What is Whole Life Insurance and how does it work? Well, by the end of this blog I’ll give you all the important facts on Whole Life and your other options available to you, so you can make an informed decision before you decide what is best for you and your family.
Now, in all honesty, I really see life insurance as a necessary evil. You can’t escape death and so the question is, what do you want to do while you’re alive and what do you want for your beneficiaries upon your passing? And more importantly, is one of your estate goals to make sure that Revenue Canada is not the biggest beneficiary of your estate?
Well, I hate to pull down the curtains, but the answer to this question is Permanent Life Insurance…the next question is, what is the right coverage?
In Canada you have 2 choices for Permanent Life Insurance – You have Universal Life or Participating Whole Life. Both are permanent insurance policies, but each one has pros and cons associated with it. If you are only interested in minimizing your estate taxes and maximizing your estate for your beneficiaries, then perhaps Universal Life is the way to go. You can pay the minimum amount of premium, don’t overfund it, and you will achieve your estate goals.
However, if you also want guarantees associated with the life insurance and the ability to tap into the cash value while you’re alive, then Whole Life is the preferred choice. Whole Life has been around for over 150 years and it comes with guarantees that Universal Life does not have. Every year, like clockwork, providers of “Par Whole Life” declare a dividend to their policy holders, and once the dividend is declared, they become vested, and they cannot go down in value. Where else can you get an investment product – that’s correct, Life Insurance as an investment product – that provides you with a Dividend each year, and once that Dividend is declared it is guaranteed and it cannot go down in value?
Universal Life does not have these same guarantees. Whole Life companies in Canada have been declaring Dividends for over 150 years and so even during WW1, WW2, 911, and even in 2008 when the stock markets went down 35% to 40%, the Cash Value inside a Universal Life policy also saw a similar decline of 35% to 40% – however, the average Whole Life Participating policy in Canada in 2008 had a Dividend of 8%.
I usually refer to a Whole Life policy as the Fixed Income Anchor in your overall investment plan.
Think about this for a second – It’s better to have life insurance and not need it, than need it and not have it.
Now, Whole Life insurance comes with 3 components – Premium, Death Benefit and Cash Value Accumulation (savings aspect). When you pay your premium, a portion is applied to the death benefit and cash value.
Depending upon how you design it, for the first 5 to 10 years a majority of the premium is usually applied to the death benefit, which is referred to as the cost of insurance. However, over time the cash value will receive a greater portion of the premium and this will build up a bucket of money that we can tap into when we reach retirement.
When the Federal Government overhauled the insurance industry in January 2017, new unique products started to emerge in the Whole Life space. I don’t know about you, but I don’t want to be paying premiums on my life insurance policy for the rest of my life, so I have a Pay-10 policy. What that means is that if I make the following payments over that 10-year period, then the insurance company guarantees that my policy is paid up in 10 years and no more premiums are required. However, the policy and the Cash Value will continue to grow and as I reach retirement, the Cash Value is designed to grow like a hockey stick curve…up and to the right. Which means I will have more money to tap into, on a tax-free basis, during my retirement.
If you have at least 20 years prior to retirement, then a Pay-20 Whole Life Policy is the preferred way to go. In the Greater Toronto Area, I have a client who is a female business owner in her early 40’s and she has a Pay 20 Whole Life policy. When she turns age 65, the policy is designed so that we could turn on an annual tax-free paycheque of $239,000 until age 90 – or if she waits until age 71 to turn it on, similar to when we have to convert our RRSPs to a RRIF, then the annual tax-free retirement paycheque will be $345,000 per year to age 90. So while she was alive, she took out $6.9-million in a tax-free pension plan, and when she passes away, her beneficiaries will still receive the balance of the death benefit.
Want to learn more about a Corporately Owned or Personally owned Whole Life policy, designed for maximum cash flow in retirement? Contact me at the coordinates below to apply to become my client.
Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
Do you think you know everything you need to know about Disability Insurance? Well, by the end of this blog I’ll give you all the facts so you can make an informed decision – because if something happened to you and you couldn’t work anymore, what’s your game plan?
If you own a home or a car today, chances are you have insurance on both of these assets and you might even think they are your most important assets.
WRONG!
In fact, your most important asset is your ability each and every day to get up and go to work to earn a living.
And so, if something had happened to you last night and you couldn’t work today, the question I always ask is…
What is going to be your pay cheque?
If this happened to you, the best way to address this issue is something called Disability Insurance and it will step in to become your paycheque for the rest of your working life.
Now, most people who have a group disability plan at work probably haven’t even read the benefits manual or even fully understand their group disability plan. I know I didn’t when I worked for corporate Canada. However, every group disability plan in Canada has one huge flaw with it and I am going to share that flaw, and more importantly, I am going to educate you on how we can correct that flaw.
Disability insurance premiums should always be paid for with personal tax dollars. So even if you are in a group plan and they provide you with “flex dollars” to pay for your benefits, make sure that you direct those flex dollars only to your dental benefits – because if you use any of those flex dollars to pay for your group disability insurance, unless your company makes sure you receive this as a taxable benefit on your T4 slip, then if you ever went on disability all of the income that you receive would be taxable income. But that’s only if you only pay for the premiums with personal dollars and not flex dollars – then, if you ever went on disability, all of the income that you would receive would be “tax-free income.” So this is so very important.
Also, if you are an incorporated business owner, you must make sure that you pay for your disability premiums with personal tax dollars. Otherwise you would have the same issue of taxable income versus tax-free income if you went on claim.
So, here are the stats for Canada. One in 3 people, that’s 33%, will at some point become disabled during their working years. Also, 50% of all mortgage foreclosures can be traced back to the person not having a disability policy. This is real. So you have to take Disability Insurance coverage very seriously, because it is the most important insurance coverage to protect your current and future paycheques.
Must Haves
When designing a disability policy, you have to look at certain features that are “must haves” in order to fully protect yourself.
The 1st feature is called “Own Occupation”. If you don’t have this feature, then 2 years into the disability benefits, the insurance company can force you to do any other job that you are capable of doing. But if you have the “own occupation” feature in your plan, then the insurance company can’t force you to do any other job than the job you were doing the day before you became disabled.
This is the flaw I mentioned earlier with Group Disability plans. Every group disability plan in Canada only has “own occupation” for the first 2 years and then after the 2-year time period, the definition in the policy gets changed to “any occupation” – so after 2 years, the insurance company could force you to do any other job that you are capable of doing. And the pay that you would receive from that job would be subtracted from the benefit that the insurance company owes you.
Now here is how we fix that problem with your group plan. You can purchase a “cheap and cheerful” individual disability policy…however, I would include a 2 year waiting period before the benefit kicks in….so your group plan would cover you for the first 2 years and then when the definition changes in the group plan, we turn on your individual disability insurance plan with “own occupation” to solve this problem. This is very cost effective because of the 2-year waiting period.
Now back to designing your own individual plan. In addition to “own occupation” you should also have a feature called Cost of Living or COLA – because if you went on claim, you want to make sure that your monthly benefit is keeping up with inflation.
And the 3rd feature you should look at is FIO or Future Income Option. This feature allows you to purchase additional monthly benefit, as long as your income has gone up, but you do not need to undergo any future medical underwriting. This feature can be exercised every year on the policy anniversary. If you choose not to take the benefit increase, then the amount is carried forward to the next policy anniversary.
The final feature we should look at is called the Return of Premium or ROP. You should do a calculation as to the cost of this feature versus the payback. How this works: every 7 years like clockwork, if you haven’t filed a disability claim, then you get 50% of the premiums back that you paid and you receive this money tax-free. So, either you get a disability and you receive the monthly benefit or you get 50% of your money back.
Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
Want to learn more about Disability Insurance? Already decided that you need to get the coverage in place? Contact me at the coordinates below to apply to become my client.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
Do you think you know everything you need to know about Critical Illness Insurance? Well, by the end of this blog, I’ll give you all the facts so you can make an informed decision before you implement this strategy into your financial plan.
Did you know that Critical Illness insurance was developed by a Medical Doctor in South Africa more than 30 years ago? Think about this: 30 years ago if you were diagnosed with cancer, heart attack, or a stroke, 80% of the time you would die and 20% of the time you would live. Fast forward to today and the numbers have flipped….80% live and only 20% pass away. However, if you haven’t protected yourself and put the necessary “bumper guards” in place, even though you might survive cancer, you could face financial ruin. That is why a doctor by the name of Dr. Marius Barnard invented Critical Illness Insurance.
In Canada, only 5% of Canadians have Critical Illness coverage. But 85% of Canadians worry about getting a Critical Illness, and 58% of Canadians have admitted they would be in financial trouble if they were diagnosed with one.
Most people believe that if they get cancer, their Disability Insurance coverage would kick in. Wrong!
Cancer, heart attack, stroke…these are all Critical Illnesses, not disabilities – and so your disability policy will not kick in. There are at least 25 conditions covered under a Critical Illness policy and if you design the policy correctly, you can also include coverage for “Loss of Independent Existence,” which means if you can’t do two out of the six daily activities of living, then the Critical Illness policy will also cover you. In order to qualify for the payout, you must be diagnosed with a Critical Illness and you must live for at least 31 days after the diagnosis.
When we design CI policies for our clients, we design what I call a “guaranteed policy.” What this means is that you are either going to get a CI and the policy will pay out, or if you do not get a CI, then you can have 100% of your money back. This feature is called the “ROP” (Return of Premium) and Canada is one of the last countries in the world still offering a ROP feature.
If you are an incorporated business owner, there are additional strategies on the table for you. One option is just to purchase the CI policy and have it corporately owned – and if you get a covered Critical Illness, then the benefit would be paid into your corporation and you could dividend the money out to yourself to pay for any medical treatments. This is a very cost-effective approach, because you would be using corporate dollars taxed at the small business rate of 12.5% versus your own personal average tax rate of say, 35% to 40%.
The 2nd option on the table is kind of cool: it is called a “split dollar” CI policy. This means that a portion of the premium is paid for with corporate dollars and a portion of the premium is paid for with personal dollars. However, once you qualify and you have decided to cancel the policy and ask for 100% of your money back, you would get both the corporately paid portion as well as the personal paid portion, 100% tax free. So, this is a great strategy for getting money out of the corporation tax-free and at the same time, protecting you and your family in case you are diagnosed with a CI.
How do you determine how much coverage you need to put into place? For most men who contract a CI, their recovery period is around 12 to 18 months. For most females, the recovery period is around 18 months. So you need to take a look at what your “net” annual paycheque is after taxes and then multiply it by 1.5. For example, if your next annual income is $200,000 per year, you will need at least $300K of Critical Illness insurance coverage.
An estimated 50% of Canadians will develop cancer in their lifetime. That’s one in every two Canadians. Most people know at least two or three people who have been diagnosed with cancer and survived. An estimated 25% of Canadians will experience coronary artery disease, heart attack, or stroke – so the message here is this: get the coverage in place while you can still qualify.
Want to learn more about Critical Illness Insurance? Already decided that you need to get the coverage in place? Contact me at the coordinates below to apply to become my client.
Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
Do you think you know the difference between Term life and Whole life Insurance? Well, I’ll give you all the facts so that you can make an informed decision before you sign on the dotted line.
Life insurance is one of those necessary things in life, because life happens, and we can’t escape death…we just don’t know when it is going to happen.
Think about this – it’s better to have life insurance and not need it, than need it and not have it.
Term life insurance provides coverage for a specific amount of time, usually 10 to 30 years. If you or your spouse pass away during this time period, your beneficiaries will receive a tax-free payout from the policy.
Term life insurance is much more affordable than Whole life. Typically, this works out to about $7 per month on a 20 year Term policy versus about $95 a month for Whole life cash value.
However, Term life has no cash value until death occurs, so it’s not worth anything until you need it, which is I guess why you purchased it.
After you read this blog or watch the video, check out the video I created titled “How to tap into the cash value in your Whole life policy” to learn when is the best time for you to get started.
A lot of people say “why should I buy life insurance? It only benefits my beneficiaries.” Let me introduce you to Whole life. The way we design it, we want you to live so you can tap into it during retirement.
Whole life is a form of permanent life insurance which comes with three components – Premium, Death Benefit and Cash Value Accumulation (that last part is the savings aspect). When you pay your premium, a portion is applied to the death benefit and cash value. Every year like clockwork a Whole life policy receives an annual dividend. Right now, the current dividend is around 6% to 6.25% and insurance companies in Canada have been paying annual dividends for over 157 years. I usually refer to a Whole life policy as the Fixed Income Anchor in your overall investment plan.
Now, depending upon how you design it, for the first 5 to 10 years a majority of the premium is applied to the death benefit which is referred to as the cost of insurance… however over time the cash value will receive a greater portion of the premium and this will build up a bucket of money that we can tap into when we reach retirement.
Beneficiaries are only entitled to receive the death benefit portion of the policy when you pass away.
You can cash in or surrender your policy at any time to get your money out, but you would lose the insurance coverage. In my next video, I will educate you on how you can tap into the cash value without losing the insurance coverage.
If you’d like to get either a Term life or a Whole life policy, designed for max cash flow in retirement, click on the link below to apply to become my client.
Thanks for reading. Let’s make sure that your money outlives you in retirement!
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
From Chapter 5 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
Turning Personal Costs Into Corporate Tax Deductions
Why pay for healthcare costs out of your own pocket when you can have your corporation pay these expenses?
A doctor running an MPC is like any other small business owner who is challenged with how to pay for drug, dental, and extended healthcare costs. If you do not have access to a group plan through your spouse, you will have to pay for these expenses out of your pocket using after-tax income. This is where a Health Spending Account (HSA) is of great value to you and your family. You will no longer have to pay for these expenses personally; all you need to do is to set up an HSA, and any contributions by your MPC are 100% tax deductible to the MPC while all eligible medical expenses are reimbursed to you and your family tax-free.
HSAs are less expensive than group insurance policies. With group insurance, the costs are based on the previous “experience” in terms of claims filed, plus the insurance company’s fees and profits.
What Is A Health Spending Account?
An HSA is a self-insured Private Health Services Plan (PHSP) setup by the employer (doctor) as a benefit for their employees. Expenses that are covered include both health and dental care expenses. Below is a sub-list of some of the other expenses that are covered:
• Acupuncture
• Dentures
• Naturopath
• Orthopedic Shoes
• Psychotherapy
• Ambulance
• Dermatologist
• Nursing
• Orthopedist
• Radium Therapy
• Artificial Limbs
• Drugs
• Neurologist
• Osteopath
• Massage Therapy
• Blood Tests
• Eyeglasses
• Obstetrician
• Oxygen
• Sterilization
• Braces
• Fertility Treatments
• O.R. costs
• Pediatrician
• Vaccines
• Chiropractor
• Guide Dog
• Ophthalmologist
• Physician
• Vasectomy
• Contact Lenses
• Hearing Aid & Bat.
• Optician
• Physiotherapist
• Viagra
• Crowns
• Hospital Bills
• Oral Surgery
• Psychiatrist
• Vitamins
• Crutches
• Insulin Treatments
• Organ Transplant
• Psychoanalyst
• Wheelchair
• Dental Treatments
• Laser Eye Surgery
• Orthodontics
• Psychologist
• X-Rays, etc.
For a more detailed list, you can visit the Canada Revenue Agency (CRA) website: www.cra-arc.gc.ca
From a visual perspective, picture a health spending account like a type of piggy bank for your drug, dental and extended healthcare needs. Money deposited by your MPC can be used to cover all CRA-approved eligible personal medical expenses. All contributions are 100% tax deductible to the corporation and they are 100% tax free to the employees.
An employee pays for the health or dental service up front and then submits the expense to an automated claim process using my website at www.moaklerwealthmanagement.com. First, they click on the button labelled “Client Login” and then they proceed to click on “My Health Spending Account.” Once the expenses have been submitted and verified, the money is then deposited into your personal bank account on file approximately three business days later. You do not need to mail any paperwork, but the plan does call for you to keep your receipts in case of an audit by CRA.
An HSA can be set up for a one-person business or multi-employee MPC as a cost-effective alternative to an insured drug and dental plan.
From Chapter 5 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
From Chapter 8 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
Whether you decide to retire early or continue to work as long as you can, the earlier you start to plan, the more likely it is that you will be financially prepared for retirement. Retiring is difficult enough for anyone, but it can be even tougher for a doctor who loves what they are doing and who will continue to work well into their 70s as long as health permits.
Preparing for that major financial and psychological change can feel overwhelming, but it is important to start planning for it well in advance, of the time when the practice exit becomes a reality. Most doctors spend every day of their lives building their practices and taking care of patients, and sometimes they don’t spend much time thinking about how to retire. A good retirement plan should provide a checklist of steps to take immediately and to enable you to chart your progress a few years down the road.
The number one question that I get asked all the time is, “Will my money outlive me, or will I outlive my money?” To help answer this question, we need to drill down into your current lifestyle and monthly lifestyle expenses and discuss any plans that you may have for major expenses down the road, such as a new car or the purchase of a vacation property.
Here is a list of “lifestyle questions,” followed by a list of “monthly lifestyle expenses,” to help get you started on planning for retirement:
Lifestyle Questions
1. How do you envision retirement going forward? (Do you see yourself potentially working part-time, traveling? How often, etc.?)
2. What are your unfulfilled dreams?
3. How often would you like to travel, and what is the potential cost of each trip?
4. How often would you like to buy a new car, and how much should we budget?
5. Do you have a favourite charity that you want to leave money to, and how much would you like to leave?
6. Is it important to you that you leave an estate to someone? If yes, how much do you intend to leave?
7. Do you have hobbies that you want to focus more on in retirement, and what is the cost of these hobbies on an annual basis?
8. Do you expect to make any major purchases (other than the car listed above) during retirement and if so, what are they and how much should we budget?
9. Are there any medical issues in the family that we need to budget for?
10. Are there any additional sums of money (such as a family inheritance) that you are aware of? If so, how much do you think the inheritance is worth, and when approximately should we plan for this money?
Monthly Lifestyle Expenses
1. Housing Expenses
a. Mortgage or Rent
b. Home and Cell Phone
c. Electricity
d. Gas
e. Water & Sewer
f. Cable / Internet
g. Supplies / Pool
h. Property Tax
i. Maintenance / Repairs
2. Transportation
a. Vehicle Payment
b. Bus / Taxi Fare
c. Car Insurance
d. Licensing
e. Fuel
f. Maintenance
g. 407/Tolls
3. Insurance
a. Home
b. Life
c. Critical Illness
d. Disability Illness
e. Long-Term Care
4. Food
a. Groceries
b. Dining Out
c. LCBO
5. Children
a. Clothing
b. Medical (e.g., glasses, prescription drugs)
c. Childcare
d. Toys/Presents
e. Other
6. Personal Care
a. Medical (e.g., glasses, prescription drugs)
b. Hair / Nails
c. Clothing
d. Dry Cleaning
e. Health Club
f. Organization Dues / Fees
g. Other
7. Entertainment
a. Movie Rental
b. Movie Night Out
c. Concerts
d. Sporting Events
e. Live Theatre
f. Travel
g. Other
8. Loans
a. Investment Loan
b. Student Loan
c. Credit Card
d. Other
9. Savings / Investments
a. RRSP / Non-Registered Plan
b. TFSA
c. RESP
10. Gifts & Donations
a. Charity 1
b. Charity 2
11. Legal
a. Attorney
b. Spousal Support
c. Child Support
d. Other
The initial step would be to complete your monthly lifestyle expenses. I would recommend that you review all of your credit card statements going back at least six months to make sure you have captured all your expenses and can therefore present a full picture of these as you budget. Some clients prefer an electronic copy of a monthly budget, and this should be made available to you if you request it from your financial planner.
From Chapter 8 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
From Chapter 1 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
Does Your Financial Planner Have a Conflict Of Interest?
One of the reasons why I left the previous company that I worked for was that in order for me to get paid on the asset management side, I had to sell you very expensive mutual funds with hidden management fees. This made me feel uncomfortable and I knew that I had a conflict of interest when it came to recommendations on managing your investments.
In my humble opinion, the mutual fund industry is full of conflicts of interest. Most investors do not know the difference between Front End Load, Back End Load (which is sometimes referred to as a Deferred Sales Charge or DSC), Low Load, or No Load mutual funds. Each mutual fund comes with its own unique schedule of fees. Predominantly, what are sold in the industry are DSC mutual funds. What the investor doesn’t realize is that DSC mutual funds lock you into a five to seven-year commitment, and this may not be in your best interest. Although some DSC mutual funds may come with lower management fees initially, if you ever need to take all of your money out at once, you could be subjected to a 5.5% penalty to gain access to your own money. This practice is unfair, and to remedy this, the Mutual Fund Dealers Association or MFDA is coming out with the Client Relationship Model, phase 2 or CRM2 in 2016. CRM2 will force all mutual fund dealers to print the dollar amounts of the hidden fees they have been charging clients on the clients’ quarterly statements. Once clients are able to see the fees they have been paying on their mutual funds, I am anticipating a run on the bank, so to speak. The average portfolio for a doctor client comes with a hidden management fee of greater than 2.4%. This is why doctors should never invest in mutual funds or in what some consultants call “managed money”.
Suitability vs. Fiduciary Duty
There are two primary groups of individuals who are able to offer investment advice to the investing public. These two groups are Investment Counsellor Portfolio Managers (ICPMs) and Investment Advisors/Investment Brokers/Financial Advisors, with the latter group sometimes being referred to as broker-dealers. Many doctors may consider the investment advice they receive from each party to be similar, but there are some key differences that may not be understood by the average investor. The key difference pertains to two competing standards that ICPMs and broker-dealers must adhere to, and the distinction has important implications for the doctors who hire these individuals.
An ICPM must attend and pass rigorous educational and ethical standards programs. In the investing industry, an ICPM is recognized as the highest level of certification in Canada. ICPMs charge fees based upon a percentage of assets under management. Typically, as your assets grow in value, as certain milestones are hit, the percentage charged decreases. ICPMs are bound to a “fiduciary standard” which is regulated by each provincial securities commission dating back to 1912. ICPMs are held to a fiduciary standard that stipulates that they must place their interests below those of the client. This standard consists of a duty of loyalty and care, and simply means that, by law, the ICPM must act in the best interest of his or her client, and to do his or her best to make sure that any investment advice is given using accurate and complete information. Avoiding conflicts of interest is important, and this standard means that the ICPM must not have any conflicts of interest.
A broker is someone who acts as an agent for someone else, and a dealer is someone who acts as a principal for their own account. Therefore a broker-dealer may carry out the purchasing or selling of his or her firm’s inventory of fixed income as well as equity securities or mutual funds. The primary income for a broker-dealer is the commission they earn from making transactions on behalf of the underlying client. Broker-dealers who work for the banks or for mutual fund companies only have to fulfil a “suitability obligation,” which is defined as making recommendations that are consistent with the best interests of the underlying client. Broker-dealers do not have to place their interests below those of the client. The suitability standard only requires that a broker-dealer has to reasonably believe that any recommendations made are suitable for their client. A key difference in terms of loyalty is also important, in that a broker’s duty is to that of the bank or mutual fund company that he or she works for, not necessarily to the client served. Additionally, the need to disclose potential conflicts of interest is not as strict a requirement for a broker. An investment only has to be suitable; it doesn’t necessarily have to be consistent with the investors’ financial objectives.
The suitability standard can end up causing many conflicts between a broker-dealer and a client. The most obvious conflict has to do with fees. Under the ICPM, an investment advisor would be strictly prohibited from buying a mutual fund or other investments because it could garner him or her a higher fee or commission. Under the suitability standard, as long as the investment could be considered suitable for the client, it can be purchased for the client. This can present many situations in which a broker has the incentive to sell their own products ahead of a potential competing product that may be at a lower cost.
You can now hire money managers who have a fiduciary duty to the client, who are professionally trained and educated and who have earned the ICPM certification. There are a number of high quality boutique companies across North America managing billions of dollars in assets who will provide “private wealth management services” at a fraction of what these services cost just five years ago.
From Chapter 1 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
From Chapter 1 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
Is Your Financial Planner Knowledgeable?
When I am in need of a doctor who is a specialist, I want to find a doctor that has a lot of letters after their name. I seek out someone who has gone to school for a number of years, someone who is an expert in their field. Ultimately, I’m looking for someone who knows what they are actually talking about.
This same analogy should be used when seeking out a financial planner to work with. I previously worked for one of the largest mutual fund companies in Canada. When I started, more than 15 years ago, all that was required of me was to pass the mutual fund course, and then I was sufficiently qualified to call myself a financial planner. I would learn over time, however, that this job title was a façade, and that, in fact, I knew very little yet the industry allowed us to call ourselves financial planners. Similarly, in banks you will often have clerks who introduce themselves as financial planners and who typically know very little about comprehensive financial planning. When you are going to trust your finances with someone, it is imperative that you find yourself a financial planner who is actually qualified to plan finances.
One way to ensure that you will find a reliable or trustworthy financial planner is make sure that they at least have their Certified Financial Planner (CFP) designation. Long considered the gold standard for financial planning in Canada, the CFP designation provides assurance that a qualified professional will put their clients’ interests ahead of their own. The CFP designation is a very important first step, as it provides you with a solid foundation upon which to build. CFP professionals have an obligation to ensure that their knowledge and proficiency remains current. To renew their CFP certification, CFP professionals must commit to completing 25 hours of Continuing Education (CE) activities each year. Newly added this year is a CE requirement in Professional Responsibility, which is an essential element of the commitment that a CFP professional makes to their clients to ensure that their interests are being served ethically, competently and diligently. If the candidate you are interviewing does not have their CFP designation, then I would suggest that you move onto the next candidate. The last thing that you need is to meet with someone professing to be a financial planner who has the hidden objective of trying to sell you ill-advised financial products.
In addition to the CFP designation, you should be looking for an individual who also has their Chartered Life Underwriter designation, or CLU for short. The CLU designation is recognized as the highest standard of knowledge and trust in financial planning. A CLU has earned the highest attainable credential in the insurance profession, representing eight or more comprehensive college-level courses covering all aspects of insurance planning, estate and retirement issues, taxation, business insurance, and risk management. Becoming a CLU develops the financial planners’ knowledge and application skills in the key areas of wealth transfer and estate planning advice. For more than 80 years, clients have trusted this credential. The average study time for the program is over 400 hours, and it can take years to earn this credential. Each CLU must also complete a minimum of 30 hours of continuing education every year.
In summary, you need to find yourself a financial planner who continues to invest in themselves, and who possesses at a minimum both their CFP and CLU designations. If you are interviewing a candidate who does not have both of these designations, then you are wasting your time, and it is in your best interest to move onto the next candidate.
From Chapter 1 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. HARDCOVER NOW ON AMAZON. Click here: https://amzn.to/3mkXAu6
This is an excerpt from my new MasterClass: The 6 Secrets: What Every Business Owner Must ALWAYS and NEVER Do With Their Corporate Cash Flow. Check it out at https://bit.ly/35tRMZY
—
Most people know how to make money when the markets are going up. But very few people know how to make money when the markets are going down.
Let me show you how we would have protected your money during the market crash in 2008, and again when the market crashed in Q1 of 2020 – by FLEXING your investments.
Let’s start with a question: When you go shopping, do you like to purchase items for the full retail price, or do you like to purchase items on sale?
It won’t shock you to hear that most people want the best possible price. They will wait for an item to go on sale. So, when the markets fall 20%, 30% or even 40%, why are most people running for the door? The markets are on sale!
You just might be familiar with a guy by the name of Warren Buffett. One of the TOP investment wizards in the world, and one of the planet’s wealthiest people, of course.
Warren likes to say that when markets are going UP and people are being greedy, that’s when he is most nervous. But when the markets are going DOWN and people are starting to get nervous or panic, that is when he plans to be greedy!
How do the markets traditionally work? Let me share some insider knowledge with you. When Equities go UP, Fixed Income goes DOWN. When Equities go DOWN, Fixed Income goes UP.
They act in opposite directions.
Balanced Investments are made up of both Equities & Fixed Income. In turbulent times (i.e. a market correction), Balanced Investments do what their name implies: they “balance” out.
Here is the big question: when the markets go down, do you have a FLEX Plan?
Let’s turn the clock back to 2007, prior to the stock market crash of 2008. Let’s assume that you gave us $1,000,000 to invest. We would invest it into what we call a “Flex Plan.”
For example, we would invest the $1,000,000 evenly across Fixed Income, Balanced, Foreign Equity, and Canadian Equity. In other words, we would invest $250,000 into each category.
Let’s assume each category was trading at $10/share, which means we would have a total of 25,000 shares in each category:
Canadian Equity 25,000 shares @ $5/share = $125,000
$825,000
As you can see, when we total up the portfolio, it is now worth $825,000.
Now what? You would have called me on the phone and said, “John, I gave you one million dollars to invest and now it’s worth $825,000. You’re doing a terrific job!”
Yes, I am being just a tad sarcastic.
So, what do we do now? We have three options.
Option #1
Most Financial Planners would tell you, “Don’t worry, the markets will come back.” So we could do nothing and sit on the sidelines and watch your $1-million go down to $825,000 and eventually back up to $1,000,000 and say, “Wow, I’m glad I didn’t lose any money.”
But you also didn’t make any money.
Option #2
You could write a cheque and invest more money, because now is the time of “maximum financial opportunity,” but you might say, “I’m all tapped out and can’t outlay any more cash right now.”
Option #3
We FLEX your plan to make even more money. Let me show you what I mean.
Do you have an expensive hobby that you like to do or play? Perhaps golf.
Let’s say you are in the market for a new set of clubs. If you walked by a store on Monday and saw a brand new set of golf clubs for $2,500 and then you walked by on Thursday and saw the same set of clubs on sale for $1,000, would you buy them? Absolutely you would.
This is the same type of thinking we have to have when the markets are down. When the markets are down, do you think the telephone companies are still going to make money? What about the banks – do you believe they’re still going to make money?
Of course they are.
The intrinsic values are still in the companies we have invested in. What we have seen over the past 50+ years is that markets do go down – but they always come back.
So let’s FLEX your plan!
See those Canadian Equities in your portfolio? They are on sale! At $5/share. So we are going to sell off your Fixed Income to buy the Canadian Equities – an additional 60,000 shares of them ($300,000/$5). We already had 25,000 shares of Canadian Equities, so in total we now have 85,000 shares.
Great news! Your Foreign Equities are really on sale too. So we’re going to sell off the Balanced Funds to buy more Foreign Equities. We will get an additional 42,000 shares of them ($250K/$6). We already had 25,000 shares of Foreign Equities, so in total we now have 67,000 shares of them.
Now, let’s fast forward the clock to late 2009 / early 2010, when the markets were back to being very close to pre-crash levels.
Recall that we now have 152,000 shares. So, if the market gets back to its original level, of $10/share, our portfolio is now worth $1.52-million. We have just turned your $1-million into $1.52-million.
Great, right? Absolutely. But there is always more to do. We are going to flex your plan AGAIN, by putting $380,000 ($1.52-million/4) into each of those four categories – Canadian Equities, Foreign Equities, Balanced Equities and Fixed Income – and wait for the markets to correct again.
What is the obvious conclusion? ALWAYS buy when the market goes down by FLEXING your investments.
—
Business owners: want to see a live illustration of this secret and the 5 other big secrets? And get some great bonuses? Just watch my new MasterClass. Here’s the link: https://bit.ly/35tRMZY
From Chapter 10 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. KINDLE NOW ON AMAZON: click here
—
Do you really need Estate Planning?
The simple answer is yes. Any person who has income, investments, and owns real property needs estate planning. You need to ensure that if you have assets and you want those assets to transfer to the next generation, you will transfer those assets in the most tax-efficient way and at the appropriate time. For example, if there is a housing recession at the time of your passing and the family home needs to be sold, then you might want to provide some flexibility in the wording of your plan to the executor on when to actually sell the family home.
Liquidity
One of the major issues facing the executor is usually the lack of liquidity inside of the estate. If you own a number of real estate holdings, where will the money come from to pay any taxes that are due at death? What happens if the real estate market is down or the economy is about to enter a recession? Will there be buyers to purchase the real estate at fair market value or will they try to take advantage of the situation? A solid estate plan should provide the necessary liquidity and available options to the executor to enable them to deal with these issues. Life insurance is a key component of any successful estate plan. If planned properly, the proceeds from the life insurance policy avoid probate and are typically made available to the beneficiaries 10 to 12 days after the proof of the death certificate has been validated.
Your Estate Planning Team
Your certified financial planner, who is also your insurance advisor in most cases, plays a key role in helping to develop your estate plan. I usually refer to myself as the “quarterback” of the team and I work in partnership with both your accountant and your lawyer. We all work for you, the client. Accountants and lawyers will have access to information and technical expertise which your financial planner may or may not be aware of. However, accountants and lawyers will often only have a general idea of how much and what type of insurance might best fit into the plan. Included at the end of this chapter is a tool you can use to get started—the Estate Planning Questionnaire. Some clients prefer an electronic copy of an estate planning questionnaire, and this should be made available to you if you request it from your Financial Planner.
If you would like to receive an electronic copy of the Estate Planning Questionnaire, please contact my office staff and they would be happy to email you a copy.
—
From Chapter 10 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It. KINDLE NOW ON AMAZON: click here
