Debt & Frugality

As Didi says in the novel (Findependence Day), “There’s no point climbing the Tower of Wealth when you’re still mired in the basement of debt.” If you owe credit-card debt still charging an usurous 20% per annum, forget about building wealth: focus on eliminating that debt. And once done, focus on paying off your mortgage. As Theo says in the novel, “The foundation of financial independence is a paid-for house.”

Overhaul of mutual fund fees not as sweeping as some would like

Posted By |

Deferred Sales Charges (DSC) on mutual funds are going to be eliminated in Canada but recommendations released today by securities regulators did not go so far as to implement an outright ban of trailer commissions (aka trailer fees, also referred to as embedded compensation.)

The Canadian Securities Administrators (CSA) also released proposals regarding rules about what advice or products are in the “best interest” of financial consumers.

 

You can find a full summary in this article that appeared today in the Globe & Mail. (The full link may only be available to G&M subscribers, depending on how many free views readers have previously accessed). Rob Carrick also has a column on the topic titled It just became clear we’ll never see an investment industry where clients must come first. Well, we’ll see. Over at the Financial Post, Barbara Schecter reports OSC drops push for adviser standard.

Big win for industry

For more of an industry perspective, there is a full report here at Advisor.ca. And the industry’s newspaper, Investment Executive, headlined its coverage as “a big win for the industry.”

John De Goey

One of the sources cited in both G&M articles is John De Goey, an investment adviser and author, who also sent this email to the Hub expressing his disappointment in the decisions:

“This is shameful on the part of the CSA.  It has been almost 15 years since Julia Dublin’s Fair Dealing Model drew attention to the concern of bias caused by embedded commissions.”  He also offered these four observations:

  • The primary concern is advisor bias as caused by embedded compensation, and there’s nothing here to address that
  • Does not allow for “product meritocracy”
  • Does not address how the trailing commission on equities is double the trailing commission on income (which creates obvious, massive, self-evident advisor bias)
  • Does nothing to address the discrepancy between ETFs and mutual funds.  Advisor’s preferred business model should never drive product recommendations

 

Vanguard says industry will organically evolve away from embedded compensation

Vanguard Canada’s Atul Tiwari

However, Vanguard Investments Canada Inc. managing director Atul Tiwari said Vanguard is “encouraged by some of the proposals from the CSA. Although there will not be a ban on embedded commissions, we believe that the Canadian market, like other regions around the world, will organically evolve away from it. The CSA has made clear that suitability determinations will need to be in the best interests of clients. This will likely accelerate the move that we are already seeing in advisors going from commission-based to fee-based models. We support that trend as providing superior fee transparency and enhancing the use of low cost products to give clients better long term returns. Vanguard will continue to champion the interests of Canadian investors with more low-cost and high-quality product options.”

And finally, my take on this at the Motley Fool

(Added on Friday afternoon): You can find my own take on this development in my monthly blog at Motley Fool Canada. Click on the highlighted headline here: New mutual fund advice guidelines underwhelm advocates for Consumer-Investors.

 

How do Canadians feel about the new Real Estate regulations?

Posted By |

By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

The anniversary of the implementation of the Ontario Fair Housing Plan has come and gone, and the playing field is just starting to even in the province’s housing market. Designed to cool demand and price growth in the Greater Golden Horseshoe, the 16-part package of housing regulations has effectively done just that, with sales down double-digit percentages throughout the region, and prices softening for the most expensive housing types.

Housing analysts argue that this result is mainly due to psychological factors, rather than the new regulations – which include a foreign buyer’s tax, and overarching rent controls – themselves.

But what do Ontarians really think about the new regulations? To find out, Zoocasa conducted a survey of 1,400 respondents on their sentiments around the highlights of the plan, and whether they support the government’s intervention in the free housing market.

Following BC’s footsteps

If Ontario’s attempt to tax foreign purchasers of real estate seems familiar, that’s because it closely resembles what occurred in British Columbia; the province initially implemented a 15-per-cent levy on foreign buyers within the Metro Vancouver area in August 2016, before upping the tax to a full 20 per cent, and extending the affected geographical area, in February of this year.

While Ontario’s version, called the Non-Resident Speculation Tax (NRST) still taxes just 15 per cent of a home’s purchase price, it will apply to anyone buying a home within the GGH – including homes for sale in Hamilton, or condos for sale in Mississauga, who is not a Canadian citizen or permanent resident (those who obtain such status, or who are enrolled in a minimum two-year full-time post-secondary program within a year of their home purchase are eligible for a full rebate on the NRST).

At the time of its implementation, former Ontario premier Kathleen Wynne was adamant that the tax was not intended to discourage newcomers to Canada from settling in Ontario.

“The Non-Resident Speculation Tax has nothing to do with new Canadians or people who want to make Ontario their home,” she stated to a media scrum on April 20, 2017. “This is targeting people who are not looking to raise a family, who are just looking for quick profit or a place to park their money.”

The measure appears to have resonated well with all Canadians; according to survey results, 69 per cent of respondents from all provinces indicated they support the tax, while 61 per cent felt foreign ownership directly impacts prices in the local housing market.

Perhaps not surprisingly, respondents from provinces with the most competitive real estate marketplaces were most likely to support the tax: 77 per cent of British Columbians and 70 per cent of Ontarians indicated they were pro-tax.

Support extends beyond affected Housing markets

However, even respondents from provinces where foreign investment and homeownership is not considered a stressor on the market, indicated support for the tax; 65 per cent of Albertans indicated support, even though only 40 per cent feel out-of-country buyers impact housing prices in their region. Continue Reading…

How in sync are global Central Banks?

Posted By |

 

By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

Without much fanfare, the U.S. Federal Reserve (Fed) provided its policy guidance late in May. Although no rate hike was implemented [it raised its overnight lending rate by 0.25% at 2 pm today, June 13, at 2 pm: Editor]  the money and bond markets fully expect the U.S. central bank to continue on its tightening path for the remainder of 2018, if not beyond. While the lion’s share of the focus has been Fed-centric on this front, it seems like a good exercise to check in on what the expectations are for the developed world’s other key monetary policy makers.

Heading into 2018, optimism for ongoing global growth seemed to be the norm. Indeed, along with the outlook for continued global growth, discussions were arising on whether central banks would soon turn their attention to any potential increase in inflation. While we still have almost seven months to go in this calendar year, recent data appears to be suggesting a plateauing of sorts on the economic front.

One economic indicator that is widely watched for help discerning economic trends on a global basis are the various Purchasing Managers’ Indexes (PMI) on a country or regional basis. While the levels being posted in the developed world still point toward further expansion, they don’t necessarily indicate a pick-up in growth prospects on the immediate horizon. In fact, the readings for April on an aggregate basis were relatively flat, and in some cases — such as the eurozone, the UK and Canada — have actually slipped a bit from their recent peaks.

So, what should investors expect in near-term global central bank policy? As illustrated in the table above, expectations for the upcoming policy meetings certainly differ quite a bit. The overarching outlook is for the Fed to raise rates at its convocation on June 13, with the Fed Funds Futures implied probability being 100%, as of this writing. The remaining four developed world central banks — the European Central Bank (ECB), the Bank of England (BOE), the Bank of Canada (BOC) and the Bank of Japan (BOJ)  — all fall in the “no rate hike” camp. Continue Reading…

The reverse mortgage pitfalls you need to know about

Posted By |

Canadian seniors may borrow on their home equity in the form of a reverse mortgage — but should they?

Money lenders are always coming up with innovative ways for you to borrow money. One such innovation is the reverse mortgage. Interest in reverse mortgages is rising with an aging population and low interest rates on savings accounts. As a result, we hear from our Inner Circle members periodically asking whether a reverse mortgage would be a good way to tap into the equity they have built up in their homes.

Reverse mortgages in Canada let homeowners who are 55 years of age or older borrow on their home equity—the minimum age was 60 until a year ago. (For married couples, both spouses must be above age 55). Typically, the loan-to-value ratio is up to 40%. But depending on their age and property, some borrowers may qualify for a loan of up to 55% of the value of their home. The loan and accumulated interest are repaid only after the house is sold or from the proceeds of the homeowner’s estate.

Reverse mortgages are best seen as loans of last resort

Continue Reading…

How to develop a Financial Independence mindset if your parents were reckless spenders

Posted By |

By Alex Lawson

Special to the Financial Independence Hub

Our parents are our first teachers. We learn our values, our habits, life skills, relationship skills, and many other things from our parents, long before we venture out on our own.

One of the things that people pick up on is financial habits, good or bad. If your parents were reckless spenders, chances are you’re already headed down the same path. The good news is that it’s possible to change your mindset and learn to manage your finances so that you don’t make the same mistakes they did.

Separate yourself from them

The first thing you need to do is realize that you are your own person capable of making your own choices. Don’t tell yourself you’re irresponsible with money just because that’s how you grew up. Make the decision to be different and start telling yourself the opposite. Reinforce the idea that you can be financially responsible and independent regardless of how you grew up, and you’ll be able to start making better choices.

Decide on your goals

Many people that had financially irresponsible parents have never been taught to think about the future. Planning for retirement should begin as soon as you leave college. Do you think you’ll want to retire with enough money to live comfortably as you have been, or are you planning on securing complete financial independence by the time you’re 30? The process for saving and investing will be completely different based on your goals. Begin saving aggressively when you’re young so that your money will have more time to grow.

Make saving a priority

If your parents were reckless spenders, they probably didn’t teach you anything about saving. One of the biggest keys to financial independence is learning how to save properly, so that you can be prepared for both unexpected problems and for your future. Build savings into your budget before you even look at what type of housing you can afford. A good rule is to start saving 10% of every paycheck and live off what is left over until you reach the goal of three times your monthly income. Then, when your car breaks down or if you lose your job, you will have an emergency fund to rely on without having to go into debt. Continue Reading…