ADVISOR S · Canadian Publications Mail Product Sales Agreement #1280341, Rogers Media Inc., 777...

ADVISOR’SCANADA’S MAGAZINE FOR THE FINANCIAL PROFESSIONAL • MARCH 2001 D G EE

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DIVORCECOURT

PLUSMFDA: The new kid on the block

Group plan gold mine: new business opportunities

Why managing risk is important to your practice

How to help your clients survive divorcewith their finances and emotions intact.

March 2001

9 INSIDE EDGEIt’s been a long haul, butthe MFDA is finally anSRO.

11 LETTERSBeing paid by commis-sion doesn’t mean anyless of a commitment toclients.

13 THE PLANRob Merchant and BillMoffatt used a life annuity to increase theirclients’ after-tax incomesand preserve the value oftheir estate.

KNOW YOUR CLIENT

16 Tech PowerPay close attention tothe Internet habits oftoday’s kids becausethey’re the clients of the future.

PORTFOLIO

39 Risky PracticesThere are seven words of advice on how to successfully manage riskin your business.

43 Tax Breakwith Gena KatzHow you can help yourclients avoid the taximplications of a severance package.

YOUR BUSINESS

45 Down-Home BankingCanada’s credit unionsare set to become a worthy competitor of thebig banks.The strategy?Building good client relationships.

47 My Edge Financial advisor Marie-Claude Savard (right)says the telephone isessential to providingeffective, efficient qualityclient service.

49 Quest for Excellencewith Nick MurrayAlmost everyone youprospect “cold” will say no.

50 NEWSMAKERCharles Kim, part ownerof Swift Trade SecuritiesInc., says that the easiestthing for a day trader todo is hold a loser.

Departments

TENTSVolume 4, Number 3

CONFeatures

Cover illustration by Bruce Roberts

18 Group PlanningLooking for more business opportunities?Pension plan sponsors are on the hunt for financial advice.By Andrea Davis

22 Divorce CourtHelping clients through the financial turmoilof a divorce can be a challenge. Just ask LindaCartier, a certified divorce planner.By Deanne N. Gage

34 The New Kid in Town The Mutual Fund Dealers Association has finally been officially recognized as an SRO.What happens now?By Peter Boisseau

16NEXT GENERATION

PHONE QUEEN47

MARCH 20017

34

egulation can be a bit likesour-tasting medicine. Youmay not like it, but if it

helps make you better, most peoplewill tolerate it.

That may be how mutual funddealers and individual advisorsultimately view the Mutual FundDealers Association (MFDA), whichhas been readying itself to regulatethem. On page 34, contributing edi-tor Peter Boisseau reviews the recenthistory of the fledgling SRO, high-lighting the boisterous debate that hasshaped its evolution. Even as theMFDA hangs out its shingle, thatdebate is not likely to subside.

For those of you who want totrack the MFDA’s progress and weighinto the debate about the SRO and

its influence on your practice, weoffer a couple of suggestions.

First, read Boisseau’s story. At theend of it, you’ll find a prompt to visitAdvisor.ca for ongoing coverage ofthe MFDA. Breaking stories appearon the Web 1st News zone. Registeras a user of Advisor.ca and youcan also sign up for the A.M. and P.M.Bulletins—a twice-daily e-mailsummary that delivers to you thenews of the day along with a sum-mary of major markets and economicindicators.

Secondly, should you have some-thing to say about the MFDA,another regulator or another subjectthat affects your business, you nowhave the opportunity to do so on-line. Go to www.advisor.ca and clickon the Talvest Town Hall discussionforums. There you will find eight dif-ferent forums covering a variety oftopics including Dealing with Clients,Mutual Funds, Insurance, and FreeFor All.

These forums provide one way foryou to give immediate feedback onarticles you’ve read in either Advisor’sEdge or Advisor.ca. Editorial stafffrom both properties will monitorthese forums and participate inthem—responding to your inquiriesand posing some questions as well.

But the real purpose of the forumsis to provide a platform for advisorsto debate issues among themselves.It’s your chance to challenge orattempt to sway the views of otheradvisors.

Your discussions will help usunderstand what’s important toyou—which can influence the issueswe focus on in the magazine and onthe Web site. That will help us makeAdvisor’s Edge and Advisor.ca more rel-evant to you.

Each Friday, the Advisor.ca newsteam will review the forum discussionthreads entered over the past weekand write a story about some of themore interesting or controversialcomments. The story will then beposted on the Web 1st News zoneand included in the Friday edition ofthe P.M. e-mail Bulletin.

Aside from bringing you the rele-vant news of the day, the A.M. andP.M. Bulletins also keep you informedabout what’s new on Advisor.ca andAdvisor’s Edge—a kind of daily TVguide to our services, tools andresources. We’ll also use it to steer youtoward discussion forums that mightspring from breaking stories.

So go ahead. Have your say. AsBoisseau points out in his feature, alively, informed discussion by advi-sors and regulators helped nudge theMFDA toward rules more in linewith the views of advisors.

As for the MFDA itself—takeyour medicine. We’ll help you makesure the doctor gets the prescriptionright.

DARIN DIEHLCONTENT DIRECTOR

ADVISOR [email protected]

What’s on your mind?Advisor.ca’s discussion forums give you the opportunity to debate issues with your colleagues.

INSIDEEDGE

MARCH 20019

R

Battle of the standardslease tell me that Julia Dublin, chair of theCanadian Securities Administrators (CSA)financial planning committee was misquoted

regarding fee-only advisors when she said she believesconsumers can’t be damaged by bad advice whenthere’s no product implementation (“Grudge Match,”November 2000, page 24).

At the very least, if a client pays for bad advice, theclient has been damaged because they wasted their money.If the client then follows that advice, the potential fordamage is unlimited. I have no quarrel with fee-only advi-sors, but I don’t think they should be exempt from thelevel of scrutiny and regulation that is appropriate for anyadvisor.

I don’t understand why regulatory groups assume thatany persons who sell investment products are motivated

only by their own gain, while others who are compensatedby salary instead of commissions are as pure as the drivensnow.

I am one of those commissioned salespeople. All I haveto offer my clients is ten years of industry experience, auniversity degree, the Investment Funds Institute ofCanada course, the Canadian Securities Course and theCertified Financial Planner designation, my integrity andmy concern for the well-being of my clients. The onlythings at risk for me if I mistreat my clients are my rep-utation, my income and my financial future should some-one sue me or pursue criminal charges.

It’s hard for me to imagine a more powerful incentiveto do the best job I can for my clients.

Neil Hughes, CFPPewter Financial Ltd.Edmonton

LETTERS

Deanne N. Gage Managing Editor(416) 596-5991 ([email protected])Lisa Machado Associate Editor

(416) 596-3564 ([email protected])David J. Heath Art Director(416) 596-5059 ([email protected])

Contributing Editors: Harvey Schachter, PeterBoisseau and Bert Vandermoer

Darin Diehl Content Director(416) 642-4837 Advisor Properties

([email protected])Paul Williams Executive Publisher

(416) 642-4848 ([email protected])Kori Kobzina Associate Publisher

(416) 596-2662 ([email protected])Garth Thomas Account Manager

(416) 596-5564 ([email protected])Maryse Gauthier Montreal Account Manager

(514) 843-2126 ([email protected])Marie Atkins Executive Assistant

(416) 596-5070 ([email protected])Adrian Valks Production Manager

(416) 596-5035 ([email protected])Denise Brearley Director of Circulation and

(416) 596-3470 Marketing ResearchClodagh Rohan Promotions Manager

(416) 596-5937 ([email protected])Katisha Rasheed Promotions Coordinator

(416) 596-5043 ([email protected])

Objectif Conseiller

Yves Bonneau Rédacteur en chef (Editor)(514) 843-2142 ([email protected])

Advisor.ca

Ari Aronson Sales Manager(416) 642-4838 ([email protected])

Help Desk ([email protected])

Editorial Advisory BoardRobert Fleischacker CAIFA

Sandra Foster CaratConnectGlenn Lightfoot RBC Life Insurance

Ian Niven BMO Harris InvestmentManagement Inc.

Scott Mackenzie Morningstar CanadaStephen Clarke AICDan Thompson National Bank of CanadaThane Stenner Merrill Lynch Canada Inc.

Jim Rogers The Rogers GroupFinancial Advisors Ltd.

Lynne Triffon T.E. FinancialRémy Richard Rémy Richard &

Associates Ltd.Shirley Webster Bank of Montreal

Ralph Sommerfeld Raymond James Ltd.Catherine Hurlburt CAFP, IFC Planning Group

ADVISOR’S EDGE is published by Healthcare & FinancialPublishing, a division of Rogers Media Inc.

Rogers Media Inc.Anthony P. Viner President and CEO

PublishingBrian Segal President and CEO

Terry L. Malden Chief Operating Officer, Executive Vice-President

Healthcare & Financial PublishingJames O. Hall President, Medical

PublishingJohn Milne Senior Vice-President

Published in Canada by Rogers Media Inc. since June1998. Rogers Media Inc., 777 Bay St., Toronto, CanadaM5W 1A7, (416) 596-5000, fax (416) 596-5940.Offices: 1001 de Maisonneuve West, Montreal H3A3E1, (514) 845-5141; Ste. 900, 1130 West Pender St.,Vancouver V6E 4A4, (604) 683-8254.Full subscription price: Canada $62 per year, 2 years: $102,3 years: $132.00, USA/Foreign: $127.00 (one year only).Single copy: $15. Published 12 times a year. G.S.T.#137813424RT.ADVISOR’S EDGE is indexed by the Canadian Magazine Indexby Micromedia Limited, and the Canadian Periodical Index.Canadian back copies are available in microform fromMicromedia Limited, 20 Victoria Street, Toronto, OntarioM5C 2N8. Indexed by the Canadian Business Index andavailable online in the Canadian Business & Current AffairsDatabase. Canadian Publications Sales Agreement 1280341.ISSN 0703-7732.Copyright © 2001 Rogers Media Inc.

ADVISOR’S EDGE HOTLINES

Editorial (416) 596-5991

Subscriptions (416) 596-5248

Advertising (416) 596-2662

Fax (416) 596-5940

Reprints (416) 596-5015

[email protected] of address e-mails to Debbie Walsh:

[email protected]

March 2001, Volume 4, Number 3

P

MARCH 200111

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THEPLAN

hen Larry and Lois Runner (not theirreal names) decided to sell their business,the customers of the local TD Bank in

Halifax were referred to Rob Merchant and BillMoffatt at TD Evergreen Investment Services.

In the first meeting with the Runners, Merchant,senior vice-president, senior investment advisor andbranch manager, and Moffatt, senior vice-presidentand senior investment advisor, reviewed their finan-cial situation. In addition to about $2 million ininvestable assets, a house and a vacation property inthe U.S., the Runners held a $1 million investmentportfolio inside a holding company. Their RRIFsand non-registered investments, held at another full-service investment firm, also totalled $1 million.

The most important goal to the Runners, now intheir early 70s, was to use their investments to

create an appropriate retirement income. Usingfinancial planning software to analyze the couple’srisk tolerance and income needs, Merchant andMoffatt established an asset allocation strategy thatconsisted of 50% fixed income and 50% equities.Given the need for reliable retirement income andthe pending capital gains of $380,000 inside theholding company, the advisors suggested using lifeinsurance products to build an insured annuity. (Aninsured annuity, which consists of two life insurancecontracts, offered the Runners both a life insurancepolicy with a death benefit equal to the value of theestate they wish to preserve and a life annuity withno guarantee payment period.)

Larry applied to four insurance companies fora term-to-100 policy with a death benefit of

ADVISOR PROFILES

BILL MOFFATT (LEFT)SENIOR VICE-PRESIDENT,

SENIOR INVESTMENT ADVISOR

ROB MERCHANT

SENIOR VICE-PRESIDENT,SENIOR INVESTMENT ADVISOR,

BRANCH MANAGER

TD EVERGREEN INVESTMENT

SERVICES, HALIFAX

YEARS IN THE BUSINESS: 16NUMBER OF CLIENTS: 800 FAMILIES

W

Continued on page 15

PlanningaheadBill Moffatt and RobMerchant helped theirclients increase theirafter-tax income andpreserve their estate.

By Sandra Foster

MARCH 200113

$1 million for a 74-year-old smoker (premiums on newterm-to-100 policies have been increased). Two companiesoffered a policy at standard rates, one company rated him fortwo years with an additional premium cost of $11,000 a year,and the fourth company declined to underwrite the policy.The annual cost of the insurance policy was $62,660.

The couple then asked the company that declined tounderwrite the life insurance policy to quote on a life-onlyannuity for $875,000 cash, presuming that since they hadhad already declined the life insurance application, theirannuity quote would be competitive. This company offeredan annual pre-tax annuity income of $115,834, more thanthe other companies quoted. In 2001, the taxable amountwill be about $45,700.

Had the Runners invested in bonds, their after-taxincome would have totalled $19,688, as opposed to the$30,324 in after-tax income that would result from usingthe life annuity. The strategy helped the couple improvetheir after-tax income by $10,637 a year (See “After-taximprovement,” right). Also, because the insured annuitywas owned by their holding company, upon Larry’s deaththe value of the annuity wouldbe reduced to zero and the lifeinsurance would be paid intothe capital dividend account,saving $380,000 in tax on thetaxable capital gains (at today’sinclusion rate the tax savedwould be reduced to$250,000).

Although this strategyhelped the Runners increasetheir after-tax income and pre-serve their estate, there aremany factors that need to beconsidered such as the client’sage, health, tax bracket, as wellas the cost of the life insurance,the going rates on other typesof investments and the clients’target asset mix.

Disclaimer: The author has notcommented on the appropriateness ofany of the strategies used by advisorsfeatured in this column.

THEPLANContinued from page 13

MARCH 200115

After-taximprovementAn annuity was the best strategy for Rob Merchant’s and Bill Moffatt’s clients to increase their after-tax income.

Annual income from $875,000 invested in bonds (rates at time of strategy):

Interest (4.5%) $39,375Income tax (50%) $19,687

After-tax income $19,688

Annual income from $1 million insured annuity of $875,000:

Annual income from annuity $115,834Income tax on taxable portion* (50%) $22,850After-tax income $92,984Cost of $1 million life insurance $62,660

After-tax income $30,324

$30,324-$19,688

Annual improvement in income after-tax,and after cost of insurance $10,636(*taxable portion decreases each year)

ired. Plugged in. Savvy.Those are words thatbest describe young

Canadian consumers, your futureclients.

These kids eat, breathe and livethe Web, spending 2.5 more hoursonline than their American counter-parts, according to a new report fromForrester Research entitled Unleashingthe Young Canadian Consumer.

Their net savviness is partially dueto the greater broadband access avail-able here, such as via ADSL (high-speed access) and cable modems.American youths are still more likelyto use the traditionally slow dial-up

modem.While these youths aren’t your

clients yet, some of Forrester’sfindings will give you insightinto what to expect.

Fact: Canadian youths are fourtimes more likely than their neigh-

bours south of the border to applyfor products or look for adviceonline. “Young consumers trustthings that aren’t necessarily tradi-tional,” says Michael Antecol, aForrester analyst based in SanFrancisco, Calif. “These kids have

grown up with the Internet and maylook for the cheapest solution online.They’re doing old things in new waysand are not burdened by doing thingshow they are usually done. They maygo to an e-bank and look around forthe best deal.”

But that said, Canadian youths are48% less likely to actually makeonline purchases compared with theirsouth-of-the-border cousins. Antecolsays this is due to the fact that fewCanadian sites catch youths’ eyes andas for U.S. sites, many don’t want tomake purchases there due to a weakCanadian dollar.

Where are your future clientssurfing? Fifty-four per cent havedownloaded Napster, a file-sharingprogram that allows users to stockup on their favourite music for free.Meanwhile, 41% are researchingproducts, 29% visit reference sitesand 11% like to view stock quotes.The number for stock quotes goesup to 19% among youths living inBritish Columbia. And if they can’tfind a phone number, 22% say theydon’t hesitate to explore the onlineyellow pages.

If you look at the data by

KNOW YOUR

W

Percentage of Canadians who make investment

decisions based on the advice of a financial professional:

CLIENTIllustration by M

arcos Chin

Trends, statistics and demographics

ADVISOR’S EDGE16

Tech powerYour future clientsare 100% wired ineverything they do.

By Deanne N.Gage

40% ofCanadiansdescribe theirinvestment styleas somewhatconservative.

Source: 2000 Investors Group/Gallup

Canada Survey of 1,000 investors

5% of Canadiansdescribe theirinvestment style as veryaggressive.

Source: 2000 Investors Group/Gallup

Canada Survey of 1,000 investors

D I D YO U

KNOW?

BC

46%

PR

26%

0N

36%

PQ

31%

ATL

23%

SOURCE: 2000 Investors Group/Gallup Canada Survey of 1,000 investors

MARCH 200117

province, Ontario kids are the mosttech-savvy. Ontarian youths arethe most likely to instant-messagefriends, use voice-based chat, plantheir weekends and play gamesonline. The next tech-savvy are thosewho live in B.C.; followed by Quebec,the Maritimes and the Prairies. Thisorder reflects the economies of theseregions, Antecol says.

What do all of these facts meanfor you? Tomorrow’s clients willexpect even more services than today’smost demanding clients.

Deanne N. Gage ([email protected])is managing editor of Advisor’s Edge.

Kid power Are your clients’ kids hopeless when it comes to money? Here are some books to recommend.

Kids, Parents & Money:Teaching Personal Finance fromPiggy Bank to PromBy Willard Stawski II

John Wiley & Sons Inc., 2000,

$21.95

The Complete Idiot’s Guide to Raising Money-SmartCanadian KidsBy Ann Douglas &

Barbara Weltman

Alpha Books, 2000, $24.95

Kids and Money: Giving Them theSavvy to Succeed FinanciallyBy Jayne A. Pearl

Bloomberg Press, 2000, $18.99

Rich Dad, Poor Dad:What the Rich Teach Their Kids About Money That the Poorand Middle Class Do NotBy Robert T. Kiyosaki &

Sharon L. Lechter

Warner Books, 2000,

$22.95

Dollars & Sense for Kids:What They Need to Know AboutMoney—and How to Tell ThemBy Janet Bodnar

Kiplinger Books,

1999, $26.95

■ Seek medical and health information■ Do electronic banking■ Buy goods and services

54%28%

18%

Surfingtime Here’s how Canadians are making use of the Internet.

Source: Statistics Canada

There hasnever been a

better time tohelp companies

help theiremployees learn

about financialplanning.

avid Gordon knows what he wants in a financial advisor.He’s looking for someone who’s not affiliated with anykind of product, someone who can deliver strictly edu-cation on financial planning matters.

Gordon is the human resources manager at State FarmCanada in Scarborough, Ont., an insurance company thatrecently decided to hire a financial advisor to educate its1,400 employees about financial planning. “We have anobligation as an employer to educate our folks on finan-cial matters,” he says.

But pension plan sponsors like Gordon are strugglingwith the financial education issue, worrying about whetherthe information they provide employees—the plan mem-bers—is too simple or, alternatively, too overwhelming.This is where you can play a key role in maintaining groupplans. “The whole [financial planning] area requiressomeone to be at the front of the room who has somecredibility because they’re involved in that business day inand day out,” says Gordon. “I’m by no means a financialplanner. We decided we needed to elevate our [financialeducation] efforts to get it from a person for whom finan-cial counselling is their primary business.”

State Farm’s solution was to cross the line from edu-cation into the realm of financial advice. The company,which offers a traditional defined benefit (DB) pensionplan, in addition to a group RRSP, hired fee-for-servicefirm T.E. Financial Consultants Ltd. to present financialeducation seminars to employees. What’s more, StateFarm pays for up to five hours of financial counsellingfor employees.

While a small number of Canadian plan sponsors likeState Farm are beginning to explore their options whenit comes to offering financial advice, some are concernedabout the repercussions. “We don’t want to have any lia-bility and anyone coming back to the company and say-ing ‘you provided us with a financial planner who told

By Andrea Davis

ADVISOR’S EDGE18

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us we should do this or that,’ ” says Genie Gilchrist,consultant, pension and benefits, with EnbridgeConsumers Gas in North York, Ont. Enbridge also hiredT.E. Financial to come in and give financial planning sem-inars for the members in its defined contribution (DC)plan. But the company draws the line at actually payingfor any financial advice.

Gordon, meanwhile, says he’s not worried about blur-ring the line between education and advice because thecompany doesn’t actually recommend T.E. Financial as afinancial planning firm. “The only advice we really wantto give to people is that they need to have a financial advi-

sor on an ongoing basis to work with them throughoutthe entire life of their program,” he says. “From that, itwould be natural to expect that some of those people willend up as T.E. clients. But it will be their own personaldecision.”

What Plan Sponsors WantThe group marketplace is a growth area for financial advi-sors, particularly on the pension side. With employers strug-gling to attract and retain employees, many are looking toincrease their appeal with perks, such as DC plans and flex-ible benefits. Traditional DB plans are slowly being aban-

doned for DC plans and group RRSPs, whichare—in the eyes of many employers—easier toadminister. But be forewarned: the groupmarketplace is not an easy sell. Plan sponsorsare extremely wary of product-pushing finan-cial planners. “We wanted a provider that waseducational and not affiliated with product,”says Gordon. “We found this market didn’t havemany of those.”

Enbridge’s Gilchrist concurs. “We screenedquite a few [firms] and most were tied toproduct and they were earning some kind ofcommission,” she says. “It’s education [wewanted], not advice, and that’s the stand ourcompany took.”

While Enbridge and State Farm both wentthe fee-for-service route, there’s still a role forthose advisors who are paid by commissions.“The plan sponsor has different needs,” saysMary DePaoli, assistant vice-president ofmarketing and sales at Toronto-based Sun LifeGroup Retirement Services. “It depends onthe plan sponsor’s philosophy around thosetwo methods of payment. It’s a corporatedecision that only the plan sponsor can make.”

Regardless of how they’re paid, financialplanners have a critical role to play in offeringadvisory services to group plan members.“There is an emerging need to still have one per-son at the end of the day that a plan membercan talk to and trust,”DePaoli explains. “That’swhere a financial planner can make inroads and

MARCH 200119

David Gordon, human resources managerState Farm Canada, Scarborough, Ont.


“We have an obligation as an employer to educate our folks on financial matters.”

provide some good service.”There is even a role for financial planners to play in tra-

ditional DB plans, says Jury Kopach, senior vice-president ofcorporate services with T.E. Financial Ltd. in Toronto. While

DB plans don’t offer investment choices to employees likeDC plans and group RRSPs do, there are still financial plan-ning choices that need to be made.

Educating employees about their group plans ensuresemployers fulfil what’s known in the group business as their“fiduciary responsibility.” If plan sponsors educate theirplan members about investments, they lessen the risk ofplan members coming back 20 years down the road, threat-ening a lawsuit because they don’t have a big enough pen-sion to retire with.

But some in the DC industry question whether simplyeducating employees about investments (as opposed toeducation coupled with financial advice from a qualifiedplanner) is enough. “It’s the company’s fiduciary respon-sibility to educate its plan members,” says Kopach. “Butyou can just see a situation where the employee whodidn’t make the right decisions and has a lousy pension,ultimately goes to court and says, ‘I’ve been with the

company for the same amount of time as that guy overthere, so why is my pension different?’ ”

Sun Life’s DePaoli says employers who sponsor DCplans and group RRSPs are increasingly seeing the valueof offering financial advice to their employees as a wayto reduce many levels of risk. “Sometimes plan membersdon’t understand the benefits their plan can offer, whichcan lead to misunderstandings later,” she says. “But ifsponsors make financial education available, then mem-bers can make better use of their plan to maximize theirretirement goals.”

Peter Murray is a financial planning advisor withAssante Financial Management Ltd. in Calgary. He hasseveral group clients, many of whom are business ownerswho have instituted group RRSPs for their employees. Hebelieves that as long as employers have a strong governancestructure in place for their plans, they shouldn’t have toworry about potential litigation.

“Ideally, a company would like to be able to relievethemselves of all responsibility for the investment choices,”he says. “Unfortunately, as a sponsor, they’ll always havea fiduciary responsibility to the employee. But as longas employers ensure there is a system in place where a[plan member] can get information, I don’t see anyproblems for them.”

Murray sees the group marketplace as a worthwhilearea for financial planners. Employers with smaller plans,generally those with less than $5 million in assets, oftendon’t have advisors to help them implement the plan andmonitor the plan on an ongoing basis, he says. “The typeof plans that I do range anywhere from $200,000 to inexcess of $5 million,” he says. “Potential pools of moneyare out there.”

Whether or not financial advice becomes the employeebenefit of the future—as common as drug and dentalplans are today—remains to be seen. If market conditionscontinue on a downward trend, many plan members maysee their DC plan and group RRSP investmentsdwindling, which could cause more employees to ask forfinancial advice from their employers.

David Gordon sees financial planning as the next newoffering in employee benefit plans. “I think the more astuteorganizations will use financial planning and advice as acompetitive advantage,” he says. “It’s not cheap but if you’rewilling to commit to education, I think this is one areawhere there’s a significant demand.”

Andrea Davis is assistant editor of BENEFITS CANADA, a sisterpublication of Advisor’s Edge.

Continued from page 19

Peter Murray, advisor,Assante Financial Management Ltd., Calgary

“The type of plans that I do range from $200,000 to $5 million. Potential pools of money are out there.”

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SETTLEMENTAGONY

MONEY

MARCH 200123

LINDA CARTIER DIDN’T KNOW what she was in for

when she first listed her services as a

certified divorce planner in the

Sudbury, Ont. yellow pages. One

morning, she received this disturbing

cold call: “Hi, I just split up with my

wife last night and am now staying at

a downtown hotel. I just want her out

of my life as quickly as possible. How can

we do this? Where do I sign up to get

a divorce?”Continued on page 25

GUING

DIVORCECOURT

Your clients are splitting up. What’s an advisor to do? By Deanne N. Gage • Illustration by Bruce Roberts

FINANCES

Linda Cartier,

certified financial

planner and president,

Financial Decisions Inc.,

Sudbury, Ont.

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This call would be followed by evenmore disturbing calls—one hundredto be exact—for an entire year.

Welcome to the agony of divorce,one of the largest financial hurdles thatpeople may ever have to face. One inthree Canadian marriages will end thisway, with an increasing number ofdivorces affecting retirees, according toStatistics Canada (see “Numberbreakdown” on page 31). If you aren’tpresently dealing with divorce issuesamong your own client base, it mayonly be a matter of time.

“You’ll have more clients goingthrough a divorce situation than youwill have clients dying on you,”explains Cartier, who is also a certifiedfinancial planner and president ofFinancial Decisions Inc. in Sudbury.

She ultimately decided to withdrawher advertisement from the yellow pages.“There were people looking for adviceand therapy that I couldn’t give and Ihad to listen to all of this emotionalstuff,” she explains.

Now she gets referrals from divorcelawyers and mediators and also doesdivorce planning for her own clientbase. She provides them with the cold,hard financial facts that they in turntake to a lawyer or mediator. “It cer-tainly makes them aware of some ofthe questions to ask,” she says. “And ifthey have the questions to ask, it puts

them in the driver’s seat.”When Cartier noticed a significant

amount of her own client base facingmarriage breakdown, she investigated themerits of the CDP, a U.S. designationstarted eight years ago by financial plan-ner Carol Ann Wilson. Wilson saw a lotof clients come into her office after theirdivorce settlement who didn’t realize

what they had agreed to financially. Even though references to all the tax

and family laws are American-based,Cartier still found value in the CDPprogram which covers all the ins andouts of divorce settlements. Thisincludes how to work with mediatorsand divorce lawyers and Divorce Plan,

MARCH 200125

Divorce adviceHere are the dos and don’ts of proper divorce planning.

Do listen.“Your job is to listen to what’s

important to them, analyze

where their life is and bring

forward what they need to

address,” says Linda Cartier, a

financial planner with Financial

Decisions Inc. in Sudbury, Ont.

Don’t take sides.“You’re there to provide the

facts that they can present to a

lawyer or mediator,” says

Cartier. “I’m not a lawyer or

mediator so I’m not going to

overstep my bounds.”

Do create alliances with mediators and lawyers.Mention that you help people

with divorce planning and you’d

be willing to offer your services

to their clients.

Do keep good notes.“Document their file about

the divorce and inform your

staff,” says Cathie Hurlburt,

a financial planner at IFC

Planning Group in Vancouver.

“You have to be careful

about what information to

give out if the wife or husband

calls. Maybe the divorce is

final or maybe it isn’t. You

have to keep referring to your

information.”

Don’t hesitate to bail if yousense too much conflict.“That’s better than trying to

manage your way through

too many personal difficulties,”

says Wayne Hatch, president

of Wayne Hatch & Company

in Victoria.

—D.G.



1

2

3

4

5

MARCH 200127

a software program developed byWilson which forecasts the financialoutcome of divorce settlements.

Cartier feels the CDP program wasinvaluable in learning about all the par-ticulars of divorce and emotional tur-moil that divorcees face. To fill in thevoids, she boned up on Canadian taxbooks.

There are currently 450 CDPs inthe U.S., with another 350 taking thecourses. Cartier and her husband, JohnLindsay, are the only CDPs in Canada.

But you don’t have to go the CDProute to advise clients who are facingdivorce. Divorce planning is often no

different than doing comprehensivefinancial planning. That said, whenpeople are going through a divorce,proper financial planning is often thefurthest thing from their minds.

A divorce settlement usually workslike this: the couple will see a mediatoror lawyer—neither of whom have thebackground in financial planning—tonegotiate a quickie settlement. Unfor-tunately, this practice may result in anunfair settlement. “If it’s a very emo-tional divorce, they’ll just agree toalmost anything without looking at the[financial implications] down the roadand they’ll want to move quickly,”

Generation “ex”Divorce magazine helps new divorcees

get through the traumatic experience.

hen Dan Couvrette got divorced in 1994, he was

frustrated at the lack of information to help him

through the process. Sure, there were books on the legal and financial matters

but very little on the emotional aspect.

So Couvrette, who had a publishing background, decided to take matters

into his own hands. In 1996, he and his partner launched Divorce magazine (a

quarterly publication) and its accompanying Web site

(www.divorcemagazine.com) in Toronto.The following year, versions of the

magazine were launched in Chicago, New York/New Jersey and Southern

California.

The Web site has articles that apply to both Canadians and Americans.Your

clients could peruse articles on co-parenting techniques, helping kids through

divorce and preparing for a new relationship, to name a few.There is also a wealth

of resources for those in any province or state who are looking to find an accoun-

tant, lawyer, psychologist, mediator or a focus group that specialize in divorce.

“We’re trying to help divorcees move through the process,” says Couvrette.

“We’re hoping that people see [our services] as an opportunity to move on

with their life, instead of dragging the past with them forever.”

Couvrette finds that divorcees tend to view their remaining assets as their

security blankets. “Their marriage is broken so they hold on to their assets as

their security whereas if you’re in a marriage, your security is your relationship

with your spouse and your assets,” he says.

That said, lifestyle planning may come into play with divorced clients. For

example, a divorced client may feel the need to dip into their savings to go to

India for three months. “You may be inclined to say they can’t afford it but that

may be the thing they need to do [at that stage in their life],” he explains.

—D.G.

W



Cartier says. “Often these agreementsare made with no information. They’reguessing, they’re picking a number outof the air and that’s a big mistake.”

Take Cathie Hurlburt’s clients. Whennegotiating their divorce settlement witha lawyer, each spouse agreed to jointlycontribute to an RESP for their chil-dren, a noble pursuit but not thoughtout very clearly. “If the child doesn’t usethe RESP money, the parents get itback,” says Hurlburt, a financial plannerat IFC Planning Group in Vancouver.“It would have been better if each par-ent set up their own RESP and if thekids don’t spend all the money, then itcan go back to the parent from whom itcame as opposed to trying to fight aboutwhose money the surplus is in 20 years.”

Clients also often make the mistakeof getting romanced by the settlementnumbers, says Hurlburt. “Most of ushave never seen $400,000 or $1 mil-lion, so it sounds like a fortune butwhen you do the math and see that youcan only spend $32,000 a year orsomething, that’s not nearly as good asit looks,” she says.

Hurlburt’s firm has strict protocolsfor dealing with couples who are fac-ing divorce. When she is informed ofthe divorce, the rules are explained. “Ifone calls and asks for a statement ofassets, both spouses will be sent theinformation,” she says. “I will not giveBob anything that Jane doesn’t get.”

So how can clients get through thedivorce proceedings more smoothly?Wilson recommends that you tellthem to start making copies of all oftheir financial documents because “it’samazing how things disappear whendivorce proceedings start.”

Try to make your clients see thedivorce as a business that has failed, notan emotional tirade, she adds. “Besidesbeing a romantic thing, marriage is abusiness,” says Wilson, also the president

of the Institute for Certified DivorcePlanners in Boulder, Colo. “They’resplitting up the business. When they’retoo emotional about it, they don’t usecommon sense and they end up spend-ing too much money on legal fees.Sometimes they try to keep an assetthat’s not worth as much money asthey’re spending trying to keep it.”

Most couples do see the logic in thatphilosophy. As Hurlburt points out:

MARCH 200129



While the divorce proceedings are takingplace, you may get flack from separated clients as emotions run high, but just “try to hold theirhands through this traumatic period and makesure they’re informed of their options.”

—Steve Nyvikfinancial planner

CIBC Wood Gundy, Vancouver

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“When most people separate, they’restill dealing with each other on manyplains, so meeting with the plannertogether is just a continuation of one ofthose plains.”

Mars versus VenusIt may be a new millennium but whenit comes to managing finances, onlyone spouse is likely to be in charge,while the other is on the sidelines.That scenario may work fine at firstbut it’s a recipe for disaster whendivorce strikes. And it’s more likely tobe the lower-earning spouse who hasno knowledge of the financial affairs,who usually is the woman.

In general terms, men and womentend to view assets differently. Amongher affected clients, Cartier says menare more likely to be concerned aboutprotecting their pensions while womenwant to keep the family home. Manyquestions will abound. What happensto the spousal RRSP? What about thenon-registered assets? What aboutCanada Pension Plan? How will all ofthis affect my taxes? And most impor-tantly, how will all of this affect mefinancially in the future?

More often than not, couples aren’ttruly prepared for the change financial-ly once the divorce settlement is final-ized. “Even people who have substan-tial assets find it difficult because thecash flows are impacted,” says Wayne

Hatch, president of Wayne Hatch &Company in Victoria. “Mortgages andloans don’t disappear. There’s also lotsof expenses that they don’t anticipate,like getting another car or anotherplace to live.”

As a result of this, there can be a lotof anger and resentment. “If you’re liv-ing on x dollars and now you have to liveon y dollars, it hurts,” says Lindsay. “Alot of people come together for financialreasons and when they split apart, they

lose that financial advantage.”To help with this problem, Laurie

Sylvester, a financial planner withMoney Concepts in Penticton, B.C.,works with each spouse on developinga spending plan. “People are used todoing things jointly and they need toknow what’s going to be coming in andwhat’s going to be going out.”

Two-thirds of Sylvester’s client baseare female and she finds that women

MARCH 200131



It’s not quite the bleak picture of 1989,when a record 81,000 divorces tookplace, but divorce rates began to rise inthe late 1990s.

In 1998, 69,088 couples divorced, up2.7% from 1997, according to StatisticsCanada. Based on those rates, 36% ofmarriages are expected to end in divorcewithin 30 years of marriage, while 39%are expected to fail within 50 years.

Couples living in Quebec are the mostlikely to split during this time span, witha 45% rate, while married couples inNewfoundland are the least likely tosplit (the divorce rate is 23% within 30years).

In general, couples are divorcing laterin life, and beyond the so-called seven-year itch.The marriages that ended indivorce lasted an average of 13.7 years.

Men were on average 42 years old whenthey divorced while women were 40years old.This trend is probably due tothe fact that couples are marrying atolder ages. Among divorced couples, theaverage age of getting married was 28years for men, up two years from 1989,and 26 years for women, also up twoyears from 1989.

—D.G.

Number breakdownDivorce is on the rise again, according to Statistics Canada.

tend to be too accommodating whennegotiating their settlements. “Some-times they’ll negotiate things that aren’tin their best interest,” she says. “Sooften when a woman looks for support,a woman thinks ‘it should be anamount he’s comfortable with because Idon’t want him to be in a bind.’ Then ayear down the road, she realizes that it’snot enough money for her to live on.As a rule, men earn more money,women tend to live longer, earn lessand pay more. That puts them in a bindwhen they’re negotiating and all of asudden, they find themselves at a near-poverty level.”

Who Gets the Advisor?So it’s been negotiated that the hus-band gets the main residence, while thewife gets the cottage and the family car.But who gets to keep the financialadvisor or do both continue to workwith the same advisor?

That decision varies from divorce todivorce. It often depends on whetherthe divorce was acrimonious or rela-tively amicable. “If they are goingabout the divorce in a friendly manner,they know they don’t want to betogether anymore but they don’t wantto be bickering, it’s not an issue,”Cartier says. “They both separatewhatever assets they have and you justmeet with them separately after that.”

But the decision as to who shouldstay or leave should be the clients’ call,not yours. Most of the time, it’sinevitable that one spouse will go toanother advisor. “Some just don’t wantto have the same advisor as their soon-to-be ex-spouse,” says Steve Nyvik, afinancial planner with CIBC WoodGundy in Vancouver. “You may haveto refer one party to a different col-league if that’s what’s needed.”

Also, while the divorce proceedingsare taking place, you may get flackfrom separated spouses as emotionsrun high. Nyvik recommends just“trying to hold their hands throughthis traumatic period and making surethey’re informed of their options.”

It also helps if you’ve been througha similar scenario yourself. Cartier and

Lindsay have been divorced before andremember how devastating the experi-ence can be. As Lindsay puts it:“Nobody can say to us that we don’tknow what it’s like because we havebeen there.”

Deanne N. Gage ([email protected]) ismanaging editor of Advisor’s Edge.

MARCH 200133

Do you have clients who are going through a divorce? Participate in advisor.ca’s discussion forum.Click on Talvest Town Hall (right side of the Web page). Then click on “Dealing with Clients.”


Surviving Your Divorce:A Guide To Canadian Family LawBy Michael CochraneJohn Wiley & Sons, 1998, $24.95

Divorce:A Canadian Woman’s GuideBy Gail Vaz-Oxlade, Prentice HallCanada, 2000, $24.95

Surviving the Breakup: How Children& Parents Cope With DivorceBy Joan B. Kelley & Judith S.WallersteinHarperCollins Canada, 1996, $19.35

Winning Your Divorce: A Man’s Guideby Timothy J. Horgan, Penguin Booksof Canada, 1995, $19.95

Where to find helpThere’s lots of books for those coping with a divorce.

BY PETER BOISSEAU • ILLUSTRATION BY SANDY NICHOLS

EVERYBODY’S TALKING about the Mutual Fund DealersAssociation (MFDA), the first new national financial servicesself-regulatory organization in 86 years, and the first ever forthe mutual fund industry.

The MFDA has been ridiculed, taunted, threatened and dismissed, but it increasingly seems to be winning over formercritics to gain a measure of tolerance, even grudging respect.

KidTownThe

New inThe Mutual

Fund Dealers

Association

is finally a

self-regulatory

organization.

Now what?

Now the new kid in town ispoised to rule over a notoriouslyfragmented industry of 300 orso mutual fund dealers, and byextension, thousands of advisorsregistered to sell their products.

It must be confounding tothose who never believed theywould get there, says MFDAchief operating officer LarryWaite. “When I came on boardthere was total denial,” saysWaite, appointed in August1998 after a 20-year career inenforcement at the OntarioSecurities Commission. “But Ikept saying to everyone, let uscrawl before we walk and let uswalk before we run. And right

now, we’re just about to take ourfirst steps.”

Last summer, the MFDAseemed headed for disaster.Three years after it had beenconceived, the planned July 2000date for recognition had beenput off until January 2001, anddoubts were growing as opposi-tion mounted. At the time, Waitewas in the midst of some gru-elling workshops—17 cities in22 days. “We’d get threatening e-mails saying if we didn’t shutdown our workshops, there wouldbe violence,” he says.

Things came to a head in asweltering hotel meeting room inHamilton, Ont. Waite sat on a

podium as one “speaker” afteranother, mostly advisors from thesurrounding area, yelled andscreamed their frustration.

“But as the meeting progressed,even though people were stillupset, there seemed to be a greaterunderstanding of the role theMFDA was going to play,” saysJay Merrin, a veteran independentfinancial advisor based inNiagara-on-the-Lake, Ont.“The MFDA was just saying‘this is what we have to do tocomply with what theCanadian Securities Admin-istrators (CSA) want.”

The CSA wanted anContinued on page 36

MARCH 200135

SRO for the rapidly expanding mutualfund industry, in theory regulated direct-ly by the securities commissions.

“In practice, it wasn’t really happeningadequately,” says Joseph Oliver, presidentof the nearly 90-year-old InvestmentDealers Association of Canada (IDA),the sole SRO for the securities industry.“They weren’t playing by the same rulesand weren’t being supervised with respectto the rules that were imposed.”

The rules of the MFDA, therefore,“are more or less the rules that peopleshould have been following for a longtime,” adds John Mountain, vice-president, regulation at the InvestmentFunds Institute of Canada (IFIC).

Although they may have seen them-selves as obvious candidates for the role,in the end, neither the IDA nor IFICseemed suitable. As a trade association,IFIC was perceived as ill-equipped tohandle the role of a regulator, and theIDA was too closely tied to the strictemployee-employer structure of bigbanks and financial institutions to over-see independent dealers and advisors.

“The regulators wanted a pure SROthat didn’t have any conflicts of interest,real or imagined,” says David Velanoff, aconsultant and former mutual fund dealer who chaired the MFDA’sDistributions Structures Committee.

But under the 1997 agreement withthe securities regulators and IFIC, theIDA served as a template for the neworganization. The IDA president andCEO holds the same position in theMFDA, and the organization appointsseven of the 21 board of governors. IFICalso appoints seven, and the rest are“public” members.

Not surprisingly, the MFDA’s gover-nance became an early bone of con-tention, although the IDA says indepen-dent dealers were “significant players” inthe industry committees that helpeddraft the MFDA’s proposed rules.“Nobody loves to be regulated and tohave to pay for it,” says Oliver. “This isn’tthe road to popularity.”

Nothing could have been clearer in themonths after December 1999, when theMFDA filed its application for recogni-tion with the Ontario, Alberta andBritish Columbia securities commissions.More than 400 submissions poured infrom dealers and advisors, much of thetone furious.

The Big FightThey railed at proposals that would haveprohibited dealers from paying commis-sions directly to advisors’ unregisteredcorporations. They bristled at rules thatwould have given the ownership of anadvisors’ trade name to the mutual funddealer they did business with.

“Initially, the measures they proposedwere pretty draconian,” says BrianMallard, an independent advisor based inSaskatoon. “It was going to make it difficult to stay independent.”

Advisor groups and independent deal-ers launched a frantic lobby, creating apolitical football out of the MFDA,which revised its proposed rules in anattempt to find a compromise to pleaseregulators, their political masters and theindustry alike.

For the most part, it seemed to work.The revised rules published in December2000 proposed advisors be allowed tokeep the rights to their trade names, aslong as they appeared beside the dealer’s

on all appropriate correspondence andsignage. Meanwhile, commissions couldcontinue to be paid to unregistered advi-sor corporations for three years while theCSA and industry groups hashed outchanges to the securities act.

As January 2001 came and went with-out MFDA recognition, that proposedtransition period was shortened to 18months in an attempt to mollify securityregulators in B.C. and Alberta. “Thedelay allowed us to advance our thinkingon the corporations issue quite a bit anduse the time profitably to refine someother elements of the recognition pro-posal,” says Doug Hyndman, CSA chair-man and head of the B.C. SecuritiesCommission.

Another contentious proposal wouldhave forced advisors selling mutual fundsto submit financial planning done forclients to the dealer for approval. It wasalso amended so that dually licensed repssuch as insurance agents—an early targetof the rationale behind the MFDA—could choose to have such plans reviewedby any other regulatory authority theyalready deal with.

That didn’t satisfy all the critics, whosay the move is still a half-baked attemptto control unregulated financial planning.Instead of submitting financial plans tobroker/dealer compliance officers “whodon’t know anything about planning,” thewhole mess could have been avoided bymaking the Certified Financial Plannerdesignation mandatory, says Terry Taylor,president of the Canadian Association ofFinancial Planners in Toronto.

“The banks and the brokers decidedthey didn’t want their financial plannerssubject to the rigours of writing the CFPexamination,” Taylor says. “The whole

ADVISOR’S EDGE36

Advisor groups and independent dealers launched a franticlobby, creating a political football out of the MFDA, which revised

its proposed rules in an attempt to find a compromise.


current regulatory approach to the regu-lation of financial planning was verymuch influenced by the opinionsexpressed by banking and brokeragecommunities to the regulators.”

Such criticism is unfair, saysHyndman, who notes that bank-owneddealers grumble they didn’t have enoughinfluence on the process. “I guess ifeverybody’s grumbling, we’ve got theright balance.”

A New BeginningOthers praise Waite for defying his polit-ical masters as the fate of MFDA seem-ingly hung in the balance.

“For Larry Waite to come forward andmake the proposals that he did took a lotof guts,” says David Barber, president ofthe Independent Financial Brokers ofCanada (IFBC), formerly one of theMFDA’s fiercest critics. “He’s acknowl-edging that he’s heard the message.”

A raft of other problematic issues,such as the proposed end to the bulktransfer of client accounts when advi-sors switch dealers, were promised fur-ther study. “There are dozens oftweaking rules the CSA would like tosee in place, and we will have industrycommittees to help us,” says Waite.

Because of the changes, the effect onmost advisors will be minimal, addsMallard. “There may be a few moreforms to fill out and a little more com-pliance to deal with, but it’s certainlynot going to have the effect that wasoriginally on the table.”

Advisors should go to www.mfda.caand review the rules, says Waite.“There’s a succinct summary of 20 or30 points where most of our ruleschanged as a result of the comments.”

While the emphasis will be on deal-ers enforcing stricter supervision ofsalespeople, independent advisors alsohave to understand their responsibili-ties under MFDA rules, says OSCinvestment funds manager RebeccaCowdery. “Their relationship with

their dealer is going to have to change ifit isn’t one of employee/employer orprincipal agent” or if they do not intendto raise the $25,000 in capital necessaryto become an introductory-level dealerthemselves, she adds.

With a minimum $3,000 member-ship fee and other start-up costs toshoulder, some say the biggest remain-ing concern is how dealers will handlethe costs of running the $12-million-a-year MFDA. Since the MFDA was cre-ated because securities regulators werenot doing an adequate job, the commis-sions or governments should pick upthe start-up costs, says Tim Calibaba,chairman of the Federation ofIndependent Mutual Fund Dealers. “Ithink in a way we’ve already paid for itin our past fees,” he says.

If all goes as planned, by this timenext year the MFDA will be the nation-al regulator for mutual fund dealers inevery province and territory exceptQuebec, which is pursuing its own

regulation system. Waite says the cost of running the

MFDA, and a planned new investorprotection fund for the industry, worksout to only $200 to $300 a year peradvisor if divided by the 50,000 or soindividual mutual fund registrantssponsored by dealers. “But that doesn’tinclude infrastructure costs dealers willhave to endure,” he concedes.

Some argue that those issues can beresolved as the MFDA and industryevolve together. The importantthing is to get started, says IFIC’sJohn Mountain. “It’s been fouryears of planning, now let’s dealwith it,” he says. “Things willclearly come out in the wash, butlet’s start washing.”

Peter Boisseau is a contributing editor ofAdvisor’s Edge.

MARCH 200137

For ongoing coverage of theMFDA, visit the Web 1stNews zone at www.advisor.ca

MARCH 200139

isk management, likemost things, is a balanc-ing act. The key is to rec-

ognize the risks in your business andkeep them in perspective.

Because risk takes many differentforms, any business can be a “riskybusiness.” As a service provider, one ofyour key concerns may be the risk oflost profits due to improper pricing orpoor cost control. Lost profits are alsoa by-product of operational risk, orthe risk that arises when your internalprocesses don’t work as they should.Addressing these risks requiresa detailed understanding of your

particular business, the value of theservices and products you provide, andthe specific markets in which you oper-ate. Study your competition. Analyzeyour own successes and failures. Mostof all, invite feedback from clients.These steps will help you gauge whatis and isn’t profitable, so you can keepwhat’s good and improve what’s not.

Another area of risk results fromnon-compliance with the regulationsor laws by which you are governed.Whatever your professional designa-tion, you are presumed to know andunderstand these rules and mustcomply with them in order to keep

your license and qualifications cur-rent. Non-compliance is therefore aquantifiable risk. If you don’t knowthe rules, find out what you need toknow. Your colleagues and profes-sional associations can help with this.Then make sure you have the neces-sary systems and processes in placeto meet your obligations.

Where the waters become evenmore treacherous is in the area ofservice-quality risk. This describes therisk of client dissatisfaction, or clientloss, due to poor performance. Clientcomplaints often relate to theinadequacy of services provided. Justas often, however, they result from thefailure to deliver services in a timelymanner. (If there is one thing clientshate, it’s waiting.) Although the oldadage is true that you can’t pleaseeveryone all the time, you canminimize service-quality risk by tak-ing steps to ensure that you do pleasemost of your clients most of the time.

If you want one word of advice,it would be this: communication.The majority of client complaintsarise because of your misunder-standing of the client’s intention, orthe client’s misunderstanding ofyour role. With a little effort onyour part, communication skills canbe honed. There are some simplepointers to keep in mind.

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Risk Management:Minimizing business risk . . . . . 39

Tax Strategies:The implications of severance packages . . . . . . . . . . . . . . . 43

Risky practicesThe key to managing risk is to pleasemost of your clients, most of the time.

By Hilary Laidlaw

1.Properly identify the client’s needs.Identifying client needs is not justa matter of obtaining relevant background information, but it alsorequires an understanding of theirgoals, objectives, motivations and othercircumstances relevant to the area ofadvice you have been retained to provide. If you don’t do this, you maybe faced with an unhappy client whowill inevitably balk at paying your fees(thus creating a revenue risk).

2. Listen, ask questions, then listensome more. Don’t make assumptionsor anticipate your client’s responses.Let the conversation take whatever direction may be necessary for you tounderstand them.

3. Remain objective and try not tojump to conclusions until you have

all the information you need. Communication can break downwhere the possibilities have not beenfully explored. You may have deviseda solution that worked successfullyfor one client, and may be tempted to replicate it for anotherwhose circumstances appear similar.Even if it is the right solution, allowyour creativity free reign. Discuss other possibilities as well so that theclient can ultimately make aninformed decision.

4. Discuss the consequences. Generally, the more information yourclient has, the better reasoned thedecision will be. However, there is afine line because too much information can cause inertia. Aclient who can’t make a decision, andtherefore can’t give you instructions,is also a risk.

5. Document your communications.However reliable your memory maybe, we all forget. It is unlikely thatyou will have perfect recall of a telephone conversation that occurredwith a client months or even weeksago, unless you have notes of thatconversation. While this may takesome getting used to, with practice itwill soon become second nature. Aword of caution, though—short-hand is good, but only if you canunderstand it later.

6. Clarify with the client what youpropose to do and then do it. Efficient follow-through is oneof the swiftest ways to avoidservice-quality risk issues. Andif, despite your efforts, a miscom-munication has occurred, the quickeryour follow-through, the soonerthe error will be discovered and

addressed.

7. Follow up. Remember thatcommunication is an ongoingprocess. Things change andyou need to stay on top ofthose changes—and theirimpact on your clients—toensure that your advice andservices are still right for them.

The closer your contactwith clients, the more they willcome to know and trust you.Trust is the cornerstone of any business, and alongwith trust comes loyalty. Serve your clients well and you will serve them for years.This is one sure way to control your risks.

Hilary La id law i s a l awyera n d vice-president, professionalpractice, for Canada Trust.

ADVISOR’S EDGE40


PORTFOLIO

PORTFOLIOTAXBREAK

n the course of takeoversand mergers it is notuncommon that some

employees are offered termination orretirement packages. Severance pack-ages can be very generous, but indi-viduals should be aware of the relatedtax consequences and strategies tominimize this tax.

The first thing to know is thatamounts received as a consequence oftermination of employment areincluded as income and are fully taxable in the year received. However, aportion of these payments may be eli-gible for transfer to the recipient’sRRSP and this tax-deductible contri-bution results in a deferral of tax onthe portion of the termination pay-ment so transferred.

The amount of severance paymenteligible for transfer to an RRSP islimited to $2,000 times the numberof full or partial years of service withthe employer or a related employerbefore 1996, plus $1,500 for eachyear of service before 1989 for whichemployer contributions to a Regis-tered Pension Plan or Deferred Pen-sion Plan have not vested. It is not theemployee’s responsibility to calculatethe eligible amount; it is computed bythe employer and will be reported onthe T4A slip that reports the totalseverance paid.

This special deductible RRSP

contribution can be made in additionto an employee’s regular annual con-tribution based on the previous year’searned income and any unused con-tribution room. Like regular contri-butions, it can be made up to 60 daysfollowing the end of the year inwhich the termination payment wasreceived. However, unlike regular con-tribution room, where the specialcontribution is not made within 60days of the end of the year, it cannotbe carried forward to future years. Inaddition, these special RRSP trans-fers can only be made to theemployee’s own RRSP and not to aspouse’s plan.

Employers are obligated to with-hold and remit income tax on virtu-ally all payments made to employeesand this includes severance paid to anemployee who later contributes eligi-ble amounts to his or her RRSP.However, where the employer, asinstructed by the employee, transferstermination or severance paymentsdirectly to the employee’s RRSP,withholding at source is not required.Termination and severance pay arealso not subject to CPP or EI con-tributions.

It is not sufficient to simply call apayment severance to qualify for theRRSP transfer. It must be received inrespect of the loss of employment orafter retirement in recognition of

long service. Accumulated vacationpay and pay in lieu of reasonablenotice are considered regular salaryand are not eligible for this transfer.Termination payments made by theemployer where arrangements havebeen made for the individual toobtain employment with an affiliatewill also not qualify for this treatmentwhere such arrangements have beenmade before the cessation of employ-ment.

If an individual incurs legal fees tosecure severance payments, these feesare deductible only against the sever-ance payment, net of amounts trans-ferred to an RRSP.

To reduce the tax bite of a largeseverance package, an employee mightstructure the payment so that it isreceived in instalments over morethan one year to access the lower mar-ginal rates in the other years. Thisstrategy is only effective if theemployee exercised the instalmentpayment option on or before termi-nation and if there are no or littleother income sources in the year fol-lowing termination.

Gena Katz, CA, CFP, is a senior principal with Ernst & Young’s National TaxPractice in Toronto.

I

Here’s how to help your clients avoidthe tax bite of a severance package.

By Gena Katz

Exit packages

MARCH 200143

For more tax advice,visit the practice zone atwww.advisor.ca

f you had to predict whoyour next competitor wasgoing to be, chances are

that a credit union wouldn’t be yourfirst guess. But it should be, warnsJohn Martin. “Credit unions aregoing to be a force to be reckonedwith,” says Martin, president andCEO of the Credit Union FinancialPlanning Association (CUFPA).“We are much further ahead of thebanks in terms of the quality of rela-tionships with our clients.”

And relationships are what suc-cessful business is all about for theseprovincially based, member-ownedfinancial institutions. With a mem-bership that has grown from aboutseven million in the 1980s to morethan 10 million at the end of 1999

(see “Union boom,” page 46), creditunions and caisses populaires (aform of credit union in Quebec)have been enjoying increasing popu-larity as financial services users shifttheir focus away from product to thequality of service—and relation-ships—they get from their financialservices provider.

Wendy Brennan, vice-president ofmarketing and public relations atHEPCOE Credit Union in Toronto,says part of this shift is being drivenby a growing awareness of fees thathas resulted in customers questioningthe value they are getting for the pricethey pay. “Clients are more aware thanever of the quality of service they getfrom financial institutions,” she says.“This is good for us because our main

strength is making sure that clients getwhat they pay for.”

Martin agrees. “In most institu-tions, unless you’re among their elitecustomer group where someone dealswith you as an individual, you have tofind your own way through the mazeof products and services,” he says.“One of the strengths of our creditunions is that they realize how impor-tant it is to have someone take themember by the hand and guide themthrough this maze.”

So what’s so special about a creditunion? First of all, all members own ashare that entitles them to a portionof the firm’s profit every year. Sec-ondly, credit unions strive to maintaina sense of community. This meansbeing actively involved in local chari-ties and businesses. “We strive to be acommunity partner and make a dif-ference,” says Brennan. “This is whyour focus has typically been on smallcities like Orangeville, Ont., placeswhere it’s still important that peoplereally know who they are doing busi-ness with.”

But Harry Jooston, ownerrelations and corporate secretary atSt. Willibrord Credit Union inLondon, Ont., says that buildinggreat relationships within the com-munity is only part of the valueproposition that credit unions offer.

MARCH 200145

YOURBUSINESSAdvisor Mini-ProfileMarie-Claude Savard . . . . . . . . 47

Nick Murray . . . . . . . . . . . . . . . 49

Illustration by Tania How

ells

I


Practice management strategies that work

Down-homebanking

Credit unions are counting on the strengthof relationships to give them a competitive edge.

By Lisa Machado

“It’s a combination of tangibles andintangibles,” he says. “People are alsolooking for someone to put all thedifferent aspects of financial planningtogether. They want to talk aboutinvesting, but also paying down theirmortgage and putting money awayfor retirement.”

Perhaps no one knows how impor-tant this mix is than Martin. As partof CUPFA, which does business withabout 48% of credit unions in B.C.,he helps provide support and educa-tional training to credit unions tohelp employees effectively deliverproducts and services to meet thepublic’s needs. CUPFA also runs anaudit process to ensure that financialplanners are following compliance

and providing complete financialplanning services.

Although the consensus amongcredit unions is that banking with adown-home feeling is making a

comeback—a comeback that threat-ens to make a dent in the loyal cus-tomer base of all the big banks—Brennan is not convinced. “One ofour biggest challenges is that people

are very entrenched in theirday-to-day banking,” she says.Despite how much Canadianslike to talk about how muchthey hate their banks, they arenot big on making a move.”

Still, there is no doubt thatfocusing on the relationship isa significant part of retainingclients in today’s competitiveenvironment. For Martin, therecipe for success has been acareful mix of product, adviceand quality service. “The secretto success in the longterm willbe effectively marrying the con-cepts of lending, investing andfinancial planning,” he says.“The edge that credit unionshave is remaining sensitive to thecustomer’s needs and buildingrelationships with their mem-bers based on trust.”

Lisa Machado is associate editor ofAdvisor’s Edge.

YOURBUSINESSContinued from page 45

12

10

8

6

4

2

01950 1960 1970 1980 1990 1999

MillionsUnionboomCanada’s credit unionshave boostedmembership by more thanthree millionsince 1980.

SOURCE: CUCC, Bank of Canada Review

uggling the demands of 600 clients couldwork some advisors into a frenzy. Instead,Marie-Claude Savard, a financial planner

with PEAK Financial Group in Montreal, worksthe phones.

“Phone appointments are something I use a lotbecause a big portion of my clientele is either busi-ness people or retired people,” she says. “For boththese types of clients, being able to schedule a fixed timewhen we can connect over the phone is as efficient as see-ing them face-to-face.”

In a day of scheduled phone appointments, Savardspeaks with up to 20 clients. “I do brief portfolio andRRSP reviews, answer questions and review their incometax,” says Savard. “This is not to say that we never meetface-to-face. Full account reviews are scheduled through-out the year where I see clients in-person.”

Savard started the practice of phone appointmentsfour years ago when she partnered with RobertFrances, who had an established business he neededhelp to manage and grow. Now approximately 70% oftheir clients prefer phone appointments. “It’s been fan-tastic because the productivity level has shot up likecrazy,” she says.

Besides making appointments with her clients, Savard,who manages three assistants, also makes appointmentswith herself. “When I first started in the business, Ifound that by Friday I had about 15 files waiting to belooked at,” she says. “Now, instead of letting files pileup, I schedule a time every week to review them.”

A fitness buff, Savard also leaves time in her schedulefor daily workouts to relieve stress and she tries to giveherself two free days a week dedicated to family and fun,on weekends when possible.

“I know a lot of people work crazy hours, but if Iwork 15-hour days, then I won’t have anything to giveback to my clients.”

Peter Boisseau is a contributing editor of Advisor’s Edge. He livesin Toronto.

MYEDGEAvoiding phone tag

For Marie-Claude Savard, daily phoneappointments with clients are key to running

an efficient business. By Peter Boisseau

Photography by S

pyros Bourboulis

J

YOURBUSINESS

MARIE-CLAUDE SAVARDPL. FIN., FSA PEAK FINANCIAL GROUPMONTREALNUMBER OF CLIENTS: 600AVERAGE AGE: 40ASSETS UNDER MANAGEMENT:$63 MILLIONYEARS IN BUSINESS: 8

MINI-PROFILE

he five saddest words thatI find in my e-mail—andI find them more than

just once in a while —are “I readyour book, but…”

The rest of the sentence is alwaysa plea for help. But it’s a measure ofhow much pain the writer is in thathe isn’t able to state the plea in termsof what it actually means. I believethat this is often because he cannotconsciously admit, even to himself,what it does mean. So the balance ofthe e-mail asks something whichsounds perfectly reasonable—untilone realizes that it’s in code, and that,decoded, it’s a cry of intense emo-tional pain.

The issue in virtually every case, asI’m sure you’ve already anticipated, isprospecting. I define prospecting asthe deeply unnatural act of approach-ing perfect strangers and encouragingthem to entrust all or a significantpart of their financial fate to you.And unless you inherit, or buy, or insome other way instantly acquire abook of clients, the cruel necessity ofprospecting is the only path to suc-cess in our profession.

No one would prospect if he did-n’t have to. It isn’t what attracted youto the business; indeed, if you’re any-thing like me, you hate it more thanall other negative aspects of the busi-ness put together. You do it onlybecause you have no choice—hence:cruel necessity. Prospecting is the gaunt-

let you have to run in order to get tothe promised land.

The problem with prospectingappears to be—but isn’t—that virtu-ally everyone you metaphoricallyleap out of the bushes at recoils inhorror, and says “no.” The nounalmost universally used in our pro-fession to describe this reaction is“rejection.”

(“Rejection” is a poor choice of aword to describe the phenomenon of“no,” and you can actually change thenature of the experience by changingthe words you use to describe it, butmore about that in a future column.For now, we’ll just keep calling it“rejection.”)

But “rejection” isn’t actually theproblem, any more than gravity orwater running downhill is a problem.It’s a fact of nature. It isn’t good, itisn’t bad: it just is. If, uninvited, youtry to involve yourself in a totalstranger’s personal finances, no mat-ter how you broach the subject, he’salmost always going to say “no.”

The problem is something quitedifferent from the inescapable factof “rejection”: it’s the way in whichthe individual advisor experiences“rejection.” It’s the emotional weightthat the advisor attaches to the fact,and not the fact itself. “Rejection” doesnot hurt, other than to the extentthat the advisor unconsciouslyallows it to hurt.

These, then, are the first three things

my book The Excellent Investment Advisor(as in, “I read your book, but…”) saysabout prospecting.1. It is intensely anxiety-producingfrom the get-go, because it is sostrange, unnatural and—yes—evenhateful.2. No matter what you say, almosteverybody you prospect “cold” willsay no; it’s human nature.3. “Rejection”—the nearly (but notquite) unanimous chorus of “no”—isn’t the problem. The advisor’s (admit-tedly unconscious) anxiety reaction—how he emotionally processes“rejection”—is the problem. You have tobe able to separate the thing from the way youexperience the thing.

And this month, I got an e-mailthat said, “I read your book, but…I just wondered if you had foundany new ways of prospecting afflu-ent people, or what to say to them,since you wrote the book” (italics, sadly,mine).

Are you starting to be able to crackthe code? “I can’t accept theonslaught of ‘no’; I can’t separate thefact of ‘rejection’ from the pain itmakes me feel; please, please give methe magic formula that will free mefrom the cruel necessity of ‘no’!”

To be continued…

© 2001 Nick Murray. All rights reserved.For more information about Nick’s books, tapesand other activities, please visit www.nick-murray.com.

T

By Nick Murray

THE QUEST FOR EXCELLENCEYOURBUSINESS

MARCH 200149

Cruel necessity,part one

Is there a profile of a successful

day trader?

I have never found a correlation between age, race,sex, financial background orfinancial acumen. The onlyconsistent factor I have foundin all successful day traders isdiscipline and patience. Theydon’t get stressed out. If thestock falls they press the but-ton and think, “Okay, where’sthe next one?”

How do you decide which

stocks to focus on each day?

Most day traders are consistent in how they pickstocks. They sort all the sectors in the market; gold,

transports, oil, biotech, computer software, food,retail and so on. Most of ushave 100 to 200 stocks wewatch every day. We use ourday trading systems to tell uswhich sector is the strongestthat day relative to the overall market. Then, we pickthe strongest stock in thatsector and hold it for two tofive minutes.

How do you handle the discipline

side of day trading?

We have some very hard andfast rules. For example, ifyou buy something and itgoes down five cents, get out.On sheer momentum, if youthink a stock is going up and10 seconds later goes downa nickel, the momentum thatyou thought was there isn’tthere anymore, so dump it.

One of the 50 trading rules

you list in Swift Trader is that

“standing aside is a position.”

When should a trader decide not

to enter the market?

When you are doing horri-bly because you have made10 bad trades, it’s time tostand back. When you aredoing well, that’s when tostart doubling up your sharesbecause you have the Midastouch that day.

Human nature usually says,“I have a lot of money, that’s

enough.” We say do the oppo-site. If you are doing well, tryharder, trade more. When youare doing poorly, stand aside,take a walk, go home.

Is it harder to be disciplined

on sells rather than buys?

The hardest thing to do,whether in a portfolio or inday trading, is to take a loss.Holding a loser is the easiestthing to do. It may stress youout at night, but it’s easy tohold it. Once you have soldit, the hope goes out the win-dow and if the stock goes upnext year, you’re not going toget your money back.

You have predicted the near

extinction of the full-service

broker. What do you see as the

future for financial planners?

I think financial planners willalways be necessary. Just as Idon’t want to learn how to bea medical doctor, I don’tthink everyone will becomean expert on how to investtheir money.

We may be able to pick astock here or there, but whatdo we know about retirementplanning and compoundinterest? However, I stillhaven’t met a single personwho has said, “My full-service broker gives me suchgood advice that I’m alwaysmaking money.”

Barb Clapham is the editor ofCanadian Investment Review(CIR), a sister publication ofAdvisor’s Edge.

NEWSMAKERCharlesKimDiscipline and patience

are the only consistent

qualities of all

successful day traders,

says Charles Kim.

By Barb Clapham,CFA

“I still haven’t met a single person who has said,‘My full-servicebroker gives me such good advice that I’m always making money.’ ”

Two years ago Charles Kim had never traded on the stockmarket.Today he is part owner of Canada’s first and only daytrading firm, Swift Trade Securities Inc. Kim is also the authorof Swift Trader (Prentice Hall) and The Complete Idiot’sGuide to Day Trading for Canadians (Alpha Books).

ADVISOR’S EDGE50

Pho

togr

aphy

by

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5No.

INTERNET LESSON It’s time tothank your clients for all that RRSP business,but youneed a few giftideas and fast.

1. Go to www.advisor.ca2. Log in by clicking on the “Log In” button.3. Scroll down to Client Appreciation on the left navigational bar.4. Click on a gift idea of your choice.

6No.INTERNET LESSON How to stay informed

on all the industry news and marketinformation—without spending allthat time flippingthrough the papers.

1. Go to www.advisor.ca2. Sign-up for the Advisor.ca e-mail bulletins.3. Click on Register.4. Fill out all fields on the registration form.5. Remember to select a box beside the A.M. and/or

P.M. Advisor.ca bulletins.

7No.

INTERNET LESSON Want to saysomething aboutmutual fund company mergers?You can have your sayanytime,on-line atthe Talvest Town Hall.

1. Go to www.advisor.ca2. Log in by clicking on the “Log In” button.3. Click on Talvest Town Hall.4. Click on Mutual Funds and Other Products.5. Read a message from fellow advisors or send a message yourself.

8No.

INTERNET LESSON How to beat thetaxman.

1. Go to www.advisor.ca2. Click on the “Revenue Canada Forms” in the Power Tools section in the left column.3. Follow the simple instructions.4. Click on your selected form.*5.Type in the relevant information and print.Advisor.ca now features numerous forms in both English and French, including:T2033,T2151, Home Buyer’s Plan, and Non-resident tax exemption forms. Advisors simply inputclient’s information into the form and print off the completed copy when finished.Confidentiality is maintained and the advisor is the only one to keep the client’s information.

With the tax deadlines approaching,tax forms may be in short supply.What’s a busy advisor to do?

* You’ll need Adobe Acrobat reader to use these forms.To download a free copy, go to <http://www.adobe.com/products/acrobat/readstep.html>. Once in the pop-up window, click on the “get acrobat reader — free!” at the bottom of the table and follow the download instructions.

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