Rabbits, Tulips and Wealth Management – It’s All Good

Despite eating the tips of virtually all of my sprouting tulips, I still love the Easter Bunny! Spring, after all is about the joy and the energy of transitions from one season to another. From a wealth management point of view, that includes, immediately, how much you'll owe on your taxes before May 2, the personal tax filing deadline. Tax time is also a good time to review other financial documents like your health care directives, powers of attorney and of course, your will.
But over the longer term, smart savers strive to understand the size of the pot they will need in new life environments, like child rearing and retirement, for example.
Stats Canada published an interesting article about family consumption patterns in retirement, last month, which sheds some light on this important question. The data came from the Survey of Family Expenditures and the Survey of Household Spending. The study defined "consumption” as "spending on goods and services includ(ing) all items that meet the consumption needs of household members, but exclud(ing) gifts and charitable contributions, pension plan contributions, insurance premiums, taxes and savings".
It found that from 1982 to 2008 average household income declined about 16%. That's the bad news, and something savers today need to take into account as they look forward another 25 or so years. But the good news is this: Canadians in their early 70s reported that their spending on consumption for household members, while different, was really not curtailed by the decline in their income. Spending on health care, for example, doubled to 6% of available dollars for consumption, and amounts spent on residences and properties rose 43%. But, amounts spent on food, clothing and personal care, fell by 28%.
One of the reasons for this is, of course, the decline in family size for older households. (Yes, it appears to be true: cheese for four, is a lot more expensive than cheese for one or two!) Older households also spent less on alcohol and tobacco, administrative and financial fees, membership dues and service charges. Transportation expenses remained stable.
That's interesting information for financial advisors and service businesses catering to busy, pre-retiring baby boomers. It's important to get ready for those demographic changes in your business now.
It's Your Money. Your Life. To every thing there is a season. Success happens when preparedness meets opportunity. In the meantime, do give yourself permission to enjoy it all: the birth of spring, the baby rabbits and even the thwarted tulips!
Evelyn Jacks is President of the Knowledge Bureau, a national educational institute providing excellence in financial education for tax and financial advisors and their clients. She is a bestselling author of over 46 books on the subject of tax, personal finance, and wealth management, including Essential Tax Facts.

Mastering the Art of Recovery

Have you ever recovered from something—an illness, a loss, a fumble, a failure? What did it take to regain your strength, your equilibrium? What helped? Who helped? Was the result a stronger you, or an adequate compromise? 
Recovery is all around us these days it seems. The economy is recovering. The people of Japan are recovering. Each one of us likely knows someone in our circle who is recovering from a devastating illness, the death of a loved one, or perhaps the pain of job loss or divorce. 
In my view, recovery is the immediate aftermath of catastrophe. I like that definition, because of its immediacy, and its logic.  Disaster is often uncontrollable. Recovery, on the other hand, is usually firmly within our control.
That’s what makes disaster devastating and recovery remarkable: control. We are thrown into recovery just as soon as we become aware that disaster has happened. We slide into recovery, when we have inkling that disaster is imminent. Best case, however, happens when we can plan for disaster recovery and execute it with precision.
For many, it’s difficult to consider the possibility of imminent loss on a catastrophic scale here in Canada. But if you were challenged to, what would come to mind? Debt and taxes that could erode purchasing power of future generations? The price of oil and volatile currencies that could make heating a home or travelling to work cost prohibitive? The tsunami of baby boomers that will flow into a health care system that today can’t handle much more? 
Perhaps you are already taking things into your own hands by saving more for the future.
That’s an important first step: recognition that recovery plans are required when we lose, or can’t rely on, the environment we have become accustomed to.   
These are also the issues that make government budget processes real and elections so fascinating. To me, it’s less about today than about tomorrow. I like to judge the leadership team on the quality of the Plan for the Future. I look for a team has at least two of them: first, a well designed Plan A which anticipates the journey from vision to executed results in the straightest possible line, mitigating risks along the way. Plan B, however is equally important. It’s our best defense, if and when required.
It’s Your Money. Your Life. Are you asking your potential new leadership team about Plan A and Plan B? Now’s the time.
Evelyn Jacks is President of the national financial education institute, Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Essential Tax Facts 2011.

Fiduciary Duty: Putting Client Interests Ahead of Self Interests

Should an investment advisor put his or her interests ahead of the clients?  Most people would agree the answer is no.  Yet, the recent turmoil in the financial world has made this more difficult as the lights have shone on those who have misbehaved significantly, particularly in the US.  A coalition of financial planning organizations in the United States has recommend the establishment of a Fiduciary Standard for financial advisors coupled with more regulatory oversight by the Securities and Exchange Commission (SEC), which regulates transactions by all Securities exchanges, securities brokers and dealers, investment advisors and mutual funds.  Some here in Canada might question, however, whether the quickest path to required change is more regulation.
Down south, the Financial Planning Coalition, which includes the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors, issued a news release on March 29, which called on government to act on recommendations to establish such a fiduciary standard and to fund investor protection activities.  These measures are necessary to restore faith in the financial markets, says the coalition, in response to surveys by the Consumer Federation of America and other groups that found 97% of investors agreed that a financial professional should put the investor’s interest ahead of their own.
The Committee for the Fiduciary Standard, formed in 2009 and based in Virginia, is comprised of finance industry professionals who believe that five universal principles should be followed by all those who provide investment or financial advice. The group has offered  Five Core Fiduciary Principles:
  • Put the client's best interests first
  • Act with prudence; that is, with the skill, care, diligence and good judgment of a professional
  • Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts
  • Avoid conflicts of interest
Fully disclose and fairly manage, in the client's favor, any unavoidable conflict.
What should be done in Canada?  We have been proactive at the Knowledge Bureau, building a framework for a high standard in continuing education is the key to consistently high standards of fiduciary duty.  In our view, this begins with the establishment of a strategy and a process for the consistent delivery of principle-based decision-making.  It requires both deep knowledge on a multi-faceted menu of expertise—tax, retirement, investment and estate planning, for example—and then a strategic plan that maps the right investment product decisions with client needs for accountable results over time. The convergence of varying market cycles with client life events makes this very difficult.   But that’s exactly why it is so important to establish a way to take the onus off the individuals and put it on the strategic process that will carry advisors and their clients through a lifetime of variables in the markets.
Here in Canada, the Knowledge Bureau, a national post-secondary institution focused on excellence in financial education for advisors and their clients, has pioneered the inter-advisory discipline of Real Wealth Management™ and the Master Financial Advisor (MFA™) designation as a benchmark for those who specialize in client-centred and tax efficient wealth management.  Its mission is to focus on standards-based continuing professional development that avoids random CE hour selection in favor of a defined academic path.  The investment of thousands of hours by leaders in the tax financial services into its curriculum has made it vibrant for the times and we are proud of that thought leadership. We have also been proud to assist individual advisors, product manufacturers, dealers and institutions in their quest to serve their clients better, through a high standard for continuing professional development and practice management.   
It’s Your Money. Your Life.  If you believe there is a better way, sometimes you just have to draw a line in the sand, invest in collaborative thought and build a better castle.   Difficult times can produce that opportunity both for advisors and the clients they serve.  The trick is to sustain the investment in good times and in bad.