FORUM Magazine - February 2019

FRISKY ORUM FEBRUARY 2019 • $5.50

The Magazine of Influence for Financial Advisors

BUSINESS Five ways to bridge the gap and avoid disaster when buying or selling a book

REVISITING WHOLE LIFE POLICIES INS AND OUTS OF RDSPs

TAX

STRATEGIES FOR SEVERANCE PLANNING

Publication Mail Agreement # 40069004

it’s better to have invested and lost than never to have invested at all.

Said no one ever.

Financial Advice For All.com

By Advocis

FORUM VOLUME 49, 1

|

FEBRUARY 2019

|

ISSN 1493-826X

FEATURES

10

Risky Business

Thinking of acquiring a book or exiting the business? Afsar Shah explains five things you can do to bridge the gap and minimize risk

DEPARTMENTS

COLUMNS

4

25 TAX UPFRONT

EDITOR’S JOURNAL Looking beyond the womenand-investing statistics

Severance planning options to help you through the emotional shock

BY DOUG CARROLL

6

OPENERS Robo braces for bear market; underwriting for rare diseases; how Canadians feel about climate change

33 ADVOCIS NEWS Association updates and events

35 THE FINAL WORD

28 ESTATE DILEMMAS Educate clients on how charitable giving can play a role in estates

18

Permanent Legacy

Richard Parkinson examines whole life policies and whether they make sense for your clients

BY KEVIN WARK

29 CORPORATE INSURANCE The Supreme Court reviews a case on life insurance beneficiary

BY GLENN STEPHENS

Evolution through the years

COVER PHOTO: JOHN M LUND PHOTOGRAPY INC / GETTY

BY AL JONES

30 PROSPECTING PURSUITS How to communicate with clients during a down market

BY BRYCE SANDERS

31 LEADERSHIP & GROWTH How to engage future clients and reap the rewards

BY BONNIE GODSMAN

Next issue: Revisiting old standbys Publication Mail Agreement # 40069004 Return Undeliverable Canadian Addresses to FORUM Magazine Circulation Department, 10 Lower Spadina Avenue, Suite 600, Toronto, Ontario M5V 2Z2

32 TECHNOLOGY & SOCIAL MEDIA Using digital strategies to retain clients and get more business

BY MASOOD RAZA

22

Maximizing an RDSP

Do any of your clients receive the disability tax credit? Then they should be looking at the registered disability savings plan for more financial strategies. Geoffrey Zaldin explains how it works FEBRUARY 2019 FORUM 3

BY DEANNE GAGE

Beyond Statistics S

tatistically, women don’t earn as much as men. We’ve had more time off from our careers, and because we live longer, we need to save more or make every dollar count in retirement. A recent HSBC report, called The Future of Retirement, examined women and retirement issues. It’s an international report that represents the views of more than 17,000 people in 16 countries.

The thesis from a Canadian perspective?

Women are not as financially prepared for retirement as men. They are less likely to understand what portion of income they would need to feel comfortable in retirement (38 per cent versus 22 per cent for men), and they are more likely to worry about paying for basic necessities and medical or care expenses.

But digging through the results raised more questions for me than answers, specifically two findings. The first one: Just 44 per cent of women felt confident about their financial futures compared to 54 per cent of men. And the second: Women were less likely to consider themselves financially savvy (28 per cent versus 53 per cent for men). Some could look at those results and conclude that men are better with money.

But here’s the thing about asking about confidence. You may feel confident, but that doesn’t make it true. For instance, does the fact that 93 per cent of drivers consider themselves above-average drivers mean that’s actually the case? Hmm … I don’t know about you, but I guess I just keep running into the same miniscule seven per cent of lousy drivers on the highway.

What’s really at play is called the overconfidence effect, which is a belief that simply affirming something makes it reality.

According to Psychology Today, the overconfidence effect is definitely prominent in men’s behaviour. Meanwhile, “women tend not to overestimate their knowledge and abilities as much.”

I wish studies would change their line of questioning with specifics to provide more concrete insight. Give us the actual numbers. Off the top of my head: How 4 FORUM FEBRUARY 2019

FORUM PUBLISHER: Peter Wilmshurst advocisforum@gmail.com EDITOR: Deanne Gage dgage@advocis.ca COPY EDITOR AND PROOFREADER: Alex Mlynek ART DIRECTOR: Giselle Sabatini artdirector@forum-mag.ca ADVERTISING: Peter Wilmshurst advocisforum@gmail.com Tel: 416-766-4273 Fax: 416-760-8797

TFAAC BOARD OF DIRECTORS CHAIR Al Jones, CFP, CLU, ICD.D, ACCUD VICE CHAIR Abe Toews, CFP, CLU, CH.F.C., CHS PAST CHAIR Jim Virtue, CFP, CLU, CA SECRETARY Rob Eby, RRC, CFP TREASURER Catherine Wood, CFP, CLU, CHS CHAIR, THE INSTITUTE Stephen MacEachern, CFP, CLU, CH.F.C., CHS CHAIR, THE CLC David McGruer, CFP PUBLIC DIRECTOR Geoffrey Creighton, BA, LL.B, C.DIR, CIC.C DIRECTOR AT LARGE Eric Lidemark, CFP, CLU, CH.F.C, CHS

much, on average, have women and men saved for retirement? What age did they start saving? What do they invest in?

Over the past two decades I’ve covered this industry, many advisors have told me it’s women (Boomer generation and younger) who are driving the financial planning process and recognizing the need for expert assistance. Men, on the other hand, ask fewer questions of their advisors, tend to believe the status quo will work itself out, somehow, and are stunned when they hear advice to the contrary.

As a money makeover columnist, I have also found this to be true with the people who write to me. In male–female partnerships, the men know there’s a problem but are often embarrassed to seek help. They’d rather dig in their heels and hope for the best.

In any case, explore deeper regardless of gender. Don’t get caught up in generalizations. Educate, empower, and advise clients any way you can so they reach their desired retirement goals. *** For 2019, FORUM has reduced its print frequency to four issues. The next three issues will appear in mid-May, early September, and mid-November. Some digital offerings are in the works, so stay tuned for details.

DIRECTOR AT LARGE Kevin Williams, CFP, CLU, RHU DIRECTOR AT LARGE Patricia Ziegler, CHS, EPC PRESIDENT & CEO Greg Pollock, CFP FORUM is published four times annually by The Advocis Publishing Group, 10 Lower Spadina Avenue, Suite 600, Toronto, Ontario M5V 2Z2 TEL: 416-444-5251 or 1-800-563-5822 FAX: 416-444-8031 FORUM is mailed to all Association members, the subscription price being included in the annual membership fee. Address changes can be made through info@advocis.ca or by calling member services at 1-877-773-6765.

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Material of a technical or semi-technical nature may become invalid because of later changes in law or interpretation. The Association is not responsible for obsolescence of FORUM articles whose content should be checked by the reader before implementation.

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FORUM EDITORIAL ADVISORY BOARD MICHAEL BERTON, CFP, RFP, CLU, CHS Assante Financial Management Ltd. LEONY DEGRAAF HASTINGS, CFP, EPC deGraaf Financial Strategies NICHOLAS LANDRY, CEBS, CHS, RCIS BFL Canada - CSI ROBERT MCEACHERN, CFP, CLU, CH.F.C. McEachern Financial IZUMI MIKI-MCGRUER, CFP, CLU, CH.F.C., CHS Freedom 55 Financial

PHOTO: DANIEL EHRENWORTH

EDITOR’S JOURNAL

Bringing investment and opportunity together.

MARK SCHMEHL • STEVE MACMILLAN

ALL-NEW

Fidelity CanAm Opportunities Class

onlyatfidelity.com Ask your Fidelity representative.

Read a fund’s prospectus and consult your financial advisor before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions and may experience a gain or loss.

Fidelity Investments is a registered trademark of Fidelity Investments Canada ULC. 115744-v2019110

OPENERS Fodder For the Water Cooler

T

he growing Canadian digital wealth/robo-advisor industry has not yet seen a sustained bear market, but those in the business say their investors are prepared to weather a downturn by virtue of being educated on the benefits of long-term commitments.

“The people who are investing in firms like Nest Wealth are those who are really around for a long-term investment strategy, they have a goal and risk tolerance identified and they understand that markets go up and down,” said Randy Cass, founder and CEO of Nest Wealth Asset Management, a robo-advisor firm.

Markets were volatile through the end of 2018 into the new year, with lower Canadian oil prices, uncertain geopolitical events, and tariff wars putting some investors on edge.

It’s easy for people to talk themselves out of investing altogether when they read the headlines, says Rajan Bansi, senior director, investments & advice at newly formed RBC InvestEase, an online investment management service. But Bansi says for most clients at his firm, it’s inertia, rather than market volatility, that is the barrier to begin investing.

Once in, Bansi agrees that clients learn to save for the long-term.

“Once we onboard clients they understand that we have put them in a portfolio that is suitable for their risk appetite,” he explains. “We put them into a globally diversified portfolio and we do the rebalancing for them.”

David McGann, director of strategy for BMO InvestorLine, says when investors are onboarded to BMO SmartFolio, a digital investing service, they complete an online questionnaire, and based on their responses, they recommend the ideal investment portfolio that matches their goals and objectives. “Market volatility can often trigger emotional reactions.

It’s why we ask investors how they will react emotionally if markets go down and their portfolio drops by 20 per cent,” says McGann. “Responses can vary from selling everything immediately to seeing it as a great buying opportunity. We can then match them with appropriate portfolio recommendations that best suit their investing style and tolerance for risk and or market volatility.”

Contrary to some perceptions, digital wealth platforms have advisors or portfolio managers on hand to talk to investors about any concerns they have. But generally they don’t target individual investors with a barrage of soothing emails when volatile markets hit.

— Susan Yellin 6 FORUM FEBRUARY 2019

FPSC CHANGES ITS STANDARDS

D

ifferent advisor groups are weighing in on a decision by the Financial Planning Standards Council (FPSC) to revise its standards and introduce the principle of duty of loyalty in its code of ethics, replacing the client first principle.

The FPSC announced that its new duty of loyalty, which came into effect January 1, will place the client’s interests first by encompassing specific obligations.

These include the duty to act with honesty, integrity, competence, and diligence; to disclose and mitigate conflicts of interest in the client’s favour; and to act with the care, skill, and diligence of a prudent professional.

“The recent amendments to the standards will help to further strengthen Canadians’ confidence in professional financial planners and to clarify the expectations of professional financial planners,” says Susan Howe, CFP and chair of FPSC’s Standards Panel.

But Curtis Findlay, who is a CFP and chairs the Investment Sub-Committee at Advocis, says introducing new obligations will cause confusion among both the public and advisors.

Findlay, who is with Compfin Management Ltd., says the amendments will create fragmentation among different advisor groups, each purporting to have higher standards. He said he would like to see anyone who dispenses advice — regardless of licence or where they work — all covered by the same financial advisor licence. “The action of giving advice should trigger the standards, not the designation.”

Findlay says different codes of ethics and standards among financial advisor organizations only serve to confuse the public as well as the industry.

“Let’s say down the road someone who is a certified financial planner wants to hand their book over to someone who doesn’t have that designation. All those Continued on page 9

PHOTOS: ISTOCKPHOTO

ROBO BRACES FOR BEAR MARKET

UNDERWRITING POV

BY DR. BRUCE EMPRINGHAM

UNDERWRITING FOR RARE DISEASES

A

ccording to the Canadian Organization for Rare Disorders, more than 7,000 rare diseases affect one in 12 Canadians (nearly three million Canadians).

One of the biggest challenges in underwriting is estimating the insurance risk of rare diseases. We see conditions coming in that may only have been diagnosed in a few dozen people, which becomes quite a challenge when trying to estimate risk.

Although exact causes of many rare disorders are unknown, they may be caused by a genetic mutation that is passed from one generation to the next, infections, or by environmental factors, such as diet, smoking, and exposure to chemicals.

At birth, a panel of screening tests are done to identify treatable rare diseases. Early detection can help prevent any complications that may arise from the disease, and give the individual access to various diets or treatments to help improve their quality of life.

One example of a treatable rare disease that is detectable at birth is phenylketonuria (PKU). For children diagnosed with PKU, exposure to phenylalanine in their diet leads to significant developmental issues. Once detected, caregivers can provide the child with a proper diet so they can develop normally.

Another example is sickle-cell disease, which is a genetically transmitted abnormality of the hemoglobin molecule.

The hemoglobin may become unstable, and the molecules can lose their structure and make the red blood cells form sickle shapes, which can block smaller blood vessels, causing pain and organ damage. Treatment is geared toward relieving painful symptoms and preventing crises.

Although uncommon, PKU and sickle-cell disease are fairly easy to underwrite.

For PKU, life expectancy is not shortened with or without treatment, so life coverage is available. If the diet is strictly followed, complications of intellectual impairment and behavioural problems will be avoided.

For sickle-cell disease, once the applicant is age 21 and older, we could consider them for life coverage. We would need to know the form of the disorder they have, when they had the last episode, and whether or not there are any end

organ or infectious complications. Ratings could range from 150 per cent to 500 per cent, depending on age and the factors listed above.

Although these two examples are easy to underwrite, there are some rare diseases that you’ll only come across once, which causes a flurry of research activity to determine the prognosis and what impact, if any, it has on life expectancy. For example, encephalocele is a sac-like protrusion of the brain and its membranes from an opening in the skull. Symptoms for this rare birth defect may include neurologic problems, uncoordinated muscle movement, seizures, and developmental delays. Surgery is generally performed during infancy to repair the protrusions and reposition the brain back into the skull. Depending on the brain tissue involved and any brain malformations, life expectancy and the prognosis is quite variable.

When an individual comes in with one of these conditions, the underwriting team must work with the clinicians to understand the risk in this individual. We usually would get a report to include specialist notes, and then we would extensively check the literature. We may reach out to our reinsurance partners to see if they have had experience with the disease. Finally, we would estimate the risk.

A decision is then communicated and the client would then discuss our position with their clinicians. Often a direct call between the insurance company physician and the clinical physician happens so that we can make sure we are in the right place on risk.

When there is little information on a rare condition we may also try to compare it to other better-known conditions with similar features in order to come up with a reasonable assessment of insurance risk. For example, Cronkhite-Canada syndrome is a rare disease associated with colon polyps, but we can compare and review the underwriting guidelines for other polyposis syndromes.

If a rare disease is diagnosed in infancy, an insurance offer may not be possible during infancy or early childhood.

However, after a period of time, the eventual severity, response to treatment, and stability of the condition will become clear, at which time, the insurance risk can be assessed and an offer might be possible. Good medical care and appropriate follow-up can make a huge difference in many of these conditions.

Even if an individual is diagnosed with a rare disorder later in life, more personalized treatment plans are being developed around these rare conditions, and so some improvements are being seen in areas where they were never seen before.

DR. BRUCE EMPRINGHAM is the vice-president and medical director at Great-West Life, London Life and Canada Life. He has nearly three decades of experience as a physician in the industry.

FEBRUARY 2019 FORUM 7

OPENERS

DID YOU KNOW? Investors support proposed Investment Industry Regulatory Organization of Canada (IIROC) enforcement alternatives

63%

support more flexibility in dealing with minor violations

Most Canadians are concerned about climate change

81%

66%

86%

81%

expressed concern about climate change

would like some of their portfolio to be invested in companies providing solutions to climate change and environmental challenges

believe financial advisors should know about how environmental social governance risks could affect their investments

would like their financial services provider to inform them about responsible investments that are aligned with their values

70–85% should result in a formal

agree that serious violations

hearing before an IIROC panel

Source: IIROC and The Strategic Counsel, November 2018

Source: AGF Management Limited, Ipsos, Responsible Investment Association, December 2018

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76%

support early settlement to encourage resolution of disciplinary cases before they reach an IIROC disciplinary hearing panel

Continued from page 6

Household Financial Responsibility How would you describe your role regarding the following financial responsibilities in your household?

(I am mainly or solely responsible for this) Base: All men and women (with a spouse/partner) WOMEN

Purchasing groceries/ day-to-day purchases

58%

Deciding where my/ our money is saved

34%

Deciding where my/ our money is invested

29%

Managing and paying household bills

48%

Managing credit cards and/or other debts

43%

Making large, one-off payments on purchases (e.g., holidays, cars)

24%

MEN

30%

49%

53%

54%

56%

39%

Source: The Future of Retirement report, HSBC, 2018

clients have certain expectations and certain ways of operating,” he says. “I don’t think this is going to stop now with a simple duty of care. What we’re going to see is a whole set of guidelines and procedures for all the activity of financial advice.”

According to the Advocis Code of Professional Conduct, an Advocis member must act in a client’s best interests; act with integrity, competently, diligently, transparently, and in a manner that reflects positively on Advocis. The member must also respect and protect the privacy of others and the confidentiality of client information, as well as act in accordance with the spirit and principles of the law.

Susan Allemang, director of policy and regulatory affairs with the Independent Financial Brokers of Canada (IFB), says she doesn’t see the FPSC amendments as potentially confusing to either advisors or clients.

“Most advisors are licensed and therefore have existing requirements from their regulatory bodies,” says Allemang.

“Those with other designations and/or are members of associations would be used to having multiple codes of conduct or standards.”

Nor do the FPSC amendments change the responsibility IFB members have to adhere to IFB’s code of ethics, regardless of whether they are also CFPs, she says.

The FPSC requirements only apply to CFPs, but Allemang added that IFB and many regulatory authorities have standards in place that use similar language and set similar expectations for conduct. — S.Y.

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COVER STORY

Risky

Business Thinking of acquiring a book or exiting the business? Afsar Shah explains five things you can do to bridge the gap and minimize risk

O 1

UNDERSTAND THE ROAD AHEAD …

AND HAVE A PLAN

When advisors first tell me they want to either acquire a business or sell their practice, I have a discussion with them to make sure they have a clear understanding of the road that lies ahead. I make it a point to convey to my clients that every sale or acquisition is a process, not an event. It’s a process that can take anywhere between 18 to 36 months depending on the nature of the book, structure of the deal, and approach to integration and asset transition.

Continued on page 14

10 FORUM FEBRUARY 2019

PHOTO: JOHN M LUND PHOTOGRAPY INC / GETTY

ver the next 12 to 24 months, we are likely to bear witness to a significant spike in demand for books of business and a resulting boom in acquisition activity. One of the most frequently asked questions I get from advisors who are considering an acquisition or sale is: What steps do I need to take to ensure that I maximize value, minimize risk, and ensure the safety of clients and staff? Where do I even start? Advisor anxiety about this issue is legitimate; buying or selling a business is a complex initiative and is just as likely to fail as succeed. Moreover, the consequences of failure are considerable. You risk significantly diminishing not only the value of your business, but also your name, reputation, and life’s work. How can you avoid such a fate? Here are five things you should do to achieve success in either a buy or a sale scenario.

FEBRUARY 2019 FORUM 11

AD V ERT O R I A L

Changing the Conversation –

Building Stronger Relationships

Through Goals-Based Investing As the financial service industry evolves, clients are expecting more for the fees they pay, and advisors need to demonstrate the value they bring to the process. That value has always been advice, and today, advice is changing.

Hugh Moncrieff is the executive vice-president of advisory network and industry affairs at Great-West Life, London Life and Canada Life. He says the future of advice is less about insurance and investments, and more about the relationship between advisors and their clients. Valuable relationships are built through the engagement that happens when the advisor offers thorough needs analysis, advice, recommendations and ongoing support and review of the client’s financial plan.

This shift in the advisor-client relationship model, from transactional engagement to planning to attain specific financial goals, represents an opportunity to demonstrate enhanced value to consumers. A 2012 study puts real numbers to that claim.

A Canadian study from the Centre for Interuniversity Research and Analysis on Organizations (CIRANO) showed that, over a 15-year period, people who work with an advisor have 173% more assets than those who don’t. Similarly, people who stopped working with an advisor saw a 34% reduction in their assets over a two-year period of extreme market volatility. Conversely, those who continued to work with an advisor saw an additional 26% increase in their investments in the same period.

Moncrieff compares the shift from a transactional focus to a planning focus to the difference between a travel agent and a tour guide.

“People can easily book a flight to Toronto or Calgary on the web or through a travel agent but if their goal is to experience a river cruise through Europe or a wine tour in Napa Valley, they are well served by someone who can guide them or specializes in understanding and meeting their needs and goals.”

“Clients who work with an advisor who takes a goals-based approach to planning will see more value in the relationship and be more likely to stay engaged in that relationship for the long term.”

Change the focus – change the conversation To support a planning-based advice model, advisors should be taking a goals-based approach to investing with their clients, according to Paul Orlander, executive vice-president, Individual Customer at Great-West Life, London Life and Canada Life. He points to human behaviour as the trigger that most often derails a financial plan. “Investor behaviour is reactionary. Over the last 20 years, the average investor saw an annualized return of 2.3%, just above inflation at 2.1%. That’s not great, and it’s largely because investors chase returns instead of taking a long-term approach. A good advisor will add to the value of a portfolio simply by helping clients recognize that short-term noise is different from long-term objectives.”

– Hugh Moncrieff

“On a road trip, you need a destination, a driver and a vehicle to get you there. With a responsible driver in a vehicle equipped with a GPS to help navigate through traffic, you are more likely to get to your destination on time. Using goals-based investing together with a managed program, advisors are now fully equipped to help their clients achieve their goals.” – Paul Orlander

The goals-based approach isn’t new. It’s a more sophisticated version of a common-sense approach to managing household finances. By creating a separate portfolio for each goal, it’s possible to customize allocations to different time horizons and risk levels.

Orlander explains how goals-based investing takes advice to the next level. “The industry talks about risk and volatility. This approach focuses instead on personal goals. It allows the advisor to tailor the conversation so that the client can speak in their own language to identify their investing goals. That way, the advisor and the client create a strategy in language the client understands.”

That co-creation is the foundation of the successful plan. Clients are more likely to stay the course when they’ve engaged in creating the plan, and they see progress toward a goal they have set. By taking risk and volatility out of the conversation, the focus changes to the reward and that helps clients keep their focus on their ultimate objectives, not market performance.

Emotional investing has a price 20-year annualized returns by asset class (1997 to 2016) 2.1%

Inflation

This approach recognizes the big picture of financial security.

“As part of the social fabric of communities across Canada, advisors help Canadians realize their goals and secure their financial futures.

Advice is foundational to client success,” Moncrieff says.

2.3% 3.4%

Homes

3.7%

Oil

4.6%

EAFE

Defining the value of advice Moncrieff points out that cost is only an issue in the absence of value. “We have to get sharper at how we express and demonstrate our value,” he says. “Fee transparency is not just a regulatory onus, it’s an opportunity to clearly define value. A goals-based investing approach and managed program is a unique client experience that’s more likely to help clients reach their goals, and that is valuable to them.”

Goals-based investing allows advisors to have meaningful conversations with clients and lets them play an active part in saving for their futures. It modernizes the way advisors engage

Average investor

with their clients, Paul Orlander explains. “By combining goalsbased investing into a managed program with features such as a disciplined asset allocation strategy and a sophisticated, automated rebalancing engine, it frees up advisor resources, so they can focus on what’s important for their practice: maintaining client relationships and building their book.”

5.3%

Bonds

5.8%

Gold

6.5%

40/60

6.9%

60/40

7.7%

S & P 500

9.7%

REITS 0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0% 10.0%

Source: JP Morgan Institutional Guide to Markets 2017

London Life Constellation Managed Portfolios, London Life and design are trademarks of London Life Insurance Company.

February 2019.

COVER STORY Continued from page 10 Understand that every transaction goes through a series of stages. Within each stage you will face and have to resolve a number of different issues, challenges, and obstacles to continue to move forward. The first stage is typically the strategic planning stage, where you clarify strategic objectives, develop a robust implementation plan, ensure sufficient resources are in place, and assess your firm’s readiness for market. This sets you up to go to market (the next stage) sufficiently prepared to identify, engage with, and assess potential target firms, and ultimately select an ideal buyer or seller.

Then it is all about transaction execution, which includes more formal due diligence, negotiation of purchase price and payment terms, and entering into an agreement of purchase and sale. The final stage of the process, and arguably the most important, is one of business integration, which is where the real value creation occurs, as clients and their assets transition to the new advisor.

While you are doing all of the above, you obviously still need to run your business and service existing clients. Many advisors completely underestimate the amount of work and planning involved, the resources that are required, the impact on existing clients, and the emotional toll it takes on themselves and their staff.

Advisors who invest the time needed to understand the road ahead will position themselves for success, be more organized, focused, and efficient — and be less likely to flounder, get discouraged, and waste valuable time, effort, and resources.

ASSESS THE STATE OF YOUR BUSINESS PRIOR TO GOING TO MARKET

Once you have made the decision to either buy or sell a business, an immediate inclination is to head to market, start talking to people, and make things happen. My advice is for you to take a step back and ask yourself: “Is my business ready for market?” The harsh reality is that if you go to market before your business is ready, you are more likely to destroy value than create it.

If you are a buyer, step back and assess whether your firm is ready to take on another book. From an operational perspective, can you effectively onboard and service an additional, say, 300 new households given your current workflows, practices, and procedures? Do you have the staff, resources, and capabilities to integrate a new book and service your existing clients? Have you invested sufficiently in technology to support such an integration? From a compliance perspective, do you currently have any exposure that you may inadvertently make worse by adding an additional, say, 300 households?

The key point is that if you attempt to integrate a new book onto a platform that is less than rock solid, you are asking for trouble. You will struggle in the short-term to effectively onboard new clients and retain those same clients over the long-term.

Similarly, if you are a seller, be mindful that buyers will only pay a premium for firms that are well-managed, compliant, and built for growth. So take a hard look at the growth potential of your client base, and the operational and regulatory risk associated with your practice. If you go to market and your firm has issues in these areas, you will not likely get top dollar for your firm.

It is not easy to objectively assess one’s own business, but the benefits of doing so are significant. So take the time to identify and fix any issues or gaps, and then go to market.

14 FORUM FEBRUARY 2019

“Is my business ready for market?” The harsh reality is that if you go to market before your business is ready, you are more likely to destroy value than create it.

3

DO NOT RELY ON RULES OF THUMB TO VALUE A BUSINESS

What is your (or your target) business worth, anyway? You may think a particular book is worth 2x trailer fees or one per cent of assets under management (AUM). These are industry rules of thumb and my advice to clients is to not rely upon them when valuing a business. Rules of thumb were created to value the average practice. They do not effectively take into account what could make one practice worth more than another of equal size. For example, one would be hard pressed to make the case that all firms with AUM of $100 million are worth the same. After all, not every firm has the same client base, cash flow, regulatory risk, systems, technology, and so on. Therefore, if you are a seller, you run the risk of underestimating the value of your firm if you rely solely on a rule of thumb valuation. Buyers similarly risk overestimating the value of a target firm.

PHOTO: ISTOCKPHOTO

2

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Get started with Constellation today.

Learn more at www.londonlife.com/constellation London Life Constellation Managed Portfolios, London Life and design are trademarks of London Life Insurance Company. February 2019.

COVER STORY I recommend to clients that they consider several additional factors when assessing the value of a potential target firm, including: • Strategic fit: the degree to which the buyer aligns with the seller’s values, business philosophy, client base, product, and service offering, etc. The closer the fit, the greater the perceived value.

• Stable, predictable cash flow: the higher the percentage of revenue that will continue after the deal closes, the greater the perceived value of a firm.

• Profile of client base: the greater the growth potential associated with a client base, the greater the perceived value.

• Personal goodwill versus practice goodwill: If much of a firm’s goodwill is tied to the current owner, then how valuable is that firm if the owner is not there?

• Regulatory risk: the more regulatory risk in a practice, the less valuable it will be to a buyer.

The perceived value of any firm is influenced greatly by these and other factors. Do not simply rely on industry rules of thumb when valuing a business.

4

PAY ATTENTION TO PAYMENT STRUCTURE

Every advisor spends a great deal of time fixating on the purchase price but relatively little time on payment structure. While getting the purchase price right is critical, the payment structure — how the purchase price is to be paid — is often what determines whether a deal is signed.

Typically, most transactions are vendor financed and the terms of payment have three components: • An initial non-refundable down payment: between 10 per cent to 25 per cent of the purchase price • Financing repayment: where the balance is paid back over time — anywhere between two to five years — in either monthly or quarterly installments • A clawback or an adjustment to the purchase price: to reflect assets that either did not transition over to the new advisor or stay for a specified period — anywhere from one to three years How the deal is structured can influence each party’s perception as to the value of the deal, their ability to pay for the deal, and, at times, the purchase price. For example, if you are a buyer, your perceived value of a deal may increase and your ability to pay may improve if the: • down payment is reduced to say 10 per cent • balance is to be paid out over a longer period, say five years instead of two years • transition period is extended to three years instead of two years This thinking is vice versa for the seller, where cash is king. So bear in mind the deal structure and payment terms when trying to determine each party’s perception of value and ability to pay.

5

CREATE A JOINT TRANSITION PLAN

A fundamental truth to every acquisition is that notwithstanding the agreed upon purchase price, the actual payment from buyer to seller will ultimately be determined by the amount of assets that transfer to and stay with the new advisor. It is therefore in 16 FORUM FEBRUARY 2019

While getting the purchase price right is critical, the payment structure — how the purchase price is to be paid — is what often determines whether a deal is signed. everyone’s best interest that the transition of clients and assets goes very well.

The key to this happening? A well-designed and robust joint transition plan developed by both buyer and seller that outlines the following: • The roles and responsibilities of both parties. The transition stage cannot solely be the responsibility of the buyer. The seller’s role is key to a successful transition.

• The client segmentation and contact strategy. Which clients do you meet with and when? Will they be single or joint meetings?

• The communication strategy. What are your key messages to clients? How, when, and by whom will they be delivered?

• What will be the role of staff, particularly the sellers?

• Key milestones and timelines.

I cannot overstate the value of a sound transition plan. Develop such a plan prior to entering into the purchase and sale agreement.

You want to make sure that both parties are in sync on this before entering into a deal, and that you are able to hit the ground running as soon as possible.

Advisors may be living in interesting times for the foreseeable future, but the ideas and action steps outlined above should at least make this part of their business a little less interesting.

AFSAR SHAH, BA, LLB, is a business and regulatory coach at The Personal Coach based in Waterloo, Ont. To receive a PDF of this article, email dgageforum@gmail.com.

“GREAT AMBITION AND CONQUEST WITHOUT CONTRIBUTION IS WITHOUT SIGNIFICANCE. WHAT WILL YOUR CONTRIBUTION BE? HOW WILL HISTORY REMEMBER YOU?” William Hundert ~ The Emperors Club

Homer Vipond CLU (1906, 1915)

Lyle Reid

George Simpson

CLU (1908-1911)

J.B. Hall

W.A. Peace

CLU (1918)

CLU (1921, 1928)

A.L. Petty

J.T. McCay

CLU (1926)

G.H. Dawson

H.C. Cox

(1907)

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CLU (1935-38)

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Andrew Elder CLU (1952-53)

CLU (1954-56)

Fraser Deacon

CLU (1950-51)

CLU (1960-61)

Robert Mitchell CLU (1968-69)

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John Humphries

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James Peters

David Donaldson

Joseph Etherington

Donald MacLean

John Bowden

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CLU (1962-63)

James Rogers

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Terry Zavitz

CLU, CFP, CHS, GBA, EPC,TEP (2009)

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CFP, CLU, CHS, FLMI (2014)

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Donald Glover

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CFP, CLU, CH.F.C. (1980-81)

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CLU (1939-43)

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CFP, CLU, CH.F.C. (1992)

J.J. McSweeney

CLU (1922)

CLU (1931-32)

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(1912-14, 1916-17)

Bruce McRae

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CLU (1993)

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Jean Dean

Robert Fleischacker

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CFP, CLU, CH.F.C., RHU (1998)

Lee Raine

Brian Mallard

CFP, CLU, CH.F.C. (2002)

CLU, CH.F.C., RFP (2003)

Roger McMillan

Teresa Black Hughes

CFP, CLU, CH.F.C. (2006)

CLU, CFP, RFP, CIM, FSCI (2007)

Robert McCullagh

Dean Owen

CFP, CLU, CH.F.C., CHS (2010)

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Rick Giuliani

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John Wahl

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Dennis Caponi

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Robert Cowan

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Randall Reynolds

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Kristan K. Birchard

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Harley Lockhart

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In recognition of Advocis’ past and present Chairs for their dedicated service and commitment to the Association and its members over the past 113 years.

We thank you for your contribution and leadership.

INSURANCE

it as a conservative part of their overall investment portfolio, and should be considered first and foremost for its prime purpose, i.e., life insurance, with the investment piece as secondary. If the client’s focus is the investment only, perhaps whole life is not the best solution.

Permanent insurance can generally be categorized into four distinct categories.

Term 100 or minimum funded universal life (UL): This policy is character-

ized by paying premiums for a lifetime or until age 100, whichever comes first. There’s no cash value, and the monthly or annual premium never changes for the life of the policy.

Overfunded UL: Typically unless one has already maximized their RRSP and TFSA contributions, overfunding UL is not as common these days.

Non-participating (PAR) whole life:

Richard Parkinson examines whole life policies and whether they make sense for your clients

T

he interest in whole life insurance plans has been steady in the last few years and should be on any advisor’s radar when a client wants to consider a permanent life insurance solution.

For young children, the 20-year pay option is popular as it offers a lifetime coverage, providing a death benefit that is typically more than most people will need in their senior years. They would also have the opportunity to access the cash value for education, starting a small business, or any other expense.

For young adults, whole life offers an increasing death benefit life insurance component plus cash value for future opportunities, or as part of a multi-source retirement plan, to augment company pension plans, registered retirement income 18 FORUM FEBRUARY 2019

funds, Canada Pension Plan, and Old Age Security, with the possibility of providing a tax-free income in their senior years.

High-net-worth individuals who are maximizing their registered retirement savings plans and tax free saving accounts may be looking for additional tax sheltered investment options.

Seniors may want to convert some or all of a term plan to a permanent plan, want a lifetime insurance plan, and like the idea of low maintenance and increasing death benefits to keep up with inflation.

Whole life’s benefit over universal life (UL) is the insurance company manages the investment piece, and once the dividend is declared, it is vested with the policy and cannot be taken away, so short major market downturns have minimal effect compared to their impact on UL policies.

For the investment component, I position

PARTICIPATING WHOLE LIFE POLICIES Most PAR whole life policies are designed to pay a dividend each year on the anniversary of the policy. These policies pay an annual dividend, which is based on considerations such as: • investment performance of the participating account

PHOTO: ISTOCKPHOTO

PERMANENT LEGACY

Non-PAR whole life is characterized as having a level premium for life, or in many cases, the payment period can be reduced to 20, 15, or 10 years, company dependent.

The death benefit is level it typically never increases. The cash value is generally not available for a loan, with some exceptions, and typically is not added to the death benefit on death. In other words, the cash value on death is lost, so with most of these policies, you either buy it for the death benefit, paid up death benefit, or the cash value, if you plan to surrender the policy in the future. So, it is either a death benefit, a lesser paid up death benefit, or the cash value.

Participating whole life: These plans are considered the best option for whole life, because of the options for the distribution of the dividend, and over time, the death benefit typically increases, and the cash value can be borrowed from, or used as collateral at a bank for a loan. Larger policies with cash value of more than $100,000 in your late 60s can be used for a collateralized loan, providing tax-free income in retirement.

• percentage of policy loans, which are charged in the six to eight per cent rate range, and can represent 10 per cent to 15 per cent of the PAR fund total investment • mortality and lapse experience • taxes and expenses to administer the participating block of policies Equitable Life states they have credited dividends (not guaranteed) every year since the product was first launched in 1936.

Other well-known insurance providers of whole life participating plans (e.g. Canada Life, London Life, Great-West Life, Sun Life) make similar claims.

Most companies offer two flavours of their whole life plans, with the words “Estate” or “Wealth” in the title of the policy type. The wealth plans are optimized to generate maximum cash values in the first 20 years, so are ideal for people who want to access the cash for such things as children’s education, funding retirement, or immediate financing arrangements (IFA).

For long-term (30 years or longer), the estate plan provides better long-term death benefit and cash value versus the wealth plan, and given more clients are estate plan candidates, the remaining comments will be based on the estate plan.

Several options are available for the disposition of the annual dividend, including: • Paid in cash: paid annually, and may be subject to taxation when it exceeds $50 annually

Paid Up Additions (PUA) Option - Based whole life, and dividends but more PUAs annually

• Premium reduction: typically used after a determined number of years, cash value will be sufficient to pay the entire annual premium, and continue to increase the death benefit and cash value • On deposit: kept with the insurance company in a separate deposit account until needed and can be withdrawn at any time. Once it exceeds $50, you would

Enchanced Option - Based whole life, and term converted to paid up additions over time

Base whole life

receive an annual tax slip for both the dividends, and the earned interest on these dividends.

• Paid-up additions: Perhaps the most popular option, the dividends are used to purchase additional permanent participating whole life insurance, which over time increases the cash value and the death benefit on a close to exponential basis in later years.

• Enhanced protection: determines a mix of base whole life and Yearly Renewable Term (YRT), to provide a more cost effective whole life plan. Depending on age, it may take between 10 years to 30 years (i.e., 30 for a one-year-old child) for all of the term to be converted to paid up additions.

On each policy anniversary, the dividend converts a portion of the YRT term to paid up additions, which in subsequent years yields a higher dividend each year, until eventually all of the term is converted to paid up additions. The death benefit stays level until all of the term is converted.

Enhanced protection typically has two options, a 10-year guarantee, or a lifetime guarantee. There is a possibility with the 10-year guarantee that if the dividends are not sufficient to purchase the required amount of one-year term insurance, it could reduce the future death benefit and cash value. The 10-year guarantee option does reduce the premium versus the lifetime guarantee, so you will need to discuss FEBRUARY 2019 FORUM 19

INSURANCE this issue with your client. I generally recommend the lifetime guarantee so there are no future issues, and when you compare them using the same annual premium, the lifetime guarantee plan provides a marginally higher death benefit and cash value in later years.

When you compare these two options in terms of death benefit and cash value, the benefit of the enhanced option is obvious. For the same annual premium, based on a 35-year-old non-smoking male, deposit-

ing $2,400 annual premiums paid up after 20 years, the enhanced option offers a higher death benefit in the early years. And once all of the term is converted to PUA, no significant sacrifice in either death benefit nor cash values is evident.

Note that not all participating plans support the enhanced option, so check, as if you are quoting PUA and competing with a broker using enhanced option, your plan will be more expensive.

When discussing these two dividend options, some other advisors and wholesalers have suggested two options they felt were better. Always up for a challenge, I

Compare Equitable Life Death Benefit - Enhanced vs. PUA - 20-year pay

considered these two other scenarios based on a 35-year-old male, non-smoker paying $2,400 annually paid up in 20 years.

The two scenarios are as follows: • Use the excelerator deposit option (EDO) to increase the cash value.

However, in keeping with my philosophy that when comparing one plan with another they should be based on using the same premium. With the EDO, Equitable has a convenient option box to tick, called “Max. EDO,” so it automatically calculates the maximum EDO portion of the monthly premium. The impact is this option reduces the basic insurance portion, so while it provides a higher cash value in the short-term, 30 years plus in the future, it falls a bit behind the Enhanced or PUA options in the long-term, but not by any significant amount.

• Use a 20- or 30-year term to make up the difference between the enhanced option and PUA options.

Compare Equitable Life Cash Surrender Value - Enchanced vs. PUA - 20-year pay

For this analysis, the initial coverage difference is $80,000, but the same problem exists, i.e., the cost of the term reduces the basic whole life plan coverage amount, so while it actually provides the most coverage in the first 20 to 30 years, in the longterm it also falls a bit short. Also, this option doesn’t work for children’s policies, as the term rider is not available for under 18 years old. Finally, I didn’t consider a decreasing term plan rather than a term rider as I do not believe it will make a significant difference.

So, depending on the client’s time frame and focus, after the initial 30 years, it doesn’t matter which option you choose, as there is not a significant difference between them. I have not done an exhaustive analysis of all five scenarios for different age groups, but given the analysis I have done comparing enhanced versus PUA with most of the whole life providers, I believe these results will be similar for any age and any company. Of course, you are welcome to do your own analysis, again just make sure you are using the same annual premium for all scenarios.

For example, if the focus is on death benefit, you may find a Term 100 to be the best in terms of providing the highest death benefit.

RICHARD PARKINSON, CPCA, is an independent insurance broker based in Vancouver. To receive a PDF of this article, email dgageforum@gmail.com.

20 FORUM FEBRUARY 2019

www.gamacanada.com/LAMP.html

DISABILITY PLANNING

Maximizing an RDSP 22 FORUM FEBRUARY 2019

T

he registered disability savings plan (RDSP) is an amazing tool when planning for the financial welfare of an individual with a disability. But unfortunately, it’s a tool that’s misunderstood and underutilized.

To qualify for an RDSP you must meet ALL of the following criteria: • Be eligible for the disability tax credit (DTC) • Under the age of 60 (an RDSP can only be opened for an individual and contributions can be made to it until the end of the year in which he or she becomes 59 years of age) • Be a resident of Canada and have a valid social insurance number (SIN)

PHOTO: ISTOCKPHOTO

Do any of your clients receive the disability tax credit? Then they should be looking at the registered disability savings plan for more financial strategies. Geoffrey Zaldin explains how it works

With an RDSP comes government grants and bonds, but an individual is only eligible for these until December 31 in the year they turn 49. There are two types of government funds for RDSP accounts. The Canada Disability Savings Grant (CDSG) is a matching government grant based on the net family income and the amount that is contributed into an RDSP. This is just a fancy way of saying the net income from Line 236 from the income tax return of the parent(s) living with the individual until the end of the year they turn 18 (this is determined by how you filed your tax returns) and then the net family income of the individual and spouse if any when over the age of 18. When determining the net family income to calculate the grant entitlement, the tax return from two years prior to the year of contribution will be used (for example, in 2019 when determining grants and bonds, the government will look at the 2017 tax returns).

The amount of CDSG matching will depend on whether the net family income is above or below a threshold set by the government, which changes each year. For 2019 the grant threshold is $95,259. If the net family income is above the threshold, then you are entitled to a grant of a dollar for each dollar contributed to a maximum of $1,000 for each qualifying year. If the net family income is below the threshold, then you are entitled to a grant of three dollars for each dollar contributed up to the first $500 contributed. After the first $500 contributed, you will be entitled to a grant of two dollars for each dollar contributed up until the next $1,000 has been contributed. This means if your net family income is under the grant threshold, you will receive grants of $3,500 for $1,500 of contributions for each qualifying year.

Canada Disability Savings Bonds (CDSB) are amounts paid by the government into an RDSP to low-income individuals that have qualified and opened an RDSP account. No contribution is required. For 2019 you would receive $1,000 of bond money if the net family income that applies was under $31,120. If the net family income for 2019 is between $31,120 and $47,630 then you would receive a portion of the $1,000 bond according to the formula in the Canada Disability Savings Act. Like the grants, these threshold numbers change every year.

CDSG and CDSB will be clawed back if funds are withdrawn from the RDSP within 10 years of receiving them. This is known as the assistance holdback amount (AHA).

I often get the question: When will someone will be able to withdraw funds from an RDSP and still maximize CDSG and CDSB? Because of the various rules of the RDSP, this is based upon the individual’s situation and typically ranges from age 29 (which is rare) to age 49+ (which occurs more often).

Contributions made into an RDSP are not tax deductible, but the growth in the account is not subject to income tax until withdrawn. When a withdrawal is made, there is a calculation that determines the percentage of withdrawal that will be taxed (proceeds of rolled over registered accounts, the cumulative gain, grants and bonds) as opposed to the contributions that will not be taxed.

When an individual first opens an RDSP, they can carry forward unused grants and bonds up to 10 years. However, $10,500 is the maximum annual grant money they can receive, and $11,000 is the maximum annual amount of bonds. If RDSP contributions are more than grant money, that contribution is not carried forward to attract grants in future years. They only receive grant money for contributions made in the current year. There is a max-

imum lifetime contribution limit of $200,000 into an RDSP, and this limit does NOT include the government grants and bonds received. Also, unlike many other accounts, a beneficiary may have only one RDSP account at a time. While an individual can have one, and only one, RDSP, they can transfer from one RDSP to another if they follow the required conditions.

If the individual who is to be the beneficiary of the RDSP is under the age of majority, then either a legal parent, a guardian, or individual who is legally authorized to act for the beneficiary, or a public department, agency, or institution that is legally authorized to act for the beneficiary, can open the RDSP. If a beneficiary has reached the age of majority and is contractually competent they can open the RDSP for themselves. If the legal parent(s) of a beneficiary that has reached the age of majority and is contractually competent is/are the holder of an RDSP already existing, then the parent(s) can remain the holder, the beneficiary could be added as a joint holder, or the beneficiary could become the sole holder of the account.

When the beneficiary has reached the age of majority and there is either a question if the individual is contractually competent or it is determined the individual is not contractually competent, then a qualifying family member (QFM) can open the RDSP. A QFM includes a spouse, common-law partner, or parent of an individual. This provision is available until December 31, 2023 but it has been extended several times already. At this time, a QFM does not include a sibling. For a sibling to be the account holder they would have to be the beneficiary’s legal guardian.

Anyone can contribute into an RDSP, but they will require written consent of the plan holder. Unfortunately, if the beneficiary dies, the RDSP must be closed and the funds disbursed to the beneficiary’s estate by December 31 of the year following the year they died. Any grants or bonds received in the previous 10 years would be subject to repayment, and the remaining funds will be paid to the estate.

RDSPs can be opened at most financial institutions. This includes banks, credit unions, and independent financial advisors.

While most banks and several credit unions offer RDSPs, some staff who sell RDSPs aren’t educated in the complex rules. I strongly suggest that an individual find someone who is knowledgeable about RDSPs and concepts of higher financial and estate planning from a special needs perspective. This would include a discussion of the concept of a Henson trust (which is a type of trust designed to benefit disabled persons by protecting assets — usually an inheritance — of the disabled person, as well as the entitlement of government benefits and entitlements) and other methods of ensuring continued entitlement of government benefits and services. I would also suggest that a financial advisor that is planning on selling a client an RDSP do the necessary research so they know how to properly advise the client, or that they partner with another advisor that has the necessary knowledge and expertise to properly guide the process.

Overlooked Rules Let’s look at some rules that often get missed by advisors. If the beneficiary loses DTC eligibility they will have to collapse the RDSP by December 31 of the year following the year they lost the eligibility. Any grants or bonds received in the previous 10 years would be subject to repayment, and even if you requalify for the FEBRUARY 2019 FORUM 23

DISABILITY PLANNING DTC in the future, the grants and bonds that were repaid are still used in calculating your lifetime eligibility for grants and bonds.

In this case there is an option to file an election with the RDSP issuer by submitting a written document in which a medical doctor or nurse practitioner certifies that the beneficiary will likely become eligible for the DTC at some point in the future. This will defer the collapse of the RDSP until either five years have passed, or the election is no longer valid. I have come across several situations where an individual ended up terminating an RDSP and returning tens of thousands of dollars in grant and bond money to the government only to requalify for the DTC in the future. The grants and bonds that were repaid as a result of the RDSP being terminated will count against the lifetime entitlement of grants and bonds. This can never be recaptured.

In addition, if a beneficiary has a reduced life expectancy of less than five years they can apply with the assistance of a written certification by a licensed medical doctor or nurse practitioner to have their RDSP turned into a specified disability savings plan.

This prevents the triggering of repayment of grants and bonds received in the prior 10 years and allows withdrawals of up to $10,000 of the taxable amount (or the greater of the lifetime disability assistance payment formula) to be paid out each year. This freezes the RDSP and prevents any further contributions, grants, or bonds. Several parents feel there is no point in opening an RDSP as their child has a diminished life expectancy and they would never be able to retain the grants and bonds. This may convince them that they should reconsider, as there is a chance that both they and their child may benefit from an RDSP. Furthermore, you can rollover retirement savings into an RDSP if you have an unused amount of the overall RDSP lifetime limit.

This amount would not be taxable to the estate of the deceased retirement savings holder and the income tax would be deferred for the beneficiary until they start withdrawing from the RDSP (this would significantly reduce the amount of income tax paid by

PROVINCIAL ASSET BREAKDOWN

I

n Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, Newfoundland and Labrador, Yukon Territory, Nunavut, and Northwest Territories, the RDSP is considered an exempt asset for and exempt income when determining eligibility for disability benefits. In New Brunswick, Quebec, and PEI, it is an exempt asset and partially exempt from the income calculations. In addition, a RDSP does NOT impact Old Age Security, Canada Pension Plan, Guaranteed Income Supplement, GST, or other federal social assistance benefits. There are some situations whereby you may elect to use an RDSP not for grants and bonds but exclusively for the ability to supplement provincial disability benefits that would have otherwise been lost due to asset threshold issues. — G.Z.

24 FORUM FEBRUARY 2019

the estate). The beneficiary would have to be a financially dependent child or grandchild of the deceased for the rollover to be allowed. The proceeds from a rollover do not count as a contribution that can attract grant money but they do count against the beneficiary’s lifetime contribution limit. This has the potential of significant tax savings and can materially affect the estate planning of the parents and grandparents of a dependent disabled individual.

While some advisors may mention that a client can roll over an registered education savings plan (RESP) to an RDSP, I find that many do not explain how this works. It is the accumulated income payment (AIP) from an RESP that gets rolled over. This could be advantageous if there are significant gains in the RESP and you know for certain that the beneficiary will never attend a post-secondary institution that RESP funds could be utilized for.

The RESP grant money would be sent back to the government, and the principal returned to the subscriber. The monies from an RESP rollover do not attract grant money but count against the beneficiary’s lifetime contribution limit to the RDSP.

Withdrawing from an RDSP Money is taken out from an RDSP either as a disability assistance payment (DAP), which is a singular payment from an RDSP to a beneficiary and can be done on their own, or as an LDAP, which, once started, cannot stop until the RDSP has ended). The beneficiary can take both a DAP payment and an LDAP payment from an RDSP. There is a minimum amount of money that one MUST take from an RDSP by the end of the year the beneficiary turns 60, and this is when the LDAP must be started. The amount of the required LDAP payment for the year is determined by this LDAP formula: A ÷ (B + 3 – C) + D where: A = the fair market value (FMV) of the property held in the plan at the beginning of the year, (excluding the value of locked-in annuity contracts held by the plan trust).

B = the greater of 80 and the age of the beneficiary at the beginning of the calendar year.

C = the actual age of the beneficiary at the beginning of the calendar year.

D = the total of all periodic payments paid, or deemed to have been paid, under certain locked-in annuity contracts, to the plan trust in the calendar year, if applicable.

Some people with RDSP accounts are not aware that if the amount that was contributed into an RDSP is less than the total grants and bonds received, then the RDSP would be considered a PGAP (primarily government assisted plan). This will limit the total amount of money that can be withdrawn annually from the plan to either the LDAP formula or 10 per cent, whichever is greater. This knowledge could significantly change a financial plan given the potential restriction of withdrawals.

RDSP rules and specifications can be overwhelming, so when opening up an RDSP ensure that you are aware of the rules and processes.

GEOFFREY ZALDIN is co-founder of Special Needs Financial in Toronto.

He can be reached at geoffrey@specialneedsfinancial.ca.

TAX UPFRONT

BY DOUG CARROLL

Work Interrupted Severance planning options to help you through the emotional shock

J

ob loss is a risk we all face. Ask the unfortunate people in the oil patch and at General Motors who are experiencing that first-hand right now.

While you may not be able to completely insulate against it happening, you can prepare yourself with financial habits and tax knowledge to weather through it if it does, and emerge sooner and as intact as possible.

HAVING A BRIDGE FUND As a type of emergency fund, this bridges the household until the primary or sole breadwinner can get back into financial production. Ideally you’d have this in place well beforehand, but even if you don’t, it’s a habit and mindset that will serve you well if you’re beginning to get nervous about your workplace.

Generally, a three-to-six-month cushion is suggested. While this may serve the purpose, make sure it truly reflects your personal job outlook and spending habits.

Without dwelling on it too much, ask yourself on an annual basis what your prospects would be if you had to look for work. And on the spending side, understand what goes toward necessaries, discretionary purchases, and luxuries respectively, and how you will place the latter two on hiatus when required.

JOB LOSS IN THE MOMENT It’s an emotional shock, but you need to maintain a clear head in a compressed timeline. The decisions you make will have both immediate and long-term effects.

Within that, tax is sometimes simply part of calculating what you have no control over, and in other cases it is a critical contributor to those decisions.

Nature of a payout Without getting into the minutia of how each is calculated, your employer may owe

you one or more of the following, all of which are subject to income tax: • Severance pay based on length of your employment, when you are let go without any fault on your part • Termination pay that is in lieu of providing advance notice of the last day of employment • Vacation pay for earned but unused vacation entitlement • Lump sum for accrued benefits (e.g., banked sick days) that may be owed to you on departure Withholding for income tax, Canada Pension Plan, and Employment Insurance will apply if severance pay is in the form of salary continuance. However, if it is paid as a lump sum, only the tax is deducted. As well, if your employer agrees to defer payment over two or more years, that could ease the tax cost if you are in a lower bracket on each receipt.

Benefit continuation and replacement Losing health and dental insurance can be an extra disruption, especially if you or your family have upcoming appointments.

Ask if coverage could be extended for a time to relieve some of the burden.

For life insurance, employers usually allow you to buy replacement coverage without medical underwriting from the current benefits company. That’s especially important if you’re no longer insurable, but otherwise you may be able to reduce cost by shopping the market.

Retirement funds Transfer to RRSP: When a large payment

comes, you can direct some of that amount to your RRSP if you have room. This will protect against income tax, but be sure that you still keep enough cash on-hand to carry you through your expected unemployment time.

Registered pension plan: Defined contribution plans can generally be transferred

to a locked-in RRSP without any tax issues.

Defined benefit plans are more complicated, with possibilities ranging from remaining in the plan, beginning the pension immediately, transferring to the plan of a new employer, or commuting into a locked-in RRSP. Your pension administrator will provide you with a package to review, so get out your reading glasses and fine-tooth comb.

Retiring allowance: Extra one-time RRSP room is available on severance pay to a longstanding employee. It is $2,000 for every year you’ve been with the same or related employer before 1996, plus $1,500 for each year before 1989 for which employer contributions to an RPP or DPSP have not vested. Contributions must be to your own RRSP (i.e., not to a spouse), and the room cannot be carried forward.

RECOVERY TO EMPLOYMENT On top of managing your spending, it’s important to keep your debt under control.

At a minimum, make the minimum payments to keep your credit in good standing, bearing in mind that potential future employers will likely do a credit check before hiring.

If you are feeling overwhelmed, consult your financial advisor, a credit counselling service, or an insolvency trustee. They can advise on negotiating with creditors, and discuss whether debt consolidation may be appropriate.

Finally, when you do get resituated, understand and keep an eye on any probationary period you may be under. You should continue to operate with your streamlined spending rules until that period has passed, but in time things will normalize to a new routine, with your future back on track.

DOUG CARROLL, JD, LLM (Tax), CFP, TEP, is practice lead for tax, estate, and financial planning at Meridian.

He can be reached at doug.carroll@meridiancu.ca.

FEBRUARY 2019 FORUM 25

- African Proverb

HAPPY ANNIVERSARY! To our valued Members, Your Association thanks you for your ongoing commitment to your clients, and to your profession.

Advocis would like to recognize those celebrating milestone anniversaries.

Congratulations to your 20, 25, 30, 35, 40, 45, 50, 55, 60, 65 and 70 years of membership!

Roderick Abbott Michael Acheson Gilbert Ackerman G. Adams Marion Adkins Hardip Ahluwalia Kelly Aikens Gopala Alampur Sam Albanese Enayat Ali J Allan Frank Allen Euselda Altamirano Manuel Alves Helen Anderson Tullio Andreis Michael Andrews Ernest Antoniw David Appleton Brian Armstrong Gerard Arsenault Craig Ash Ehsan Auckbaraullee Matt Austin Ted Austin Theodore Averbook Gordon Baptist Rolf Bartolo Scott Batson Philip Bauer Warren Bauman Robert Beach James Beale Ryan Beebe Philip Belec Sean Beneteau Darril Beninger Edison Benoit William Benson Larry Berdugo Bruce Berger Kurt Bigeau Bruce Biggar Robert Bisset Cliff Blank Terry Blocksom Doug Boden Donald Bonazza Dennis Boodram Marc Bouchard Cynthia Bowden Dwaine Bracken Gordon Brandon Gur Brar Charles Brophy Colin Brown David Brown Paul Brown Douglas Browning Elio Bruno John Buckley David Bulinckx Helen Burgess Leon Burke Ian Burns Julie Burris-Freeman Michael Byrne Brenda Cairns Franco Caligiuri Elizabeth Callon Mark Calma Tracey Cambridge Vincent Cardella Michael Carey Bernard Carr Kenneth Cassis Michael Cecutti Warren Chan Lydia Chan-Kruska W Bo Chew Bing Chew Sat Chopra Sandra Ciotti Chris Clark Richard H. Clark Richard W. Clark Andrew Clarke Craig Clarke Brian Clegg Keith Coles Catherine Comben Gerard Connell Robert Cook George Cook Pamela Cooper Salvatore Corea Ken Corfield Chuck Corrigan Wayne Cotton Paul Courneya John Courneya Mark Coutts Robert Cowan Paul Craft Peter Creaghan Alix Crispe Penny Crossan Deneen Cunningham Fernando Da Silva W Davidge Carl Davidson Leonard Davis Ron De Jaray Kerry Deachman William Deacon Fraser Deacon Daniel Dean Robert Dean Dirk deGraaf Douglas Deichert Lorne Dell Emilio Deluca Barry Dennis Brent Dennison Joanne Dereta Hugh Desjardins Michael Dibrina Francis Dinglasan Nathan Disenhouse Richard Dobel Hugh Dodd Alan Dollar Allan Dorfman Ian Doughart Geoff Douglas Jim Doyle Peter Drum Tracy Duff Paul Dunmore Leszek Dziadecki Paul Edmond Allison Edwards Russell Elford Jerry Eliason Rodney Elliot Gilman Ennis Dale Ens Andrew Ernst John Esler J Facey John Fahie Rocco Faiella Dwayne Fedoriuk Edwin Fedun Ronald Fennell Richard Fillion Richard Fischer John Flasch Robert Fleischacker Jim Fockens Patricia Fogarty Don Forbes Mark Foris G Fox Alexander Fraser Kenneth Friesen Jean-Claude Friquin Carl Furtado Don Galinsky Michael Gallant Donald Gamble Scott Gannon W. Jay Garbutt R Larry Gardhouse Jean Gaudry Robert Gawthrop Vernon Geddes Tony Geraci Mary Gibson Kim Gibson Ivan Gidluck Stewart Gillott Murray Giusti Douglas Gleed Ashok Goela Mark Goldasic Shelley Golden Patrick Goldring Paul Goldstein Gemma Goymer Derek Graham Ed Grainger Robert Granby Michael Grounds Lloyd Guess Robert Gulyas Annemarie Haapala Larry Hackel Allan Haigh Kevin Halkyard Steven Hammer Evelyn Hansen Gordon Hart Aileen Heisler N Henriques Kevan Herod Elizabeth Hesson Edgar Hickey Russell Highfield Anne Hildebrandt Jason Hillmer William Hinan David Hodgson George Holdenried Tim Hong Harvey Hopper Todd Hounsome Kevin Howard Verna Howard Lance Howard Judy Hsu Chung-Kid Hu Shaun Humphries Paul Huntley John Huot Frederick Hurdman Catherine Hurlburt Brent Huston Daniel Hynek Clarke Ingebertson Robert Ingram James Jackson ChriJames Harry James David Janzen Roy Jaques Calvin Joe Cynthia Johnson Timothy Jones Grace Joynt Grant Karst Verica Karyofyllis Kenneth Kaytor Gerald Kazanowski Anne Kean Jack Keenan Karl Keilhack Mark Keirstead Simon Kelly Timothy Kelly Karen Kelndorfer Murray Kelsey J. 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Albert (Al) Pizzi Sandra Pollack J Potvin A Powell Andrew Prenick Harper Price Lindsay Price Terrence Price Matthew Prosser Heidi Pullem Brenda Pullen Stephen Pustai Roger Quirion Jeremy Racicot Dale Rafuse Zul Rahim Garry Rathgeber Donald Rawding J. E. Rawling David Reckin John Rees Ronald Reid Robert Reid Zia Rezvani Richard Richards Hilary Richards Karen Robbins Roy Roberts Duncan Robinson Tim Robson James Rogers Elle Rosenberg William Rosser Danny Roy Peter Rudin Derek Rundell Wayne Russell Carole Russo Wesley Rzazewski Susan Sadowsky Ali Sadr Baygi Dale Sandles Michael Saron J. Philip Sawyer Richard Schilling S. Schloss Jeffrey Schreiter Randy Schueler Paul Scott Brian Seim Jeffrey Shaddick Dale Shannon Joseph Sheehan Grant Sheridan David Sherwin Rebecca Sinclair Robert Sinden Lane Smith Jennifer Smith Kent Smith Kevin Smith Robert Smith Breanna Snow Don Snyder Ralf Soeder Daniel Sonkodi Tom Sorge Patrick Souliere Marlene Spielman Susan St. Amand Christopher Steele Harold Steele William Steenbergen Mark Stefan Laurie Stephenson Andrew Stevenson Jack Stratton James Stubinsky Richard Suchan Eleena Swan Wynn Sweatman Ronald Sylvester Timothy Tahara Aurora Tancock Rockson Tang Robert Taylor David Temple Nigel Thom Lee Ann Thompson David Thompson John Thompson Chris Thompson Fraser Thompson Alexander Thomson Cori Timmons Charlie Tinling Len Toccoli Edward Topolniski Allan Troster Emile Turcot Glen Turner Brent van Ryzewyk Don Viau Maria Vieira Antoinetta Vogels Anton Volek Donna Vollet Mark Wadey Aziz Walji Scott Wallace Anna Waller Eric Warden J Warke Nigel Watkinson Ian Watson William Watt Gary Weagle Stephen Webb Jodi Weber Marlene Weese Geoff Wells Jack Wenaus Brandon Whitford Clarence Whylie David Wickson Clifford Wiegers Keith Williams Kevin Williams Brian Wilson Irv Wilson John Wilson Grant Wilson Shawn Windrem Ronald Wing Robert Wiseman Robert Wolff Richard Wolfson Victor Woodhouse Mari-Jayne Woodyatt George Worobey David Wright David Wylie Linda Yanagisawa Dennis Yanke Delbert Yap Les Zacharias Zenon Zemluk Gloria Zonailo Mel Zulak

ESTATE DILEMMAS

BY KEVIN WARK

Decline in Donations Educate clients on how charitable giving can play a role in estates

T

he Canadian tax system offers generous incentives for those wishing to make contributions to their favourite registered charity. And unlike the recent government trend of reducing or eliminating access to tax benefits and credits, the rules governing charitable donations have in fact been enhanced over the past decade. Let’s consider the rules governing charitable gifting, the current status of charitable gifting in Canada, and the important role advisors can play in facilitating the philanthropy of their clients.

The main tax benefits associated with making a charitable contribution may be summarized as follows: • For total donations more than $200, a federal tax credit of 29 per cent (or 33 per cent for those in the top marginal tax bracket) is provided. There is also a provincial charitable tax credit, often at the top provincial tax rate. Thus, for many Canadians, the value of the tax credit will exceed their own marginal tax rate. In these circumstances a dollar of charitable contributions will shelter more than a dollar of taxable income from taxes.

• It is possible for a married couple to pool their charitable contributions and have one of them claim the tax credit to maximize the additional tax benefit for gifts of more than $200.

• The charitable gifts that may be claimed in the year is typically limited to 75 per cent of the taxpayer’s net income for the year. However, where a person gifts appreciated capital property to a charity, the income limit is increased by 25 per cent of the capital gains (and recapture of depreciation) arising from the gift.

• Where the gift consists of public securities (for example, shares of a public corporation or units in a mutual fund/segregated fund) the capital gain arising from the disposition is reduced to nil. This makes gifting appreciated securities very attractive as it significantly reduces the after-tax cost of the gift.

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• Where a gift arises due to the death of the donor (including naming a charity as a beneficiary under a life insurance policy or RRSP/RRIF) the executors of graduated rate estates have the discretion to allocate the charitable donation credit to offset up to 100 per cent of income arising in the year of death, as well as the prior taxation year of the deceased.

As can be seen, there are some powerful tax incentives for making a charitable contribution, both while alive or upon death.

A gift of the estate residue to one or more charities is one way of ensuring the results of a life’s work is ultimately put to good use.

Given the tax support being provided for charitable gifting, it may come as somewhat of a surprise that there is a negative long-term trend in charitable gifting by Canadians. A recent report by the Fraser Institute entitled Generosity in Canada and the United States – The 2018 Generosity Index indicates that from 2006 to 2016, the number of Canadians claiming at least one charitable donation in their tax return has decreased to 20.4 per cent from 24.6 per cent.

This report also indicates that Canadians are donating a smaller share of their household income to charities — 0.53 per cent in 2016 compared to 0.78 per cent in 2016. As a result, charitable contributions by Canadians fell by almost $1 billion from 2015 to 2016. In fact, charitable gifts would have been $4.3 billion higher in 2016 had Canadians continued to make donations at the same rate as in 2006.

There are many possible reasons for the declining rate of charitable contributions by Canadians. More pressing financial concerns is likely one of them. The younger generations are struggling with educational debt, saving to purchase a home, and taking care of young families. In turn, the Boomer generation is

trying to help their children, accumulate for retirement, and support their aging parents.

The older generation is increasingly worried about living too long and running out of money. Truly, for many Canadians, charity starts (and stops) at home.

However, that does not have to be the end of the story. Many of these same individuals may be more comfortable taking a longer-term view on gifting by providing a bequest to a charity through their will. This may particularly be the case when they understand that the tax savings arising from the charitable gift can help offset other taxes that are triggered by their death.

You may have other clients that are contemplating the surrender of their life insurance policy, as they feel they no longer need the additional liquidity on death. You can show them how they can make the premium tax deductible by transferring the policy to a charity, while receiving public recognition for the much larger gift on death.

Alternatively, the charity could be designated as beneficiary under the policy, with your client receiving both the public and tax recognition for the charitable gift on death.

You may also have older, wealthier clients who no longer have any close family members. A gift of the estate residue to one or more charities is one way of ensuring that the results of their life’s work is ultimately put to good use, while also eliminating taxes that might otherwise arise in their final tax return.

The estate planning process offers a terrific opportunity to involve your clients in a philanthropic discussion. Through this educational process, you will not only help your clients better understand the benefits of charitable gifting, but may also engage them in a more regular gifting program that will help reverse the troubling trendline for Canadian generosity.

KEVIN WARK, LLB, CLU, TEP, is the author of The Essential Canadian Guide to Estate Planning (2nd Ed.) and The Essential Canadian Guide to Income Splitting.

CORPORATE INSURANCE

BY GLENN STEPHENS

Moore v.Sweet The Supreme Court reviews a case on life insurance beneficiary

I

t is rare for the highest court in the land to hear a case involving $250,000 of life insurance proceeds. Nonetheless, the legal issues involved in Moore v. Sweet were sufficiently important that the Supreme Court of Canada (“SCC”) agreed to hear the case.

Lawrence and Michelle Moore separated in 1999, after 20 years of marriage. At the time of separation, Lawrence agreed that Michelle would continue to be the beneficiary under the life insurance policy Lawrence owned on his life. As part of the agreement, Michelle paid all subsequent policy premiums, which amounted to approximately $7,000 over the years prior to Lawrence’s death in 2013.

After Lawrence’s death it was discovered that, notwithstanding the agreement with Michelle, he had subsequently made an irrevocable designation in favour of his common-law spouse, Risa Sweet. Michelle brought a legal action, arguing she was rightfully the beneficiary of the insurance proceeds.

Pending the resolution of the litigation, the insurer paid the proceeds into court.

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LEGAL ISSUES Michelle’s argument was that, given her agreement with Lawrence, Risa had been unjustly enriched by the proceeds and that, notwithstanding the irrevocable beneficiary designation, the proceeds were subject to a “constructive trust” in Michelle’s favour.

Risa’s position was that the irrevocable beneficiary designation, validly made pursuant to the Insurance Act (the “Act”), constituted a “juristic reason,” or legal justification, for her to receive the proceeds. On this analysis, Michelle was a creditor who had recourse against Lawrence’s estate, but could not access policy proceeds that were clearly protected from creditors under the Act. It is important to note that Michelle’s position as an unsecured creditor of Lawrence’s estate was of no value to her, as the estate had no significant assets.

The case was first heard in 2015 by the Ontario Superior Court of Justice, which ruled in Michelle’s favour, but the decision was overturned in 2017 on appeal by the Ontario Court of Appeal. The SCC granted Michelle’s leave to appeal and ultimately heard the case in February 2018. By a 7–2 vote, her appeal was allowed in a decision released in November 2018. The following are some key points from the minority and majority members of the SCC: The Minority Position: The view of the two dissenting judges was that the scheme of the Act as it relates to beneficiary designations and creditor protection established a juristic reason for Risa’s enrichment. She was entitled to the specific protection provided under the Act from the moment she became the irrevocable beneficiary. As a creditor of Lawrence’s estate, Michelle had no entitlement to the proceeds.

The Majority Position: The majority found that if Risa were to receive the proceeds she would be unjustly enriched at Michelle’s expense. Michelle had upheld her end of the agreement with Lawrence and would otherwise have been deprived of the exact benefit for which she paid. While the Act does provide creditor protection where there is an irrevocable beneficiary designation, it does not state “with irresistible clearness” that the designation precludes a claim in unjust enrichment by a

party (Michelle) with a contractual or equitable interest in the proceeds. The majority’s essential view was that, on the basis of fairness and equity, Michelle deserved to receive the proceeds.

Moore v. Sweet is unique in having reached the SCC, which hears an extremely small percentage of cases passing through the Canadian court system. It is possible that no other case involving an insurance proceeds dispute has reached the highest court.

Having said that, many cases have been decided by lower courts in which insurance proceeds otherwise payable to a named beneficiary are ordered to be paid to others. For example, the Succession Law Reform Act (Ontario) specifically treats insurance proceeds as part of an individual’s estate if the deceased did not adequately provide for his or her dependants. Beneficiary designations have also been overturned in cases involving fraudulent conveyances under bankruptcy proceedings.

Insurance professionals should be aware that under certain situations there may be legislative or common-law protections that impact the viability of a beneficiary designation. After all, even irrevocable designations are not always “cast in stone.”

GLENN STEPHENS, LLP, TEP, FEA, is the vice-president, planning services at PPI Advisory and can be reached at gstephens@ppi.ca.

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PROSPECTING PURSUITS

BY BRYCE SANDERS

Volatility Talk How to communicate with clients during a down market

CONVERSATIONS WITH CURRENT CLIENTS Portfolio reviews are an excellent strategy.

Clients want to know where they started, where they are now, and how their investments are doing. It’s tempting to review 30 FORUM FEBRUARY 2018

statistics and analytics until their eyes glaze over. Keep it simple. They can drill down or read more if they choose.

Some clients feel they are being punished. “I didn’t do anything wrong. I left my investments alone. Why is this happening to me?” This is the time to let them know they didn’t cause this problem, but they can be part of the solution. You need some good, timely ideas to suggest. Once they get interested, explain you like everything they currently own. You don’t want to sell or swap anything. These ideas require fresh money. See what they say.

Conceptually they know they should be buying on declines.

So where does prospecting fit in? Try asking these questions.

“Who do you know that doesn’t get reviews like this one?” Another way of saying

it might be: “Who hasn’t heard from their advisor lately?” Then mention that you would be interested in talking with them.

Or you could ask a more specific question such as, “Who do you know that uses professional money management and is dissatisfied with the relationship with their advisor?” Mention that you would be interested in talking with them, too.

In the conventional prospecting example and the portfolio review, you aren’t coming across as predatory, seeking to profit from a difficult market environment.

You are looking for people who aren’t getting the attention they need and establishing yourself as the alternative.

BRYCE SANDERS is president of Perceptive Business Solutions Inc. His book, Captivating the Wealthy Investor, can be found on Amazon.

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I

t’s been said the stock market goes up like an escalator and down like an elevator. Markets don’t obviously move in a straight line. Unfortunately, some clients feel when the market is rising and they are making money, you are just doing your job. When the markets fall, some may blame you. In addition to handholding your clients through this period, you must also keep the prospecting pipeline full.

Here are two logical ways to start the conversation with a prospect. When one comes in for a meeting, say something like this: “In these difficult markets we try to do performance reviews with each client at least quarterly. When was the last time you had a quarterly performance review with your advisor?”

Now, you have established a standard, and asked the prospect to apply the standard to their current advisor.

Here’s another strategy. Say something like “I’m a financial advisor at [firm]. You probably work with a financial advisor already.” Pause and wait for the person to reply. The answer is probably “yes.” Continue with this: “If your advisor has been there for you, returns calls, and keeps in touch, these days, that’s probably about as good as it gets.” Pause again, waiting for an answer. If they say, “yes!” and tell you great things about their advisor, congratulate them. If they disagree, say: “In that case, there may be room for improvement.”

Suggest getting together and talking.

In the second example you have once again applied a standard. All things considered, it’s a pretty low hurdle! If their advisor isn’t providing a minimum level of communication, that client needs help.

LEADERSHIP & GROWTH

BY BONNIE GODSMAN

Tomorrow’s Consumer How to engage future clients and reap the rewards

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D

r. Seuss wrote Oh, The Places You’ll Go as a children’s book, but his words have also become a manual of sorts for businesses, inspiring us all to rise to new heights despite the challenges that may come our way.

The places we have been are not the places we need to go. We say that often in our business. That’s because today, the consumer truly has become the ultimate decision maker. Now that the Amazons of the world have raised the bar in terms of what consumers expect from nearly every type of transaction, we too must be willing to change and innovate to meet consumers where they need us, at any given moment.

Amazon’s success is no secret to anyone who has ever enjoyed an Amazon service.

It’s all due to a finely tuned customer service model that spans the user experience, execution of customer orders, and ease and convenience in online shopping. That model has become what today’s customers not only want — but expect — in most other aspects of their daily lives, including

how they protect their families and prepare for the future.

Imagine a young family of four where the husband works out of the home and the wife runs a business in the home. In this scenario, there are opportunities for health insurance; disability insurance; auto, home and liability insurance; financial planning and more. But whatever products are offered, everything has to tie right back into that new “customer first” philosophy.

While the industry has always focused on customer service. Today’s service has to go beyond doing a great job of selling. Reps must take on the role of true advisors, not just providers.

EMBRACING TECHNOLOGY This past year, as a precursor to LAMP ’19 and its theme of Transcend Through Transition: Engaging the Modern Consumer, GAMA held its first-ever joint Executive Leadership Cabinet and PMG Symposium event. We were thrilled to partner with LinkedIn, the online platform for profes-

sional networking. LinkedIn walked us through its next wave of innovation and the launch of its latest services, including talent acquisition, learning solutions, marketing solutions, and sales solutions.

It’s an example of how this 15-year-old company, once a startup, still isn’t afraid to change and innovate to help meet the growing needs of its members. Its presentation offered powerful insights into activities that we too could incorporate to identify the right candidates, better develop and retain our talent, and make personal connections with the customers who most want — and need — to hear from us.

While nothing will ever take the place of the personal relationship that local reps establish with their clients — big data, for example, will never know when a client’s child scores a winning touchdown or when there’s a family problem — the industry is also moving toward increased use of technology to help make it easier to manage those relationships.

How do we build ourselves to develop these connections? We know the opportunities. For example, statistics show that large groups of citizens worldwide still remain underinsured. Reaching these key audiences means utilizing new strategies and new tools. It could be as big picture as restructuring our business or merging to offer multiple products.

On the financial side, it could involve investments to leverage new technology now available to speed underwriting or mine data. In terms of marketing, it could mean identifying new partnerships to help deliver success to your company. Or it could mean taking a closer look at your recruitment and retention strategies to attract diverse groups as more of our workforce retires.

But whatever form it takes, we know it will — and must — involve today’s consumer, who wants more, is used to getting it almost immediately and is more educated than ever before, thanks to the amount of information widely available at our fingertips.

Oh, the places we’ll go — so long as we keep our focus on the modern consumer.

BONNIE GODSMAN is the CEO of GAMA International.

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TECHNOLOGY & SOCIAL MEDIA

BY MASOOD RAZA

Moving Through Stages Using digital strategies to retain clients and get more business

T

he traditional marketing funnel as we know it is becoming increasingly irrelevant, if not already completely useless. Many studies show that it costs five to 25 times more resources to acquire a new customer. Compare that to research from Frederick Reichheld of Bain & Company, which found that increasing customer retention rates by a mere five per cent translates into increasing company profits by 25 per cent to 95 per cent.

Depending on whom you ask, a typical inbound marketing funnel will have four major stages: atract, convert, close, and delight.

In the attract stage, your company leverages traction channels to create awareness around your products or services. The goal of this stage is to create new interest in your business or service and ultimately pull traffic to your website or landing page. Using an omni-channel approach, testing, and measuring each channel for your market is key to success in this stage. Channels can include search engine optimization (SEO), paid search engine and social media ads, co-marketing partnerships, and several others.

The convert stage requires you to compel your user to complete a call-to-action such as filling out a lead form or interacting with a chatbot. In this stage the prospect goes from awareness to consideration.

The close stage is where the prospect finally activates on your offer, whether that is applying for a policy, making an investment, or funding an account. The prospect usually closes after being nurtured and guided through various touch points.

Touch points can include email marketing, social media engagement, SMS messaging, phone calls, or in-person visits.

The delight stage is where most marketers and salespeople fail to make a flywheel out of their funnel. This doesn’t mean spamming users with more offers for products that are not aligned with their 32 FORUM FEBRUARY 2019

needs and goals. It means every unit of the business has the opportunity to collaborate to create the best possible customer experience. When you offer an outstanding service, you are unlocking the most powerful of all scalable marketing channels, word-of-mouth.

For many advisors, the post-close phase simply means delivering a policy or doing an annual review of their client’s portfolio.

Rather, an advisor who wants to maximize the potential of that client coming back to them for more advice or referring their friends is much higher when the advisor keeps the client engaged and is constantly asking for feedback.

The delight stage directly feeds new traffic back into the attract stage by way of repeat business, referrals, and introductions.

A simple and easy way to enhance your customer experience is to ask your clients what they liked and disliked about the process. Collect as much data as you can and begin to derive meaningful insights to iterate and enhance your processes and offerings.

Independent advisors make smart choices about the products they choose to offer, financial intermediaries they decide to partner with, and ancillary services they subscribe to. Consumers have more options than ever to curate their own customized experiences that cater to their tastes, and financial services are not immune to this phenomenon.

Econsultancy conducted a survey stating that 86 per cent of consumers are willing to pay a higher price for a great customer experience, and 65 per cent find a positive experience with a brand influences their purchasing decision more than great advertising campaigns.

With so many financial instruments offered by traditional institutions, consumers are starting to look elsewhere for more streamlined solutions. For example, when an applicant fills out a health questionnaire

for a life insurance application, once with the advisor and again with a paramed, they start to question the intelligence of the process. It doesn’t help build trust when the client finds out that their advisor did not even need to ask the health questions in the first place, making them repeat the awkward process again later on with a stranger.

A study by Accenture stated that 89 per cent of consumers ultimately face frustration as a result of having to repeat the same steps to multiple representatives of the same organization. This issue can be resolved by removing silos in their client onboarding processes. Advisors can do their part by identifying and removing friction points in their ideal client buying journey.

Marketers, salespeople, underwriters, case coordinators, customer service reps, and receptionists should communicate and align their activities to serve the customers better. This will help offer a more consistent service and remove any potential for their clients to become frustrated with fragmented legacy processes.

Once you have your flywheel smoothly spinning, measure the key metrics of each stage to ensure you are offering the best possible experience, and maximizing the number and quality of new business from existing client and organic referrals to new prospects who would be delighted to work with you.

MASOOD RAZA is director of marketing with Crowdlinker, a digital product studio based in Toronto.

He can be reached at masood.raza@crowdlinker.com.

HOW TO REACH US On Twitter: @advocis @deannegage On Facebook: facebook.com/advocis On LinkedIn: linkedin.com/company/advocis

AdvocisNews ASSOCIATION UPDATES AND EVENTS

IN MEMORIAM Donald F. Pooley, CFP, CLU, CH.F.C. 1924–2018 Jack Shaffer, who works as an advanced case strategist, shared this touching tribute to his close friend Don.

T

he life insurance industry lost another icon on October 23, 2018.

My wife, Roneen, and I both met Don early in our careers (about 50 years ago) and had the privilege of working with him in many capacities. At one time, we all worked together at the Great-West Life branch in Vancouver where Don and Roneen started the first brokerage office in the late 1970s. We remained friends with Don and his wife, Kate, long after his retirement, enjoying many martini lunches with the two of them over the last two decades.

Don possessed a brilliant mind that he used in putting complicated estate and insurance strategies into simple terms that clients and advisors could understand. His mind was never at rest. He read constantly and loved to educate himself. He decided to learn Latin at age 90 to keep his mind sharp. He kept cue cards tucked into his suit jacket pocket to practise if he ever found himself at rest. He stopped his Latin studies at age 93 because he found nobody spoke it anymore.

Don was a member of Mensa, the international organization for those who score in the top two per cent on intelligence tests.

While his intelligence was somewhat legendary in the industry, his acerbic wit was equally recognized. Don had few boundaries when it came to his communication style, but somehow, even when he crossed the line, he got away with it because his intent was usually to entertain or get himself out of a sticky situation.

There is a well-known story that is pure Don. Back in the late 1960s, Don was an executive with a Canadian life insurance company. His boss sent Don a letter chastising him for some transgression. Don responded

that someone had stolen his boss’s personal stationery and forged his name to a very insulting letter. Don suggested that he should investigate this individual and take immediate action. Needless to say, the transgression was immediately forgotten while Don’s response became legend.

Don delivered speeches worldwide, from New York to Singapore. During my career, I had several opportunities to share a podium with him and always came away a better speaker for the experience. He never stopped sharing his knowledge. Don was a pioneer in helping advisors distribute newsletters to their clients. In the late 1970s, he started publishing “Life Letter,” a brief but informative communication for advisors to send to their clients. Sometimes these letters displayed evidence of Don’s sense of humour. For example, one newsletter was titled, “How to Make Your Heirs Hate You.” Don continued publishing these articles right up until 2000.

We worked hard, played hard, and had a lot of fun collaborating with our peers.

This gave us all an opportunity to form bonds and lasting relationships with cre-

ative people like Don. He had a great impact on many of us who knew him and we will miss him.

It is fitting that a man so witty was able to leave this world after 94 years with his family by his side and a parting joke — “I guess you can cancel my flu shot.”

Our condolences to Kate, his children John (Johanna); Anthony (Charmaine); Elizabeth (Paul); Sheila (James); and Mark, his nine grandchildren and five greatgrandchildren.

CHAPTER NEWS The Advocis Windsor chapter held their Christmas luncheon on December 7, 2018. During this festive event the chapter donated $12,100 to Crime Stoppers Windsor Essex and $720 to Good Fellows Windsor Essex, along with hundreds of canned goods.

FEBRUARY 2019 FORUM 33

AdvocisNews MEMBER RECOGNITION Ian Moyer

I

an Moyer became an Advocis member in 1978 when he began his career as a life insurance agent with Northern Life. A few years later, he joined the Million Dollar Round Table, earning a spot at The Top of the Table in 2015.

He wrote a comprehensive retirement plan for his first client in 1982 — long before it was popular. His client was facing two more years in the workforce but wanted to spend her time with her ailing husband. The plan Moyer designed allowed her to do just that. This was the spark that ignited Ian’s move toward a retirement planning–based practice.

As the tax system became more complicated — pension splitting, Old Age Security clawback, pension credits, and tax rates for every possible source of income — Moyer noted the distinct lack of software available to advisors like himself to deliver his clients

the most in the way of retirement income. He cobbled together a few programs to perform the often-complicated calculations, but nothing quite fit the bill. In 2013, along with Jonathan Kestle, who would eventually buy his business, and Keifer O’Conner, a software developer, Moyer set about developing a retirement income calculator. They called it Cascades (https://cascadesfs.com).

The Excel spreadsheet program was first put to use for their own clients, but it soon became clear that the software could be useful to more than just the team of two advisors and a developer. Why not offer the software to industry peers? One early adopter of Cascades was former Advocis chair Terry Zavitz.

Cascades was upgraded to a cloud-based platform in December 2018. Advisors who fill in the intuitive online questionnaire on behalf of their clients can now receive a complete (and tailored) income plan for their clients within seconds. And these reports offer withdrawal strategies that save clients money — money that they can use for charitable giving, for everyday living, and for family.

In November 2018, the presidents of the Ontario North East Region met at the Advocis national office, where they contributed to the development of processes and resources to support chapters in 2019. From left to right: Sean Lawrence (St. Lawrence Rideau); Don Pelletier (Northwest Ontario); Denton Middaugh (Sault Ste. Marie); Gord Rymal (North Bay); Eric Barton (regional leader, Chapter Leadership Council); Clayton Dulong (Timmins and District); Gailand Poapst (Cornwall); Todd Boyd (Sudbury); and Janice McFarlane (Ottawa).

More than 200 people attended the 6th Annual Edmonton Christmas luncheon where the chapter presented more than $23,000 for Adopt-A-Teen. Adopt-A-Teen spreads Christmas cheer to more than 6,000 teens aged 13 to 17 by providing $50 gift cards. Shawn Parchoma, government relations manager for Aurora Cannabis, was the guest speaker.

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Advocis is pleased to recognize Clayton Dulong, CFP, for his outstanding contributions. Dulong has been an Advocis member for nearly 20 years, and joined the Timmins and District chapter in February 1999. He served as chapter president for more than eight years, in addition to holding other volunteer positions. We thank Clayton for his passionate commitment to promoting the value and professionalism of financial advice and we wish him all the best in retirement.

FINAL WORD

Evolution Through the Years

PHOTO: LUIS MORA

O

BY AL JONES

n June 6, 1906, 113 years ago, the members of the Life Underwriters Associations of Montreal, Quebec City, PEI, and Toronto met and founded the Life Underwriters Association of Canada (LUAC) to act in the interest of life insurance agents and represent their views to government and the public. From its inception onwards, the association has been guided by a Latin saying, Non Solis Nobis, which means “Not for Ourselves Alone,” encouraging members to continue serving Canadian financial advisors, their clients, and the nation.

LUAC became an Act of Parliament in 1924 and over the years underwent many changes, including a name change in 1997, when it became the Canadian Association of Insurance and Financial Advisors (CAIFA). By a special Act of Parliament, the merger of CAIFA with the Canadian Association of Financial Planners (CAFP) in 2002 created The Financial Advisors Association of Canada, known today as Advocis.

Advocis is the oldest and largest voluntary professional membership association of financial advisors and planners in Canada.

We represent thousands of financial advisors across the country, advocating for professionalism and consumer protection. For more than a century, we have worked together to ensure we foster community, offer ongoing support to advisors in all stages of their careers, and provide opportunities for continued education.

There is a Greek proverb that beautifully encompasses the work our members do: “Society grows great when old men plant trees whose shade they know they shall never sit in.” All the past chairs of LUAC/CAIFA/Advocis, from Homer Vipond in 1906 (and 1915) to my predecessor Jim Virtue, have all, each in their own way, man and woman alike, contributed immensely to the legacy of our organization. So, too, have many other staff and volunteers. We currently operate with 58 staff and more than 650 member volunteers who offer their time, energy, and so much more to the organization. It is the input, support, and endless commitment from our members that continues to ensure we are successful, our members are supported, and Advocis remains the definitive voice of the profession among decision-makers and the public, stressing the value of financial advice and working toward an environment in which all Canadians have access to the advice they need.

As a voluntary organization, Advocis is committed to promoting professionalism among financial advisors. We recently conducted surveys in Ontario, Manitoba, and Alberta in an effort to learn more about how the general public views financial

advisors. The survey results were truly eye opening and the message from consumers was consistent in all provinces.

In Ontario, 56 per cent of respondents believe the title “financial advisor” is already regulated. Eighty per cent believe a professional code of conduct for financial advisors should be mandatory. Ninety-one per cent support legislation that regulates the title “financial advisor.” Surveys in other provinces also showed widespread public support for treating financial advice as a profession.

Advocis is leading the way forward on the matter of raising the professional bar for financial advisors. As of January 1, 2019, all new members are required to hold or obtain a recognized designation within three years of joining the organization. The new Professional Financial Advisor designation, the PFA, bridges the gap between initial licensing and advanced designations like the CHS, CLU, and CFP. A majority of advisors are undesignated. The PFA will contribute to their further professionalization and business success.

We are also working hard to ensure that only licensed individuals with a recognized financial advisor designation are permitted to present themselves to the public as financial advisors.

If we address the oversight that currently allows anyone to call themselves a financial advisor, we will be able to address most of the behavioural issues that result in less than optimal outcomes for consumers.

Advocis members are professional financial advisors who adhere to an established professional code of conduct, uphold standards of best practice, participate in ongoing continuing education programs, maintain appropriate levels of professional liability insurance, and are committed to putting client interests first. The changes we have introduced this year will only strengthen the standing of our members in the eyes of industry and the public.

Through recessions and wars, prosperity and uncertainty, and all the trials and tribulations of history, Advocis has been steadily devoted to raising the standards of financial advice, increasing the profile of the financial services industry, and building a strong community of knowledgeable, ethical professionals who serve the public interest. We are proud of our past accomplishments and excited to be at the forefront of new developments sure to benefit all Canadians.

AL JONES, CFP, CLU, ICD.D, ACCUD, is chair of Advocis.

He can be reached at al.jones@freedom55financial.com.

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