The Financial Blogger This is where your finance takes place

With a crazy stock market, very low interest rate and competition among banks and brokers rising; many individuals are shopping around and select the best offer for a single with one institution. What is the end result? You have an ING savings account, 1 Visa, 1 Mastercard and 1 Amex, you have your bank account at one bank but you got your mortgage through a mortgage broker and you don’t even know where your actual loan is held. You also have a online brokerage account for your own trades, a part of it is manage with a broker or a financial planner and your RRSP is with your best friend.

By going from one institution to another in order to get the best deals possible each time, you end up with dealing with 5 to 10 financial institutions and you will only get what you are looking for: cheap deals. However, there is a way where you can get much more than deals and you will still have good financial conditions.

#1 Savings fees by consolidating

Since new clients are not growing in trees, banks are now trying to increase their product per client. Therefore, they are more than willing to offer good lending conditions, paying down the notary, decreasing investment management fees or offering a better interest rate on your checking account in order to keep your business within their doors. I recently met with a client that would save more than $2,000 simply by consolidating his business with one institution. Since we can’t guarantee investment returns, we can at least play on what is certain: fees! Another point is that your power of negotiation for future product will increase accordingly.

#2 Better understanding of your financial situation

A good financial advisor should not only be there to do a quick sale but also to provide his clients with solid and personalized service. By knowing your entire financial picture, he will be in a better situation to make you save on taxes or to manage your money differently. For example, if you hold $30,000 in your ING account for emergency purposes and you still owe 30K on your mortgage, a good advisor will suggest that you pay down your mortgage (since you are probably paying 5% compared to 3% (taxable) on your ING account) and you setup a home equity line of credit form emergency purposes. However, he will never be able to suggest this strategy if he doesn’t know that you have the ING account!

#3 Simplicity

Even if you receive your financial statement by emails, you still receive 5 to 10 of them every month. If you have a financial question, you might not even know who to call! Having one advisor make things much easier to understand you own situation. If you are able to have only one contact point for all your questions, this would help you out in your retirement planning for example.

#4 Getting a real plan done

If you are interested of having a retirement plan, the best solution is to consolidate all your assets with one institution. The major flaw of plans is the fact that you have to work with expected returns. However, if you hold your investment with two to three different firms, they may duplicate your stocks or funds and decrease your diversification. Therefore, your expected return is even harder to assess.

#5 Avoid duplication

This is a major point that I see all the time. What is the point of having 3 different mutual funds (or ETF or stock portfolio) that tries to beat the same index? Duplication will increase your risk by decreasing your diversification and will probably increase your management fees as well. Chances are that the 3 funds don’t have the same MER’s and therefore, two of them are unnecessary. However, if you receive your statement separately, you might never realize that!

In the end, the key factor if to find a reliable financial advisor that will help you out reaching your goals. Once it is done, you should definitely consolidate your assets with this person.

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Posted under Banks and You, Financial Planning, Insurance, Investment, Market and Risk, Personal Finance

Since about 2 years ago, compliance has been a major issue for the bank industry. They have been requested to improve their processes in order to get rid of any flaws they may have. A well debated question in the industry is the following: “Should a client have one investment profile per account (project) or per person?”. While I believe we should have one profile per client, I will debate this topic another day. However, I have to based the following strategy on this premise in order to make it work.

I know several people who have non-registered and registered investments. Most of the time, they have about the same investment profile, i.e. the same asset allocation inside and outside their RRSP (the equivalent as 401(K) for our US readers). However, tax laws are way different for these two types of account.

In fact, registered investments are not until they are withdrawn from their account. Therefore, one should have his highly taxable investments (such as interest income) within his RRSP Portfolio and leave capital gains and dividend income in his non-registered account.

If you are trading on your own, making this shift should not be a big problem. You simply have to sell your bonds, GIC’s and other fixed income paying interest in your non-registered account in order to buy more stocks or high paying dividend investments (such as financials?). Then, you repeat the operation in your registered account but by selling stock to buy back bonds.

The good news is that this technique won’t trigger much tax by flipping your investments around. Selling fixed income doesn’t trigger much capital gains and selling stocks within your registered portfolio won’t trigger any tax at all.

If you have mutual funds, the operation is a bit different. Let’s presume that you have a balanced portfolio for both accounts. Then, you should sell your balanced portfolio within your non-registered account in order to buy more aggressive funds. Than, you sell your registered portfolio to buy a more conservative funds. The purpose of these transactions is to remain with the same global profile but with a tax efficient strategy.

If you are switching funds within the same family (i.e. Mackenzie balanced to Mackenzie aggressive for example), there are chances you won’t have to sell much of your portfolio. In fact, several diversified funds include funds of different categories that were blended together. So they might be able to simply sell a part of the fixed income funds to buy more equity funds.

I recently did the math for a 300K account and you would easily save $500 per year by doing such strategy. While 300K seems to be a big number, I am sure that you will reach that point by investing on a steady basis year after year. Even if you have a 50K portfolio and you save $100, it’s still a good dinner at a restaurant

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Posted under Financial Planning, Investment, Market and Risk, Personal Finance

I know, talking about dying is quite boring. However, I’m not the only blogger who think we should talk about it! Million Dollar Journey, Canadian Capitalist, Thicken my Wallet, Where Does All My Money Go and my self decided to participate in a group project initiated by Four Pillars. You can read their post at the end of this article.

I read an interesting article about common mistake that people do in their will and I thought sharing since having a will is so important. This is also quite an argument for people thinking they would be alright with a handwritten will!

#1 Omit to mention debts VS donation

Parents that give money to one of their children must specify in their will if it was a debt, a donation or an advance on their rights to the estate. In fact, this could create a big mess if the other children didn’t receive anything while you were living. They may claim it was an advance and therefore reduce the estate part of that child.

#2 Omit to mention the responsible of your debt

It surely sounds stupid but when you die, you leave your assets and your liabilities to your estate. If you mention in your will that you give your house to your first child and the rest of the estate to your second one (let say you have a car and investments that equals the net value of the property); then the second child will inherit of the mortgage on the property as well since it was specified “the rest of the estate to my 2^nd child”. I can tell you that your second child will surely kick your tomb if it ever happens!

#3 Omit to make links between other legal documents

The content of you will must remain undisclosed to your heir until the moment of your death. Therefore, if you have a bad accident and you become inapt, your curator might sell your ancestral house since you can’t live in it anymore. However, if you wished that the property remains in the family and you mention it in your will, you better make the link with your mandate if you ever become inapt.

#4 Omit to disclose important information

If you have a child with drug or alcohol problem of if he is handicap or ill and you forget to mention his status to your notary/lawyer at the moment of writing your will, this may cause major problem for him once you pass away. Give as much information as possible to the responsible of you will. He is definitely the expert to help you out finding the right solution.

Other good read by other bloggers:

Thicken My Wallet wrote about “Top 5 myths about wills“.

Million Dollar Journey details “Why you need a will and the basics of estate planning“.

Canadian Capitalist came up with “A guide to getting your will done through a lawyer“.

Where Does All My Money Go provides some “Benefits of a professional executor“.

Four Pillars with “My experience in getting a will“.

 

Other post in this series:

Basics of Estate Planning Part 1

Basics of Estate Planning Part 2

Basics of Estate Planning Part 3

Basics of Estate Planning Part 4

Basics of Estate Planning Part 5

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Posted under Financial Planning

Is there that much to say about financial consultant? I mean, 5 posts on the same topic, do we need that much to know how to recognize a decent financial planner? I’m afraid that even 5 posts is not enough to cover this topic. When you think about it; if you are about to leave someone else manage your money, he better be good on every single aspect he touches! In today’s post, I am thinking out loud about which kind of human being can represent the perfect money manager for your personal finance.

He does really care

Everybody in the industry will tell you that they care about their clients and that they work for them and not the company that give them their pay check (or huge commission deposit ;-)). However, some financial advisors do really care. I will not give any statistics as they would only be the translation of my assumptions, but I am convinced that there are a lot of financial consultants doing an amazing job for their client. Unfortunately, you will be able to assess your advisor’s true honesty over time. Tips that don’t pay him (if he is insisting that you must have a will for example, he is not receiving a penny for this advice), special attentions such as a phone call for your birthday and flexibility (in term of time for a meeting) would be good indicators. Since it’s intangible, it is always hard to know who people really are unless you can read other’s people mind!

He will make mistakes

He is a financial consultant, not a superman! The difference between a good and a bad financial advisor is not the number of mistakes or the severity of them. We recognize a good advisor when he does acknowledge that he made a mistake and its pro-activity to resolve the problem. It is obvious that if you write a major complaint against him, he will be the first to acknowledge his mistake. A good consultant will realize his mistake and make sure you are happy with the solution offered before getting to the point of the complaint. He should be straight forward with his clients so they know he is not perfect, but he doesn’t play the BS either.

He offers more than one solution

This is not only a cheap sale trick (even though some people are using this technique to close deals). The reason behind offering more than one solution to your client is to show him/her the difference between two alternatives. This help recognizing the best solution for an individual and the client will more likely understand the full potential of the strategies. A good financial advisor will also show the disadvantages of each financial product he offers in order to be as honest as possible. It is also important that he validates that you are comfortable with his explanation and that you fully understand all the technicalities.

Other post on this series:

How to find a good financial advisor part 1

How to find a good financial advisor part 2

How to find a good financial advisor part 3

How to find a good financial advisor part 4

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Posted under Financial Planning, Personal Finance

After four posts on estate planning, we are getting deeper in the financial aspects of your death. Do you leave people behind that are financially dependent? Do you wish to make gifts to nephew and nieces or simply make a donation? After reading this article, you will be ready to assess if you have enough money to cover your last wishes. If you don’t I will also show you how to calculate your need in term of liquidity at the time of your death.

Before you assess your need, you need to go back in this series and calculate your estate net worth. Than, you need to know how much liquid asset will remain once the taxes are paid. Then, you can start calculating to know if you have enough money left for your heirs.

Financial dependents

If you have a family, you automatically have financial dependents. Financial dependants are people who need a part of your income to support their life style. This usually includes your children and your spouse as we usually need both salaries to run the household.

The best way to determine how much you need is to assess how much your financial dependants need per year and for how long if you would ever pass away. Once you determine how much you need, you will need a financial calculator or a friend that knows math You basically have to find the present value of these future cash flow.

The question is:” how much do I need today to create an annuity that will give 30K per year indexed at an inflation rate of 2% during the next 30 years?”. If you have a financial calculator you do the following operations:

PMT: -30,000 (payment)

I: 2% (interest rate)

N: 30 (amortization)

COMP PV: (that will give you the present value).

This amount is what you need as liquid asset in order to purchase the annuity. In order to find this amount, your heirs can use your life insurance, your non-registered funds or ultimately sell a property (if you have more than one, if not, your spouse would have to move to an apartment).

Children school fees

You can apply the same calculation for school fees if you want to make sure that your children will have enough money to pay their tuitions fees. If you leave more than 25K per kids, you are better off creating a holding so it can be manage according to your will.

Santa Claus

If you have no financial dependents, you would technically not need life insurance since nobody will need your money to live anyway. However, if you want to play Santa Claus with your nephews and nieces or with your friends or family, you can also plan to leave them a few bucks

 

Related links:

Basic of Estate Planning Part 1

Basic of Estate Planning Part 2

Basic of Estate Planning Part 3

Basic of Estate Planning Part 4

 

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Posted under Financial Planning