Steven Smelt gave up a $135,000-a-yearcorporate job to live in paradise. And like otheradvisors working in small-town Canada, he says

business has never been better.

Trade secretsfrom Canada’s

most successfuladvisors

The birthof a mutual

fund SRO

Royalty trusts:Good for

your client?

BoomTownBoomTown

ADVISOR’SCANADA’S MAGAZINE FOR THE FINANCIAL PROFESSIONAL • AUGUST 1998 D G EE

Trade secretsfrom Canada’s

most successfuladvisors

The birthof a mutual

fund SRO

Royalty trusts:Good for

your client?

PLUS

Steven Smelt gave up a $135,000-a-yearcorporate job to live in paradise. And like otheradvisors working in small-town Canada, he says

business has never been better.

9 INSIDE EDGETime to add your two cents to thedebate over financial planning designations.

11 LETTERSWhat you thought of our first edition,and on the future of the FinancialPlanning Standards Council.

15 ONE ON ONETony Bufo and his client Dr. RowanFish face off in this month’s client-advisor profile.

KNOW YOUR CLIENT

18 Investor PlaygroundsIt may look like fun, but investors arelearning like never before.

19 Bullish AttitudesAn informed investor is a cautiousinvestor. Right?

CONTEN

TS

August 1998

24 BOOM TOWN, CANADABusiness is brisk for Steven Smelt ofRockwood, Ont. and other financialadvisors across the country.BY MICHAEL FITZ-JAMES

30 MIND THE GAPJoe Oliver explains the new self-regulatory organization for the mutualfund business — and how he thinks itwill close the regulatory gap in Canada.INTERVIEW BY KEVIN PRESS

Features

Departments

Volume 1, Number 3

AUGUST 19985

19 Solo SalesSingle Canadians are buyinghomes on their own.

21 MONEY TALKSWhat makes top financialadvisors tick? Kevin Pressasks four of IDA’s best.

PORTFOLIO

32 Trust Worthy Royalty trusts are a multibillion-dollar business— but will the well run dry?

34 Seeing TomorrowRegret is too often forgottenwhen it comes to measuringrisk and return.

35 Estate Planner with Sandra FosterSometimes it’s better torewrite your client’s will.

Futurist Richard Worzel, thismonth’s Cold Call, page 50.

36 Academic Eye with Dr.Moshe Arye MilevskyIs the guaranteepromised by segregatedfunds worth the cost?

38 Thoughts of ChairmanBuffettWarren Buffett speaks.Advisors and investorslisten.

39 Tax Break with Gena KatzAdvising clients toborrow for investing isfine, but tread softly.

40 Mutual Watch with ScottMackenzieKeep a close eye on yourclient’s asset mix. They’llthank you for it.

BUILD YOUR BUSINESS

42 Working it in theNetwork EconomyYour clients are over-whelmed with informa-tion. Can you help themweed it out?

43 Forget the Cold CallThere’s a fine linebetween prospecting andirritating.

44 In Your OpinionHow do you thank aclient for a referral?

45 The EntrepreneursA look at the uniqueneeds of female entrepreneurs.

46 Mentor with DavidThibaudeauGiving till it hurts — to your community andyourself.

INTEREST

48 Independent mutual funddistributors speak out,and a smorgasbord ofnew product offerings.

COLD CALL

50 Futurist Richard Worzel on the next 20years of your business.

ADVISOR’S EDGE6

CO

NTENTS

Published in Canada by Maclean Hunter Publishing Limited since June1998. Maclean Hunter Publishing Limited, 777 Bay St., Toronto, CanadaM5W 1A7, (416) 596-5000, fax (416) 596-5071. Offices: 1001 deMaisonneuve West, Montreal H3A 3E1, (514) 845-5141; Ste. 900, 1130West Pender St., Vancouver V6E 4A4, (604) 683-8254.Full subscription price: Canada $59 per year. Published 12 times a year.Subscription inquiries: Call 1-800-567-8420 or (905) 946-8420. G.S.T.#R103439444.ADVISOR’S EDGE is indexed by the Canadian Magazine Index byMicromedia Limited, and the Canadian Periodical Index. Canadian backcopies are available in microform from Micromedia Limited, 20 VictoriaStreet, Toronto, Ontario M5C 2N8. Indexed by the Canadian BusinessIndex and available on-line in the Canadian Business & Current AffairsDatabase. Canadian Publication Sales Agreement 1280341. ISSN 0703-7732copyright © 1998 Maclean Hunter Publishing Limited.

A Maclean HunterPublishing LimitedPublication

AUGUST 1998

Caroline Nolan Editor(416) 596-5971 cnolan@astral.magic.ca

Kevin Press Associate Editor(416) 596-3564 kpress@mhpublishing.com

David Heath Art Director(416) 596-5059 dheath@mhpublishing.com

Mistie Roberts Assistant Art Director(416) 596-5648

James Ireland Consulting Art Director

Contributing Editors: Harvey Schachter, JohnFlanders and Bert Vandermoer

■ ■ ■

Paul Williams Publisher(416) 596-5959 powmh@msn.com

Kori Kobzina Associate Publisher(416) 596-2662 kkobzina@mhpublishing.com

Stacey Mitsilios Executive Assistant(416) 596-5070 smitsilios@mhpublishing.com

Adrian Valks Production Manager(416) 596-5035 avalks@mhpublishing.com

Denise Brearley Director of Circulation and (416) 596-5743 Marketing Research

Kathryn Baus Promotions Manager(416) 596-5937

Editorial Advisory Board (Central)

Robert Fleischacker CAIFASandra Foster Equion Securities Canada Ltd.

James McGovern BPI Mutual FundsGlenn Lightfoot Royal Trust

Ian Niven Jones Heward Investment Management Inc.

Richard Suggitt Hirsch Asset Management Corp.

Scott Mackenzie Portfolio Analytics Ltd.Stephen Clarke Trimark Investment

Management Inc.Dan Thompson Institute of Canadian

Bankers

■ ■ ■

Maclean Hunter Publishing Limited

John H. Tory President and CEOTerry L. Malden Executive Vice President

Brian Segal Executive Vice PresidentJim O. Hall President, Medical PublishingJohn Milne Executive Publisher

Now it’s time to

hear from those of

you on the front

lines, helping clients

help themselves.

What standards are

acceptable for

financial planners,

in your opinion?

any of you may havenumerous designationsbeside your names,such as the CFP, SFC,

RFP, FCSI, etc. They are importantletters and whichever ones you chooseto have on your business cards, weknow you’re proud to carry thembeside your name.

That’s why we featured a story aboutthe Financial Planning StandardsCouncil in our premiere edition (June1998). In researching that feature arti-cle, entitled “Forest for the Trees,” asso-ciate editor Kevin Press worked dili-gently, interviewing scores of people tooffer readers a comprehensive look atthe development of the financial plan-ning business in Canada, and the roleplayed by professional designations inthat evolution.

Many of you have thanked us fortackling this most important issue insuch depth. But alas, it’s impossible toplease everyone — just witness the let-ters to the editor starting on page 11.

The debate over financial planningstandards and accreditation is far fromover, however.

In “Forest for the Trees,” weexplored this issue from an associationlevel — covering the FPSC, the ICB,the CSI and so on. But now it’s time tohear from those of you on the frontlines, helping clients help themselves.

What standards are acceptable for financialplanners, in your opinion?

How should this formidable challenge bedealt with?

Where would you like to see this industry beheading into the year 2000 and beyond?

This debate has everything to dowith you and your business. So, tell uswhat you think and we’ll publish yourcomments, along with those of yourpeers, in a special feature in an upcom-ing edition of the magazine.

But first, a few ground rules. In theinterest of getting as many of yourvoices in the magazine as possible,letters should be no more than 500words.

You can snail-mail them to myattention at:

Advisor’s Edge, Maclean Hunter Build-ing, 5th Fl., 777 Bay Street, Toronto,Ontario M5W 1A7.

Or, if you prefer, use e-mail:advisorsedge@mhpublishing.com.

Finally, there’s always the faxmachine: (416) 596-5071.

Please include your name, companyname and title, address and daytimetelephone number. Also, if appropri-ate, include your designations.

We would also welcome commentsfrom those of you working in theindustry, but not directly with clients.

We look forward to sharing yourthoughts on this important issue withother readers in the near future.

INSIDEEDGELetters, and more letters

C A R O L I N E N O L A NE D I T O R

“

”AUGUST 1998

9

M

Photography by Joseph M

arranca

Tell us what you think the future of Canada’s financial planning business should look like.

FIRST IMPRESSIONS

Wow!! Let me say it again . . . Wow!!Your premier edition of Advisor’s Edgewas absolutely fantastic!Thane Stenner, White Rock, B.C.Midland Walwyn

A great initial issue! Keep up the good work.Jim Rogers, VancouverThe Rogers Group Financial Advisors Ltd.

I want to say that I totally loved yourpremier issue! The quantity and qualityof your magazine is excellent. I foundit very informative.Jason Box, Esterhazy, Sask.Royal Bank of Canada

“FOREST FOR THE TREES”June 1998In the article “Forest for the Trees,” byKevin Press, the writer points out thatthe Canadian Securities Institute (theeducational arm of the InvestmentDealers Association) and the Instituteof Canadian Bankers (the educationalarm of the Canadian Bankers Associa-tion) could not endorse the FinancialPlanners Standards Council’s (FPSC)statement of purpose. I think it wouldbe helpful to be aware of the content ofthis statement.

The FPSC wishes to be endorsed byregulators as the self-governing body toset and monitor adherence to a single,national set of financial planningstandards.

FPSC’s commitment to our CFPlicensees is achieved through the com-bined efforts of over 100 volunteerswho last year contributed in excess of4,000 hours of their time to accom-

plish our goals. These volunteer effortsare supported by six full-time and fourpart-time staff members (but alas, stillonly one fax machine).

The withdrawal of the ICB and theCSI temporarily weakens the FPSC’sability to formulate standards thatreflect the input and deliberations fromall segments of the financial planningcommunity. However, it had been clearfor some time prior to these with-drawals that neither organization wasprepared to adopt the FPSC’s rigorousstandards. What is more problematic,however, is the stated intention of theIDA, in conjunction with the four stockexchanges, to set proficiency standardsfor financial planners employed by orga-nizations regulated by the IDA. Further,the Canadian Bankers Association hasset up a task force to determine if it(presumably through the ICB) shouldset standards for employees working inthe banking community.

The FPSC strongly believes thatmoving to an environment where indi-vidual segments of the financial plan-ning industry set their own competencyand ethical standards for their employ-

ees will only further confuse consumersconcerning the quality of the financialplanning advice they are receiving. Sucha move by one or more individual seg-ments undercuts the comprehensivenature of the financial planning process— which crosses many product, regu-latory and professional boundaries.

Let me conclude by briefly com-menting on the insightful mantraadopted by the ICB, “one size does notfit all.”This may be appropriate adviceto a shoe salesman, but it is meaning-less in helping the Canadian consumerreadily identify a financial planner inwhom they can place their trust. Wedon’t leave the public to their owndevices to identify qualified medicaldoctors, why suggest this approachwhen they seek the assistance of quali-fied financial planners?Donald J. Johnston, TorontoFinancial Planners Standards Council

You report that “given that these twodesignations [the Specialist in FinancialCounselling and the Personal FinancialPlanner] predated CFP, it is not sur-prising that the council’s directionwould present a problem to ICB.”Whatever the basis for ICB’s differenceof opinion with the council, it cannotbe based on the above presumption,since it is incorrect. The CFP mark pre-dates both the SFC and PFP in Canadaby a considerable period of time.

The trademark CFP was registeredin Canada in 1983 and has been usedin connection with the offering of edu-cational services there since 1973.Moreover, the mark has been used inCanada to identify financial planningprofessionals since at least 1987. ThePFP and SFC marks, on the other hand,

AUGUST 199811

LETTERS

are currently in the process of beingregistered in Canada, and your articleconcedes that courses leading to thedesignations were still in developmentin the early 1990s.Noel Maye, Denver, Col.Certified Financial Planner Board of Standards

I wish first to correct a statementattributed to me about Don Johnston,the president of the FPSC, with refer-ence to the resignation of ICB and CSIand second to express my dissatisfac-tion with the out of context reportingof some of my comments that I madeto Kevin Press.

I had had numerous meetings anddiscussions with Mr. Press, where wediscussed primarily the issue of finan-cial planning education and Laurier’sfinancial planning program. Unavoid-ably, the issue of the future of theFPSC and of the CFP designation wasbriefly addressed. The discussions onthe latter took place well before the res-ignation of ICB and CSI from thecouncil. The quote in the articleappears to mix the discussion frombefore and after the resignation, givingthe impression that they were made atthe same time. This is not correct.Moreover, as the quotes appear withinthe discussion and section on the res-

ignations, they give the reader theimpression that the resignations werethe fault of Mr. Johnston, implying heis a weak leader. I never said this ormeant to say this. My discussion priorto the resignations, addressed my fearthat Mr. Johnston’s position about rais-ing the standards was getting softer asa result of the pressure he was receivingfrom various quarters. Of course, asthings turned out, they proved that Mr.Johnston’s commitment to high stan-dards of education for financial plan-ners remained uncompromised. At alater time, in responding to a questionover the telephone about the effect ofthe withdrawal of ICB and CSI fromthe FPSC, I indicated that the FPSCwould be in a weakened position. I wasnot referring to Mr. Johnston.

Second, with regards to my state-ment about the quality of the materialused in the various correspondencecourses, I believe that a similar com-ment was made by me, but it wasreported out of context. Moreover, Ihad specifically asked Mr. Press, admit-tedly after our discussion, that heshould not write anything that could beperceived to be against other programs.In my discussion with Mr. Press, I wastrying to compare the standards of thecurrent financial planning education

with other professions, such as themedical profession. My question was:would anyone go for advice to a doctorwho has learned his practice by readingone or more binders on the topic? Whyshould advice about one’s financial well-being be treated any different? Com-pared with other professions’ educa-tional requirements, what financialplanners are required to study prior topractising is lacking rigour. It is in thiscontext that I made my comments. Stu-dents in both professions need a lot ofinstruction and direction in their stud-ies that a correspondence course, formost people, would not be able to give.I was offering the widely held opinionin academic circles, as an academic whodemands rigour and depth in educa-tional programs. After all the time wetalked, after all the discussions we hadabout the comprehensive/complexnature of financial planning, after dis-cussing the position of academics onthe current depth in financial planningeducation and after the presentation Igave at the opening of the first class ofthe Diploma in Financial Planning inwhich Mr. Press was present, whywould you choose to print only theseout of context comments?George Athanassakos, Waterloo, Ont.Wilfrid Laurier University

ADVISOR’S EDGE12

LETTERS

Dr. Athanassakos’ letter raises two

key issues, both bear discussion.

He correctly points out that the

formal interview I conducted with

him occurred before the official res-

ignations of the Canadian Securities

Institute (CSI) and Institute of Cana-

dian Bankers (ICB). That is entirely

true. Most of the interviewing done

for the piece took place before the

resignation announcements. The

Financial Planners Standards Coun-

cil had faced a prolonged period of

difficulty in the weeks and months

leading up to the resignations. CSI’s

and ICB’s official announcements in

mid-April were a result of the very

circumstances Dr. Athanassakos and

others were commenting on.

Regarding the issue of “out of con-

text”reporting. During our interview

I explained to Dr. Athanassakos the

focus of the story I was preparing. No

statements were printed from the

telephone call he refers to. All of his

comments were made on the record,

in a boardroom, in front of a tape

machine that was clearly recording.

Kevin Press

Advisor’s Edge

Our Writer Responds:

ONEONONE

AUGUST 199815

Interview by Sonya Felix

Pho

togr

aphy

by

Spy

ros

Bou

rbou

lis

Tony Bufo (left), has held a number of posi-

tions in the dozen years he’s been with the

Royal Bank of Canada.Today, however, he’s

a manager of personal banking for the Royal

Bank in Dollard des Ormeaux, near Montreal,

Quebec. In June 1997, he graduated from The

Institute of Canadian Bankers’ Personal

Financial Counselling Program, earning his

Dr. Rowan Fish turns to his advisor,

Tony Bufo, for advice about money.

But a shared passion for hockey

has made this duo a definite team

of friends.

”ADVISOR’S EDGE

16

“I like Tony’s

calm demeanour.

There’s never

a problem. If

something comes

up, it’s always

resolvable.

Specialist in Financial Counselling(SFC) designation with honours.

Bufo met Dr. Rowan Fish (previouspage, right) in 1994, when he startedstudying for his SFC. He helped Dr.Fish, a forty-something dermatologistin Montreal, develop a financial planthat he hopes will provide a securefuture for his family.

TONY I met Rowan just as I startedstudying to become a financial advisor.He was a customer at the bank and hisfile landed on my desk.

Rowan would come in and ask a lotof questions. As time went on we gotcloser and closer. I got to know that,like me, he has two children and weboth like hockey.

We don’t see each other socially butwe have hockey in common and itseems likely that one day we’ll be on theice together. We’re both defencemenand maybe one day we’ll be on defencetogether.

Rowan comes into the bank aboutfour to eight times a year and we also talkon the phone. He’s a very busy guy —I’m the only person who gets throughwhen I call his office. If he needs some-thing, he calls or faxes or he’ll come intothe office to discuss his account.

I think of Rowan as a friend. Whenyou start to give advice you becomesomeone they can trust. They start toopen up and give you their deepestsecrets. All of a sudden, as time goeson, you go beyond satisfying theirfinancial needs and understand wherethey’re coming from, what’s their back-ground with family, what they like todo — it all ties in.

Rowan’s a growth-oriented investor.He’s in his mid-40s and still has a longtime to retirement. I’ve helped Rowandevelop a long-term plan. First we planto reduce his debt (he has a mortgage)and then build assets to ensure he hasa comfortable retirement.

One thing I’ve found is that it’simportant to be patient and listen towhat clients are telling you. I also thinkhonesty is important. If I don’t knowI’ll say, ‘I don’t know,’ and then try tofind the answer.

You have to show you care and youwant to help people. That translatesinto looking after a person’s best inter-ests. For a lot of customers, caringmeans looking after the whole family.

We’ve been flexible as a bank andRowan’s flexible as a client. It worksboth ways. In the past, managers werelooking at credit and it was so strict you

couldn’t go a penny over. Now we knowwho the client is and what their lifestyleis and know where they’ll be in thefuture. If you give a little today, you’llget from your customer tomorrow.

ROWAN I’m a dermatologist, originallyfrom Montreal, and my wife is a socialworker but is sort of retired now. She’sactive with the kids and painting andworks in my office a bit. Our daughtersare aged 17 and 13.

Being a doctor in Quebec is a prob-lem because we’re always getting ourincome cut. I want to retire early andenjoy my family and hobbies. I thinkit will still be possible. If I can’t workor want to stop working before I’m 65,I want to be comfortable.

I’ve been a customer of Tony’s sincehe took over as manager of the RoyalBank branch, right near my office.Tony was studying and we used to talk.He had some good points to makeabout investments. I latched on andhave been there ever since.

Interestingly enough, I’ve been a cus-tomer of the Royal Bank since 1978 buthad zero invested there before I met Tony.My wife and I both have invested quitea nice amount there over the last twoyears. Our assets are now over six figures.

ONEONONE

AUGUST 199817

I’m very conservative (I like bluechips) in my investing. But I have donea few things with Tony where we’lldivide up an investment and put a per-centage in safe stuff and play a little bit.That way I get a bit of excitement butnever really do anything that’s going tobe potentially detrimental to my future.

I have a bunch of different things inmy portfolio, a lot of mutual fundsbecause over the last few years GICinterest rates have been down. So far, thestuff Tony’s directed me into has doneextremely well. And if an investmentisn’t doing well, we will change it ormake an adjustment. Tony’s alwayswatching the markets.

But I don’t, however, do all my invest-ing in one place. We took out a Cana-dian Scholarship Trust to pay for ourdaughters’ education. Before I met Tonywe put a lot of money in MD Manage-ment, which manages finances for doc-tors and sets up things like family trusts.

I like Tony’s calm demeanour. There’snever a problem. If something comes up,it’s always resolvable. Some people getexcited or panicky when somethingcomes up.

When Tony was transferred toanother branch this past fall I trans-ferred my account there so I could keephim as my advisor. It’s quite far to go —I have to drive a good 25 minutes on thehighway to get there.

We have a lot of common interests —we’re both sports fans and we both havekids. We have the same family travailsand events and we talk. So when I go tosee Tony for a two-minute business meet-ing we end up spending 25 to 30 min-utes talking about sports and family life.

We both play hockey. Did he tell youI’m a fanatic? [Laughter.] I play on threeteams and one day Tony and I could endup on the same team.

Our relationship is similar to thedoctor/patient relationship. If you hit

it off with your doctor and have con-fidence in him or her, you’ll go back formore good advice.

Tony knows his clients. EveryoneI’ve talked to who’ve been customers ofthe previous bank all say really goodthings about him. I’ve had bank man-agers who are nice people but they’re

strictly business. Today banking is verycold. They want you to use moremachines and have less personal con-tact. But with Tony I can always callwith a problem or a question and he’salways there to help.

Sonya Felix is a freelance writer based in Toronto.

ADVISOR’S EDGE18

KNOW YOUR

eens and adults clusteraround revolving stacks ofpie-size loonies as they riseto fill a series of clear plas-

tic tubes, to a fanfare of music andsqueals of delight. Two mascots inmatching bear and bull costumes workthe crowd with pantomimed antics.

A day at the zoo? No, it’s theToronto Stock Exchange, out to provethat if all the world’s a stage, then play-ing the market is one of the greatestshows on earth.

And if you don’t think Bay Streethas boffo entertainment value, thinkagain. How about a game of stock mar-ket guru or big-shot CEO? Step rightup and get your tickets.

“Stock markets have a mesmerizingeffect on even the most sophisticated

investor,” says TSE president RowlandFleming, surveying the electronic finan-cial boards, huge TV screens and blar-ing computer games surrounding him.

In creating their new multimillion-dollar Stock Market Place, the TSEbuilt an “investor playground” theyhope will not only rival other attrac-tions, but reach both Canadian youthand adults turned off by the bone-dryjargon of the financial world.

Net surfers have already discoveredthe thrills and spills of following thegreatest bull market in history, and

financial data marketers are trying tomeet the growing demand.

Globe Information Services(www.globefund.com) offers a track-ing system that allows Internet users toget a daily fix on the dollar value andpercentage change in their mutual fundportfolios.

“One guy who has been testing thesystem has two portfolios marked starsand dogs and he puts a fake $1,000 ineach and tracks the returns,” says DavidKeith, Globe’s vice president of finan-cial data products. “When you talk

InvestorplaygroundsForget about roller coasters,the future of entertainmentlooks an awful lot like themarkets.By Peter Boisseau

T

CLIENTTrends, statistics and demographics

Stock Market Place,TSE,Toronto.

Percentage of 850 Canadians polled by Angus Reid (sponsored by BPI/Transamerica) who’ve

heard about segregated funds, but don’t know what they are:

AUGUST 199819

about entertainment, that’s what it is.”Polls show people want greater control

over their finances, just as they are mov-ing into areas of “self-exploration andadventure,” says Peter Hodgson, vice pres-ident of financial services research forEnvironics in Toronto. “And that wouldseem to go along with the desire to beentertained, more than just getting thehard-money facts about investing.” Butunderlying the fun and games is theimportant issue that people are beingbombarded with information from banksand brokers they neither understand norcompletely trust, says Dominic Jones,director of the Investor Learning Centreat the Canadian Securities Institute.

CSI has embarked on an ambitiousplan to expand their Toronto-basedInvestor Learning Centres to Calgary,Vancouver and Montreal, boost thenumber of seminars they offer andpublish 15 books over the next fewyears, all to meet the demand for plain-language education about the markets.“There’s no shortage of information.What people need is someone to makesense of it all. That’s where advisors canalso play a role,” he says.

BC

95

AB

90

SK/MB

86

ON

94

PQ

92

ATL

98

oo little knowledge maybe a dangerous thing, butaccording to a studysponsored by the Johnson

Graduate School of Management atCornell University in Ithaca, N.Y.,investors armed with very little infor-mation about an investment prospectare equally confident and aggressiveas those who know a great deal abouta company.

Professors Robert Bloomfield,Robert Libby and Mark Nelson splita group of 60 business students intotwo. Researchers then gave participantsselected financial information about 14profitable companies.

The confidence level of the less-informed investors was almost iden-tical to the better-informed ones.Only when told the informationthey’d been given was “insignificant”did their confidence levels drop.

When asked to “trade” inthe stocks, the uninformedinvestors tended to “buy high andsell low” — the opposite of what’susually required to make money in themarket, explains Prof. Bloomfield. “Ifyou don’t have much information, youtend to be way overconfident.”

In fact, says Prof. Bloomfield, themore information an investor has, themore “calibrated” the decision mak-ing becomes — that is, the moreaccurate and in line with reality.

Any lessons for financial advisors?Keep client overconfidence in check.“Imagine a client is in your office say-ing, ‘I’ve heard great things aboutABC Company.’ The advisor shouldimmediately remind the client that it’snot a sure thing, especially if the deci-sion to buy is based on a small bit ofinformation,” he says. — Michael Fitz-James

Bullish attitudesIgnorant investors just as confidentas well-informed ones, study shows.

T

he “For Sale” sign twodoors up from AlisonWhite’s apartment was toointeresting to resist and, on

a whim, she attended the open house.(Alison White asked that her real namenot be used for this article.)

The successful sales manager had beenrenting a $980/month one-bedroomapartment in Toronto for more than twoyears. “I didn’t ever think of buying a

house because I didn’t need one,” says the32-year-old White.

But the real estate agent saw a sparkof interest and White found herselfconsidering whether or not she couldafford to buy a house on her own.

She’s now the proud owner of a$280,000 house in a fashionable area ofToronto. A girlfriend moved in and paysnearly $600 per month, leaving her por-tion of the monthly mortgage payments

to about what she was paying for herformer one-bedroom apartment.

According to Statistics Canada,White’s decision to buy a house on herown is increasingly common. Recentlyreleased 1996 census data show that thenumber of home-owners who live alonejumped to one million people in 1996,up 26% from 1991. This compared toa 5% increase in renters. — Caroline Nolan

Solo salesGreater numbers of Canadians are buying houses — and doing it on their own.

T

AUGUST 199821

ruce Templeton can’t join usfor our conference call.Which is a shame, really; aswinner of the Investment

Dealers Association’s (IDA) 1998Award of Distinction, he was to be ourstar guest. But the call is scheduled forFriday, and he’s promised his son a fish-ing trip. The top entrant in this year’sIDA nod to “investment advisors whoexemplify the highest standards of ded-ication and professionalism” makes timefor a Thursday afternoon chat instead.

At home in St. John’s, the associateportfolio manager and vice president at

RBC Dominion Securities is known forhis dedication. In addition to his dutiesas fishing buddy, Templeton is a PaulHarris Fellow of the St. John’s RotaryClub, president of Scouts Canada forthe province of Newfoundland andLabrador and chairman of the BowringPark Foundation. Plus, every December,he dons the best Santa Claus suit moneycan buy.

“I don’t understand the word no,” hesays. “If you want to motivate me, tellme ‘no’ or ‘it’s never been done.’ ”

Advisor’s Edge invited three of Temple-ton’s fellow district winners from IDA’sDistinction Program to discuss what itmeans to be an outstanding advisor:

Leigh Cunningham, at RBC Domin-ion in Winnipeg; Cheryl Dougan, ofScotiaMcLeod Inc. in Saskatoon; andDenise Péloquin, with ScotiaMcLeod inMontreal.

Distinct Society“I take a very consultative approach,which is exactly what is required,” saysLeigh Cunningham. “I don’t thinkthere’s anything magical about it. WhatI hear is appreciation for the empathyand sincerity with which we handle ourbusiness with people.”

“Leigh’s hit the nail right on thehead,” agrees Dougan. “It’s the ability toput ourselves in our clients’ shoes andtalk to them about their families. One ofthe reasons I agreed to participate in thisprogram is that I wanted to have theplatform to remind advisors to thinkabout their clients, and their clients’ fam-ilies, when they make recommendations.”

$6 Million ManThe greatest day of Denise Péloquin’scareer: “There was a prospect that I hadbeen calling since my first day in theoffice back in 1987. I knew he had a lot

The highest standardsB y K e v i n P r e s s

The Investment Dealers Association’sannual Distinction Program has been

applauding the country’s best investmentadvisors since 1991. We asked four of thefinalists — including this year’s winnerBruce Templeton — to talk about achiev-ing excellence in the advisory business, andto share one or two of their trade secrets.

ON THE LINE:

Leigh CunninghamRBC Dominion Securities Inc.

Winnipeg, Manitoba

Cheryl DouganScotiaMcLeod Inc.

Saskatoon, Saskatchewan

Denise PéloquinScotiaMcLeod Inc.Montreal, Quebec

Bruce TempletonRBC Dominion Securities Inc.

St. John’s, Newfoundland

“I don’t understand the word

no. If you want to

motivate me, tell me ‘no’ or ‘it’s

never been done.’ ”

Bruce Templeton, St. John’s, Nfld.

“There was a prospect that I

had been calling since my first day

in the office back in 1987. I

knew he had a lot of money, so I

called him every two months for

five years. After five years he

finally opened an account, and it

was $6 million.”

Denise Péloquin, Montreal, Que.

Four IDA Distinction Program finalists on what makes an advisor excellent.

Photography by Joseph M

arranca

B

MONEYTALKS

AUGUST 199823

of money, so I called him every twomonths for five years. After five yearshe finally opened an account, and it was$6 million . . . He told me he did thesame thing with his insurance agent.”

“I prospected a group of nuns thathad about $200,000, but that was justthe tip of the iceberg because it endedup being $8 million,” says Cunning-ham. “I had gone and visited with themon four separate occasions, at the riskof angering them. But they were sisters,so I figured they’d be forgiving [laughs].Anyhow, by the time I’d submitted aproposal to them, they had basicallywritten it with me. I knew exactly whatthey were looking for.”

Speaking of Icebergs“I always talk to my staff about icebergson the prairies,” says Dougan. “Ourlargest client has been with me now for10 years. He came through a mail drop.It was a very small account, but hewould phone me on a fairly regularbasis and say ‘Cheryl, can you drop bythe house on the way home and bringyour briefcase with a receipt?’ By thetime the full portfolio came in, we weretalking about a couple of million dol-lars. That’s very common on theprairies. People don’t give you all oftheir money at once. They give you alittle bit, and see how you do with it.”

Did You Say Hefner?“Don’t judge a book by its cover,” saysCunningham. “Never assume you canlook at somebody and know they don’thave any money. I had a client when Iwas living in Vancouver that came tosee me. Her last name was Hefner —I don’t know if she was related toHugh or not — and she would brownbag her lunch and wore threadbareclothes. To look at her you’d assumeshe had no money. And she had $5million in the bank.”

Contact Management“It’s a process,” explains Dougan. “I liketo meet with them and find out how itis that we can help. I find out a little bitabout them, and I tell them a little bitabout our firm and what we do. Then

I tell them to go away and think aboutwhether I can meet their needs. I leaveit entirely up to them to contact me. Ihave a philosophy of not opening anaccount on the first meeting.”

Then what? Péloquin explains howshe juggles 500 client families: “I keepcontact with them every month or everyquarter, depending on the kind ofportfolio they have. I also make surethat we meet once a year to review theirwhole situation, or even just to talkabout what we have been doing. Everyquarter we organize one night for our

clients on a specific topic — like insur-ance or the stock market. Clients feelvery important when they’re invited toour information sessions.”

Dim the LightsLeigh Cunningham on saying thanks:“A whole lot of my business comesfrom the Royal Bank. Every time Iexplain to somebody inside Royal whatI do, they end up referring a client to

me. So to say thank you, I sent amasseur. Anybody who had referredbusiness to me got a 15-minute mas-sage. This guy had a table, the wholenine yards. I was a little concernedabout how they would react, but theywere saying ‘Can I take all my clothesoff ?’ They set him up in the lunch-room, dimmed the lights and put musicon. It was a resounding success.”

Holding the LadderBruce Templeton spoke at great lengthabout his assistant Pauline Halliday,and how he feels team members shouldbe recognized by award programs likethe one presented by IDA. “Across thecountry you can see these teams devel-oping,” he says. “And they’re develop-ing quite quickly.” All agreed.

Cheryl Dougan puts it this way:“When you’re climbing the ladder ofsuccess, don’t forget who’s holding theladder. I wouldn’t be where I am with-out my team . . . In the future I thinkwe’re looking at smaller margins, there-fore more assets under administration.To keep up the levels of service that ourclients have come to expect, we’re goingto need good teams to fulfill thoseexpectations.”

Ditto Leigh Cunningham: “I thinkthe focus now is on asset-gathering,whereas in days gone by it was trans-action-oriented. We got to the distinc-tion level because we’ve built a certainmomentum in our business. It’s unrea-sonable to think that I could do thiswithout some very qualified help.”

For the record, Cunningham’s assis-tants are Mirjana Zikman and PattiHerzog, Dougan’s is Terri Feltham andPéloquin’s is François Carrier.

Kevin Press is associate editor of Advisor’sEdge. If you have a topic you’d like discussedby a Money Talks panel, or you’d like to par-ticipate, e-mail: advisorsedge@mhpublishing.com.

“When you’re climbing the

ladder of success, don’t forget

who’s holding the ladder.”

Cheryl Dougan, Saskatoon, Sask.

“We got to the distinction

level because we’ve built a certain

momentum in our business.

It’s unreasonable to think that I

could do this without some

very qualified help.”

Leigh Cunningham,Winnipeg, Man.

MONEYTALKS

STEVENSMELT

Rockwood, Ont.

(population 5,700)

“I’m notinterested

in being the topproducer

in the world.”

AUGUST 199825

BOOM

The pace may be slower, but business is booming for financial

advisors working in rural Canada. By Michael Fitz-James

IT WAS THE LATE ’80S AND STEVEN SMELT HAD IT ALL.Lloyds Bank PLC in London, U.K., had just sent Smeltto Toronto as part of his work as an IME or “interna-tional mobile executive” in risk management — a job thatcarried a $135,000-a-year price tag. Not bad for a guywho had yet to turn 40. But something was gnawing atSmelt on the inside: a lifelong desire to run his own show.At Lloyds, he was — as his IME title suggested — def-

CANADATOWN

Photography by R

ob Waym

en

initely mobile. “I always had three dif-ferent airline tickets in my pocket,” herecalls, “but I was never master of myown destiny.”

These days Smelt, 48, climbs out ofbed, his dog Windsor at his heels, andheads to the stables to care for the threehorses on his 10-acre horse farm inRockwood, Ont. (pop. 5,700, if youtoss in the surrounding township). “It’sa very grounding exercise — very relax-ing,” says the financial advisor. Andafter caring for his animals he com-mutes, by foot, a few paces back to hishouse to get things moving in hisoffice, from which he runs a sub-branch of Regal Capital Planners Ltd.

On any given weekday, a visitormight see him gaze at his horses in thepaddock from his home office.

That is, of course, if you catch himat his home office, as his rural businessis booming. After just four years in thegame, Smelt is one of Regal’s highestproducers. He currently has about 350clients and fully intends to garner $50million worth of assets under manage-ment by the time he turns 51, in threeyears. He won’t disclose current assetsunder management, but rest assured,he’s well on his way to meeting his goal.

“It’s been a very successful business,but I started with nothing. I left a$135,000 job to end up with no clientsand no income,” he says proudly, thenadds with a chuckle, “now that focussesthe mind.”

His growth rate is not exponential,

admits Smelt, but it suits him just fine.“I’m not interested in being the topproducer in the world,” he says.

And Smelt isn’t alone. Not everybody wants to be a Big

Dog on Bay Street. Sure the pace of lifein rural Canada can be slower, but busi-ness doesn’t have to be. And that’s goodnews, because while it’s all very well todispense taxation tips and wealth-management wisdom from the officetowers of the country’s larger centres,there’s a huge demand for financialadvice in rural areas across Canada.And chances are it’s only going to getbetter, as scores of aging baby boomersabandon city life for the peace and less-expensive lifestyle small Canadiantowns can offer.

Opportunity KnocksCanada’s boom towns are offering lotsof opportunities for younger peoplejust starting out in the business —financial planners like 28-year-old KentPickett. After a year of working on the“kill floor” of an Alberta meat pack-ing plant in Alberta, he moved to thenearby oil patch where the pay was bet-ter. After working long hours in the oilfields, Pickett would pass on invites forbeers with his colleagues and friends togo home and study for his CanadianSecurities Course via correspondence. After spending some time working asa financial advisor in Lethbridge, Alta.,he opened up a sub-branch of BalancedPlanning Investments Corporation inBrooks, Alta (population 10,000),about a year ago. Although the com-pany, which specializes in retirementproducts plus insurance, is based inOntario, Pickett works for the Albertaoffice in Calgary (about a two-hour

drive from Brooks). He chose Brooksbecause there weren’t any other inde-pendent advisors working there and hehad some good contacts from thenearby oil exploration business.

He kicked things off by throwingan outdoor Canada Day pancakebreakfast for the community about amonth after opening his doors. Bor-rowing space in the car dealership lotacross the street, he wrangled some freecommunity notices in the local paperand served up breakfast. Total cost?$500 and definitely more bang for hismarketing buck than print advertisingalone, he adds.

To further raise his communityprofile, he also arranged to write aweekly financial advice column in thelocal paper and frequently advertisesthere. Community involvement, hestresses, is critical for advisors workingin small towns. “I could get away withcold-calling potential clients in a cityof 60,000, but that would never workhere,” he explains. “Word would getaround too fast.”

But good word-of-mouth recom-mendations are a small-town advisor’sbest friend. After a slow first sixmonths, business is definitely growing.Pickett’s already managing a $250,000book of business for about 30 clients.

Working on your own, especially ina small town, has its drawbacks,though. “I don’t really have anyone tobounce ideas off of on a daily basis,”explains Pickett, who’s used to workingwith others. “In some ways, I miss thatbecause there is a synergy that developswhen there is more than one person.”

To combat the isolation, Pickett’smanaged to form strategic allianceswith other local professionals —

ADVISOR’S EDGE26

“Every day I get up and feed the horses.

It’s a very grounding exercise.”

Pho

togr

aphy

by

Rob

Way

men

mainly lawyers and accountants. Theymeet regularly at a “breakfast club” todiscuss industry concerns and changesto tax laws and regulations.

World Wide SupportAnd come Friday mornings, you’ll findhim having a virtual chat with threeother advisors somewhere on the Inter-net — usually in a chat room on oneof the participating financial advisors’Internet home page. For the past year,he’s been joining the live-chat with anadvisor he knows from Lethbridge, aplanner from Calgary, and anotherfrom Ontario. The one stipulation to

joining the group, he says, was that thenewcomer couldn’t be from the sametown or city, so as not to lose his or hercompetitive edge.

“We talk about different mutualfunds, how the markets are performing,what we’re recommending to clients,diversification and marketing ideas,”says Pickett. “It’s very informative. I geta lot out of it.”

The arrival of the Internet, hebelieves, almost levels the playing field,putting even the most remote financialadvisors on the same footing as theirurban counterparts. He’s also set up ahome page (www.eidnet.org/local/pfi-

nance), but doubts whether it’ll be abig hit in Brooks. Still, he hopes hishome page will lure business fromother parts of Alberta and neighbour-ing Saskatchewan.

Back in Brooks, however, Pickett’sconfident his business will grow — overtime. “I think it’s harder to get yourbusiness growing in a small town butonce it’s going, you’re the person in townthat everybody goes to see,” he says.

As in big cities, trust is a crucialissue between rural financial advisorsand potential clients. Just ask GordonHare.

Since 1978, Hare has been holding

AUGUST 199827

K E N TPICKETT

Brooks, Alberta(population 10,000)

“I could getaway with

cold-calling poten-tial clients in a cityof 60,000. But that

would neverwork here. Wordwould get around

too fast.”

Photography by B

rian Harder

down the fort for the Investors Groupin Kentville, N.S. (pop. 3,500). Hisoffice is located in the picturesqueAnnapolis Valley, about an hour’s drivefrom Dartmouth, N.S., where his com-pany’s regional head office is located.He’s worked in larger cities like Hali-fax, N.S., and had the opportunity tostay there, but the call of the rollinghills in the valleys of Nova Scotia —similar to his Cape Breton childhoodhome — were too strong.

To drum up business, he writesnewsletters and takes out local printand radio ads. But, he stresses, to seeactual business results from marketingefforts takes time in a slow-paced semi-rural environment. And once that first

meeting with a potential client hap-pens, the rural advisor shouldn’t movetoo quickly.

“Rural people are more down-to-earth. They take their time,” says Hare.“You have to adjust your own attitudeand personality to these folks. You can’tput on airs because they’ll read rightthrough you and then they won’t talkto you.”

The locals certainly seem to be talk-ing to Hare. He won’t provide dollarfigures, but after 20-odd years, he sayshe has 500 accounts, helping about250 families in the region.

The Maritimer says he doesn’t envythose who “come from away” to workin a rural area such as the Annapolis

Valley — but that doesn’t seem to bestopping newcomers from trying.“There’s a steady stream of newercompanies moving into the valley,” hesays, adding that he’s not worriedabout his business. “Competition isgood.” The more financial advisors inthe area, the more choice for the con-sumer, he reasons. A spin-off of moreadvisors in the game is that they’ll haveto do more advertising, heighteningawareness of the benefits of financialplanning, not to mention productsavailable.

“They may be advertising some-thing that’s on my shelf, but never men-tioned to a client,” says Hare. “Then aclient will come and ask me for it.”

ADVISOR’S EDGE28

GORDONH A R E

Kentville, Nova Scotia

(population 3,500)

“You have toadjust your own

attitude andpersonality to thesefolks. You can’t put

on airs becausethey’ll read right through you andthen won’t talk

to you.”

Pho

togr

aphy

by

Ted

Col

dwel

l

Million-Dollar JeansAt the other end of the country, ByronEnglish is musing about the simplicityof rural life in Cranbrook, B.C. Afinancial advisor with Midland Wal-wyn, he lives and works in the town of18,000 located in the rugged southeastcorner of the province. “We live inparadise out here,” says 53-year-oldEnglish. “As I look out my window, Isee all these nice green trees and thesnow-capped Rocky Mountains. It’sjust beautiful.”

Very often, clients will walk by Eng-lish’s office and drop in for a coffee anda chat if they see he’s in. “They canpark right in front of my office,” hesays proudly. “In Vancouver, you’dnever find a parking spot in front ofyour building.”

While English says he’s never beena financial advisor in a big city, he sus-pects small-town advisors such as him-self have a lot more personal contactwith clients than their counterparts inVancouver or another large city. “It’s amore homey kind of environmenthere,” he says.

Living near the mountains may beeasy on the eyes, but there’s no roomfor pretension when it comes to deal-ing with the local residents. “I don’tneed an Armani suit to do business,”says the financial advisor. “Sure, wewear suits and ties, but it’s not the bigdress-up show. But people aren’t goingto judge you if you’re not wearing a$3,000 suit. I don’t think you caneven buy an Armani suit in Cran-brook.”

And financial advisors in smalltowns quickly learn not to judge clientsby the way they dress either. “The fel-low in the grubby jeans here may havea lot more money than the well-dressedguy in Toronto,” he says.

As in many rural or remote areas,English capitalizes on the local econ-

omy. For instance, Cranbrook’s econ-omy is largely based on forestry andmining so he must keep an eye oninternational newsprint, lumber andmetal prices to gauge the economichealth of the community. He mustalso pay attention to his clients’ pen-sion plans and stocks. (Very often,employees of these companies like toinvest in sectors they’re familiar withor work in, such as forestry.)

Saddling Some BusinessWhile many successful small-townfinancial advisors have built theirclient bases on geographical bound-

aries, there are other ways to build abooming, small-town advisory business.Over in Rockwood, Ont., for instance,Smelt has let his love of horses leadhim to a wonderful target market: thehorsey set.

It’s a very well-defined psycho-graphic market, which can be furtherbroken down into two smaller areas.First, there are those who break thebank to keep their horses, says Smelt.Everything they earn goes to pay forthe horses’ fodder, the rigs, trucks, vetbills and paddocks. His job is to per-suade these people to start salting alittle bit of cash away on a regularbasis. “Otherwise they end up at age55 with four-fifths-of-sweet-bugger-all to retire on,” he says.

The people in the second subset ofthe equestrian community are wealthy,but asset-rich and cash-poor. They tendto have all their assets tied up in realestate, with very little in liquid retire-ment assets. As a consequence of thisstate of affairs, they end up with verysubstantial estate planning and taxplanning issues, he says.

Like any advisor breaking into atight-knit market, Smelt strives to keephis visibility high in the equestrianworld. He writes a financial advice col-umn for The Eventer, a quarterly maga-zine for equestrians, and often attendshorse shows.

To diversify his client base, Smelthas also identified the growing seniorcitizens market, and more recently, thesame-sex market. But again, in the caseof the same-sex market, Smelt is serv-ing a psychographic segment, asopposed to a geographical one. Andwithin about an hour, he can drivefrom Rockwood to Toronto, one ofthe largest gay markets in NorthAmerica.

“I have absolutely no regrets,” hesays, years after he made the breakfrom Lloyds, to move on to a horsefarm with his wife Pascale in ruralOntario. “It was very much a strate-gic move to allow me to make my ownlifestyle decisions, rather than some-one else’s. I wanted to be master of myown destiny.”

But don’t be fooled into thinkingthat being the master of your own des-tiny means working fewer hours. “I’mactually working far longer hours nowthan before,” says Smelt. But being hisown boss and living on his own termsdefinitely makes a difference. “It’s adelightful lifestyle,” he says.

Michael Fitz-James is a freelance writer inToronto, Ont., and the executive editor ofCanadian Lawyer magazine.

AUGUST 199829

B Y R O NENGLISH

Cranbrook, B.C.

(population 18,000)

“I don’t need anArmani suit to do

business.”

Charged with a mandate to protect Canadianinvestors and boost public confidence in theindustry, the Mutual Fund Dealers Association(MFDA) has arrived. The new self-regulatoryorganization for mutual fund distributors willbe fully operational by 1999. Joe Oliver,MFDA president and CEO, offers details in anAdvisor’s Edge Q&A.

AE What prompted the formationof the MFDA?JO We are confronted with a signifi-

cant regulatory gap. There are morethan 60,000 individuals selling mutualfunds in Canada, the majority of whomare bank employees — but a substan-tial number of whom are not — whoare not members of a self-regulatoryorganization. Therefore, they’re not sub-ject to the same rules and policies thatapply to securities salespeople who aremembers of the Investment DealersAssociation (IDA) or the exchanges.

We have a board which will be com-prised one-third of representativesfrom the mutual fund distributorsindustry, six out of the seven of whomwill be members of the InvestmentFunds Institute of Canada (IFIC) aswell as the IFIC president, seven will befrom the IDA and seven are represen-tative of the public.

The public directors will be playinga pivotal role in this new organization.The organization will be reflective ofthe interests of the members.

There will be a series of checks andbalances to make sure that the members’views are taken into account, includingin particular the independent directors,some of whom have voiced concernabout the direction of the organization.

AE Outside of the board, is thereopportunity for input from thoseholding mutual fund licences?JO Yes, there are a number of checksand balances and opportunities for[individual] involvement. The member-ship will be on a one-firm, one-votebasis, irrespective of the size of the firm.It could be a huge organization likeInvestors Group, it could be some of thebank-owned distributors or it could bea smaller independent. As well, we haveset up committees to examine the criti-cal policy issues, and the distributors willconstitute a majority on each of thosecommittees. There will be, on the com-

mittees as observers, members of theCanadian Securities Administrators.

So the regulators will be there tomonitor the progress. There will be apublic director on each of the com-mittees; a number have already volun-teered. The public directors are a checkto make sure that there aren’t any anti-competitive policies that emerge. Ourpolicies will have to be voted on by theexecutive committee of the board, andultimately by the members. They willbe published for public comment. Andat the end of the day the regulatorshave to determine whether the rules arein the public interest.

ADVISOR’S EDGE30

JOE OLIVER, MUTUAL FUND DEALERS ASSOCIATION

MINDTHE

AUGUST 199831

AE What are you hearing fromsalespeople out there?JO It varies quite a bit. I have spokento a lot of industry participants —large and small, bank-owned and non-bank-owned — across the country.They have said to me, and this includesmanagers as well, that they think this isthe right thing to do.

There are a few, however, who con-tinue to express concerns and wouldreally like to see the whole thing goaway. But the fact is that it’s not goingto go away. Not because I say it’s not,but because this whole matter has beendriven by the regulatory authorities andthey’re determined to see it happen.

AE There already exists a vehicle,the Canadian Investor ProtectionFund, to protect individuals in thecase of an IDA member firm goingbankrupt, but you’re considering anew, separate protection fund.JO A decision hasn’t been definitelymade in this regard. But the currentthinking is that since the securitiesfirms over the years have contributedmoney (to the investor protectionfund) which has grown to $150 mil-lion, it is appropriate that anotherindustry that wants to protect its clientbase should contribute money to itsown fund. It is proposed that the man-agement of the Canadian Investor Pro-tection Fund help run this new fund.

AE What’s the timeline on MFDA’sdevelopment?JO We’re going to be addressing thekey policy issues through our commit-tees over the next several months. I

hope we will be able to have the poli-cies analysed, discussed and voted onby early next year.

The process will be for the MFDAto apply across the country to thosesecurities commissions in whose juris-dictions we will be operating for offi-cial recognition. We’ll be moving onthat as well. Sometime in 1999, Ibelieve new firms coming into theindustry will start to join the MFDA.

AE What about Quebec?JO The government has decided toestablish a financial services board.This board will have a responsibilityin Quebec comparable with theMFDA outside Quebec. So theMFDA will not be operating inQuebec.

The provinces that are definitelyparticipating at the beginning areOntario, Alberta and British Colum-bia. I expect many of the otherprovinces will be joining as well verysoon. I know that Nova Scotia is veryinterested, as well as Saskatchewan andManitoba.

AE What is MFDA’s objective?JO We believe that individual Cana-dians should be afforded the same pro-tection when they buy the same prod-uct, no matter whom they buy themfrom. So the regulatory principle we’restriving for is harmonization — thesame rules — unless legitimate busi-ness differences justify a different butadequate rule.

That’s really where the rubber hitsthe road — what are the differencesand what are the policy implications of

those differences. Because what we’retrying to balance out at all times is, onthe one hand, investor protection. Andon the other hand, avoiding anti-competitive rules that make it artifi-cially harder for firms to stay in busi-ness. The approach is to have regula-tion that achieves a purpose, and onlythat amount of regulation, not more.

AE What role will MFDA play inthe areas of compliance andenforcement?JO The MFDA will play a compara-ble role to the IDA. We will have inplace sales compliance and financialcompliance personnel who will be ini-tially supervised by senior IDA staff.They will be going out and visitingeach of the firms to make sure that theyhave in place the appropriate structuresand policies to indicate that they’re ableand willing to meet the new regula-tions.

There is, I think, a major need andobligation on the part of the MFDAto educate participants in what therules are. If our compliance peopleuncover a serious violation, then itwould be handed over to the enforce-ment branch for investigation in thenormal course, and possibly prosecu-tion under the quasi-judicial powersthat will be established for the MFDA.There will be panels, there will be adue process procedure that will per-mit people to be heard in a fair waywith an ultimate appeal to the securi-ties commissions. There will be finesand ultimately, as a last recourse, theability to have people expelled fromthe association.

JOE OLIVER, PRESIDENT AND CEO OF THE INVESTMENT

DEALERS ASSOCIATION OF CANADA, HAS TAKEN

ON THE SAME ROLE AT A NEW SELF-REGULATORY

ORGANIZATION FOR THE MUTUAL FUND INDUSTRY.

INTERVIEW BY KEVIN PRESS, ADVISOR’S EDGE.

Photography by B

rian Sum

mers

EGAP

he turbulent history of oiland gas royalty trusts isreally a tale of two mar-kets. In the first chapter,

investors went to town. In the second,they went to school. With interestrates at their lowest level in decades,royalty trusts burst into prominencetwo years ago as investors clamouredfor alternatives to the disappointingreturns offered by GICs and bonds.

So the market rediscovered an oldidea in the form of high-yield royaltytrusts, which invest in mature oil andgas properties, and typically payinvestors 99% of the cash distribu-tions generated from production.

They were perceived as a perfectmatch between fixed-income refugeesand an industry with billions investedin mature wells that were virtual cashcows as oil prices hit levels not seensince the Gulf War.

There were 11 new royalty trustissues in 1996, many massively over-subscribed. The industry grew froma $500-million business into amultibillion-dollar sector virtuallyovernight. But the trust fervourcooled when oil prices slumped andrates looked to be heading higher.New ones began having trouble evenmeeting their subscription targets.

While the effect of commod-ity prices was to be expected,analysts say it came as a surpriseto many investors. “These invest-ments were sold to a somewhatunsophisticated investor, whobought them thinking they werea bond-like instrument,” saysRick Roberge, chairman of theenergy group at Pricewaterhouse-Coopers in Calgary.

While volatile commodityprices panicked some royaltytrust investors, the bond anal-ogy took a further batteringwhen it became clear an eagermarket had overpaid for manytrust units. “The main point is themismatch between the kind of peoplebuying them and the characteristics ofthe product itself, which is a highlyrisky stream of income that could bezero in any given year,” says RichardRooney, president of Toronto-basedinvestment counsellor firm BurgundyAsset Management. “I don’t thinkthat was widely appreciated.”

Some see echos of an earlierboom, not in Canada, but the UnitedStates, where the track record of oiland gas royalty trusts has been poor.

One infamous case was a royaltytrust-like company organized by

T. Boone Pickens in the mid-1980s.After several years of large distribu-tions, the Masters Limited Partner-ship (MLP) shattered investors’dreams when it disintegrated in 1991amid accusations of mismanagement.By that time, MLP units — whichonce traded at $100 each — had col-lapsed to a small fraction of that.

In a case of outright fraud, investorswere lured to a package of oil and gaslimited partnerships put together byPrudential Bache Securities. Theythought they were putting theirmoney into low-risk, proven oilreserves which would pay dividends

T

PO

RTFOLIO

Comprehensive wealth management

ADVISOR’S EDGE32

Illu

stra

tion

by

Sus

anna

Den

ti

Trust worthyAre oil and gas royalty trustsa good buy? Maybe, but the wells will run dry eventually.By Peter Boisseau

of 15% to 20%. But the trust’s backerswere cooking the books to inflate profitfigures, and the units were further bat-tered by a collapse in oil prices. TheU.S. Securities Exchange Commissionstepped in when dividend payments fellto 3% by 1990, but not before somepensioners lost their life savings.

Royalty trusts have an even longerlineage in the Canadian oil patch. Dur-ing the Alberta oil rush of the 1950s,trust companies talked farmers intosigning leases in exchange for cash pay-ments and certificates entitling them toa share of royalties from production.

But after the courts tightened up thevague language in such agreements,many certificates turned out to be virtu-ally worthless because no oil was discov-ered during the term of the lease. Someoil was found. There are companies stillpaying freehold rights to certificateholders to this day.

Meanwhile, many analysts feel thenew breed of oil and gas royalty trustsare a $4.4-billion market that is poisedto make a comeback. Only a few newtrusts were added to the mix after theexplosive growth of 1996, and most ofthe 20 or so now listed on the TorontoStock Exchange have at least a full yearof operation to be measured by.

Analysts say that gives investors achance to see which trusts are best atreplenishing their reserves throughcheap new acquisitions — an indicationof whether they’ll maintain their pay-outs over time as older wells run dry.

That’s why the two oil-sands trustsare heavily favoured by analysts. Bothhave reserves of 30 years or so, com-pared to the average of 10 to 15 years.Older trusts such as Pengrowth EnergyTrust and Enerplus Resources Fund arealso considered to be solid since theyhave a decade-long track record.

Some of the newer kids on the blockare getting high marks for mixing both

AUGUST 199833

oyalty trusts work on

the theory that finding

oil and gas is too

expensive and risky. So

rather than explore, royalty trusts

invest in mature oil and gas prop-

erties and pay investors virtually

all of the cash generated from

production in the form of monthly

or quarterly distributions.

But trusts are not fixed-income

investments.There is no guaran-

teed payment at any point in the

future. And unlike other income

funds such as real estate, oil and

gas reserves have a declining

asset base that must be replaced

through capital spending.

The royalty trusts most

favoured are those that have man-

aged to reinvest in new reserves

at an economical price, and have

a mixture of natural gas as well

as oil reserves. Gas has shown

more strength in prices.

The fact that oil and gas are

declining assets implies greater

risk, therefore they usually trade

at higher yields.The return on a

royalty trust is highly dependent

on the price it receives for its pro-

duction.That makes it highly sus-

ceptible to fluctuations in com-

modity prices.

Trust units are RRSP-eligible.

Also, depending on how the trust

is structured, much of the cash

flowing back to the investors is

tax-free in the initial stages. Oil

and gas companies are entitled to

a variety of tax write-offs.Trusts

pass tax deductions along to unit-

holders, who are able to shelter

distributions from income tax.

Trusts are thus tax-advantaged,

since Revenue Canada treats most

of the distribution as a return of

capital. In effect, the cash paid

out would be a return of the

investor’s capital.

But the fact that the distribu-

tion includes a return of capital as

well as a return on capital is often

overlooked or misunderstood by

some investors.The return can be

a blend of both, and the ratio can

vary substantially.

The investor may also not

understand that taxes on distribu-

tions increase as the trust proper-

ties mature. Also, tax deferrals

vary among trusts, depending on

what part is income, return of

capital and dividend.The deferral

of taxes provides the investor with

more capital for current invest-

ment, but the unit-holder will have

to pay capital gains tax when the

units are sold.

Positives:• no exploration risk;

• tax advantages;

• monthly or quarterly cash distri-

butions;

• RRSP- and RRIF-eligible; and

• high yield.

Negatives:• sensitive to commodity prices

and interest rates;

• new to Canada, but not to U.S.,

where track record is poor; and

• declining assets.

Watch for:• management experience and

track record;

• reserve life of asset;

• oil and gas production mix;

• debt level; and

• premiums to net asset value.

A ROYALTY TRUST PRIMER

R

ADVISOR’S EDGE34

Seeing Tomorrow:Weighing Financial Risk in Everyday Life

By Ron S. Dembo and Andrew Freeman

McClelland and Stewart

Seeing Tomorrow, Ron S. Dembo, a mathematician and lead-ing risk theorist who heads Toronto-based AlgorithmicsInc., and co-author Andrew Freeman of The EconomistIntelligence Unit, argue that regret is too often a neglected

factor when it comes to measuring risk and return.“Regret is a powerful tool for aligning how we intuitively judge risk

with the more formal methods that we use to quantify it,” they state.Imagine four different lotteries with the same payout, but the follow-

ing “investments” and potential returns:

Investment Potential Return10¢ $100,000$1 $1,000,000

$10 $10,000,000$100 $100,000,000

Most people would have little hes-itation trying their hand at the first twolotteries, because their regret over losing— a dime or a dollar — isn’t very high.Plunking down $10, however, signifi-cantly notches up the regret. So muchso that many would decline to gambleat that stage. In the fourth scenario,the relationship between risk andreturn remains mathematically thesame, but the regret has surged to alevel at which most people woulddecline to join in on the game.Seeing Tomorrow shows how to put

these principles into operation, by outlining possible results froman investment and comparing regret to benchmark expectations and finalrewards. The authors contend that “many bankruptcies, bad deals andlarge losses come about because most people fail to consider scenariosunder which they might lose in a big way.”

The ideas behind this approach naturally become both more compli-cated and more slippery as you pursue the details. That said, however, thebook is generally quite readable and certainly raises important notions foradvisors to consider. — Harvey Schachter

Of Note

IN

oil and gas reserves too. “It’s a new vehi-cle and I think it takes time for peopleto determine how to value them,” saysKent MacIntyre, CEO of Prime WestEnergy Inc. of Calgary. Prime West hasemerged from the pack of newer trusts,along with others such as ARC EnergyTrust, Shiningbank Energy IncomeFund, Starcor Energy Royalty Fund andViking Energy Royalty Fund.

Different Risk“Now you have a range of them tochoose from, and investors are starting torealize the different risks involved,” saysMacIntyre. “It’s not a surrogate for abond. Every distribution is a return ofcapital as well as a return on capital.” Heestimates Prime West’s distributions willbe down about 10% this year from 1997.

But with trusts sporting yields in themid-to-high teens, and with the promiseof 10 years or more of distributions toinvestors, analysts say they’re worthanother look. That’s especially true nowthat slumping commodity prices havepushed the price of most trust unitscloser to their net asset value.

“People are really starting to under-stand what they purchased, and if theydon’t like it, they’re moving out of it,”says Scotia Capital analyst Leslie Lefebvreof Toronto. “I think in many instances,there are some great opportunities.”

So is now the time to buy oil and gasroyalty trusts? Perhaps, “but with cau-tion,” says Harry Feldman, a Montreal-based financial planner and oil sectorinvestor with Schwartz Levitsky Feld-man Chartered Accountants. He knowsfrom experience how quickly the wellcan run dry. “An investor should limitthem to no more than 5% of his or herportfolio, and make sure he or she has adiversified group of them.”

Peter Boisseau is a Toronto-based freelance writer.

hen a client comes in foran initial meeting, I ask tosee his or her will, alongwith the RRSP and

investment statements. I like to see thewill as part of the client relationshipbuilding process, and it provides me aterrific opportunity to see how the ben-eficiaries on RRSPs and life insuranceare linked to the distribution in the will.

It is also a great conversation piece tostart a discussion that will help me

determine the family dynamics and whois really important in the client’s life. Ifthere is no will, I can refer the client toa lawyer to have one prepared.

Sometimes the client will come intomy office, slap the will down on mydesk, and say: “Here’s my will, but it’sout of date.” I’ve seen some extraordi-nary documents: wills leaving moneyto be used specifically for RRSP con-tributions (sounds fine, except thatthey were left to beneficiaries whodidn’t have any RRSP contributionroom); wills with executors who diedmore than 10 years previously; wills asshort as half a page and as long as over

30 pages. But I was stunned by one inparticular. The individual had literallytaken scissors and cut his son out ofhis will.

This son was financially dependenton the father. In fact, it was because thefather was exasperated with his son’sfreeloading that the scissors came out inthe first place.

Your client cannot cut certain familymembers out of his or her will if theyare financially dependent on him or herat the time of death. Family law variesacross the country, but the intention issimilar. In some provinces, a familymember is defined as a spouse anddependents. In other provinces, the def-inition of family member extends fur-ther — to parents and grandparents.

Be forewarned — if your client’s willfails to provide adequate support andmaintenance for his or her dependents,they, or their legal representative, mayobtain a court order against the estateto provide continued support.

Letter of the LawThe wording in Nova Scotia, for exam-ple, reads: “Where a testator dies with-out having made adequate provision inhis will for the proper maintenance andsupport of a dependent, a judge, onapplication by or on behalf of thedependent, has powers, in his discre-tion and taking into consideration allrelevant circumstances of the case, toorder whatever provision the judgedeems adequate to be made out of theestate.”

In the situation where the dependent

son was cut out of the will, had thefather died, the son could have appliedto the courts for continued financialsupport, which would have delayedthe settling of the estate.

Even if the son had not been finan-cially dependent on the family, usingscissors is certainly not an appropriateway to change a will.

To amend a will, your client can writean entirely new will, or prepare a formalamendment to the original will called acodicil. In today’s word-processing age,the cost to prepare a new will or codicilis not that different.

One individual had made a pastimeof revising his will with codicils — oneweek a relative was in the will, the nextweek out. After his death, his familywould have been able to see the historyof all the changes he had made. Betterto prepare an entirely new will thatdoesn’t have this type of paper trail.

If the change is relatively simple —and the original will is current — thena codicil will do. But if the will is old— or the changes to be made affect anumber of paragraphs in the will —you may want to recommend your clientprepare an entirely new will so his or herinstructions are perfectly clear. After anew will is prepared and signed, the pre-vious will can be destroyed.

Sandra Foster, CFP, RFP, CIM, FCSI is the authorof You Can’t Take It With You: The Com-mon Sense Guide To Estate Planning ForCanadians, and a financial advisor with EquionSecurities in Toronto. E-mail questions and storyideas to advisorsedge@mhpublishing.com.

W

Estate Planner

The deepest cutIf your client wants changes, consider a brand-new will.

By Sandra Foster

AUGUST 199835

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ADVISOR’S EDGE36

oney back guaranteed” saythe enticing advertise-ments. It’s a business strat-egy that has now found

its way into the financial arena. You canprovide your clients equity mutual fund-type products with embedded guaran-tees of principal in the guise of segre-gated funds, index-linked GICs,equity-linked notes and other seemingly“crash-proof ” investments. They’restructured so that in three, five or 10years’ time (in the worst-case scenario)you get back your original investment.

Clients love this idea. Upside poten-tial without the downside risk. Butwhat is the value of this guarantee? Islong-term insurance better than short-term? Specifically, how much shouldyour client pay in order to acquire thiskind of investment insurance?

The first thing to note is that thistype of insurance gets cheaper as thepolicy is extended longer. That’sbecause your client can only get his orher original money back after the three,five or 10 years are over. The client can’treclaim the original investment the dayafter a market crash, for example.

Think of a 20-year guarantee on amutual fund investment. It soundsimpressive. But your client can’t cash infor another 20 years. The present valueof the guarantee is practically worth-less — let alone the extremely unlikelyprobability that the stock market willbe under its current level in 20 years.

Consequently, in most cases, a three-year guarantee is worth more than a five-year guarantee, which is worth morethan a 10-year guarantee, and so on.This is especially true when the upsideparticipation does not include divi-dends. Therefore, all else being equal, anindex-linked GIC that provides upsidemarket potential, but promises to repayprincipal in three years, is more valuablethan the same index-linked GIC with a five-year maturity.

Seg FundsNow consider segre-gated mutual funds —and the promise thatthey will refund yourclient’s original principalin 10 years, or 10 yearsfrom the date he or shechooses to lock in the guarantee.

The graph (“Cost Analysis,” left)provides an actuarial estimate of thevalue of investment insurance. Con-sider a client who places $100 in awell-diversified Canadian equitymutual fund with principal protection.It costs $3.95 up-front to insure the$100 for a one-year horizon. It costs$4.53 up-front (or $2.33 per year) to

insure the $100 for a two-year horizon.And it costs $3.28 up-front (or $0.42per year) to insure the $100 for a 10-year horizon. A seg fund provides yourclient a guaranteed return of principalin 10 years, should the underlyingstock market decline over that period.It also provides some creditor protec-tion and a premature death benefit.

I, and some of my colleagues at YorkUniversity’s Schulich School of Busi-ness, estimate that the fair actuarial costof this investment insurance policyshould be 40¢ per year for the next 10years. Therefore, if the insurance com-pany is charging 100 basis points inaddition to the annual managementexpense ratio of the underlying mutual

fund, they are charg-ing 2 times what theprincipal protection isworth. A numberclose to 40 basispoints would consti-tute a fair price.

If your client is 80years old and/or is onthe verge of bank-ruptcy, the protectionis worth much more

than that 40¢ on the $100 (because ofthe shorter expected time horizon). Butas is the case with any insurance deci-sion, you must consider two things foryour client. How much protection doeshe or she need? And is that protectioncoming at a fair price?

Dr. Moshe Arye Milevsky, PhD, is a professorat York University’s Schulich School of Business.

M

Photography by Joseph M

arrancaAcademic Eye

The value of a guaranteeYou can get your clients into

guaranteed equity products. But what is it worth?By Moshe Arye Milevsky, PhD

“

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$5.00

The cost of guaranteeing an investment of $100.

Annualized Cost

Maturity (in Years)

Up-Front Cost

$4.50$4.00

$3.00

$2.00

$1.00$0.00

$1.50

$2.50

$3.50

Cos

t

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Cost Analysis

12

Thoughts of Chairman BuffettBy Simon Reynolds, Harper Business

you’re looking for investment advice, you can’t beat Warren Buffett,the sage from Omaha, whose stellar investing record has put himnext to Bill Gates on the list of the world’s richest people:

On choosing investments: “It’s like when you marry a girl. Is it her eyes?Her personality? It’s a whole bunch of things you can’t separate.”

On why Coke is a great investment: “Coke is exactly the kind of com-pany I like. I like products I canunderstand. I don’t know what atransistor is. But I can appreciate thecontents of a Coke can.”

On risk: “We’ve done better byavoiding dragons rather than slayingthem.”

On long-term thinking: “Ourfavourite holding period is forever.”

Pearls of wisdom like these aregathered together by a long-timeBuffett-watcher, Simon Reynolds, inThoughts of Chairman Buffett, a pint-sizedbook reminiscent of the once-popu-lar little red books purveying theutterances of Mao. This one opts for

a cover with the fitting color and look of an American greenback. The bookdoesn’t spend much time analyzing Buffett, who studied under the legendaryvalue investor Benjamin Graham and has achieved average yearly returns of26.7% for the past 30 years. Instead, it simply lets Buffett speak in his pithy,but wise, way. So why should we be different?On when to buy shares: “A great investment opportunity occurs when amarvellous business encounters a one-time huge but solvable problem.”On thinking ahead: “Somebody’s sitting in the shade today because some-one planted a tree a long time ago.”On price: “It’s far better to buy a wonderful company at a fair price than afair company at a wonderful price.”On other people’s opinions: “One piece of advice I got at Columbia fromBen Graham that I’ve never forgotten: ‘You’re neither right nor wrong becauseother people agree with you. You’re right because your facts are right and yourreasoning is right. That’s the only thing that makes you right.’ ”— Harvey Schachter

Of Note

IF

ADVISOR’S EDGE38

everage — using someoneelse’s money to makemoney — can be an effec-tive strategy. But it only

works when your client’s return oninvestment is greater than the interestcost. And that’s assuming the interestis tax-deductible.

The basic rule for interestdeductibility, as it relates to invest-ments, is that the borrowed fundsmust be used to earn income fromproperty. It’s not necessary thatincome be in fact earned, but thatthere is a reasonable expectation itwill be earned.

There is little need to worry aboutyour clients’ investments in commonshares and mutual funds that typi-cally don’t pay dividends, but havepotential for significant capital appre-ciation. Ordinarily, Revenue Canadaconsiders these related interest coststo be deductible on the basis that thepotential dividends are not limited,and therefore the return could exceedthe borrowing costs. However, thedeductibility of interest relating toborrowings for fixed income invest-ments, such as preferred shares andbonds, is limited to the rate of returnon the investment.

In determining the use of borrow-ings for purposes of interestdeductibility, the direct use of theborrowed funds and the current use(as opposed to the original use) isrelevant. That’s determined using atracing approach.

What does this mean to your

client? If he or she ownsdebt-free investmentsearning substantialreturns, and uses a line of credit topay, say, income taxes relating to theinvestments, the interest is notdeductible. (You can’t argue that bor-rowing allows maintenance of thathealthy income stream.) But yourclient can do a little restructuring tomake the interest deductible — byredeeming sufficient investment to paythe tax and then borrowing to reinvest.

On the tracing of borrowed fundsto current use, if your client borrowsfor valid investment purposes, andlater redeems the investment and usesthe proceeds for personal purposes,the interest ceases to be deductible.

Gaining GroundBut what happens if the investorleaves the capital amount of theinvestment intact, and just redeemsthe gain portion? Assume your clientborrows $50,000 to invest in aCanadian equity mutual fund. Afterone year the value of the investmenthas increased to $75,000, and one-third of the units are redeemed —effectively cashing in on the accruedgain. You can’t say that you’re draw-ing out the gain only. It’s impossibleto distinguish the portion of pro-ceeds that represents invested capitalfrom the portion that representsappreciated capital. Revenue Canadasays you should use an apportion-ment approach in determining whatpart of the proceeds relate to the

borrowed funds. This means that ifthe redemption proceeds are neitherreinvested in valid income-producinguse, nor used to pay down the loan,one-third of the interest cost (theproportion of the property nolonger used to earn income) willcease to be deductible.

If income generated from invest-ments — such as interest and divi-dends — is withdrawn and used forany purpose, the interest on the origi-nal borrowings remains fullydeductible. However, if that incomeis reinvested in units of the samefund, the new units can’t be distin-guished from units purchased withborrowed funds. Therefore, on a sub-sequent redemption, the use of theredemption proceeds would have tobe assessed to determine if the inter-est is still fully deductible. This pre-sents interest deductibility issues foryour clients who borrow for invest-ments subject to systematic with-drawal plans.

So when advising clients about bor-rowing for investments, ensure that theborrowings are structured properly,and that adequate records are main-tained to support a valid current use.A loss in interest deductibility couldseriously erode and even eliminate realafter-tax investment returns.

Gena Katz, CA, CFP is a senior principalwith Ernst & Young’s National Tax Practice.

AUGUST 199839

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Many happy returnsReduce your client’s cost of borrowing by making sure the related interest is tax-deductible.By Gena Katz

ADVISOR’S EDGE40

last month’s column, Icovered the basic assetallocation of funds andthe need to monitor how

often the asset mix changes on an ongo-ing basis. This month, I’ll dig deeperand explore the need to examine furtherthe contents of each of the basic assetclasses — cash, bonds and stocks.

When you are preparing a portfoliofor your client, it is clearly desirable tobe aware of the basic underlying assetmix, but that isn’t enough. Within eachof these classes, does the portfolioactually reflect your intentions for yourclient’s total portfolio mix? After all,you may want 40% of your client’sportfolio in Canadian bonds, but youmay also want to have a fairly diverseset of bonds in terms of duration (ormaturity) so as to avoid subjecting your

client to any undue interest rate risk.Equity sections require further

investigation as well. Is the stock com-ponent sufficiently diversified to pro-tect your client’s interests?

To illustrate the impact of sub-classdiversification, consider this real-lifeexample of two Canadian equity funds(“In the Details,” below). These twomaintained a relatively stable asset mixof Canadian stocks, U.S. stocks andcash over the one-year period endingDecember 1997.

Fund A is invested 85% in Cana-dian equity, 13% in foreign equity and2% in cash. Fund B features 84%Canadian equity, 15% foreign equityand 1% cash.

It would appear that these funds arealike, and therefore should produce sim-ilar results. Yet Fund A had a much bet-

ter year in 1997 — returning over 43%— while Fund B achieved just over12% on the year. Why the difference?

Fund A (the AIC Advantage Fund)clearly made most of its gains by posi-tioning the Canadian equity portion ofthe fund primarily in the financial ser-vices sector (73% of all Canadian equi-ties held). The TSE Financial ServicesIndex, by way of comparison, returned55.3% over the same one-year period.

Fund B (NN Canadian Growth),on the other hand, had a more diverseportfolio and therefore producedreturns more consistent with thebroader market (the diverse TSE 300

Composite Index returned 15% over

Photography by Joseph M

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Industrysector analysis

How closely are you monitoringyour client’s asset mix?

By Scott Mackenzie

Mutual Watch

IN

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G&S 5%Util 1%

Comm 10%

Mrch 4%

Cons 7%

Fncl 73%

G&S 5%

Util 8%

Comm 4%

Mrch 3%Cons 3%

O&G16%

P&FP4%

Indu19%

Real1%

Tran5% Pipe 2%

Cong 3%M&M 6%

Fncl 21%

In the DetailsDespite a similar domestic equity/foreign equity/cash mix, Fund A’s one-year return was

much stronger — 43.3% compared to Fund B’s 12.1%. Sector analysis tells the story.

LEGEND

M&M Metals and Minerals

G&S Gold and SilverO&G Oil and GasP&FP Paper and Forest

ProductsCons Consumer

ProductsIndu Industrial

ProductsReal Real EstateTran Transportation/

Environmental Services

Pipe PipelinesUtil UtilitiesComm CommunicationsMrch MerchandisingFncl Financial

ServicesCong Conglomerates

SOURCE: PALTrak

Fund A: AIC Advantage Fund B: NN Canadian Growth

the same one-year period).Another significant difference

between the two funds that is not evi-dent from the basic asset mix analysisis the number of stocks each of thesefunds holds. AIC Advantage generallyholds less than 40 equity positions inthe portfolio, while NN Canadian typ-ically has well over 300 positions (mostof which are TSE 300 companies).

Neither of these funds are “bad” or“good” — just different. It is this dif-ference that will dictate whether or noteither (or both) of these funds areappropriate in your client’s portfolio.

This is of course an extreme exam-ple. We have one fund that follows theindex for the most part, and one thatmakes significant bets on a particularsector. For Canadian equity funds, onecould look at this type of diversifica-tion difference as a similarity or dis-similarity measure relative to the TSE

300 Composite Index.

Measuring UpPortfolio Analytics’ Industry SectorConcentration (ISC) measure calcu-lates, on a sector-by-sector basis, theabsolute difference between the fund’sindustry sector weightings and that ofthe TSE 300 index. We then sum thesedifferences to arrive at a sector simi-larity index.

A fund that maintains exactly thesame weighting in each industry sectoras does the TSE 300 index will have anISC value of zero (i.e. there is no dif-ference). On the other hand, a fundthat concentrates in a few sectors (orone sector) will have a relatively highISC value since the differences are quitemeaningful. Precious metals fundsalways exhibit high ISC values.

To give you a better sense of therange of values the ISC measure pro-duces, we searched all funds that invest

80% or more of their total portfolioin Canadian stocks for extreme ISCresults. Theoretically, values couldrange from zero to 200, but in practicethey rarely go beyond 95.

The ISC figure in the table (“KeepingScore,”above) represents the average mea-sure for the fund spanning the past threeyears (or less if the fund is younger). Notsurprisingly, we found that the so-calledsector funds came in with very high ISCfigures, while the larger index-orientedfunds achieved very low ISC values. Theselower ISC funds, all other things beingequal, should perform similarly to theTSE 300 Index.

AIC Advantage has an ISC of 60.8,indicating the highly concentratednature of its sector allocation. NNCanadian Growth comes in with an ISCof 11.6 — relatively low among Cana-dian equity funds, reflecting the morediversified nature of its sector allocation.

Of course, the key to selecting fundsfor a client’s portfolio must rest on thebigger picture — how diversified is eachof the asset classes in a portfolio on anaggregate basis? After all, if you deemthat a client is a little light (in aggre-gate) in the financial services or resourcesectors, you may well decide to add asectorally concentrated fund to roundout the overall portfolio.

Not only should the equity compo-nent of the portfolio be monitored, theclient’s bond section should also beassessed to ensure that the dura-tion/maturity, credit-quality of theportfolio overall is appropriate. Itcomes down to keeping on top of yourclient’s underlying asset mix by keepingin touch with each of the componentfunds’ underlying asset mixes.

Scott Mackenzie is vice president, mutual fundswith Portfolio Analytics Ltd. in Toronto.

AUGUST 199841

Keeping ScoreThe five Canadian mutual funds (invested 80% or more

in Canadian equities) nearest and furthest

to the TSE 300 in terms of asset mix.

Funds with Lowest TSE

Sector Similarity Sector Cdn. Equity ISC

Royal Energy Resource 86.5% 93.3

Cambridge Precious Metals Precious Metals 84.2% 90.2

Dominion Equity Resource Resource 88.6% 89.0

CIBC Financial Companies Financial Services 84.7% 65.5

AIC Advantage Financial Services 86.0% 60.8

Funds with Highest TSE

Sector Similarity Sector Cdn. Equity ISC

Ind. Alliance Can. Advantage Canadian Diversified 88.3% 0.0

Ind. Alliance Ecoflex N Canadian Diversified 88.3% 0.0

North West Life Ecoflex N Canadian Diversified 88.3% 0.0

CIBC Canadian Index Canadian Diversified 98.6% 0.1

Great-West Eq. Index (G) B Canadian Diversified 99.5% 0.1

TSE 300 Composite Index 100% 0.0

emember when you had to physically move information —literally put it in a box and carry it someplace else?

“Now, you could move more information from one sideof the planet to the other in five minutes than you and I

will accumulate in our entire life,” says EdwardNazarko, a leading techno-thinker for IBM in

Bethesda, Maryland. “Not only that, but youcan analyze it.”

It’s called the “network economy” and,in case you haven’t heard, we’re already

living in it. A brief history lesson. TheIndustrial Revolution placed muchvalue on such mechanical assets asassembly lines and tools in factories.However, in a network economy, it’snot the hardware that transmits theinformation, but the software — as inthe mushy grey stuff between yourears — that is of real value. That’s theprized intellectual capital in a networkeconomy.

So what does all of this mean to you? According to Nazarko, the onset of the

so-called network economy spells outopportunities for financial professionals to

provide a real service to individual investors. Take, for instance, the Internet. The main

problem with this information network for manyyears was that only the very computer-savvy were able to

BUILD YOURBUSINESSSales and marketing strategies that work

Illustration by Peter F

erguson

Working it in thenetwork economy

Joy-stick marketing and $100,000-a-year typists justdon’t cut it in an economy based on intellectual capital—so

says a guy who gets paid to think about you and your job.By Caroline Nolan

R

ADVISOR’S EDGE42

dig deep enough to find informational gold. Enter thebrowser, which suddenly gave users both a vehicle and aroad map from which to navigate the information highway.

“Then it [the Internet] took off,” says Nazarko, explain-ing that the same shift is currently occurring in the finan-cial services industry.

“The network economy in the finance environment isn’tabout being able to offer more kinds of mutual funds, it’sbeing able to use the healthy variety of stocks, bonds andfinancial instruments out there, in an optimized, customizedfashion, to help an individual person navigate,” he says.“There is now so much content that the rare asset is context.”

Given the proliferation and the challenges of the networkeconomy, it isn’t wise for advisors to simply sell products.“That won’t work. The right approach is, ‘I provide context.I provide navigation. Come let me do this for you.’ There isa global phenomenon here — consumers are being forced tobe responsible for their futures. That’s new.”

The biggest risk financial advisors face in a network econ-omy is to underutilize technology — not leverage it toenhance their client relationships. Call it the case of the“$100,000-per-year typist.” Financial advisors and plannersshouldn’t be thinking about technology as a way to down-size their businesses, or to get rid of support staff, but tothink about how the available tools can help them better servetheir clients. Nazarko remembers the time he was in the officeof the vice chairman of a $150-billion bank, watching himfiddle with his keyboard, cursing his computer. “I finally said,‘What’s wrong?’ and he said: ‘I don’t know how to do bold-face in WordPerfect, do you?’ ”

Not only does misused technology drive people crazy, butit sucks hours out of your days, says Nazarko. “If you thinkabout what these people should be thinking about with com-puters, it’s not, ‘How can I reduce the number of people inmy office?’ But, ‘How can I leverage thought-time?”

Yet using technology to serve your clients is, in itself, ahuge challenge. Just witness what some of the U.S. bankshave been doing, says Nazarko. “One of the big pushes I’veseen in the last 10 years is to get all this information on tothe customer. And now you see some of these guys doing,what I call, ‘joy-stick marketing.’ They’re sitting at their desksthinking, ‘If I can just work this fast enough, I can sell some-thing.’ As opposed to getting up and meeting the customerface-to-face,” he says. “But you can’t substitute computers forhuman interaction. This is still a business about trust.”

One may wonder (and rightly so) why someone from IBMis doing so much thinking about how you conduct your busi-ness. As Nazarko put it during a recent visit to Toronto,financial institutions are IBM’s biggest customers. In fact, hesays banks, brokerages and insurance companies use abouttwo-thirds of all the computing power on the planet, mak-ing them the “computer hogs of the world.”

It’s also getting hit hard by intellectual technology. “Thefinancial services area is the first intellectual capital busi-ness to be attacked by this stuff,” he says. “We want theindustry to transform with the least possible death anddestruction, because it is good for us to help the industrytransform. It’s bad for us if somebody catches a cold.

“The network economy provides the opportunity to off-load and outsource some of those back-office processes.”

Real Life

rue story: One day an ambitious American financial advisor involved in the off-shore marketplace cold-called a wealthy gentleman living in Argentina to offerhis services. It must have been his lucky day because he was invited down fora meeting. “He went all the way down there,” says Dennis Gallant, a con-

sultant with Cerulli Associates in Boston, Mass., “and the guy told him off — told himto go home.”

Lesson learned? Give the wealthy some respect. “What doesn’t work is the cold-call sales pitch,” says

Gallant. “They want a relationship and trust. They don’t want to feel like you are somekind of a salesperson. Don’t come across as pitching a product.”

These folks are inundated with people trying to sell them stuff, adds Gallant, so youhave to come across as providing value-added service — and word of mouth or referralsare critical to building a high-net-worth client base. “You really need a warm introduction.”— Caroline Nolan

Hot tip — forget the cold callWhen it comes to meeting the affluent investor, financial

advisors need a warm introduction.

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AUGUST 199843

“I send the client a handwritten letter the minute I get thereferral. I thank the client for thinking of me, assuring himor her that I’ll take care of their friends as well as I am tak-ing care of the current client. I will absolutely not talk to theclient about what transactions have gone on because confi-dentiality is vital. But when I see the client in person, I willthank him or her again.”Michael Conrad, Financial PlannerMichael Conrad & Associates, Vancouver

“It depends on the client — how long they’ve been a clientand how many referrals they’ve given me. Our business is verypersonalized, so I try to choose a gift that would have specialmeaning to the client. Sometimes I’ve made a contribution toa charitable organization that is of particular interest to theclient. If a client has children, I may send a gift for them. I’vealso given clients videos of their favourite movies. Clientsdemand and expect personal levels of attention and our meansof thanking them reflects this.”Cynthia Kett, PrincipalStewart & Kett Financial Advisors Inc., Toronto

“Sometimes it just takes a phone call, sometimes it’s a letteror sometimes it’s a gift. If a client is a golfer, I may send golfballs. I’ve sent a bottle of wine to a client with a note say-ing thank you and I hope they can kick back on the week-end and enjoy the wine. I’ve sent really nice books, of whichMidland Walwyn has an inventory that employees can get ata discount. You shouldn’t go overboard because it can embar-rass the client, but thanking a client isn’t only business devel-opment, it’s simply courtesy.”Mary Jacobs, Vice President and Branch ManagerMidland Walwyn Inc., Fredericton, N.B.

“No matter what, an immediate verbal thank-you on thephone would be made. The value of the referral would playa large part in the level of “thank-you” that I would give toa client. For a six-figure referral, for example, I would take

the client out for dinner to a finer restaurant in the city orprovide him or her with a $100 gift certificate to the restau-rant. It shows my appreciation, but I also look at it as anopportunity to get together with the client.”Paul Demay, Division Manager, Financial PlannerInvestors Group Financial Services Inc., Regina, Sask.

“I send the client a thank-you letter that says word-of-mouthadvertising is not only the best form of endorsement, it tellsme how well I’m servicing my client. If a client gives me alot of referrals, then I’ll do something special based on hisor her interests. For example, one client is a history buff soI got him a rare book on William Lyon Mackenzie. But I alsothrow client appreciation events, where I put on a specialshow like a free night at the movies or a buffet dinner.”Gary Fortune, Financial PlannerHenry Hicks and Associates, Bedford, N.S.

Q In Your Opinion

“How do you thank a client for a referral?”A

Illustration by Silly Illy

ADVISOR’S EDGE44

AUGUST 199845

he statistics on independent businesses origi-nated owned and operated by women areextremely impressive. I’m pleased to reportwomen entrepreneurs are the fastest-growing

segment of the private sector.Almost one-third of all companies in Canada are now owned

or operated by women. Close to 40% of the start-up businessesin Canada are now founded by women, a figure expected to riseto almost half of all new companies by the year 2000.

When you stop and think about this emerging trend, it’srather obvious that something so new deserves the in-depthadvisory services you can provide. So where do you start? Inprevious articles, I have discussed some communicationstrategies and financial consulting practices that go a longway toward making women feel more comfortable and secure.Most women appreciate a straightforward, information-based, jargon-free approach to long-term advisory relation-ships. Whether we’re talking about a woman working inde-pendently from her home, or running a multimillion-dollarcorporation, many of the same planning and investmentstrategies that hold true for women in general are applica-ble to entrepreneurs.

There are obvious reasons for this. One practical consid-eration relates to a key difference between entrepreneurs andother women — female independent business owners are“sandwiched by time” to an even greater extent. Add the bur-den of running a business to running a family and the resultis even less time for their personal financial affairs. This iswhere you come in.

Every woman today is striving for greater balance in her lifedue to lack of time. The basic tenet of creating a financial planthat addresses retirement and estate planning through secureinvestments and expert advice alleviates stress, creates greatersecurity and ensures peace of mind. Establishing that plan forthem will enable your entrepreneurial clients to focus on theirunique personal and corporate requirements.

Having greater control of how much money she chooses topay herself is a double-edged sword for the entrepreneur. Sim-

ply by virtue of establishinga somewhat lower, tax-effi-cient salary, RRSP contribu-tion room may consequentlydecrease. Maximizing per-sonal RRSPs alone may notprovide enough for longer-term needs.

One alternative advisorsshouldn’t overlook is thepotential for investment ofa portion of a client’s cor-porate earnings. Prudentcorporate cash manage-ment may include a capitalinvestment account that canact not only as an emergency fund but also as another sourceof long-term investment growth for the owner.

In addition to basic investment concerns, personal insuranceprotection is essential for the entrepreneur. As sole proprietorsor key executives, disability income insurance is a virtual neces-sity. For business continuation purposes, estate and successionplanning contingencies, and for those business owners withdependents, life insurance is a critical component of any com-prehensive plan.

Finally, the bottom line on dealing with entrepreneurs relatesdirectly to the old adage that “it’s lonely at the top.” Indepen-dence has a price — individual business owners have no onebut themselves to depend on for financial success. Althoughsuch women are extremely motivated, exceptionally resourcefuland inherently positive, security is a constant issue. By focussingon the big picture, advisors can assistwomen entrepreneurs to take care of them-selves as well as their businesses.

Patricia Lovett-Reid is managing director of theWomen in the Know program at TD Asset Man-agement in Toronto.

The entrepreneursFemale entrepreneurs represent the private

sector’s fastest-growing group and you can help.By Patricia Lovett-Reid

A THREE-PART SERIES LOOKING

AT WOMEN’S UNIQUE CIRCUMSTANCES

AND FINANCIAL NEEDS.

PART 1, JUNE:The Single Woman

PART 2, JULY:Women in Transition

PART 3, AUGUST:The Entrepreneurs

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BUILD YOURBUSINESS

ADVISOR’S EDGE46

erception is reality. An old saying, but it certainlyrings true for financial advisors in these com-petitive times. Your reputation is scrutinizedevery day — never forget you’re living and work-

ing under a microscope. Think of yourself in terms of whatyou provide your stakeholders — your community, profes-sion and clients. The way others perceive you is the key toretaining and building your business.

How can you influence perception? Carefully. Gettinginvolved in little league is a ter-rific start but there’s more to thestory. Perception is about howyou’re seen and how you seem.

Use this checklist to takeinventory of what you’re doing.

Give to your community.We all understand the need tomeet new people, to constantlygrow our contact list. Gettinginvolved in your community is alogical place to start. Charitableorganizations and not-for-profitgroups can benefit a great dealfrom your expertise. Choose acause that’s important to you —a local community association,

for example. If you have a passion for the cause, people willrecognize it.

Give back to your clients. You possess knowledge thatclients need. Share it. That’s the best way to demonstrate thevalue you bring to the equation. Start by clearly explaining thescope and depth of what you do. You’re much better off whenyour clients truly understand the services and products you pro-vide. Consider developing a brochure or newsletter. You canalso send your clients articles from newspapers, magazines andthe Internet.

Understand your clients. Get to know them and what

they’re about personally as well as financially. Your challengeis to learn to run at their pace. If the client is a high-levelexecutive whose life moves quickly, you have to keep in touchwith ongoing change in his or her needs. If your client’s lifeis fairly steady and routine, he or she will feel overwhelmedby too many contacts. Keeping pace tells the client you care.

The Best PracticeBuild your contact web. Meeting other professionals in thefinancial services industry is especially important in the earlystages of your career. Piecing together a strong network willhelp you refer your clients to accountants, insurance expertsand lawyers you have confidence in. It’s also helpful to get toknow professionals outside the financial services sector —doctors and dentists, for instance. Remember, you’re per-ceived as an ambassador of the financial planning business.If other professionals get to know you and you evoke a levelof comfort, they’ll recommend you to their clients.

Join a marketing group. Marketing groups exist in mostcommunities and bring together entrepreneurs from diversebackgrounds who share marketing and business developmentideas. These are too often overlooked. But they work.

Play a visible role in your professional association.Associations offer a valuable forum for learning from fellowmembers. Don’t just join, play a hands-on role. It will improveyour relationships, and tap you into information and ideas.

Give back to yourself.You will do yourself a huge favour ifyou stay focussed on going beyond the sale. Develop your exper-tise and maintain a high-quality work ethic. Diversify yourknowledge by reading, attending seminars and taking courses.Concentrate not only on your core business, but also on theadministrative aspects of your business — on technology, forexample. The more you put into earning a leadership position,the more clients will see you as a leader.

David Thibaudeau, CFP, CLU, CH.F.C. is president and CEO of theCanadian Association of Insurance and Financial Advisors.

Photography by Joseph M

arranca

MENTORUnder the microscope

Words of wisdom for rookie advisors

P

By David Thibaudeau

BUILD YOURBUSINESS

INTERESTPeople, products, news and events

ADVISOR’S EDGE48

IMFDA Expressing ConcernThe Independent Mutual Fund Distrib-

utors Association (IMFDA) is express-ing concern about dealer representationat the new Mutual Fund Dealers Asso-

ciation (MFDA). (See “Mind the Gap,”p. 30.)

“The IMFDA is very apprehensiveabout the structure of the new self-regulatory organization (SRO),” saysspokesman Peter Hildyard, of Trille-

nium Investor Services Inc. “We arevery supportive of having an effectiveSRO in place as soon as possible . . .but we want to ensure that the SRO hasadequate representation from the deal-ers to ensure that it is truly a self-reg-ulatory organization.”

Joe Oliver, president and chief exec-

utive officer of the MFDA, says theSRO’s structure ensures distributor par-ticipation. “There are numerous checksand balances,” he says. “The distribu-tors are represented on the board, ofwhich they constitute one-third. Inaddition, the public directors will takeaccount of the interests of all the par-ticipants. The policies will be devel-oped by committees where the distrib-utors constitute a significant majority .. . It was never contemplated that onlyone group would dominate the boardor monopolize any of the positions.”

CAFP Recognizes Author and Advisor’s Edge ColumnistThe Canadian Association of Financial

Planners (CAFP) presented its annual

Multi-Media Award for a Member toSandra Foster, author of You Can’t TakeIt With You: The Common Sense Guide to EstatePlanning for Canadians, in June. Fosteralso writes Advisor’s Edge’s monthly EstatePlanner column.

The presentation was made atCAFP’s conference in Quebec City. “Ididn’t know that the book would berecognized at the conference,” says Fos-ter. “I feel very honoured because noteverybody has the opportunity to knowthat they’ve made a difference.”

You Can’t Take It With You certainly hasmade a difference. Foster has sold morethan 55,000 copies for publisher JohnWiley & Sons in less than two years. Itis one of the fastest-selling financial plan-ning books in Canadian history.

Canadians remain con-fident in mutual funds,

but “the average investor is gravitatingto the more conservative-type equityfunds.” So says John Kaszel, director ofresearch at the Investment Funds Insti-

tute of Canada. May saw $2.9 billion innew mutual fund buys across the coun-try, excluding reinvested distributions.Balanced fund sales are up 15% over thesame period last year.

A new family of 13 segregated fundsis now available from Trimark Financial

Corp. Launched in partnership withAIG Life Insurance Company ofCanada, the funds offer a guarantee onthe client’s principal investment after 10years or on death.

Hirsch Asset Management Corp. has

grown its mutual fund family to four.Three new funds — a NaturalResource Fund, a Balanced Fund anda Fixed Income Fund — were intro-duced in June. All of Hirsch’s fundscan be purchased with a front- orback-end load.

AGF Group of Funds has launched theAGF Global Real Estate Equity Fund.Providing international investmentopportunities, the fund will focus onreal estate companies and REITs.

Canada Trust has unveiled three newfunds. Its Balanced Index Fund is a “fundof funds” that will invest in four CanadaTrust index funds. And two new incomefunds — the Monthly Income Fund andHigh Yield Income Fund — are designedfor “income-oriented investors.”

Fidelity Investments Canada Ltd. hasmerged two of its Canadian mutualfunds — the Fidelity RSP Global BondFund and Fidelity Canadian BondFund. Both funds are managed by Ford

O’Neil, Fidelity’s Canadian fixed incomespecialist.

BPI Mutual Funds has unit-holder-approval for the merger of BPI Cana-dian Balanced Fund into BPI Income &Growth Fund. BPI was awaiting regula-tory approval at press time.

AIM Funds Group Canada Inc. and GT

Global have become one — under the ban-ner AIM GT Mutual Funds. AIM Funds’parent company, AMVESCAP PLC,acquired the asset management division ofLiechtenstein Global Trust (which oper-ates under the brand name GT Global).

Briefly

The Investment Deal-

ers Association of

Canada (IDA) has unveiled its 1998board of directors. Kenneth Shields,chairman and CEO of Goepel McDer-mid Inc. is the group’s new chairman.He takes over from W. David Wilson,chairman and CEO at ScotiaMcLeodInc., who has completed his one-yearterm. Shields has three years on theIDA board under his belt. His mostrecent position was vice chair. The fullboard is made up of 27 directors.

Ron Graham is the new president ofthe Canadian Association of Financial

Planners (CAFP). Graham, who is alsopresident of Ron Graham & AssociatesLtd. in Edmonton and a part-time con-sultant with William M. Mercer Ltd.has served on CAFP’s board since1995. His last position was vice presi-dent, finance. Other elected officers are:Steve Gobel, chairman; Robert Frances,vice president, finance; Catherine Hurl-

burt, vice president, education; andFred van Vogt, vice president, commu-nications.

The Investment Funds Institute of

Canada (IFIC) has announced Jacques

Daoust as its new chairman of theboard of directors. Daoust, executivevice president, retail financial servicesat Laurentian Bank of Canada, replacesDax Sukhraj who departed in June.

Daoust will hold the position untilIFIC’s annual general meeting inNovember 1999. Philip Armstrong ofAltamira Investment Services hasmoved into the vice chair vacancy leftby Daoust.

More change to report at Altamira

Investment Services Inc. Robert Mar-

cus has been appointed lead manager ofthe Altamira Income Fund. The movecomes in light of Will Sutherland’s late-June departure. Marcus, who is also leadmanager of Altamira’s Bond Fund, istaking on the management responsibil-ities for other fixed income funds.

James Werry has been named man-aging director, private client financialservices at ScotiaMcLeod. Werry hasbeen with ScotiaMcLeod since 1978.His most recent title was national salesmanager.

T.A.L. Investment Counsel Ltd. hasappointed Nick Iarocci vice president,sales — mutual funds. Iarocci took onthe new job in June. He is working onthe sales and promotion of T.A.L. man-aged mutual funds.

AUGUST 199849

MoversSept. 27-29

Canadian Association of Pre-

Retirement Planners is hosting its1998 National Conference at theChateau Laurier in Ottawa, Ont.This year’s event, A CAPPital View,includes workshops on income taxpolicies, seniors benefits, influenc-ing government and more.Telephone (800) 567-3863.

Sept. 29Investment Funds Institute of

Canada is presenting its annual con-ference. “Making It Work” is at theMetro Toronto Convention Centre.Telephone (416) 363-2150.

Oct. 3-7Canadian Association of Insurance

and Financial Advisors is holdingits annual general meeting inNiagara Falls, Ont. Telephone(800) 307-0206.

Oct. 7-9Canadian Institute of Chartered

Accountants is presenting The In-Depth Brokers and InvestmentDealers Course at The DeltaMeadowvale in Mississauga, Ont.Telephone (416) 204-3318.

Planner

What’s Up?If you have news, a personnel

announcement or networking event

coming up, fax: (416) 596-5071,

or e-mail: advisorsedge@

mhpublishing.com.

What will the financial planning business be like 20 yearsfrom now?

The business is going to continue to boom. Thisis probably the best time ever to be a financial planner.People need professional advice. I think in 20 years,time, the financial advisor industry is going to be verystrong. It’ll be more highly regulated and largely self-policed. And I think there will be standards of ethicsand conduct that are not only widely accepted butstringently enforced.

Does the 20% foreign content rule have a future?I think it’s more likely to be liberalized. Govern-

ments are going to try and drag their feet on it, buteventually the pressure will be too great. RRSPs are tooimportant to people and they’re becoming more so asgovernment pensions are becoming less important.Then you should also consider the greater sophistica-tion of the investor today compared with 10 years ago.He or she is looking abroad and seeing great oppor-tunities, and asking the question: “Why am I beingrestricted to Canada only?”

Will Canadians continue to focus on their personal finances?You’re not going to put the genie back in the

bottle. Once people discover mutual funds, and thesophisticated alternatives available to them, it willtake something significant to get them to back awayfrom it. Now that’s possible — you can spin a sce-nario where you have major bankruptcies of banksin South Korea or Japan and that cascades into aninternational banking crisis and international depres-sion. There are a large number of people, perhapsas many as 70%, who have never been through amajor bear market and don’t know what it feels like.They might well be scared off equities for a longtime if we have a major correction. I don’t expect a1929-type crash. I don’t think it’s probable, I don’tthink it’s likely. But the potential is there.

What will the Canadian dollar be worth 20 yearsfrom now?

I think probably 60¢. Finish this sentence: “If I were a bank president...”I would look both inward as well as outward

because caring for the individual welfare of my clientsis going to prove, long term, just as important as wor-rying about international competition.

Richard Worzel is a futurist, author and speaker. He lives in Toronto.

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RichardWorzel

Canadian futurist RichardWorzel has been talking upthe global economy since

the 1970s.The author,whose work includes

The Next Twenty Years OfYour Life, chatted with

Advisor’s Edge about thefuture of money andfinancial planning.

ADVISOR’S EDGE50

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