General

“Botched” CRM2 implementation just adding to investor confusion: veteran adviser

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Tim Paziuk

By Tim Paziuk

Special to the Financial Independence Hub

After 37 years in the financial services industry I realize I shouldn’t be surprised, and I’m not. I’m shocked. Shocked by the confusion created by the very people who are charged with the responsibility of watching out for us, mainly the Canadian Securities Administration (CSA).

Here is the first paragraph from the overview on the CSA website

The Canadian Securities Administrators (CSA) is an umbrella organization of Canada’s provincial and territorial securities regulators whose objective is to improve, coordinate and harmonize regulation of the Canadian capital markets.

I draw your attention to the words ‘improve, coordinate and harmonize’. In my opinion, they have done more to hinder and confuse the average Canadian than to provide clear and complete information.

Let me give you some background on the recently implemented program referred to as the Client Relationship Management Model – Phase 2 (CRM2).

According to the Ontario Securities Commission:

The Client Relationship Model – Phase 2 (CRM2) amendments to NI 31-103 that came into effect on July 15, 2013 are being phased-in over a three-year period. These amendments introduce new requirements for reporting to clients about the costs and performance of their investments, and the content of their accounts. The requirements apply to dealers and advisers in all categories of registration, with some application to IFMs as well. For more information about these amendments, see CSA Notice of Amendments to NI 31-103 and to 31-103CP (Cost Disclosure, Performance Reporting and Client Statements). Continue Reading…

Retired Money: Pension Splitting is now ten years old

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Pension Income Splitting can dramatically lower taxes for senior couples considered as a family unit

The latest instalment of my MoneySense Retired Money column is now available: click on the highlighted text to access the full version of the column: Pay Less Tax with Pension Income Splitting.

As I note, It’s hard to believe but the great boon of pension income splitting has now been available to Canadian retirees for a full decade. Coupled with the 2009 introduction of TFSAs, these two tools have certainly been a welcome addition to the arsenal of retirees and semi-retirees.

Pension splitting can generate many thousands of dollars in additional after-tax income for retired couples, particularly if – as is often the case – one of them enjoys a generous defined benefit (DB) pension and the other does not.  Pension splitting is based on the fact that Canada’s graduated income tax system imposes far higher rates of tax on big earners than on modest or non-existent earners. Pension splitting can result in a highly taxed income and a low-taxed one being merged (conceptually speaking) into what amounts to a modest mid-level amount of tax for the couple as a whole, putting thousands of extra dollars into the family’s collective pocket each year.

The tax benefits vary with the marginal tax rates of both spouses.  With pension splitting, if one spouse has no pension and the other has a $60,000 pension the couple as a whole ends up being treated exactly like a couple with two $30,000 pensions. The bonus is that both spouses can claim the $2,000 pension income s and the higher-income spouse may no longer be subject to clawbacks of Old Age Security.

Pension Splitting is a paper transfer at tax time

Continue Reading…

Q&A: Stock markets are at all time highs … should we sell?

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By Steve Lowrie, Lowrie Financial

Special to the Financial Independence Hub

Here’s a question I received recently, which rhymes with many I’ve heard before:

Now that the Dow has hit 20,000, we should seriously get out and put the cash under the mattress … don’t you think?

This time it was the Dow’s recent high-water mark. In the past, it’s been the same question in various forms, all of which could be rephrased to this question behind the question: Should the all-time nominal stock market highs be used as some sort of signal to reduce equity holdings?

Or conversely, should it be used as a rationale for holding onto cash balances or deferring new equity purchases (which, in my experience, is an even more common form of market-timing)?

It is human nature to look for shortcuts and/or ways to simplify complex questions. The fact that people predict outcomes by making up stories is what makes us all … humans.

Timing the markets when they’re at all-time highs is a nice, neat and simple story. Unfortunately it’s a fable; it doesn’t work. To use a “baseball story,”  three strikes and you are out.

One.

I can point a couple of my past posts here and here for frowning on these sorts of signals, or treating them as anything other than the noisy blips they are on your financial radar screen. Try to chase them, and you’re more likely to be left flying blind.

Two.

Nominal levels ignore market valuations. That means new market highs may be fun, but they’ve not been worth beans for predicting future returns. Those are expected either way, but for entirely different reasons.

Three.

To take a deeper dive into the subject, Dimensional Fund Advisors has done the heavy lifting for us in “New Market Highs and Positive Expected Returns.”Their conclusion is that it doesn’t work. Give it a read if you want all of the details.

Still not convinced? … then please contact me.

Steve Lowrie holds the CFA designation and has over 20 years of experience dealing with individual investors. Before creating Lowrie Financial in 2009, he worked at various Bay Street brokerage firms both as an advisor and in management. “I help investors ignore the Wall and Bay Street hype and hysteria, and focus on what’s best for themselves.” This blog appeared originally appeared on his site on February 3rd and is republished here with permission. 

 

Vanguard Canada launches four new domestic Fixed Income ETFs

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Vanguard Investments Canada Inc. has announced that four new domestic fixed-income ETFs began trading on the TSX today, doubling a lineup that previously included a couple of short-term bond index ETFs, an aggregate bond index ETF and two currency-hedged foreign bond ETFs.

The new funds add coverage to government and corporate bonds,  long-term bonds, and to domestic short-term government bonds. The full release is here on Canada Newswire. Here are the names, ticker symbols and Management fees of the four new ETFs:

ETF

TSX Symbol

Management Fee1

Vanguard Canadian Corporate Bond Index ETF

VCB

0.23%

Vanguard Canadian Long-Term Bond Index ETF

VLB

0.17%

Vanguard Canadian Short-Term Government Bond Index ETF

VSG

0.18%

Vanguard Canadian Government Bond Index ETF

VGV

0.25%

These four new ETFs round out a list of domestic fixed-income ETFs that also include the Canadian Aggregate Bond Index ETF (VAB), the Canadian Short-term Bond Index ETF (VSB), the Canadian Short-term Corporate Bond Index ETF (VSC) and two foreign (US and global) bond index ETFs hedged back into the Canadian dollar (VBU and VBG respectively). You can find the full list, including the four new products, here. (Select Fixed Income as the asset class to zero in on the full list of nine bond ETFs.)

In the press release, Vanguard Canada head of product Tim Huver said “These ETFs provide the flexibility to position portfolios along the yield curve and take advantage of targeted exposure to corporate and government bonds.”

A retired Advisor’s Open Letter to Bill Morneau on expanding TFSA

Posted By |
Finance Minister Bill Morneau (bmorneau.liberal.ca)

(To:) Hon. Bill Morneau, Minister of Finance,
House of Commons, Ottawa.

Dear Hon. Minister,

Thank you for your response to my previous letter. I am a strong believer in an enlarged Tax-free Savings Account (TFSA) and have NINE reasons for that belief through my experience as an IA (Investment Advisor).

I think you will agree that the larger TFSA makes retirement savings fair for all levels of Canadians incomes, but helps those who need it most as there is little RRSP deduction benefit for low-income Canadians. I think your background experience will lend itself to agreeing with my nine reasons for restoring the $10,000 TFSA.

Restore the $10,000 TFSA

The $10,000 TFSA [the previous annual contribution level] is the most profound and beneficial social program created in Canada’s 21st century. It benefits the young, seniors and the less fortunate as well as the well off. Its principal benefit is a meaningful and manageable amount of money which can be used as a saving vehicle and a retirement savings account.

1.)  It is especially beneficial to the non-working spouse, by enabling a savings and retirement account not requiring a monthly pay cheque and its commensurate income tax and tax deductions. This was the principal reason for the Americas Roth IRA, (ROTH account withdrawals are tax free,  but after the age of 58.)

2.) The larger TFSA amount is a meaningful savings target by today’s standards in that $400,000 can be accumulated over 40 years of adult life. Continue Reading…