Instructor Kurt Rosentreter CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM

Transcription

1 Instructor Kurt Rosentreter CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM

2 Investment Planning within your Financial Plan Goal Planning Investment Math Risk Profiling Creation of an Investment Policy Statement Product Selection Performance Measurement Financial Planning Update and Rebalancing Implementing your Investment Plan Investment Advisors and the Industry

3 Super-sensitivity to investment returns Ticker boards everywhere Media overload on stock market Expectations for continually big returns Maximum investing Random investing Boom of do it yourself trading Daily trading Fad chasing by almost everyone Tech, commodities, hedge, China, private equity Anti-fund movement Greater cost sensitivity but still a long way to go Evolutionary ignorance Everyone wants to be your advisor who and why?

4 1. RRSPs, TFSAs Non-RRSPs Professional corporation Holding company Real Estate 2. Children s Savings 3. Parent s Money 4. Estate funds 5. Not for profit board you sit on

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6 Managing your Big Picture First: Having a Financial Plan before having an Investment Plan

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8 Strategic decision making is essential: Save vs debt repayment Save vs spend Save RRSP, RESP, non-registered, TFSA which one first? Save vs. more insurance Save vs. new cars, home renovations, etc. This level of thinking often completely missing why? Worse, commission salespeople may not give the best answer

9 Setting Goals

10 Done separately by spouses and then brought together Written down Provided to a third party Short term, medium term, long term goals Prioritize Measure progress against goals Once a year more frequent for short term goals Personal goal planning = same goal planning you do in your career. Note: Few advisors will discuss goals: danger

11 Preparing Cash Flow Forecasts the plumbing

12 Examples: Parents with two children, aged 8 and 6. $30,000 RESP to date. Adding $5,000 per year Goal to have $50,000 per child by age 18 Couple aged 44 and 45, goal to retire at 60 $500,000 in RRSPs, $100,000 Non Registered savings $200,000 debt; saving $25,000 per year; Wish to have $70,000 after tax in retirement. Elderly widow wanting to ensure she won t run out of money at age 90 Newlyweds saving for a first home purchase

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14 Investor Profiling

15 Most important step of investment planning Dumbed down with pie graphs and questionnaires avoid First thing regulators and clients focus on KYC and NAAF Should take two hours of analysis to prepare Creation of an Investment Policy Statement

16 Investment Policy Statement ( IPS ) Worldwide recognized as gold standard of documentation for investment plan Equivalent of a business plan for a business or blue print for building a home Required at the institutional level; more and more individual client advisors using it; Required by Financial Planner Standards Council governing CFPs Creates focus, accountability, a measuring stick, parameters and clarity on action plans.

17 Characteristics of IPS Objectives Net worth snapshot Time horizon Liquidity Cash Flow needs Risk and volatility tolerance Tax Constraints Legal and regulatory

18 States amount to invest in major asset classes Cash, Bonds, Canadian Equity, US Equity, Overseas Equity, Emerging Markets, Hedge, Real Estate, Other Consider setting Min, Max and Target ranges and rebalance periodically within them. The white lines, signage and guard rails on your investing highway

19 Asset Class Min % Target % Max % Cash 0% 0% 10% Fixed Income 20% 50% 60% Risky Assets 35% 50% 65% Total 100% For all investments focused on the same goal.

20 1. Your personal RRSP 2. Your TFSA 3. Your investment account 4. Your 80 year old mothers account 5. Your 12 year old s RESP 6. Your church s savings

21 Final Step: Sign it.

22 Products for the Investment Plan A. The Macro Market Place B. Important Investment Concepts C. Micro Investment Selection D. Fees

23 What types of products and providers are most suitable for your needs? The Royal Bank example Bank branch versus; Full service brokerage; Discount brokerage; Investment counsellor; Private banking; Trust company Where do you really belong?

24 Filter Criteria: 1. Size of account - YES Mutual funds for accounts below $100,000 Stocks only for accounts greater than $250,000 ETFs, F class funds, stocks blended at any account size. 2. Risk Tolerance - NO Stocks are generally more risky than a diversified mutual fund or index (e.g. BP, Volkswagen, Nortel)

25 3. Cost - YES Stocks few hundred dollars of commissions at most Funds 2% x market value of fund / year; or more Indexes 0.50% x market value of fund / year; or less 4. Simplicity - YES Mutual funds are easiest to maintain; stocks are most work; ETFs are the middle ground.

26 5. Performance as a Criteria SORT OF Funds, stocks and indexes can all have good and bad performance Technically the fund fees may prove to be a hindrance to net performance long term, assuming identical gross performance and tax results. More of an issue with bonds than with stocks 6. Tax Efficiency as a Criteria - YES Tax planning is better when you invest with individual securities Eg. Investing in a professional corporation

27 Most mutual funds Segregated funds Permanent Life Insurance Policies (whole life or universal life) Labour funds Hedge funds Oil and gas flow throughs Preferred shares Linked notes Wrap accounts IPO Products In-house created product

28 Portfolio diversification Portfolio tax planning How does real estate fit in?

29 Forms of diversification key: negative correlation Asset class (stocks vs bonds) Geography (Canada vs Europe) Capitalization (big company vs small company) Management Style (day trader vs buy & hold) Currency (Canadian dollar vs US dollar) Number of different money managers you engage Type of product (stock vs ETF vs mutual fund) More extreme forms of diversification: hedge funds, real estate, commodities What really works? Beware: duplication

30 Why it matters Where it matters: Investing in a professional corporation Real estate investing Investing in a family trust Investing together with family members Pillars of tax smart investing Taxation of people matters Taxation of product matters Taxation of income / return matters Taxation of fees matters International investing has tax implications Legal account ownership matters Why many traditional money managers are not tax smart

31 Average Selling Price % return Price of RY, Jan 1, 1980: $2.65; Price Dec 31, 2015: $74.15 Return of 2,698%. (split adjusted, no dividends) Source: randi-emmott.com/market.htm

32 Once you design the portfolio structure, then what products do you buy to match your Investment Policy Statement?

33 Criteria: Know the dealer range of offerings Know your advisor licensing Know if products or accounts are protected by insurance Invest by category of need (core asset classes) Evaluate a range of products according to: Performance Cost Tax efficiency Risk Complexity Quality (ex: size, history)

34 Cash Products High interest savings, cashable GIC s, money market mutual funds, T-bills Fixed Income GIC s, government bonds, corporate bonds, bond mutual funds, bond ETF s, junk bonds Stock Market Stocks, stock ETF s, stock mutual funds Other Specialty Products REIT s, REIT ETF s, private mortgage products, rental real estate, private equities, commodities (ex: gold), preferred shares, IPO s

35 Why is cash savings necessary? Set up monthly payments Emergency needs Specialty needs Option Risk Return Access Money Market Treasury Bill High Interest Savings Account Corporate Bond Cashable GIC Government Bond Bond Mutual Fund Bond ETF

36 Necessary for: Stability, risk management Cash flow High Yield Junk Bonds International Government Bonds Private Mortgages Bond Mutual funds and Bond ETFs High Quality Corporate Bonds High Return / High Risk Government Bonds Medium Return / Medium Risk GICs TBills / CSBs Cash Savings Low Return / Low Risk

37 Necessary for: Portfolio growth over the long term Tax efficiency Stocks Mutual Funds Indexes Best Performance (based on market research) Depends Lowest Cost Lower Risk vs Comparable Best Tax Efficiency Understandable

38 What are yur costs today? Costs are often based on Dealer Advisor Product Can you negotiate costs? Four types of costs Hourly rate fees Account fees Trading commissions Asset based fees

39 Most popular likely 90% of Canadians Five types Bonds and GICs Stocks Mutual Funds IPOs Hedge Pros: lowest cost in low turnover portfolio of stocks Cons: Concerns of bias; hidden fees; least tax deductible; often highest cost in higher turnover portfolios or mutual funds Best choice for fixed income but not equities

40 Mutual Fund Fees Four ways to buy mutual funds DSC or rear load Front end load No load F series Most costly: DSC Most restrictive: DSC Most lucrative for advisor: DSC Most often sold to clients: DSC Beware the 10% free move each January!

41 Definition: percentage of the account value as a fee per year High net worth approach for 100 years Minimum account size typical Fee is tiered downward as account grows Directly tax deductible on non registered acct Visible Most objective method of fees on products Best choice for equities but not fixed income

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43 A. Performance Measurement B. Communication C. Evaluating Results D. Modifying the Investment Plan Your dashboard How do you evaluate results and progress today?

44 Methods of Measurement Absolute Performance Relative Performance Vs. Peer Group Vs. Index Pre-fees, after-fees Pre-tax, after-tax Your advisor can do this. If you demand it!

45 Statements in the mail or online with rate of return on them Semi-annual written analysis or meeting One big meeting a year Financial plan review Asset allocation review Performance results Rebalancing Personalized commentary Newsletters don t count Talking to junior staff doesn t count

46 1. Judgment - Quantitative Are your expectations realistic? Eg. Expecting 12% per year, every year Are you down when everyone else is up? Length of time to tolerate negative returns? What is the cause? Recommended: Fire a product when three and five year lagging results vs. index and peer group fair? 2. Judgment - Qualitative Factors? People leaving Bad press

47 Three forms Strategic Change in circumstance / profile Birth, death, marriage, divorce, illness, career change Dynamic Rebalance back to original plan Tactical Market timing Impact: taxes, fees, forces to sell high, buy low When and how are you rebalancing today?

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49 Evaluating Progress of the Plan Final step of investment plan is revisiting step one: goals; a circular process. Within the financial plan, does the investment plan continue to be relevant and accurate? Reasons to change the plan: Material life changes Changes to your goals Changes to your environment Annual review Pro-active, two-way communication Need for overall integrated and comprehensive plan

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51 Investment industry in Canada is confusing and poorly regulated can t rely on it. No one cares about your money as much as you. Get involved Judge harshly and regularly Keep emotion out of it Don t trust IA s like you trust a doctor or lawyer Know what you are getting into as a do-it-yourselfer Get a second opinion every few years

52 Titles on a business card Designations Advisor Registrations in Ontario Portfolio Manager Registered Rep Mutual Fund Agent Insurance Agent Regulatory protection & licensing OSC (government) IIROC, MFDA (self regulatory) FSCO Insurance protection CIPF CDIC MFDA IPC Assuris Ask your advisor detailed questions

53 Do Not: Hire based on a referral Hire based on short term performance Criteria: Start with education give more weight to heavier credentials What is their ideal client Offer at least two different fee options Ask to see a sample financial plan / investment plan Understand product limitations (biases?) How many clients? More than 600 is too many Who is the relationship with? What is their investment philosophy? Understanding licensing, insurance, E&O, compliance within firm Ask these questions:

54 Investment performance calculated fairly / % Cost Services (SS) Service (S) % + S + SS = VP Value (VP) Cost Beware: don t build a personal relationship with your advisor affects your ability to fire them. Tip: get a second and third opinion by a competitor.

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56 Kurt Rosentreter, CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM Senior Financial Advisor, Manulife Securities Incorporated Certified Financial Planner, Manulife Securities Insurance Inc Ext Follow Kurt on:

57 The opinions expressed are those of the author and may not necessarily reflect those of: Manulife Securities Incorporated or Manulife Securities Insurance Inc. Manulife Securities Incorporated is a member of the Canadian Investor Protection Fund

58 CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM Chartered Professional Accountant association finance instructor for the last fifteen years (Ontario, B.C., Manitoba). Twenty-five years of personal finance industry experience. Past co-founder of the $2 Billion Investment Counsel practice at one of Canada s Big Four CA Firms. National best selling author of seven personal finance books. Senior Financial Advisor, Manulife Securities Incorporated. Certified Financial Planner, Manulife Securities Insurance Inc. Instructor / Speaker to more than 500 audiences on matters of personal finance. Regular commentator on money for CBC, CTV, Globe, Post, Star, various radio and magazines. Regular contributor as an expert in the Financial Facelift column for The Globe and Mail.