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Regulating professional designations for financial planners and advisors

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By Darren Coleman

Special to the Financial Independence Hub

If you want to practice law you must graduate from law school. If you want to be a doctor you need a degree in medicine. But what if you want to be a financial advisor who counsels people on how to handle their money and their investments? Until now, pretty well anyone could hang a shingle, but thankfully, those times appear to be changing which is good for the consumer/investor.

The recent 2019 Ontario Budget had a proposal to formally regulate the terms ‘financial adviser’ and ‘financial planner.’

What’s the difference? The adviser helps clients manage their investments, but the planner is a bit different. A financial planner helps you identify and meet your goals. That may be paying for your child’s post-secondary education, paying off your mortgage, or just getting everything in place so you can retire comfortably.

While one needs a professional license to offer advice on the purchase or sale of a stock, insurance policy, or mutual fund, until now pretty well anyone could claim to be a financial planner or wealth management adviser who dishes out general advice for the masses.

Forensic financial planning

But bad or erroneous financial advice from one who isn’t properly qualified can be disastrous for the client/investor, and I have seen it happen all too often. Those of us in the industry call this ‘forensic financial planning’ and the key word there is forensic.

What exactly am I talking about? It might be putting too much weight into something like whole life insurance or high-risk securities. It might be not taking a prudent look at leverage in your investments. Or buying expensive mutual funds that don’t pan out. Continue Reading…

How did the Fair Housing Plan impact home prices?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

The past two years have been tumultuous times for the Ontario real estate market. Not only have prospective home buyers had to contend with the nationally-implemented mortgage stress test, but a round of policies introduced at the market’s peak have contributed to a vastly different price environment in some of the province’s municipalities.

Called the Fair Housing Plan, this 16-part set of measures was introduced by the former Liberal provincial government with the intention of rebalancing supply and demand as well as out-of-control price growth. It was announced in April 2017, prompted by a year-over-year home price spike of over 30% in the Greater Toronto Area.

New rules spooked sellers

The tangible measures included a 15% foreign buyers’ tax as well as beefed up rent controls, the resulting market chill was likely psychological. Sellers, concerned they had missed the market’s price peak, reacted by flooding MLS with listings while buyers waited to see if the opportunity to get into the market at a lower price point would present itself.

That combination, along with the impact from the stress test — which requires borrowers to qualify for a mortgage roughly 2% higher than the actual rate they’ll get from their bank — effectively led to a housing correction. (Text continues below the ad)

However, in the two years since the measures were introduced, the dust has largely settled in markets across the province; though some cities have weathered them better than others, according to new data from Zoocasa.

Some markets harder hit than others

The study, which compares average sold home prices in April 2017 to the same month this year, reveals which markets have sustained an overall drop in home values, while others have actually continued to appreciate. It also examined the sales-to-new-listings ratio in each municipality, which is a metric used by the Canadian Real Estate Association to determine the level of competition in the market. A ratio between 40 and 60% can be considered a balanced market, while below and above that threshold indicate buyers’ and sellers’ conditions, respectively. Prices were sourced from various real estate boards across the province.

Of all the Ontario housing markets, those located in York Region have absorbed the brunt of the new measures, with steep price declines and a considerable change in buyers’ conditions over the two-year time period.

Home prices in the city of Newmarket, for example, have plunged -30% over the 24-month period, dragging the average below the $1-million mark to $725,710. That decline was prompted by a -31% drop in sales; however, as the supply of new listings also declined by -42%, market conditions actually tightened to a ratio of 45% from 37% last year, well within balanced territory, despite the lower price point.

The City of Aurora also saw prices fall by -30%, down to $888,387, following a -35% drop in sales and a -30% drop in new listings, leaving buying conditions unchanged at a ratio of 42%. The community of Richmond Hill also experienced a significant price drop of -27%, though still remains at a high-priced $1,016,216. It remains in a sluggish buyers’ market with a ratio of 38%, down from 40% in 2017.

Prices for Oakville homes for sale were also among the most affected, dropping -18% over the last two years to an average of $1,019,751. However, the market remains balanced with a ratio of 46%. However, homes in some municipalities, such as on the Hamilton MLS and in the Mississauga real estate market, were impacted by a far lesser extent; both cities saw values fall just 4%, to $528,286 and $767,283, respectively. In contrast, conditions are more favourable to sellers in these markets, with ratios of 63% and 59%.

Check out how prices and market conditions have changed across Ontario between April 2017 and 2019 in the adjacent infographic.

Penelope Graham is the managing editor of Zoocasa.com, a real estate resource “that uses full brokerage service and online tools to empower Canadians to buy or sell their home faster, easier and more successfully.”

 

 

Student Debt remains even after Bankruptcy: Study

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By Mike Brown

Special to the Financial Independence Hub

Student loan debt in the United States is a rapidly developing issue for consumers. More than 44 million Americans owe around US$1.5 trillion in student loan debt; that figure means student loan debt only trails credit card debt when it comes to the highest forms of outstanding debt.

However, student loan debt is one form of debt that is virtually impossible to discharge in bankruptcy whereas debts from things like credit cards or automobiles can be discharged much more easily.

To look at bankruptcy figures in regards to student debt, we used exclusive anonymized data provided by Upsolve, a non-profit that assists low-income individuals file for Chapter 7 bankruptcy free of charge. This data was then analyzed to discover what percentage of bankruptcy filers carry student loan debt and what percent of their total debt is comprised of student loan debt.

How many Bankruptcy filers also carry Student Loan debt?

According to the anonymized bankruptcy data provided by Upsolve and analyzed by LendEDU, 32% of all bankruptcy filers also carried some amount of student loan debt.

Further, for these filers with student loan debt, the vast majority of their liabilities totaled is solely from those student loans. On average, student loan debt takes up 49% of this group’s debt. Even including all consumers, those with and without student debt, student loan debt still takes up 21% of all Upsolve user debt.

Filing for Chapter 7 bankruptcy will liquidate a consumer’s total assets and utilize the subsequent funds to pay off as much outstanding debt as possible. According to the data, essentially one-third of consumers who do declare bankruptcy also have student loan debt, and Chapter 7 will not allow for the offloading of this student debt.

Additionally, due to student debt being almost 50% of all debts incurred by that individual, the person can successfully declare Chapter 7 bankruptcy and still have close to 50% of their debts remaining.

Rather than a restart on one’s financial life, which is the point of bankruptcy, only half of their debt discharges and they are still left having to pay off the other half. Since the data shows that student loan debt is such a huge component of the financial situation for nearly one-third of bankruptcy filers, there appears to be a nonsensical policy in place at the moment in regards to student loan debt being impossible to discharge in bankruptcy.

Where we stand with Student Loan Debt & Bankruptcy

Currently within the U.S., whether it be private or federal student loans, student loan debt cannot be discharged in bankruptcy unless the borrower can prove “undue hardship” in the court of law.

Proving undue hardship for student loans is notoriously challenging, and the current standard in which to prove “undue hardship” is to pass the “Brunner test.” This test requires the student loan borrowers to exhibit that they cannot meet a minimal standard of living (e.g., homelessness) if forced to continue to repay their student loans.

A “certainty of hopelessness” must also be proven, in which case the circumstances that constitute “undue hardship” will persist if the consumer is forced to pay off the outstanding student loan debts. Further, the borrower must prove that a good-faith effort has been put forth to repay his or her student loans and all other options have been exhausted to repay their loans. Continue Reading…

Motley Fool: Getting out of Debt as the first step to achieving Findependence

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Those who are regulars to this site will know that Getting out of Debt is the first step towards achieving Findependence, or Financial Independence.

My latest Motley Fool Canada blog has just been published on this topic, which you can read in full by clicking on the highlighted headline: Getting out of Debt to achieve Financial Independence.

As one of the characters in my financial novel, Findependence Day, says to the protagonists: “You can’t climb the tower of Wealth while you’re still mired in the basement of debt.”

As the article reprises, most of us start our financial life cycle with zero or even negative net worth, depending on how much student debt, credit-card debt or later mortgage debt one has accumulated. So if a young person has graduated from college or university and is able to get out of the hole early in their working life, that should be regarded as a huge initial step towards achieving Financial Independence, or Findependence (my contraction).

Keep up the frugal behaviour that got you out of debt

So how do you get out of debt as quickly as possible? The book coins another phrase, guerrilla frugality, which simply means super frugality, whether brown bagging your lunches, taking public transit or any number of other money-saving activities that ensure that you are living within and well below your means. Continue Reading…

Why I haven’t paid off my mortgage … yet

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Followers of this blog know that I tend to focus on saving and investing rather than trying to pay off my mortgage faster. Indeed, our household assets are projected to exceed $1 million this year but we’ve still got a $200,000 mortgage to contend with.

So why don’t I make it a priority to pay off my mortgage? It’s not strictly about dollars and cents. Here are three reasons:

1.) Higher Priorities

Setting priorities is part of any good financial plan, and those priorities change as you move through different stages of life.

For many years we put all our effort into paying off student loan and consumer debt. Then we became laser-focused on saving for a large house down-payment. Priorities shifted again towards maxing out my unused RRSP contribution room. And now, finally, we’re catching up on years of unused TFSA contribution room.

My wife and I are on the same page with our financial priorities. Right now, we’re focused on these four areas:

  • TFSA – contribute $1,000/month
  • RRSP – max out our available contribution room
  • RESP – max out contributions for our two kids
  • Travel – Visit Scotland/Ireland this summer. Vancouver in October. Maui in February.

Paying off the mortgage slides in at priority number five, which leads to the second reason.

2.) Finite Resources

In a perfect world we would all max out our RRSPs, TFSAs, RESPs, and start investing in a taxable account: all while doubling up on our mortgage payments and still having money left over for dining, travel, and sending the kids to hockey school.

Reality check. We don’t have infinite resources, so we need to make choices and trade-offs.

I mentioned above that we neglected our TFSAs for many years. That’s because we decided to get a new car and pay it off over four years. Our TFSA contributions turned into monthly car payments.

Now that the car is paid off, we can go back to funding our TFSAs and hopefully catch up on all that unused room before we need a new car again.

Speaking of cars, ours are now 12 and six years old. This “sacrifice” – if you can call not getting a new car every 4-5 years a sacrifice – allows us to increase our savings rate and fund more of our financial priorities each year.

Unfortunately, there isn’t another $800/month money leak in our budget to close that will allow us to fund a fifth financial priority (extra mortgage payments). Not yet, anyway.

And remember, it’s not simply about earning more money. I’m already combatting stagnant wage growth and creating my own raise by freelancing, selling used items online, and earning credit card rewards. That extra income allows us to do everything we’re doing now, plus keep pace with inflation and feed a growing family.

3.) Mortgage debt and asset allocation

We tend to think of mortgages and investments in isolation, but if an investor has any debt at all – including a mortgage – then he or she is effectively borrowing to invest.

You could say that I have a leveraged investment loan of $200,000. Another way to think about the mortgage is that I am short fixed income. Continue Reading…