MAY | 2010
THE JOHNSON LEGACYBuilding REPORT Trust for Generations THE LARGEST WEALTH TRANSFER IN HISTORY IS UPON US If the preservation of your family’s wealth through multiple generations is an important objective you must read the rest of this article. As you know, Johnson Legacy Wealth Management specializes in helping families preserve their wealth, earn income from it, enhance it, and eventually transfer it to succeeding generations. Paul Johnson Financial Advisor 250-979-2748 firstname.lastname@example.org
It’s this last part that is on the minds of a great many people, and for good reason. As seniors and parents of baby boomers continue to age, the biggest wealth transfer in history is set to take place over the next 15-20 years. In Canada, it’s estimated around $1 Trillion in wealth will be transferred to the Baby Boomer generation and as much as $41 Trillion in the US. Recent studies have shown that approximately 30% of baby boomers in Canada expect to receive some kind of an inheritance. Studies have also shown that a significant portion of these boomers have not properly prepared themselves to manage this influx of wealth, nor have they prepared themselves to ensure that their own legacy will be passed to their children, grandchildren, or fulfill their philanthropic wishes.
Lori Samuels Financial Advisor 250-979-2712 email@example.com
One of the main obstacles is the lack of open and honest communication between parents and their children about death, Wills, estates, and the transfer of wealth. It’s often considered somewhat “taboo” to talk about money, especially with the older generation, and is one of the primary reasons for poor retirement and estate planning by seniors. In addition to the lack of communication, recent surveys indicate that over 50% of seniors and baby boomers have not consulted with a financial advisor about their plans to leave an inheritance/legacy and as much as 80% of baby boomers did not consult with a financial advisor about what to do with their inheritance when they receive it. There also seems to be a misconception that seeking professional help is only for the super wealthy.
Jay Dowhaniuk Financial Advisor 250-979-2720 firstname.lastname@example.org
Raymond James Ltd. 500 - 1726 Dolphin Avenue Kelowna, BC V1Y 9R9 www.johnsonlegacy.ca
Taken together, the fact that many families do not openly talk about their wealth, death, wills and estates and many do not consult with professionals who can help deal with these important issues creates a recipe for disaster. A poorly constructed estate plan or, worse, no estate plan at all can lead to fighting amongst family members and often needs to involve the courts to bring about a resolution. Passing wealth to succeeding generations needn’t be a stressful or complicated process. However, open lines of communication and planning well in advance can eliminate most issues
before they arise. While it may seem uncomfortable or emotionally daunting to talk about it with family, the consequences of silence are far worse. We have all heard the saying: “If you fail to plan, you plan to fail”. The financial world is not as simple as it once was, which is why it’s even more important than ever before to seek professional help to properly establish the various components of a wellordered estate plan. That’s where Johnson Legacy Wealth Management comes in. We can help our clients prevent these issues from developing in the first place and ultimately assist in achieving financial peace of mind. Financial peace of mind also means knowing that the wealth you plan on passing to succeeding generations will be managed efficiently and intelligently. However, since it’s estimated that 80% of Baby Boomers will not speak with a financial advisor when they receive an inheritance, it’s clear that we all have A LOT of work to do…. which leads us into our next topic.
DO YOU TRUST YOUR CHILDREN’S FINANCIAL ADVISOR TO FOCUS ON THE PRESERVATION OF THE WEALTH YOU HAVE ACCUMULATED? All financial advisors are not created equal. Yes, every licensed financial professional must have attained at least a minimum prescribed level of education and must complete ongoing educational requirements every year. Before being granted a license, all candidates have also been screened for criminal behavior. Plus, all advisors working with an investment firm that belongs to the Investment Industry Regulatory Organization of Canada (IIROC), are bound by the standards established by the industry. However, as in other professions, no amount of education, screening and ongoing oversight can ever entirely prevent abuses from happening, especially where large sums of money are involved. Recent sensational press reports involving Ponzi schemes and other illegal and dishonest activities have made us all acutely aware of the possibilities for abuse - and the lengths to which some individuals will go in order to victimize others. Fortunately, such abuses are extremely rare, when considered in the context of the financial services industry as a whole. The vast majority of financial advisors, portfolio managers, financial planners and others in related fields are honest, hard-working professionals, who have only their clients’ best interests at heart. They know that by serving their clients well, they are also furthering their own interests. Many financial professionals specialize – some take a holistic planning-focused approach; others do not. Some prefer to attract clients with an interest in active trading. Some prefer to use only mutual funds and insurance-related products. Some are generalists, and are happy to accept any and all clients, regardless of their objectives. Some focus exclusively on Socially Responsible Investment (SRI). Others, prefer to work with multiple generations of high net worth families to assist in preserving and enhancing their wealth. There are too many specialties and sub-specialties to detail here, but suffice it to say that all are perfectly valid. Many financial advisors concentrate on assisting their clients in accumulating wealth, or what we refer to as the “get rich” aspect of finance. These advisors, may typically deal in equities, but if they concentrate on only a few issues, that can have the effect of concentrating risk. If one of the holdings performs well, it can have a significant upside effect on the whole portfolio. Unfortunately, the flip side of the coin is that if a holding performs poorly, it will have a significant negative effect on the portfolio. Compare this type of advisor with those who specialize in assisting high net worth families to maintain their wealth, earn income from it, grow it and then to pass it to the next generation. These advisors typically have a deep relationship with multiple generations of client families. They will recommend that their clients spread risk through several asset classes, and will often retain multiple managers, each handling a portion of the portfolio compatible with their particular expertise. These advisors are in the “stay rich” business.
In our experience, we have found that some younger investors are typically drawn to the “get rich” advisor, in the hope that a small investment portfolio can be turned into a larger one quickly. That’s a perfectly valid and understandable perspective for a young person, starting to build wealth, and occasionally, it’s successful. More often, though, the risk to which the capital is exposed results in discouraging losses. More mature investors, those who have managed to amass significant wealth, would like to provide for their family - children, grandchildren and (maybe) great-grandchildren. They are usually more comfortable working with advisors with a “stay rich” philosophy. They may allot a small portion of their wealth to a “get rich” advisor, but these individuals and families retain a “stay rich” advisor to assist with their “serious money”. If the preservation of your family’s wealth through multiple generations is an important objective, it’s also important to know whether you can trust your children’s advisors. In most cases we already work with the children and grand children of our clients, but with the few families where this isn’t the case we would be happy to meet with your family members to ensure they are getting the advice they need to preserve the family wealth through the generations.
Tax Free Savings Account Reminder: In order to have your 2010 TFSA fee waived you must go online and request paperless statements and paperless confirmations on or before May 31, 2010. How to sign up for Online Access? Go to www.johnsonlegacy.ca Click: Client Login button at the top right Click: Need Access? Enroll now! Complete all sections of the online form, scroll to the bottom and click register. Within a couple of days you will be notified by email your username and password. You can then go back to www.johnsonlegacy. ca and login. Please call us if you need any assistance.
Market Update: The past couple of days have been pretty traumatic for the world’s financial markets. Greece has serious fiscal problems that are causing difficulties for the whole Eurozone. Portugal, Spain and Italy are though to be in similar, but slightly less severe, distress. Experience over several decades leads us to believe these things will come to be seen as nothing more than a few potholes in an otherwise smooth road. Markets have been very strong since bottoming in March of 2009. Again, our experience has shown us that no market can remain healthy without periodic sell-offs to correct excesses or to allow the harvesting of profits. Markets have been in one of these correction periods for a couple of weeks. Last week’s panic - caused, according to rumour, by a trade entered in error - took markets profoundly lower in a matter of minutes. Once the cause of the panic became known, markets recovered most of the extraordinary losses, and exchanges have reversed trades made during those few minutes. Long-time clients know that we rarely (never) react to market panic. In our experience, those who follow the herd usually come to regret their actions. Markets eventually reach equilibrium, and good investments again reflect their true value.
We feel that sell-offs like these keep markets healthy and provide attractive entry points for those wishing to commit investment capital. Crises and panics come and go. Governments - even empires - come and go. Wise investors understand that, invest according to a well thought out plan, and avoid the temptation to follow the panicky herd.
Johnson Legacy Wealth Management Update: The big news around the Johnson house this month is that Jessie is preparing for an exhibit of her art at the Kelowna Art Gallery (1315 Water St.). She has painted with a group for several years, and their art will be on display Friday, May 14, 3 - 9 PM. and Saturday, May 15, 10AM - 4PM. The Artists’ Opening Wine and Cheese Reception Is Friday evening, 5 - 9 PM. Hope to see you there! Lori is getting ready to go on her annual “girls trip” with 5 other girls. This year they are going to Montreal on the May long weekend to enjoy the sights, the food and of course the shopping! She has been to Montreal a couple of times with Stephen, but this will be the first time with the girls…should be an adventure! For the past few weeks Jay has been studying hard to prepare for his Portfolio Management Techniques course exam which he wrote on May 8th. Once Jay passes the course he will have earned the Certified Investment Manager (CIM) designation. Jay is happy to have the studying behind him so he can now get out of his basement and enjoy some mountain biking, golfing and spending time with Brianne and Charley.
Introductions are the nicest way to grow any business. If you have friends or family who could benefit from our services, we would be delighted to hear from you and we will gently follow up with them. Please call Paul, Lori or Jay at 250-979-2748 and we will take it from there. Thank you! This newsletter has been prepared by Johnson Legacy Wealth Management team and expresses the opinions of the authors and not necessarily those of Raymond James Ltd. (RJL). Statistics and factual data and other information in this newsletter are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. This newsletter is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., member CIPF. Financial planning and insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a member CIPF. Privacy legislation requires that anyone you are referring consents to having his/her information provided to us.