. 1999 – Jun. 2000 (U.S. federal funds rate rose 190 bps)

Dec. 2003 – Aug. 2006 (U.S. federal funds rate rose 427 bps)

*Credit Suisse Leveraged Loan Index **Barclays US Aggregate Bond Index: An index of U.S. dollar-denominated, investment-grade U.S. corporate, government and mortgage-backed securities. Source: Morningstar Direct

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Balanced Approach: Renaissance Optimal Income Portfolio

Improve Expected Risk and Return with Floating-Rate Loans

This graph illustrates the benefits of adding floating-rate loan exposure to the sample portfolio.

Allocation: Floating Rate / Traditional Bonds

7.9%

Each of the portfolio’s subsequent asset mixes increases its exposure to floating-rate loans. The graph shows that a rising allocation to floating-rate loans lowers portfolio risk and increases returns.

Increasing Allocation to Floating Rate

7.7%

7.5%

Higher Return

Expected Return

15% / 25%

10% / 30%

5% / 35%

0% / 40%

Lower Risk 7.3% 7.9%

7.0%

8.1%

8.2%

8.3%

8.4%

8.5%

Assumptions: Expected equity returns are based on historical data dating back to 1950. Data for bank loans goes back to 1992. Expected fixed income returns are based on current yields. Standard deviation is based on historical data for all asset classes.

Expected Standard Deviation

Increasing the portfolio’s exposure to floating-rate loans may also increase returns.

These results may be conservative if rates were to rise. In that case, floating-rate loan returns would likely be higher than traditional bonds, increasing the benefit to a portfolio.

Canadian investors are unprepared for the impact of rising interest rates A recent CIBC Asset Management poll reveals that 58% of Canadians with an investment portfolio for retirement are unaware that rising interest rates will cause some holdings to lose value. > 23% state that they don’t believe rising rates would have any impact, while 35% just don’t know > 54% of respondents stated they would make no changes to their retirement saving strategy in a rising interest rate environment > 65% of boomers (between 55-64 years of age) are unaware of the impact of rising rates and 62% of boomers would make no changes to their investment strategy should rates start rising

According to the example, adding floating-rate loans to the portfolio’s fixed income allocation could improve the risk-return profile and reduce portfolio volatility.

We can make it easy to have this conversation with clients Talk to your Renaissance representative about the tools available to help you position the floating-rate opportunity.

renaissanceinvestments.ca 1-888-888-FUND (3863)

Source: Leger survey conducted in December 2013.

Canadian equities represented by the S&P/TSX Composite Total Return Index. World equities represented by the MSCI World Index (CAD). Domestic fixed income represented by the DEX Universe All Government Bond Index with 10-year+ maturity until 1990, then WG Bigar All Government Bond Index. Floating-rate loans represented by the Credit Suisse Leveraged Loan Index (CAD). Commissions, trailing commissions and, management fees and expenses all may be associated with mutual fund investments. Pelase read the Reanissance Investments family of funds simplified prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Renaissance Investments 13

Give

& you shall receive A Guide to Charitable Giving and Tax Credits

14 Renaissance Investments

While charitable giving supports our society, it also makes a lot of sense from a financial planning perspective. And it could be just the opportunity you need to further establish yourself as your clients’ top all-around financial resource, including tax planning.

This article summarizes Jamie Golombek's charitable giving tax insights presented in previous reports.

First-time Donor’s Super Credit (FDSC)

If your clients are not giving to charity and, consequently, missing out on tax credits, they’re not alone. Charitable giving seems to be on the wane in Canada. According to the Fraser Institute’s annual Generosity Index released in December 2013, a lower percentage of tax filers donated to charity in Canada (22.9%) than in the United States (26.0%).

If your clients are among the almost 75% of Canadians that hasn’t given anything to charity, or hasn’t in some time, they can take advantage of the new First-Time Donor’s Super Credit (FDSC). A first-time donor is someone who hasn’t claimed a donation credit after 2007. If they’re married or living common law, neither they nor their spouse qualify if either of them has made a donation after 2007.

Since giving to charities is not top of mind with many Canadians, it’s a good time to talk to your clients about how charitable giving can advance their tax planning strategy.

The Basics Here are the basic donation credit rules that apply to everyone:

• Donations to a registered charity in Canada are eligible for the donation tax credit. For the first $200 of donations made by an individual in the year, the federal donation credit is 15%. • Each province also provides a provincial donation tax credit. For example, the Ontario provincial credit is an additional 5.05%, for a combined total credit of approximately 20%. In other words, Ontarians would be entitled to about $40 back from the first $200 of annual donations. • Once at least $200 of donations have been made in any year, the donation credit jumps to 29% federally, plus between 11% and 21% provincially, depending on the donor’s income tax bracket and high-income surtaxes in their province. • In general, donors can get a credit for all donations to registered charities, up to 75% of their net income. In the year of death (and going back one year), the limit is 100% of net income.

To encourage “new” donors, the 2013 federal budget introduced the temporary FDSC, which provides an additional 25% non-refundable tax credit for a first-time donor on up to $1,000 of donations. While first-time donor couples can share the FDSC in a particular year, the total amount claimed can’t exceed the maximum allowable credit. As a result, a first-time donor will be entitled to a 40% federal credit for donations of $200 or less and a 54% credit for donations over $200 up to $1,000. Only cash donations will qualify for the FDSC as opposed to donations of property or donations “in-kind.” The FDSC is available for donations made on or after March 21, 2013 and the credit can only be claimed once in either 2013, or any year until 2017.

“In-Kind” Donations Another option is donating appreciated publicly traded shares or mutual funds “in-kind” to charity. Not only will donors get a donation receipt for the fair market value of the securities being donated, they won’t have to pay any capital gains tax on the accrued capital gains. They can also donate any losers to charity and claim the capital loss to be used against either capital gains realized in 2013, or carried back and used against any gains they may have realized in 2010, 2011 or 2012. The capital loss may also be carried forward indefinitely to future years. Your clients need not feel bad about unloading those underperformers to charity, as most charitable organizations will simply dispose of the donated securities and realize the cash, which they will then use in their charitable activities.

Renaissance Investments 15

Donor-Advised Funds If your clients are high-net-worth, donor-advised funds, or DAFs, can be a good alternative to establishing private foundations.

While the donor gets an immediate tax benefit, the funds can grow inside the DAF tax-free, and each year the donor can “recommend” distributions to be made from their DAF to registered charities of their choice.

DAFs essentially piggyback on certain public foundations, such as community foundations or foundations established by some of the major financial institutions or investment management firms, by permitting donors to, in effect, create a “mini-foundation” as a subset of the larger, public foundation.

The funds inside the DAF are invested by professional money managers or the donor’s investment advisor, who are able to provide a superior investment return at a lower fee than if their assets had been donated to a private foundation and were then invested. These enhanced returns can provide increased donations from the DAF in future years.

They start by making a donation to their DAF – the minimum required donation is typically at least $10,000 or more. Whether they donate cash or property, they get an immediate tax receipt equal to the fair market value of their gift.

Perhaps the biggest advantage, however, is that donors don’t have to worry about any administrative details or record keeping. The foundation will process donation requests and transfer the funds to the charities of the donor’s choice, as well as track the DAF and provide regular updates on the funds’ performance (for a fee). Overall, charitable giving has more than solely philanthropic benefits. The various tax credits around donating are your opportunity to start a tax strategy conversation with your clients, no matter what their financial situation.

Jamie Golombek offers his top tax tips to help clients with charitable giving: Give Generously for Maximum Tax Benefits Once donations exceed $200 in any year, the federal donation credit jumps from 15% to 29% and the provincial donation tax credit rates also increase.

Take Advantage of First-time Donor’s Super Credit (FDSC) First-time donors may be eligible for an additional 25% federal FDSC on up to $1,000 of total cash donations.

Combine Spousal Donations Spouses or common-law partners can combine their donations to make it easier to exceed the $200 threshold, thereby increasing the tax credit that is available.

Claim Unused Donations in a Future Year A donor may forego claiming a tax credit for a donation made in the current year and combine the amount with donations for any of the five following tax years to exceed the $200 threshold.

16 Renaissance Investments

Donate Publicly-Traded Securities to Eliminate Capital Gains Tax There is no tax on capital gains from publiclylisted securities, mutual funds and segregated funds that are donated to charity. Donors with significant accrued gains and a looming tax bill should consider donating securities “in-kind” to reap the maximum tax benefits.

brain calisthenics Word scramble – Unscramble the following letters to spell words from the article on pages 8-11:

Sudoku – Complete the Sudoku puzzle so that each and every row, column and 3x3 box contains the numbers one through nine only once.

1. sspiaon

2. shlcotii

3. adtevaco

4. eomdtrnesu

5. srtgeire

6. gapnnnil

7. kabtrce

8. nisodoant

9. onipa 10. rieesdv

3 6

2 Source: 4puz.com

Spot the difference – Can you spot the five differences between the pictures below?

Check your answers at www.renaissanceinvestments.ca/magazine/answers/

Renaissance Investments 17

To learn more about how Renaissance Investments can help you and your clients,visit renaissanceinvestments.ca or call 1-888-888-FUND (3863).

FOR ADVISOR USE ONLY Renaissance Investments and the Axiom Portfolios are offered by CIBC Asset Management Inc. This material was prepared for investment professionals only and is not for public distribution. It is for informational purposes only and is not intended to convey investment, legal or tax advice. The material and/or its contents may not be reproduced or distributed without the express written consent of CIBC Asset Management Inc. 速 Axiom, Axiom Portfolios and Renaissance Investments are registered trademarks of CIBC Asset Management Inc.

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速Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. 02001E(201402)