SPOUSAL RRSP SAVINGS+ SMOOTH WAYS TO CUT CLIENTS … · YOUR FLICKS By Boyd McAdam,investment advisor, RBC Dominion Securities,Toronto,as told to Philip Porado Book: Common Stocks

SPOUSAL RRSP SAVINGS + SMOOTH WAYS TO CUT CLIENTS LOOSE

CANADA’S MAGAZINE FOR THE FINANCIAL PROFESSIONAL JANUARY 2006

Carmela Harnum

2005 Advisor of the Year

Best Tax Solution

Rogers Publishing Limited, One Mount Pleasant Rd., Toronto, Ont. M4Y 2Y5 • Publications Mail Agreement Number 40070230

AE01_OFC 12/12/05 10:59 AM Page 1

5Inside EdgeEveryone deserves advice. But do indus-try trends prevent some from getting it?

8FRONT END LOAD Common KnowledgeRBC advisor Boyd McAdam tells us whya re-issued version of Philip A. Fisher’s1957 book, Common Stocks andUncommon Profits, still contains relevant lessons for stock pickers. And,straight from the horse’s mouth—MasterCard Canada offers credit cardtips for the new year.

10MVAs! (Most Valuable Advisors)Carmela Harnum, JoAnne Anderson,Stephen Koury and Timothy Carroll areour 2005 Advisor of the Year Awardrecipients.

13WINNER, BEST TAX SOLUTION The ShepherdCarmela Harnum brought proficient

tax-saving techniques to siblings in thewake of their parents’ deaths.

17WINNER, BEST STANDARD FINANCIAL PLAN

The MaximizersJoAnne Anderson and Stephen Kouryselected strategies to not only replace,but increase, a client’s salary upon jobseverance.

22WINNER, BEST INSURANCE SOLUTION

The GeneratorTimothy Carroll brought in a creativeinsurance option when a client’s businessassets were too low to fund a plannedlegacy.

RRSP SURVIVAL GUIDE

25Financing TogethernessBoth spouses must keep an eye on theirRRSP contribution limits.By Jamie Golombek

31Advisor Action Plan As your baby boomer clients switch from RRSP contributions to with-drawals, make sure they don’t bumpthemselves into higher tax brackets.By Evelyn Jacks

33Tax Break with Gena Katz

35Compliance Check with Ellen Bessner

37The Bowen Report with John J. Bowen Jr.

38CLOSING BELL with Beasley Hawkes

THE

JANUARY • 2 0 0 6 •VOLUME 9NUMBER 1

ONCOVER

www.advisor.ca ADVISOR’S EDGE | JANUARY 2006 3

17THE MAXIMIZERS

22THE GENERATOR

10 MVAs! (Most Valuable Advisors)

25 Spousal RRSP Savings

35 Smooth Ways to Cut Clients Loose

AE01_003 12/12/05 10:59 AM Page 3

Over the years, the advice indus-try has moved upmarket. I remember atime when all you needed was $25,000in investable assets to get started with areputable advisor. Now, many advisors(especially at brokerage houses) haveaccount minimums. The lowest figureI’ve personally heard is somewhere inthe neighbourhood of $150,000.

One trend we’ve written about exten-sively is streamlining your practice tofocus on the 20% of clients who gen-erate 80% of the revenues. And hey,you’ll get no arguments from me. Yourun a business and it’s difficult toincrease your revenues with people whohave few assets. Then there’s the timefactor: Why deal with more clientswhen you barely have time to see theones you have now?

Still, something really troubles me.What are the options for people whodon’t have much savings but need finan-cial advice? Arguably, clients with moremodest incomes need the most help,whether it’s setting up an emergencyfund, paying off the mortgage or mak-ing plans for the future. In some smallercommunities, it’s these people whoform the majority of the population, soadvisors must take on such prospects.

But where do people with modestincomes go for advice in urban areas?

The easy answer is “the bank,” wheresomeone will sell them some mutualfunds and help them set up RRSPs orRESPs. This in itself is hardly financialplanning. And you usually need someassets to even meet with a bank’s finan-cial planners.

I started thinking about this issueafter a recent interview with Sean Jack-son, CEO of Meridian, Canada’s thirdlargest (and Ontario’s largest) creditunion, with $4 billion in assets. You see,Sean believes a financial plan is a basicnecessity for every Canadian, just likeclean drinking water.

Sean comes from a working-class back-ground and understands what it’s like tostruggle financially. His parents neverowned real estate but they both workedhard at their jobs. He believes they couldhave saved for a down payment on ahome if they had a financial coach work-ing with them. Sean brings this “advicefor the rest of us” philosophy to Meridian, and he’s made it a priority tohave an advisor work with more of thecredit union’s 187,000 members.

What a refreshing change . . . an executive who actually sees value in

working with average Canadians!Regardless of a client’s financial situation, any member can deal with afinancial planner, who is required tohave the CFP designation.

So, what’s the catch? Sean wants moreshare of wallet from his members.Meridian, the result of a recent mergerbetween Niagara and HEPCOE, alreadyreceives high trust ratings from members,and the strategy is to extend that trust byoffering them financial advice. “Althoughsome of their assets are small, our propo-sition is that financial planning is goodfor them and they’ll continue dealingwith us,” Sean explains.

In an industry shaped by profits andtargets, it’s nice to know that some peo-ple are providing good advice to thosewho don’t meet the required accountminimum. Carmela Harnum is onesuch advisor. A 2005 Advisor of theYear Award recipient, Harnum “helpsanyone who wants help and who isinterested in helping themselves achievea goal. It’s good for the soul.”

I couldn’t agree more.

DEANNE N. GAGEEDITOR

[email protected]

INSIDEEDGEADVICE FOR THEREST OF USEveryone deserves advice. But do industry trends prevent some from getting it?


AE01_005 12/13/05 1:03 PM Page 5

ADVISOR’S EDGEDeanne N. Gage, Editor Bert Vandermoer(416) 764-3803, [email protected] Contributing EditorPhilip Porado, Associate Editor Jennifer Molleson, Production Manager(416) 764-3802, [email protected] (416) 764-3928, [email protected] Staseson, Assistant Editor Marie Atkins, Executive Assistant(416) 764-3804, [email protected] (416) 764-3847, [email protected] Nicholson, Art Director(416) 764-3850, [email protected]

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, established 1998, is published by Rogers Publishing Limited, a division of Rogers Media Inc. Advisor’s Edge subscriptions include 24 issues per year, consisting of 12 issues of Advisor’s Edge in magazine format and 12 issues of Advisor’s Edge Report in tabloid newspaper format.

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EDITORIAL ADVISORY BOARDElaine Andrew John OrdInvestors Group BMO Nesbitt BurnsDavid Wm. Brown Jim RogersAl G. Brown and Associates Rogers Group FinancialDavid Christianson Nancy ShewfeltWellington West Total Wealth Management Wellington West Capital Inc.John De Goey Thane StennerBurgeonvest Securities The Stenner Group, CIBC Wood GundyRobert Fleischacker Lynne TriffonAdvocis, Stonehaven Financial Group T.E. FinancialCynthia J. KettStewart & Kett Financial Advisors Ltd.

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WHAT’S NEW @ ADVISOR.CA?■ Economists provide their fearless forecasts for 2006

■ Part three of our RRSP Survival Guide: January’s theme

is asset allocation and portfolio construction and includes:

› A closer look at behavioural finance and portfolio

construction

› Expert advice on portfolio considerations for clients

over 50

› A handout for clients that illustrates the risk and reward

relationships of different types of investments

■ Daily news coverage of the industry stories and issues you

need to know

■ Insurance case study archive under “Insurance” in our

Investments Zone

■ Lively debates on industry issues in our online discussion

forum

■ The latest market news, in our twice-daily e-mail bulletins

ALWAYS ONLINE @ ADVISOR.CA!

6 ADVISOR’S EDGE | JANUARY 2006 www.advisor.ca

AE01_006 12/12/05 11:26 AM Page 6

YO

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KS By Boyd McAdam, investment advisor,

RBC Dominion Securities,Toronto, as told toPhilip Porado

Book: Common Stocks and Uncommon Profits, byPhilip A. Fisher

I read an interview with Warren Buffett where he mentionedthis book. I’m not a slavish devotee, though I have great respectfor what he’s achieved for his shareholders.

The book was originally published in 1957 but was re-issuedin 2003. It’s about the qualitative side of analyzing a company,as opposed to the quantitative side, and the idea that one shouldlook at the business fundamentals. It takes you away from thehard-and-fast chartered financial analyst (CFA) backgroundwhere you crunch the numbers to select stocks. Instead, youstand back and say, “Does this make sense?”

When deciding whether a company is a good pick, thebook suggests looking for things such as sales increases, man-agement’s determination to develop new product lines whencurrent products have run their courses, the company’slabour and management relations, and the quality of theircost and accounting controls. These are things you can’tdevelop models for—which is what the CFA training triesto get you to do. The book also includes some “investordon’ts,” such as: don’t overstress diversification; and don’t puttoo much weight on economic indicators.

I always look for companies with good fundamentals andwhen investing in my own account, I know that I make moremoney if I wait patiently, rather than flip stocks all the time.Sure, you have to cut losses early when something makes youqueasy, but it’s also important to let your gains run—and that’s a hard thing to do because the temptation in thisbusiness is to be driven by the transaction.

The book got me thinking about the perils of trying tomarket time. People tend to want to sell right after a run-up but they don’t understand the fundamentals can continuepositively into the future. In some excellent companies, thegains continue to run up for a long time.

COMMON KNOWLEGDE

FRONT

ENDLOADPeople, trends, events and analysis


Foreign TerritoryOver a 40-year period, Canada’s economic

activity under foreign control (measured by share of assets and company revenue)

declined and then rebounded. By 2000,foreign control in non-financial industries was

almost level with that of the mid-1960s.

Source: Statistics Canada, Retail Trade Study, March 2005

Cartoon by S

ue Dew

ar

AssetsRevenues

19650

5

10

15

20

25

30

35

40

%

1970 1975 1980 1985 1990 1995 2000

Year

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CA

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To submit an event, [email protected]

NEW YEAR CREDIT CHECKn unsuspecting authority—Master-

Card Canada—is urging Canadians

to practise prudent planning while head-

ing into 2006—especially when carrying

plastic.

According to vice-president of public

affairs, Jennifer Reed, the most important

thing consumers can do to stay within

their financial guardrails—whether it’s

shopping or paying bills—is to set a budg-

et, stick with it, and understand there’s a

time and place for using credit wisely.

And don’t panic over the holiday

spending hangover, says Credit

Counselling Canada spokesperson Laurie

Campbell. “You’ve got to start the new

year off right. Beating yourself up over

spending is not going to resolve the prob-

lem. It’s time to be kind to yourself and

really sit down and use some willpower to

determine how you’re going to resolve the

problem within a period of time—whether

it takes a year, six months, whatever.”

Both Reed and Campbell agree

Canadians can gain a greater understand-

ing of their financial habits by regularly

sitting down together to discuss their

household budgets.This includes setting

one and understanding its advantages,

constraints, and together determining

whether they can tread cautiously on

their own, or whether they might need to

seek guidance from an advisor.

Reed recommends MasterCard’s

website as a great resource from which

to start the sit-down process. MasterCard

Canada has teamed with Credit

Counselling Canada to develop online

educational tools, such as the “Financial

Reality Check,” allowing families to par-

ticipate in an interactive, online quiz to

see where they fit in the money-manage-

ment arena.

Campbell suggests bringing up money

talk with kids close to the cradle. “Start

them at the age of four or five.They may

not be able to grasp it earlier than that,

but certainly at four they can grasp that

this dollar will buy this,” she says, adding

that kids need to know they can’t have

everything they ask for, and instead need

a firm understanding of the value of care-

ful financial planning and the work it

takes to purchase things.

Teach children about spending early on

and simultaneously put them on a budget,

notes Sandra McLeod, director of succes-

sion and estate planning for Grant

Thornton, LLP in Toronto. “You can start

the discussion very basically.Tell [chil-

dren] they have to choose between their

bike and their new skates, or whatever it

is.They can’t have it all because it all

costs money . . . and Mommy and Daddy

have to work in order to make the money

to buy the things that they want.”

Reed adds it’s like being a safe driver.

“Once you’ve got those habits ingrained,

you’re going to carry them through the

rest of your life.”

—Heidi Staseson

DEBT MANAGEMENT

A

33336666%%%%

of men planning to open a business

do so to become wealthy

WHILE

22223333%%%%

of women planning to open a business

do so for the same reason.

SOURCE: IPSOS-REID/RBC POLL, AUG. 2005

• Check your credit rating once a

year—like you change winter tires

or flip mattresses annually.

• Don’t wait too long to pay bills—

like when the collection agency calls.

• Don’t hide from your problems;

open bills when they arrive—don't

sock them away in the “special bill

drawer.”

■ JANUARY 10 to 11, 4th Annual Income

Trusts Conference, St. Andrew’s Club

and Conference Centre, Toronto,

www.insightinfo.com ■ JANUARY 12 to 13,

Taxation of Financial Products and

Derivatives, Toronto, www.federatedpress.com

■ JANUARY 19 to 20, 7th National Forum

on Pension Law, Litigation and

Governance, Sutton Place Hotel, Toronto,

www.canadianinstitute.com ■ JANUARY 23 to

24, 5th National Summit on Income

Trusts, The Marriott Bloor Yorkville,

Toronto, www.canadianinstitute.com

■ JANUARY 31 to FEBRUARY 1, Canadian

Captive Forum 2006, Four Seasons

Hotel, Toronto, www.strategyinstitute.com

■ FEBRUARY 1 to 3, Due Diligence, Toronto,

www.federatedpress.com ■ FEBRUARY 9TH,

To Fee or Not to Fee, Hellenic

Centre, Ottawa, www.tofeeornottofee.com

■ FEBRUARY 20 to 21, 6th Annual

Canadian Financial Institutions

Regulation Course, St. Andrew’s Club

and Conference Centre, Toronto,

www.insightinfo.com ■ FEBRUARY 23

to 24, 5th Annual Credit Derivatives

and CDO Symposium, The Marriott

Bloor Yorkville, Toronto, www.insightinfo.com

MONEY TIPS FOR ’06

AE01_008,009 12/12/05 11:28 AM Page 9


WINNER

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ST STANDARD FINANCIAL

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WINNER

BE

ST INSURANCE SOLUTION

WINNER

BEST TAX SOLUTIO

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CARMELA HARNUM

WINNER

BEST TAX SOLUTION

WINNER, BEST TAX SOLUTION:

CARMELA HARNUMDundee Securities Corp.,Toronto

PAGE13

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ADVISOR OF THE YEAR COVERAGE

STEPHEN KOURYJOANNE ANDERSON

WINNER

BE

ST STANDARD FINANCIAL

PL

AN

What makes JoAnne Anderson, Stephen Koury,Carmela Harnum and Timothy Carroll most valuable advisors?

or starters, it’s the factthey’re willing to go the extramile for clients. And it’s thefact they recognize how important their roles are.As Carroll explains, “Next to health, finances are crucialto well-being.Very few voca-tions afford a professional thesame opportunity to positively influence people’s financiallives that financial advisementdoes.”

The Advisor of the YearAwards, now in its seventh year,was started by this magazine to showcase excellence andprofessionalism in the advisorcommunity. Advisors wereasked to submit one blindedcase study (in the area offinancial planning, insurance ortax) that best demonstratedhow they helped a particularclient.

Each case study was rated byour panel of industry judges,based on five criteria: how wellthe entry met the client’s needs

and objectives; the level of difficulty of challenges posed;the creativity/originality of solutions; the execution of theplan; and how well the resultswere achieved.

tarting on page 13,we provide a summation ofeach award-winning case study.

Do you have a case studythat’s a winner? Watch for the 2006 Advisor of the YearAwards entry form in an upcoming issue. Perhaps your name will appear in our pages in the future.

pecial thanks to our Advisor of the Year judges:Catherine Hurlburt of AssanteFinancial Management,Vancouver; Cynthia Kett of Stewart & Kett FinancialAdvisors,Toronto; Cam McIntosh of Overseas Tax Consultants, Calgary;and Pierre Saint-Laurent of AssetCounsel in Mount Royal, Que.

S

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SWINNER, BEST INSURANCE SOLUTION:

TIMOTHY CARROLLAssante Wealth Management, Dartmouth, N.S.

PAGE22

WINNER, BEST STANDARD FINANCIAL PLAN:

JOANNE ANDERSON & STEPHEN KOURYThe Wealth Management Centre, Mississauga, Ont.

PAGE17

TIMOTHY CARROLL

WINNER

BEST INSURANCE SOLUTION

AE01_010,011 12/12/05 11:29 AM Page 11


ADVISOR OF THE YEAR • BEST TAX SOLUTIONP

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Tax-saving techniquesbring comfort to siblings in the wake of their

parents’deaths.

CARMELA HARNUM

WINNER

BEST TAX SOLUTION

he Challenge:Even though Jack Doran*

had been Carmela Har-num’s lawyer for more than

three decades, he onlybecame a client in the summer

of 2000. Whenever he andHarnum would meet, she

would ask, “Don’t you thinkyour wife, Joan, should be aware

of your financial situation?”Although Jack was a successful

lawyer and comfortable with help-ing others make important deci-

sions, he tended to procrastinatewhen it came to his own affairs.

“You’re absolutely right,” he admitted.“It is high time that I got her involved.”

A week later, Jack called Harnum withhorrible news: Joan had been diagnosedwith terminal cancer. Considering Joan’sdeclining state, Harnum found Jack evenmore reluctant to involve his wife with thefinancial situation.

As the family focused throughout theyear on Joan’s declining health, it cameas a complete surprise when Jack diedunexpectedly. The family’s financialaffairs now landed in Joan’s hands.Upset and unprepared to deal withthese details, Joan contacted Harnumand asked for her assistance. At the firstmeeting, Joan handed Harnum variousstock and bond certificates. AlthoughJack had carefully kept track of all his

T

Continued on page 14

*All client names have been changed.

AE01_013-014 12/12/05 11:43 AM Page 13


financial papers, he had not filed themin any order.

Joan needed a complete inventory ofJack’s assets and wanted to have themproperly registered. She also wanted Har-num to construct a new worry-free port-folio, and provide her with a view of whather future financial picture would looklike. She wondered about the best way to minimize tax on her death when theassets would pass to her two twenty-something daughters, Tanya and Tina.Finally, she wanted peace of mind thatTanya and Tina would be taken care of.

Harnum’s Solution:Due to Joan’s condition,Harnum conducted hermeetings at the Doran res-idence. Harnum spentmore than 50 hours organ-izing all the client’s financialfiles, having the stocks andbonds properly re-registered,and providing a consolidatedreport of all Joan’s assets. Shetook time to advise Joan, Tanyaand Tina on some of the basicsof financial products, so theywould be able to make more effectivefinancial decisions.

To optimize Jack’s final tax return,Harnum worked with the family’saccountant to determine the adjustedcost base of Jack’s investments.Together, they determined Joan shouldstart withdrawing $150,000 per yearfrom her $800,000 registered portfo-lio for five years to control the tax dueat death. This was intended to keep herunder the 40% tax bracket and save thedaughters approximately $10,000 foreach year this was done.

Given the size of Joan’s registeredportfolio and the $150,000 she wasgoing to withdraw each year, Joan wouldnot need any income from her$250,000 non-registered portfolio.Therefore, Harnum re-allocated Joan’snon-registered assets to capital-gainsproducts instead of interest-incomeproducts—once again reducing thetaxes.

For someone who would remain alivefor several more years, the proposedchanges may have appeared inappropri-ate, so the portfolio alterations weremade only after

receiving writtenapproval from Joan’s accountant, herestate lawyer and her daughters. Toavoid probate tax, Harnum movedJoan’s non-registered account to a joint-with-right-of-survivorship account withher two daughters.

As she had been charged with theduty to provide a stable plan for Tanyaand Tina, Harnum worked with Joan’saccountant to find the best tax solution.Working with the accountant, Harnumrecommended the estate split the taxesover two years, and thus save approxi-mately $25,000 in taxes. Also, themoney in the Doran Family Trust was

to be paid to Tina (the daughter withthe lower income) over a period of twoyears, instead of in one lump sum,thereby reducing the income tax owing.

Harnum engaged an estate lawyer toassist with a tax-efficient method totransfer the family home from Joan’sname to Tanya’s and Tina’s. A Gift ofDeed was drafted (to be triggered priorto death) to transfer the home to thegirls without paying land transfer taxesand without need for probate, therebysaving them those fees.

When Joan took an unex-pected turn for the worse laterthat year, Tanya called Har-num and the Gift of Deedwas triggered, with the housetransferred to the daughterswithin the hour. Joan diedthe next day.

In spite of the sadbusiness of losing twoparents within one year,Tanya and Tina arethankful they had nofinancially related

stress to cope with upon the prematuredeath of their mother. Net of lawyer’sfees, the Gift of Deed and the re-regis-tration of the non-registered account,Harnum and her team eliminated pro-bate fees of approximately $13,000.Their planning saved more than$10,000 in income tax on the termi-nal tax return and they saved the estateapproximately $25,000 in taxes. Theuse of a joint account saved the estatemore than $3,000 in probate fees.

Thanks to Harnum, Joan, Tanya andTina saved over $50,000 in taxes andfees. As Tanya says: “She went aboveand beyond . . . saving us a great deal ofmoney and stress.” —Michael Berton

Illustration by Craig Terlson

CARMELA

HARNUM

CFP, FDS, DIRECTOR,

PRIVATE CLIENT GROUP

DUNDEE SECURITIES CORP.

Toronto

• Loves golf, travelling and shopping for bargains

• Can’t get enough of finding ways for clients to save money

• Believes too much diversification is as bad as too little

• Advises 220 client families and has $62 million in assets

under management

• Motto: “A penny saved is often two pennies earned.”

Continued from page 13

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ADVISOR OF THE YEAR • BEST STANDARD FINANCIAL SOLUTIONP

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STEPHEN KOURY

JOANNE ANDERSON

WINNERB

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Selective strategiesnot only replace, but

increase,a client’s salary upon jobseverance.

he Challenge:Lynn Smith* was in shock. After work-ing 20 years as a conference planner, herjob was being phased out. But there wasan interesting twist: Her employerencouraged her to start her own business,continuing to offer the same services toexisting clients and others.

At 54, and single with no dependents, Lynn had concerns about

becoming self-employed. Her assets included an open portfo-

lio, an RRSP and a defined contribu-tion pension plan from her firstemployer. She also had her defined ben-efit pension plan that would start pay-ing her $2,418 per month at age 65.The commuted value of the pensionwas about $256,000. Her only debt wasan investment loan, with a balance ofabout $57,000.

Lynn’s first concern was whether thebusiness was feasible. Then, she wouldrequire assistance setting it up, choos-ing a name and a form of ownership,and establishing both bookkeeping andreporting systems. Once the business was up and running, she’d need cashflow management tips and advice onhow to plan for tax instalments on her

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self-employed income. She also won-dered if she should consider replacingthe group benefits she had enjoyed asan employee.

Lynn knew she needed the most tax-efficient handling of her severancepackage.

She wanted assistance managing herretirement assets, defining her retire-ment plans, determining retirementincome needs, and designing a strategy

to fund them with her investments, pen-sion plans, termination package andongoing cash flow. She also neededadvisors JoAnne Anderson and StephenKoury to provide guidance on what sortof retirement home she could afford inher Eastern Ontario hometown.

Anderson’s and Koury’s Solution:To begin, Anderson started workingwith Lynn on her business plan, ana-lyzing various structure options. She

recommended Lynn run the businessas a sole proprietorship, as it wouldprovide administrative simplicity.Anderson assisted her with registra-tion of the business, and helped herto set up accounts in QuickBooks.As Lynn was running her businessfrom her rented Toronto home,Anderson suggested she deductthe applicable home officeexpenses. She also advised her totrack her total mileage anddeduct the business-relatedauto expenses.

When Lynn finally lefther job one year later, herseverance package amountedto two years’ income—a portion of which

qualified as an “eligible retiringallowance” and was transferred directlyto her RRSP. The planners recom-mended she set aside at least $25,000from the proceeds as an emergencyfund, to smooth out cash flow defi-ciencies should her new clients be slowto pay, or if contracts did not material-ize as expected. The balance of approx-imately $79,000 was transferred to heropen investment account.

In case Lynn decided to buy a house,Anderson recommended she look forreal estate with a maximum cost of$175,000, using $50,000 for a downpayment. This would allow her to payoff the remaining mortgage in 10 years.

Lynn also chose to take Anderson’sadvice on the deferred pension option.This gave her a future guaranteed streamof income to rely on throughout retire-ment—one that would be supplementedby her personal retirement assets.

Planning calculations indicated that,starting in her second business year,Lynn would be able to maximize herRRSP every year, as well as add approx-imately $30,000 annually to her non-registered investment account. Based onthese facts, and Anderson’s retirement-

Illu

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Cra

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STEPHEN KOURY

INVESTMENT ADVISOR

THE WEALTH MANAGEMENT CENTRE

Mississauga, Ont.

JOANNE ANDERSON

FEE-ONLY FINANCIAL PLANNER

THE WEALTH MANAGEMENT CENTRE

Mississauga, Ont.




AE01_017-021 12/12/05 11:49 AM Page 19

planning assumptions, Lynn would havesufficient income and assets to cover herexpenses throughout her anticipatedlifespan, assuming she earned an aver-age annual rate of return on her invest-ments of between 6.5% and 7.5%.

A capital-needs analysis revealed Lynnhad no real requirement for life insur-ance, as her assets would handily coverany tax liabilities and debts. Similarly, herstrong net worth meant she had no greatneed for disability coverage as she coulddraw from her pension with one month’snotice. However, the advisors suggestedLynn purchase liability insurance cover-age for her business.

Koury then developed an asset allo-cation plan more in line with Lynn’s riskprofile and investment objectives. At theoutset, Lynn’s portfolio was almost

100% equity-based and not well diver-sified. He restructured it so the overallasset allocation became 65% equity and 35% fixed income, with a widerdistribution of assets among several different asset classes.

The goal was to provide marketreturns on the portfolio with lessvolatility. Tax efficiency was improved,as interest income would now be shel-tered within the RRSP, and the openaccount now was more heavily weightedtowards investments with capital gainspotential, Canadian dividend incomeand return of capital. Anderson andKoury recommended Lynn maintain thetax-deductible investment loan, butswitch to a blended payment so the loanwould be paid off by retirement.

With Anderson’s and Koury’s assis-tance, Lynn was able to make a suc-

cessful transition from employee tobusiness owner. She converted 100% ofthe clients from the former employer toher new company. For 2005, her pro-jected gross income is about 25% morethan her previous salary, with a net tax-able business income that puts her atleast on par with what she had beenearning previously.

From a risk management standpoint,she is now protected against cata-strophic loss with her liability insuranceand a well-diversified investment port-folio. While Lynn has postponed ahouse purchase, her investment resultshave been exceptional, producing market returns with less volatility. Shecontinues to maximize her RRSP contributions and transfer investmentsto her non-registered portfolio.

—Michael Berton



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AE01_017-021 12/15/05 5:31 PM Page 21


he Challenge:Eva Pacek*, 74, didn’t need to use theinvestment funds in the Holding Com-pany (Holdco) of the family deli busi-ness. She had plenty of money from herpersonal investments, and wanted tofind a way to give her business assets toher six children.

After several discussions with herlong-time advisor, Tim Carroll, Evadecided she wanted to leave each of hersix children $500,000, tax-free. Therewere three significant problems to betackled to make this possible. First, theHoldco’s total assets were approximately

$2 million, not enough to pro-vide a $3 million after-tax estategift to her children. Second, dis-tributing the funds would give riseto income tax estimated at nearly$600,000. Finally, if Eva diedholding the shares of the hold-ing company, there would be anestate capital gains tax payableof approximately $250,000.

Carroll’s Solution:Carroll knew he needed help with thiscase. With prior approval from Eva, hecontacted the necessary experts includinghis dealer’s regional insurance expert, her

accountant whohad worked for the family for many

Photography by Janet K

imber

A creative insurance optionis brought in when a client’s business assets were

too lowto fund a planned legacy.

T

TIMOTHY CARROLL

WINNER

BE

ST INSURANCE SOLUTION


AE01_022-023 12/12/05 11:50 AM Page 22


years, as well as the accountant who hadpresided over a corporate re-organizationin 1987, when two of her sons, Tomasand Stephen, gradually learned to run thebusiness. The sons assumed full controlof the business after the death of Eva’shusband, Richard, in 1997.

At the time of the re-organization, thebuyout proceeds of the operating busi-ness, along with the corporate surplusfrom the operating company, were con-solidated in the Holdco. Over the years,Carroll had assisted the Paceks with the

management of the investment assetswithin the Holdco. But Eva nowwanted much more certainty in the

outcome of her estate plan.First, Carroll confirmed the details

of the share structure and the adjustedcost base of the Holdco shares. Then,working with the insurance expert, Car-roll explored every avenue and strategythat might possibly realize the client’swishes. But one strategy seemed to ful-fill the client’s wishes better than anyother—the corporate-insured annuity.They decided to meet with bothaccountants to explain the strategy.

The corporate-insured annuity wasconfirmed as the best overall solutionto meet Eva’s goals. But Carroll and Evawere unprepared for the challenges theywould confront.

The corporate-insured annuity strat-egy requires an underwriting approvalbe received on the life insurance policyand that the life insurance contract isplaced before the annuity is purchased.Once the life insurance is placed, theadvisor can then seek the best rate for asingle-life non-prescribed annuity, withno guarantee, to pay for the insuranceuntil death.

Eva went through a series of med-ical tests and then Carroll had to finda favourable underwriting decisionwithin 180 days before the medicalevidence would be considered stale.While the primary life carriersunderstood Carroll’s strategy andits application, the re-insurerswere not as familiar withadvanced estate planning strate-gies. They simply weren’t pre-pared for an aging motherwho had followed a modestand frugal lifestyle, but who

nonetheless wanted to give her children alarge legacy. They started looking for apersonal income level required to pay thepremium on a $3 million permanent lifeinsurance contract, and they couldn’t findit. None of the conventional re-insuranceunderwriting metrics could validate thestrategy, even though the life annuitywould entirely pay for the life insuranceinto perpetuity.

For the investment funding within thecontract, Carroll selected an interest rate-based option with a lifetime guaranteedminimum. This way, the death benefit,annuity payments, insurance costs andminimum internal returns would be fullyguaranteed by the insurance company.

Eventually, Eva was approved for $2.7million of insurance coverage. This was90% of the target amount. To make upthe difference, Carroll was able to trans-fer into the Holdco an additional$200,000 fully funded personal univer-sal life policy that she already owned.Eva now had $2.9 million of coverageon her life, all owned by the Holdco.

With the largest hurdle behind him,Carroll assisted Eva with the purchaseof a $1.9 million annuity at afavourable rate and at a company withan industry-leading credit rating. Somefunds were reserved within the Holdcoto create a sinking fund, out of whichthe Holdco would pay the anticipatedincome tax on the annuity incomestream over the years. By having theHoldco own the insurance, the$600,000 in taxes was eliminated bypaying the death benefit through thecapital dividend account.

Upon delivery of the annuity con-tract, Eva’s strategy was fully in placeand her family legacy secured.

—Michael Berton

ADVISOR OF THE YEAR • BEST INSURANCE SOLUTION

TIMOTHY CARROLL

FINANCIAL ADVISOR

ASSANTE WEALTH MANAGEMENT

Dartmouth, N.S.

• Loves skiing and using his telescope

• Believes that next to health, finances are

crucial to well-being

• Sees being an advisor as a rare and

significant role

• Has been advising clients for 26 years

• Currently reading: Influence:

The Psychology of Persuasion

(Harper Collins Canada)

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AE01_022-023 12/12/05 11:52 AM Page 23

A spousal or common-law partnerRRSP (hereafter referred to simplyas a spousal RRSP) is one of the fewexplicitly legislated ways to income splitbetween spouses or common-law part-ners.

The primary benefit of a spousalRRSP is that funds withdrawn can betaxed in the hands of the annuitantspouse instead of the contributorspouse, subject to specific spousal attri-bution rules. If the annuitant spouse isin a lower tax bracket than the contrib-utor spouse in the year of withdrawal,there may be an absolute and perma-nent tax savings.

Technically, a spousal RRSP is anyRRSP to which one spouse or partneris the contributor and the other spouseor partner is the annuitant. As of 2001,a common-law partner is defined assomeone who cohabits in a conjugalrelationship with someone of the sameor opposite sex for a continuous periodof at least one year, or is the natural oradoptive parent of a child of one of thepartners.

Clients often get confused as to theamount they can contribute to a spousalRRSP. In fact, it’s really quite simple.Remind your clients they can contributeany amount they wish to either theirown RRSPs or spousal RRSPs, as longas the total contributed to all of themin a particular year does not exceed theirRRSP contribution limit for that year.

Let’s take Stuart, who earned$110,000 in 2005. His wife, Monique,earned $40,000. Stuart’s RRSP limitfor 2006 would be $18,000, which isthe lesser of 18% of his 2005 earnedincome ($19,800) and the 2006 con-tribution limit ($18,000). Stuart maydecide to contribute the entire $18,000to his own RRSP, a spousal RRSP forMonique or some combination of thetwo. Stuart’s RRSP contribution limitis not affected in any way by Monique’sown RRSP contributions.

So, what should Stuart do? Howdoes he decide? Unfortunately, inexpe-rienced advisors may look to the easyanswer and immediately conclude thatsince Monique is in the lower taxbracket, Stuart should make all of hisRRSP contributions to a spousalRRSP for her. It’s not that simple,however, since the real income-splittingadvantage of spousal RRSPs will arisenot today, based on the couple’s differ-ing tax brackets, but rather upon retire-ment and the differences between theirrelative tax brackets at that time.

Ideally, Stuart and Monique wouldsit down with a financial advisor andprepare a plan that would attempt topredict both the fair market value ofeach spouse’s non-registered and regis-tered assets upon retirement, as well aswhat sources of retirement income the couple will have. Only by doing afull financial plan, and attempting to

estimate the tax brackets Stuart andMonique will be in when they have to begin withdrawing money from their registered plans at age 70, can anadvisor come up with an optimalspousal/non-spousal RRSP contribu-tion strategy.

Other advisors have also naively sug-gested another quick fix: Try to ensurethat upon retirement each spouse hasabout the same amount of money in hisor her RRSP. While this may be betterthan having Stuart make his entireRRSP contribution each year to aspousal plan, the main flaw with thissimplistic approach is it fails to takeinto account other sources of incomeeach spouse may have upon retirement.

For example, let’s say Stuart plans tokeep working beyond age 69, ultimatelyproviding him with a meaningful sourceof income, in turn bumping him into ahigher tax bracket.

www.advisor.ca RRSP SURVIVAL GUIDE | JANUARY 2006 25


SPOUSAL SUPPORT

FINANCING TOGETHERNESS

RRSP rules allow a higher-income spouse to contribute to the retirement of a lower-income partner.By Jamie Golombek

RRSP

The annuitant

can ask the issuer

of an RRSP

(or RRIF) to

remove the

information about

the contributor

from the plan.

AE01_025-028 12/12/05 11:53 AM Page 25

Alternatively, what if Moniquestands to inherit a significant sum,which when invested may yield heradditional income upon retirement?These factors need to be taken intoaccount and that can only be done witha properly thought-out financial plan.

The Dreaded Spousal Attribution RuleThe Income Tax Act contains a specialattribution rule to prevent short-termincome splitting with RRSPs. Let’sexplore the potential for abuse whichcould occur in the absence of any anti-avoidance rule.

Let’s revisit Stuart and Monique butthis time assume Monique does notwork outside the home and has noincome whatsoever. In the absence ofany anti-avoidance rule, Stuart wouldsimply contribute about $8,000 a yearto a spousal RRSP, and the next dayMonique would withdraw the sameamount. Since Monique has no othersource of income, she would not payany tax on the withdrawal, since the$8,000 withdrawal is below the basicpersonal amount for 2006 and can bewithdrawn tax-free. In other words, Stu-art would get a tax deduction for the$8,000 and Monique would pay no taxon the withdrawal—an ideal short-termincome-splitting strategy! (Naturally,any advantage would be mitigatedsomewhat by the loss of tax-deferredcompounding inside the RRSP.)

That seems too good to be true,because it is. The Income Tax Act won’tallow this type of short-term incomesplitting and in response enacted theoften-confusing anti-avoidance spousalattribution rule. Simply put, if theannuitant spouse or partner withdrawsany funds from a spousal RRSP (orwithdraws more than the minimumamount from any spousal RRIF) within

three calendar years of any contributionbeing made to any spousal RRSP, thewithdrawal will be attributed back tothe contributing spouse or partner andtaxed in his or her hands.

So, in this example, Stuart would beforced to include Monique’s $8,000withdrawal in his own income, whichwould negate the RRSP deduction hetook and make Stuart’s seeminglyshrewd attempt at short-term incomesplitting futile.

Advisors should note the rule willnot apply in the year of death—although many would consider thispushing the limits of aggressive taxplanning. The rule also does not applyif one of the spouses or partners is anon-resident of Canada at the time ofthe RRSP withdrawal, nor does it applyif the spouses or partners are livingapart at the time of withdrawal due toa breakdown of their marriage or com-mon-law partnership.

Combining Spousal and Non-Spousal RRSPsA question often asked by advisors iswhether a client’s spousal and non-spousal RRSP accounts can be com-bined, perhaps to save on annual RRSPadministration fees or to facilitate assetallocation within a client’s RRSPaccounts. These requests occur whenone spouse or partner has died or thecouple has separated.

The CRA has always permitted theremoval of the spousal status on anRRSP account upon the death of thecontributor spouse, because there is noway the attribution rule could applyafter the contributor’s death.

When it comes to the removal of thespousal status upon separation ordivorce, the CRA has been less thanaccommodating historically, saying“even divorced couples may reconcileand therefore the attribution rules may

RRSP SURVIVAL GUIDE | JANUARY 2006 27

SPOUSAL SUPPORT


RRSP


AE01_025-028 12/12/05 11:55 AM Page 27

conceivably apply again.” The non-removal of the spousal flag has oftenbeen a bone of contention with dis-tressed clients who have to suffer theindignity of seeing an ex-spouse orpartner’s name on their RRSP accountseach time they open up their statements.

Finally, after years of lobbying, theCRA amended its administrative policyin this area and announced the changein the 2003 RRSP Consultation inOttawa. The CRA stated the annuitantcan ask the issuer of an RRSP (orRRIF for that matter) to remove theinformation about the contributor fromthe plan (or fund), provided certainconditions are met.

The first condition is that the RRSPissuer must have proof the annuitantand contributor spouses are living apartbecause their marriage or common-lawpartnership has broken down. Such

proof may take the form of a simplewritten statement, signed and dated bythe annuitant, or may simply be a copyof the separation agreement or divorcedecree. While this proof need not besubmitted to the CRA, the RRSPprovider will keep a copy on file for itsown records.

Second, there must be no spousalcontributions to any of the annuitant’sRRSPs for the year of the request andthe two previous years. This would alsobe evidenced by a written statement bythe annuitant that his or her formerspouse or partner did not contributeto any of the annuitant’s RRSPs in the calendar year of the request, nor inthe two immediately preceding calen-dar years.

The third and final condition is therecan be no withdrawals from the spousalRRSP during the year of the request.In the case of a spousal RRIF, no more

than the minimum amount can be with-drawn.

Once these three conditions are met,the RRSP issuer can remove the con-tributor spousal information from thespousal RRSP. As an alternative, theproperty can be transferred to a new orexisting individual RRSP in the annu-itant’s name.

Although the second and third condi-tions imposed by the CRA may seemsuperfluous (since the spousal RRSPattribution rule would simply not applyif the spouses are separated), the relaxingof the rules should provide some solaceto separated clients who may be contin-uously irked by seeing their ex-partner’sname on their RRSP accounts.

Jamie Golombek, CA, CPA, CFP, CLU,TEP, is the vice-president, Taxation & EstatePlanning, at AIM Trimark Investments inToronto.

SPOUSAL SUPPORT


RRSP


AE01_025-028 12/13/05 10:29 AM Page 28

www.advisor.ca RRSP SURVIVAL GUIDE | JANUARY 2006 31

ADVISOR ACTION PLAN

RRSP WITHDRAWAL PLANNING TIP SHEET

Make sure RRSP contributions are tax efficient in the finalyears before withdrawal.By Evelyn Jacks

An increasing number of your babyboomer clients will soon be changingtheir RRSP investment strategies froman accumulation to withdrawal focus.That requires a discussion of tax-effi-cient planning. Check out these facts:

2005 TAX CHANGES• The basic personal amount has

increased to $8,648.

• The spousal amount has increased to a

maximum of $7,344, reduced when the

spouse’s net income exceeds $735.

• The amount for other eligible depen-

dants (equivalent to a spouse) has been

changed to mirror the new spousal

amounts.

• Clawback zones should also be kept in

mind when structuring taxable income

from an RRSP, RRIF or other taxable

pension sources. For the year 2005,

OAS will be clawed back when individ-

ual net income is between $60,806 and

$98,850. The age amount is clawed

back when individual net income is

between $29,619 and $56,146. The

reduction in medical expenses tops out

at $1,844 when net income exceeds

$61,467.

• Maximum RRSP contributions for

2005 are 18% of earned income from

2004 up to a maximum of $91,667,

which results in maximum contributions

of $16,500.

• The lower federal tax rate has

decreased from 16% to 15% on

taxable incomes under $35,596. The

following federal tax rates apply over

this amount:

TAXABLE INCOME TAX RATE

Up to $8,648 0%

$8,649 to $35,595 15%

$35,596 to $71,190 22%

$71,191 to $115,739 26%

More than $115,739 29%

UN-MATURED RRSPs• Principal and earnings are taxed on

withdrawal and subject to tax withhold-

ing,so do a marginal tax rate calculation.

• Withdrawals may affect quarterly

instalment payments, so withdraw to

stay under the $2,000 balance-due limit

if possible.

• Withdraw more in years of low income,

wherever possible.

• If withdrawing near year-end, postpone

and withdraw in January in order to

defer tax liability to next year’s return.

• Withdraw up to top of current marginal

tax bracket.

• Couples: withdraw in hands of lower-

income earner first.

• Anticipate marginal tax rates upon

death of taxpayer and second surviving

spouse—often best to generate tax

during taxpayer’s lifetime, if death

produces higher income.

MATURED RRSPs• As RRSPs must be collapsed or matured

by the end of the year in which the

taxpayer turns 69, minimize taxes by

having clients avoid taking a lump sum.

• Plan to transfer accumulations to an

investment that will enable a periodic

taxable income: either an annuity, which

provides for equal monthly payments

over a period of time, or a RRIF,

which provides for gradually increasing

payments over time.

• Make a final RRSP contribution at

year-end if unused RRSP room is cre-

ated with current-year income, even if

an over-contribution results in a one-

month penalty tax.

• Continue to make spousal RRSP con-

tributions for a younger spouse to

reduce taxable income while withdraw-

ing taxable RRSP/RRIF benefits.

Evelyn Jacks is president of The KnowledgeBureau. www.knowledgebureau.com

RRSP

Advisor.ca extends its RRSP SurvivalGuide coverage with an online pack-age featuring more expert insightsand advice.This special Januarypackage includes:

• A closer look at behaviouralfinance and portfolio construction

• Expert advice on portfolio considerations for clients over 50

• A handout for clients that illustrates the risk and rewardrelationship of different types of investments

All this and much more can be foundin “My Practice” at www.advisor.castarting January 10, 2006. For otheronline resources related to articles in this magazine, please visitwww.advisor.ca/interact/.

More online

www.advisor.ca/interact@

✁✁

AE01_031 12/12/05 11:33 AM Page 31

BREAKTAX

Moving costs can be deductible, even if the transfer took place in a prior year. By Gena Katz

RELOCATION WRITE-OFFS

One way Canadians are becomingmore like Americans is that we’re mov-ing more. And I’m not talking aboutexercise.

If your clients have relocated withinthe past year, or are considering amove in the near future, keep in mindthere are some tax benefits to be had.A little planning can ease some of thehigh costs of relocation.

If an individual moves due to ajob or business transfer, to start anew job or business, or to attendschool, he or she can deduct certainreasonable moving expenses.

In the case of employees and self-employed people, the move must bewithin Canada. For students, eitherthe old or new residence must bewithin Canada. In all cases, the new residence must be a least 40kilometres closer (by the shortestnormal route) to the new place of work or school.

People who live outside Canada,but are considered residents ofCanada for tax purposes, may deducteligible moving expenses for a moveoutside the country, a move back toCanada from another country, or evenbetween locations outside Canada.The list of eligible moving expenses isquite specific and includes:

• Travel costs, including a reasonableamount for meals and lodgingincurred while moving the taxpayerand household member from theold to the new residence;

• Storage and transportation ofhousehold effects;

• Up to 15 days of temporary lodg-ing and meals near the old or newresidence;

• Lease cancellation payments relat-ing to an unexpired lease on a for-mer residence;

• Costs relating to the sale of the oldhome, including real estate com-missions, advertising and legal fees,and mortgage discharge penalties(losses incurred on the sale are notdeductible);

• Costs incurred when the formerresidence is sold by the taxpayer or the taxpayer’s spouse, legalexpenses and any taxes (other thanGST) relating to the purchase of anew home;

• Up to $5,000 of the cost of main-taining the vacant home whileefforts are being made to sell theproperty, including interest, prop-erty taxes, insurance, and heatingand utility payments; and

• Other sundry fees, such as the costsof revising legal documents toreflect the new address, replacingdrivers’ licences and vehicle owner-ship permits, and fees associatedwith the disconnection and recon-

nection of utilities.The amount of eligible moving

expenses deductible in a year is limitedto employment or business incomefrom the new work or business loca-tion. In the case of a student, it’s lim-ited to scholarships, fellowships, bur-saries or research grants received in thenew location.

There will be situations where theeligible moving expenses exceed theincome from the new location—suchas when a move takes place near theend of a calendar year.

If a person can’t deduct movingexpenses because of the income limi-tation, they will be deductible in thefollowing year. But, again, the deduc-tions only apply to eligible incomefrom the new location.

It’s important to note expenses neednot be incurred in the year of the moveto be deductible. Even if a person sellsa former residence two years afterstarting a new job, and incurs sellingcosts in that year, expenses will still bedeductible. Keep in mind, though, thelonger the interval between the moveand the selling of the former property,the less likely the selling costs will beconsidered expenses in relation to therelocation.

Gena Katz, CA, CFP, is a senior principal with Ernst & Young’s NationalTax Practice in Toronto. “Tax Break”appears monthly.


THIS IS THE FIRST OF ATWO-PART SERIES

ON MOVING EXPENSES.

AE01_033 12/12/05 11:34 AM Page 33

CHECKCOMPLIANCE

Don’t hang on to clients who are more trouble than they’re worth. By Ellen J. Bessner

WALKING PAPERS

Advisors have every right to fireclients if they’re not working out. Butremember, there’s a right way and awrong way to handle such termina-tions. First, the client must have a rea-sonable amount of time to findanother advisor, and that length oftime is based on the following: • The size of city or town will deter-

mine the available access to newadvisors.

• The client’s level of sophisticationmay determine his or her ability to replace the advisor in a timelyfashion, i.e., seeking referrals.

• The account type—basic account ormore diversified and complex invest-ment portfolio—may determinelevel of needed advisor expertise.Initiate conversation with the client,

and then confirm in writing that sheis expected to hire another advisor. Ifyou are still on speaking terms withher, she might be able to provide youan estimate of how long it might takefor her to switch. If not, err on theside of caution, still keep a writtenrecord, but allow your client moretime to find another advisor.

Consider whether there are anylooming issues for the client. Forexample, is RRSP season around thecorner? Is an investment close tomaturity and will thus require action?You cannot leave clients in a lurch, somake sure loose ends are tied and theclient is not going to be financially in

dire straits upon the severance of yourrelationship. (I was told once about anaccountant who fired a client on theeve of tax-return time—not a goodidea. A move like that may come backto haunt the advisor in the form ofmonetary damages the client may suffer as a result.)

If possible, terminate the relation-ship when matters are not so far gonethat you and the client want to killeach other. You certainly don’t wantthe client to be angry enough tolaunch a complaint, so saving facemight be a wise choice.

Perhaps suggest he would be bet-ter served working with an advisorwho specializes in an area that isappropriate for his account. The clientmay refuse at first, but later come tosee the merit of your suggestion andhire that person.

Even better is if your tact, skill, andcreativity can somehow make theclient think the termination was his orher idea. However, in doing so, DONOT insinuate or admit—either ver-bally or in writing—that the dissolu-tion of the relationship was your fault.In other words, don’t treat this like abreakup of a personal relationship—read: “It’s not you, it’s me.” If whatyou communicated could be con-strued as an admission of responsi-bility, and the client should later sue, this may open the door for aninsurer to refuse coverage. But remem-

ber, as a safeguard, anything in writ-ing is to be reviewed by compliance inadvance.

The other way to approach cuttingbusiness ties with unsuitable clients isto simply not take them on in the firstplace. Why not conduct regular eligi-bility meetings? For example, Jenny is an advisor whose first interviewswith prospects always include a thor-ough personality assessment. Life’s tooshort to deal with a client who wouldotherwise be a pain, so she weeds outpotential problems from the begin-ning with this checklist:• There’s a match between the client’s

wants and needs, and the advisor’sservices.

• This is not the type of client whochanges her advisor every sixmonths.

• The potential client has never suedor issued a regulatory complaintagainst an advisor.Bottom line: Letting go of prob-

lematic clients doesn’t have to be toodifficult. When done with finesse, itwill most certainly bring you peace ofmind.

Ellen J. Bessner is a lawyer at Gowling,Lafleur, Henderson. She practises in the areaof brokers’ liability and offers compliancetraining to brokerage firms. The above isintended for a general audience and shouldnot be considered legal advice. “ComplianceCheck” appears every other issue.


AE01_035 12/12/05 11:55 AM Page 35

REPORT

Once you formally sign the client, begin the referral process.By John J. Bowen Jr.

INK THE DEAL

Few things will boost an advisor’slevel of success as efficiently as shift-ing to a wealth-management approach,because it’s grounded in an in-depthconsultative process that gives you adeep understanding of clients’ valuesand goals. And that enables you to tailor solutions to each of them.

The process I recommend revolvesaround a series of five client meetings:a discovery meeting; a wealth-man-agement plan meeting; a mutual-com-mitment meeting; a 45-day follow-upmeeting; and then regular progressmeetings.

Last month, we looked at thewealth-management plan meeting, atwhich you present the prospect withyour comprehensive agenda for achiev-ing his or her financial goals. The nextstep is the mutual commitment meet-ing—where your hard work pays offand the prospect becomes your client.

Six steps will make this a successful meeting:❶Collect and address all questions.

Start the meeting by asking theprospect whether he or she has anyquestions about the wealth man-agement plan. Capture all questionsbefore you respond to any of them.As you answer each question, offer“proof statements,” such as articlesand books aligned with your phi-losophy that can address issuesraised by the prospect. For example,

if you’re recommending a specificstock option strategy as part ofyour plan, have an article handy thatyou read and liked about the strat-egy to effectively ease any concerns.

❷Execute the documents. Onceyou’ve taken care of all questions,tell the prospect you’re ready to setthe plan in motion by executing theaccount documents. Prepare all thepaperwork in advance, with “signhere” stickers attached in appropri-ate places. Often, the prospect willbe opening multiple accounts, sotake time to explain each set ofdocumentation. At this time you’llalso collect cheques, as appropriate.

❸Congratulate the client. Once thedocuments have been executed,pause for a moment to congratulatethe client. Say something like, “Youshould be commended for doing agreat job. Congratulations on tak-ing an extremely important steptoward securing your financialfuture and achieving the things thatare important to you.”

❹ Implement the referral process.Once your prospect becomes aclient, immediately begin leveragingthe relationship by asking for refer-rals. Since your new client isimpressed enough to trust you withhis or her financial future, he or she

is usually willing to provide namesof qualified prospects in your tar-get market—you just have to ask.

❺Schedule the next meeting. Set adate for the next meeting about 45days, or six weeks, in the future.You’ll use this meeting to help theclient completely organize all thenew account paperwork he or shewill receive over the next severalweeks. Ask the client to save all ofit and bring it to the meeting.

❻Close out the meeting. At thispoint, you’ve done everything todelight the client. You don’t need tothank him or her for doing businesswith you, but rather acknowledgeyou’re glad you can play an impor-tant role in the client’s financial life.You can simply wrap up with, “I’mhappy to be able to play such a val-ued role in helping you achievewhat’s important to you. I’m look-ing forward to working togetherand to seeing you again in a fewweeks.”Next time: the 45-day follow-up

meeting—your chance to reallyimpress a new client.

Copyright 2006, CEG Worldwide, LLC.All rights reserved. John Bowen is founderand CEO of CEG Worldwide, a U.S.-basedglobal training, research and consulting firm.“The Bowen Report” appears monthly.


THE BOWEN

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That presents a conundrum. We’ve all been told that people appreciate it when wesay, “I don’t know the answer; I’ll have to get back to you on that.” Clients shouldrespect your candour and realize it’s a good thing you know your limitations.

But they come to you because they want answers and advice. If you consistentlysay, “I don’t know,” but get back to them promptly with good answers, you’ll prob-ably be OK. On the other hand, if, like a lot of advisors I’ve heard about lately, youprovide nothing more than “ask your accountant,” or “that’s not my area,” or—worstof all—“I have no idea,” clients will eventually wonder why they’re paying you.

So what’s your action plan? Here are some suggestions:• If you’re a specialist, be a damned good one.

If you position yourself as being an expert in only one area, be better than any-one else in that area. Niche marketing (once you’ve found the right niche) isthe key to fame and riches.

• If you’re a generalist, do your homework on issues that affect the major-ity of your clients.Take the time to learn all about those challenges so you have some in-depthknowledge where appropriate. At the same time, remember your limitations andwhen to bring in an expert.

• Either way, develop a network of true experts in the areas needed.Align yourself with other professionals who have deep, up-to-date knowledge, greatpeople skills and will also refer clients back to you. Make sure they treat your clientsas well as you do. If you can add some specialists to your own team, all the better,but be careful you don’t start drinking your own Kool-Aid.

• Ask your clients how you stack up.When was the last time you asked your clients, in a formal way, how you’re doing,how you’re meeting their needs, where you fall short and how you can do better?Try asking a series of questions at your regular client meetings, through a mailsurvey or through an organized discussion group with a facilitator. Or, set up aclient advisory board of six to eight of your best clients. Pick clients who will

be extremely candid, as you will becounting on them to tell you howwell you are executing your missionand delivering on your promises, and where you fall short.•Act on bad and good news.Once you have the survey results orfeedback from clients, report thefindings to your clients and make anychanges they’ve recommended.

• Learn business lessons fromclients.Clients who are experienced businesspeople, inveterate fact-finders and“show me” types can be valuable inproviding another level of due dili-gence. I’ve got a few such clients whohave taught me plenty by asking lotsof tough questions that I should haveposed to wholesalers and productvendors. I had taken the answers forgranted and filled in any missingblanks myself. Some of my clients arenot so polite, and the answers were not always forthcoming. It’samazing what you’ll learn ifyou really listen. If you pick yourclients carefully, they can teach you remarkable and unexpectedthings.

Beasley Hawkes is a pseudonym. He is apractising financial advisor with a firm he’drather not name. Hawkes can be reached [email protected]

LEARNING FROM OUR CLIENTS

B Y B E A S L E Y H A W K E S

closingBELLOur clients pay us well,

which should make us feel we

have to have all of the answers.

Problem is, sometimes we don’t.

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Documents

SPOUSAL RRSP SAVINGS+ SMOOTH WAYS TO CUT CLIENTS … · YOUR FLICKS By Boyd McAdam,investment advisor, RBC Dominion Securities,Toronto,as told to Philip Porado Book: Common Stocks