iA Securities & HollisWealth* are now iA Private Wealth

We are excited to introduce our new company name, iA Private Wealth. The new name is designed to better reflect the essence of what our advisors do – provide holistic wealth management solutions tailored to the unique needs and goals of investors across Canada.

Please take a few moments to browse our newly redesigned and updated website to learn about the many benefits of working with an iA Private Wealth Investment Advisor.

*Refers solely to the Investment Industry Regulatory Organization of Canada licensed advisors within HollisWealth.

Insights

Our articles, videos and webcasts can help you expand your knowledge of wealth management and stay up to date on the markets and economy.
Post

Give Your Child the RESP Advantage

read

By iA Private Wealth, September 22, 2021

As the school year begins, many parents devote more thought to saving for their child’s post-secondary education. Truth is, it’s always a good time to think about funding education as the cost of schooling continues to rise.

One of the best ways to save for post-secondary education is through a Registered Education Savings Plan (RESP).

How RESPs work

There are two types of RESP accounts: individual and family. As long as the person opening the account (the subscriber) and the beneficiary (student) reside in Canada, anyone can open an individual RESP account. The subscriber of a family RESP must be the beneficiary’s parents or grandparents, but an advantage of family RESPs is that the plan may be designated for one or more children in the family.

You can contribute any amount to an RESP in a given year, but keep in mind the current lifetime limit is $50,000 per RESP beneficiary. While RESP contributions are not tax deductible, any investment growth within the plan will compound on a tax-deferred basis until the beneficiary heads to college or university.

To encourage saving for education, the federal government matches up to 20% of contributions each year – until the beneficiary turns 17 – through its Canadian Education Savings Grant (CESG) program. The maximum annual grant is $500 and the CESG lifetime limit is $7,200. If you don’t take full advantage of the CESG in a given year, any unused grant room may be carried forward, to a maximum of $1,000 granted annually.

The earlier you contribute to an RESP, the more your child will benefit from compound, tax-sheltered growth. RESP contributions can be invested in a wide range of products, including mutual funds, ETFs, stocks and bonds. Your Investment Advisor can help you decide which investments are suitable for your particular circumstances.

5 common RESP questions

  1. How many RESPs can I open?
    You may open as may plans as you wish at different financial institutions, but the lifetime combined contribution limit of $50,000 per beneficiary remains.
  2. How does my child use RESP funds?
    Contributions may be withdrawn to pay for the child’s qualifying post-secondary education program. Withdrawals from CESG (and other) grants, or the interest earned, can be used to pay for tuition, books or transportation. These withdrawals are taxed in the hands of the beneficiary, who is typically in a lower income tax bracket.
  3. Can I transfer an RESP to another child?
    Yes. For example, if one child does not attend post-secondary school, you may change the RESP beneficiary or add another child to an existing family RESP.
  4. What happens to unused RESP funds?
    RESPs mature after 36 years and unused contributions are returned to the subscriber. Any income from the contributions may be transferred (up to $50,000) to the subscriber’s (or their spouse’s) RRSP, or taxed at the marginal rate plus a 20% surtax. Unused CESG-related funds must be repaid to the government.
  5. Can I withdraw RESP funds?
    Contributions can be withdrawn tax-free at any time by the subscriber, but certain restrictions may apply on future CESG payments.

An RESP is a great vehicle to help save for your child’s education in a tax-efficient manner. To learn more, speak to an iA Private Wealth Investment Advisor.

Post

Investing as a Post-secondary Student

read

By iA Private Wealth, September 15, 2021

Apartment rented for the school year? Check. Class schedule finalized? Check. Laptop in good working order? Check. Investment portfolio optimized? Check.

If the last point seems out of place to you, you’re not alone. Most post-secondary students have many things on their mind, but investing usually isn’t one of them.

It should be. Paying bills and managing student debt are legitimate concerns, but so is planning for the future. As life progresses from school to career and possibly to marriage, home ownership and starting a family, building enough wealth to meet basic needs is always important.

Benefit from compounding

One significant advantage that young investors have is a long time horizon. When they start investing at an early age, they’ve got the power of compound growth on their side. As the value of their investments gradually rises, that growth in invested capital will grow as well, and it’s this ongoing compounding that results in accumulated wealth over time.

Also, having an extended time horizon means they can invest more aggressively than someone older. Why? Because when younger investors experience the inevitable short-term market declines, they have the time to stay invested and ride out these downturns until the markets resume their long-term upward trend.

This advantage allows younger investors to invest more of their money in stocks and equity mutual funds, which historically have generated higher returns than conservative securities like bonds and GICs. Rather than panic when markets become volatile, younger investors can remain disciplined knowing their long-term financial goals should not be impacted.

Getting started

Few post-secondary students have a lot of money laying around, but it’s no reason to put off investing. Maybe they received cash gifts for birthdays or other special occasions. Many students have part-time jobs during the school year and perhaps full-time work in the summer. Of course it makes sense to ease their debt load when possible to reduce interest charges, but earmarking even a few dollars per month for investing can help create long-term wealth.

Assuming they have some money available to invest, what can they do with those funds? They might consider a Tax-Free Savings Account (TFSA). If they’re at least 18 years old with a valid Social Insurance Number, they can open a TFSA at any qualifying financial institution in Canada. The maximum annual contribution amount is currently $6,000. The good thing is, if they don’t contribute the full amount each year, they accumulate contribution room for future years. Whatever investment growth is earned in a TFSA is completely tax free.

If they have employment income, they might consider a Registered Retirement Savings Plan (RRSP). They can get a tax deduction each year, which may be useful depending on their income level, but the main benefit is that any growth of RRSP assets is tax deferred until withdrawn, which is typically not until retirement.

If students aren’t sure what to invest in, they can conduct their own research to learn the fundamentals of investing. They may also consider working with an Investment Advisor who can guide them and be available to help with more complex financial issues as they progress through the various phases of life.

Regardless of what they choose to invest in, it’s often valuable to set up a pre-authorized contribution plan (PAC) that devotes a certain amount of money at pre-determined intervals (e.g., monthly). PACs are useful and convenient because they help investors be disciplined and automatically invest on a regular basis to build long-term wealth.

If you have an undergraduate student in your household, an iA Private Wealth Investment Advisor can help them prepare for their financial future. Speak to an advisor today.

Post

Getting Financially Fit for Your Newborn’s Arrival

read

By iA Private Wealth, September 7, 2021

Having a child is an exciting time in life. Before the baby arrives, it’s useful to think about your finances, since raising a child can be both incredibly rewarding and very expensive.

While each family is different and costs vary, expect to budget roughly $10,000 to $15,000 a year until your child turns 18 – and then the potential for post-secondary education will add to this cost. Aside from expenses related to food, clothing, personal care, toys, activities, etc., your daycare/babysitting costs largely depend on where you live and how many hours of supervised care your child will require.

Funding your family addition

Clearly, the more money you can put away, the better your financial situation will be when baby enters the picture. You don’t have to do it all on your own, however. Family and friends might be able to help with gifts, babysitting and hand-me-downs, plus you may qualify for government support.

Parents who are away from work to look after their newborn or newly adopted child may receive up to 55% of their earnings in standard Employment Insurance (EI) benefits, to a current weekly maximum of $595. As the chart below illustrates, parents can share the benefits. The eligible period for benefits may last from 55 weeks to 69 weeks (although ‘extended’ benefits beyond 55 weeks provide less support).

Benefit name Maximum weeks Benefit rate Weekly max
Maternity (for the person giving birth) up to 15 weeks 55% up to $595

Maternity benefits can be followed by parental benefits. You can apply for both at once.

Benefit name Maximum weeks Benefit rate Weekly max
Standard parental up to 40 weeks, but one parent cannot receive more than 35 weeks of standard benefits 55% up to $595
Extended parental up to 69 weeks, but one parent cannot receive more than 61 weeks of extended benefits 33% up to $357

Source: Government of Canada

Canada Child Benefit (CCB)

In addition to EI benefits, your family may qualify for the CCB. Payments are based on your adjusted family net income (AFNI) for the previous tax year. For the 2021 benefit period (July 2021 to June 2022), if your family’s AFNI is below $32,028, you qualify for the maximum regular CCB of $6,833 per year for children under six years old, and $5,765 annually for children between six and 17 years old. The maximum benefit gradually decreases for AFNIs above $32,028.

Given the pandemic’s impact on many families, there’s also a special 2021 CCB of $300 per quarter for children under six years old, if the AFNI is below $120,000.

Registered Education Savings Plan (RESP)

The cost of post-secondary education continues to rise. It’s good to consider an RESP, which is a savings and investing program designed to cover some of these costs. Currently, the lifetime RESP contribution limit is $50,000 per student (beneficiary). You may invest in many types of securities, from mutual funds and stocks to bonds and GICs – and the investment growth compounds, tax deferred, until the RESP beneficiary begins withdrawing assets.

As an incentive to save, the federal government offers the Canadian Education Savings Grant that matches up to 20% of your contributions, to an annual maximum of $500 and lifetime limit of $7,200.

Each province and territory has some form of student grant or loan, so it’s worthwhile to look into programs available in your area. Talk to your Investment Advisor for more details about how RESP contributions and withdrawals work.

Other things to consider

  • Review your insurance coverage when preparing to have children. You may want to upgrade your life, disability and critical illness insurance plans to reflect your family addition(s). Also, if you’re covered under a group insurance plan, your children may qualify for certain medical and dental care needs.
  • Update your will as your family grows, so you can include your children as estate beneficiaries. You may also use your will to make physical and financial care arrangements for your children in the event that they’re still minors when you (or both parents) pass away.

iA Private Wealth can help you financially prepare for your new arrival. Start by contacting your local iA Private Wealth Investment Advisor today.

Post

Plan For the Retirement You Want

read

By iA Private Wealth, August 17, 2021

Just as everyone takes a different path to retirement, what you do when you retire is also unique to your own circumstances, needs and wishes. It’s helpful to think about how you envision the future, since your chosen retirement lifestyle will significantly impact your finances. Obviously, travelling the world in luxury requires more money than a simpler lifestyle.

What counts the most is matching your financial assets with your retirement lifestyle to ensure you can accomplish your objectives. Keep in mind that retirement is often measured in decades, not in years. As people live longer, it becomes more critical to plan well for retirement.

Identifying your retirement expectations

Before you start building your retirement plan, here are five overarching questions to consider that may help you gain a better sense of how your life could look in retirement:

1. What lifestyle do you prefer?
In some respects, being retired is an opportunity to choose your own adventure. With more time and flexibility than you’ve probably had in years, retirement allows you to do what you enjoy and find meaningful.

Many retirees pursue a mix of travel, hobbies, time with family and friends, volunteering, exercising and staying healthy, gaining new knowledge or skills, and simply enjoying unscheduled leisure time (reading, listening to music, watching favourite shows, etc.).

The activities you choose and how much effort you devote to them depends on your personal interests, mental and physical capabilities, and financial circumstances. Think about the approximate costs of these activities as you construct your retirement plan and budget.

2. Where do you expect to live?
This question not only covers where you’ll live geographically, but also takes into consideration whether you plan on downsizing to a smaller home (e.g., condo or apartment), stay with family members or reside in a seniors-oriented community or retirement home.

Retirees often prefer to remain at home, but consider if that’s financially practical and whether you can manage the responsibilities of independent living. You might try a phased approach where you stay at home for as long as it makes sense, and later consider alternatives to receive the support and services you need.

3. Will you still work?
It’s becoming common for people of “traditional” retirement age to continue working. If you like what you do and can remain proficient at it, why not? Work is valuable because it keeps you busy, engages your mind, sharpens your social skills and lets you be productive. In addition to a sense of accomplishment and intellectual satisfaction, working also generates income that can help you enjoy a better retirement.

Maybe you can work part-time hours or start a business that matches your skills and interests. It might be a full-fledged business or a “side hustle” where you work according to your availability.

4. Will you be financially prepared for health issues?
Getting older often means experiencing health challenges. You can take practical steps – such as regular exercise, eating properly, getting enough sleep and having emotional support – to help minimize health issues. You should also budget in your retirement plan for expenses like medications, therapeutic services, mobility-related home renovations, professional health care support, living in a nursing home, etc. You may also wish to explore insurance policies that can provide the coverage you need as you age.

5. What are your legacy plans?
Giving back is important for many retirees, as it’s their way to make a meaningful difference in the world. Maybe you want to donate to your favourite charities and/or volunteer your time to those causes. You can also establish a charitable trust, scholarship or bursary, or even a foundation that creates your legacy as you see fit (and as your finances allow). An Investment Advisor has the knowledge to build a tax-efficient giving plan that can maximize the impact of your financial support.

At iA Private Wealth, we can help you plan for and achieve the retirement lifestyle you want. Reach out to one of our Investment Advisors today.

Post

Talking Money with Aging Parents

read

By iA Private Wealth, July 13, 2021

If you think about the money lessons you learned in childhood, your parents were likely involved much of the time. Maybe they opened your first bank account or helped you decide what to do with cash gifts you received on special occasions. Maybe you simply observed how your parents handled money.

It’s natural to learn financial lessons from parents, but what if the roles are reversed and you need to help your aging parents oversee their finances? It can be awkward for everyone involved, but there are ways to make it constructive.

Starting the conversation

How you initiate the talk depends on family dynamics. Perhaps you can be direct and dive right into a chat about finances. If you need a more subtle approach, find something that can help you transition into the conversation. Are your parents thinking of selling their home? Has one of them recently dealt with an illness? Maybe another elderly family member is struggling to manage their finances.

Regardless of how you get to the discussion stage, once you’re there remember to be respectful and compassionate. Money is highly personal and can be challenging for parents to open up about, especially if they’re used to being in control or feel embarrassed about needing help from their child.

However, it’s an important conversation because you want your parents to meet their regular expenses and enjoy a decent quality of life. If they encounter significant physical or mental health issues, they should be legally and financially prepared.

Key topics to discuss

Estate planning should be a top priority. Ensure your parents have an up-to-date will that stipulates how they want their financial assets and property distributed after they pass away. This can provide clarity to the family, as well as give your parents peace of mind that their wishes will be carried out.

It’s also good to have powers of attorney (POAs) in case your parents become incapacitated and need assistance managing their financial affairs or making personal care decisions. Wills and POAs are only valid if created while your parents are deemed mentally capable, so prepare documentation as soon as possible – before they display signs of incapacitation.

This discussion is also an opportunity to understand your parents’ cash flow situation. Take inventory of their income sources, from government benefits and workplace pensions to registered plans (e.g., RRIFs, TFSAs) and other investments. Then list their regular expenses for shelter, food, utilities, travel, hobbies and entertainment, medication, etc.

Do your parents have sufficient income to meet their expenses? What if health issues require moving to a long-term care facility or hiring professional care workers? If their budget cannot accommodate these expenses, do your parents qualify for government assistance? Can you and other family members help with funding or care requirements?

Also find out what insurance policies (if any) your parents have. You need to know the extent of coverage for life, health and/or long-term care insurance, as well as the premiums they pay to keep the policies in force.

Confirm that their tax returns have been filed and that there’s no tax outstanding. This will ensure your parents can receive the government benefits they’re entitled to beyond CPP and OAS, such as the Disability Tax Credit or Guaranteed Income Supplement.

Support is available

An Investment Advisor can help you assess your parents’ financial health and make recommendations to strengthen your parents’ financial circumstances, so they can approach the future with confidence and peace of mind.

Speak with an iA Private Wealth Investment Advisor to learn more about how to prepare for the money conversation with your aging parents.

Post

Your Wealth Plan Requires a Team Effort

read

By iA Private Wealth, June 29, 2021

When you think about your wealth plan, chances are you turn to your Investment Advisor when you have questions or need guidance. That’s understandable, since your advisor is a trusted financial professional who has helped to build and maintain your wealth plan and investment portfolio.

However, life is complicated and so are finances, which means there are times your advisor may wish to engage external resources* such as accountants, lawyers or insurance professionals. Whether you already work with them or they’re part of your advisor’s network of contacts, these professionals can bring a valuable perspective on your unique financial situation.

It’s common for people to compartmentalize their financial needs and seek assistance accordingly. For example, when you want to sell your business, you approach a lawyer to address the legal aspects of this transaction. When you want to minimize your tax obligations, you may turn to an accountant for strategies to implement. It might sound logical enough, but if each professional only sees a portion of your financial picture, you’re not benefiting from an efficient and harmonized action plan.

Assign a leader

While it may make sense to use the services of professionals in specific fields, it’s wise to appoint one of them as your “quarterback” who will coordinate your overall plan to ensure a holistic approach rather than working in isolation.

Typically, the quarterback is your advisor, given that advisors are highly involved in both everyday finances and long-term wealth planning. Advisors have a comprehensive view of your financial life and everything that feeds into it, plus they are integral to helping set and achieve your various goals. On the other hand, external resources are usually consulted on an as-needed basis.

Open the lines of communication

Since it’s important for each professional to be aware of what the others are doing on your behalf, transparent communication is key. Keeping everyone informed is critical as major life events take place (e.g., marriage, children, buying/selling a business, divorce, inheritance). For example, if you get divorced, your lawyer might be required to amend your will, your insurance needs could change and your personal budget may have to be reworked. Or, if a family member unexpectedly suffers a terminal illness, you have weighty estate and insurance issues to consider, and you may also face new financial challenges.

It doesn’t matter whether you take it upon yourself to spearhead communication efforts or leave it to your advisor. The main thing is to get everyone on the same page as soon as your circumstances change, to determine what actions must be taken.

If the professionals you rely on don’t know each other, it may be helpful for them to meet (virtually or in person) so they can discuss where each of them fits into your overall financial affairs. Even if they know each other, it’s valuable to bring them together to share information and insights, or to identify complex issues that may require coordinated planning and a group solution.

When you work with a team of professionals – with an emphasis on “team” – that has your best interests in mind, it means you can benefit from greater efficiencies and harmonized planning. It may also help uncover new opportunities to save or earn money, bringing you closer to achieving your financial objectives.

Get in touch with an iA Private Wealth Investment Advisor today to learn more about how a team-based approach can help you achieve all your financial goals.

Post

Make the Most of Your Inheritance

read

By iA Private Wealth, June 22, 2021

As baby boomers age, we’re seeing more wealth being transferred between generations than ever before. Maybe you’ve just received an inheritance and the money has been deposited into your account.

Now what?

The best next step is to consult with your Investment Advisor, who can suggest how to allocate your inheritance in a way that makes the most sense for your circumstances.

Addressing your financial goals

Before meeting with your advisor, give some thought to the following common goals so you can hold a productive conversation. Also think about your goal priorities so your advisor understands what’s most important to you.

  1. Pay down debt. Whether it’s reducing the balance on your credit card or line of credit, or pouring extra money into your mortgage payments, paying down debt is a practical use of your inheritance. Start with the debt that charges the highest interest rate, then the second-highest rate, and so on.
  2. Build your retirement savings. You can work towards retiring comfortably by contributing (subject to limits) to your RRSP or TFSA. If your workplace has a pension plan or share purchase plan that permits additional contributions – which the company often matches to some extent – consider taking advantage of it.
  3. Save for education. The cost of post-secondary education, especially if the student lives away from home, continues to rise. An investment vehicle like the RESP can help fund a child’s education and, when you add in any qualifying government matching and grants, you’ll be better positioned to save for future schooling.
  4. Create an emergency fund. A rule of thumb is to put aside at least three months of living expenses in case you lose your job, become seriously ill or face unexpected maintenance costs (e.g., your furnace stops working or vehicle breaks down).
  5. Invest. Putting a portion of the inheritance into your investment portfolio may be an effective strategy for growing long-term wealth. This is another area where your advisor – who knows your investment objectives, risk tolerance and time horizon – can add value.

If you decide to spend some of your inheritance on something that’s for pleasure and not related to your wealth plan, just be sensible about it and remain committed to your goals.

Importantly, there’s no inheritance tax in Canada, unlike many other countries. Taxation takes place at the estate level on the deceased’s final tax return, based on the value of assets that comprise the estate.

Educate heirs about wealth management

If you’ll be leaving an inheritance but are concerned your heirs might be irresponsible with their “windfall,” suggest that they learn about financial basics. Using an inheritance sensibly is a way to respect the person who provided it. Without the ability to handle money, they could squander their inheritance quickly.

In addition to any financial knowledge you pass along, your heirs can learn from courses and other educational means. It’s also good to introduce them to your advisor if they don’t have one, as advisors are familiar with intergenerational wealth transfers and working with families to build and preserve wealth.

If you recently received an inheritance or want to encourage your heirs to manage their inheritance wisely, an iA Private Wealth Investment Advisor can help.

Post

CPP & RRIF Income: Thinking Outside the Box

read

By Erin Gendron, May 20, 2021

Most new clients coming into our practice hold two very common assumptions about retirement income.

The first is that any time you can defer paying tax, you should, and that means holding off on converting your RRSP into a RRIF until the statutory deadline – the end of the year you turn 71. If this is not possible, you should minimize your RRIF payments to the greatest possible extent by relying on other sources of income.

The second is that as soon as you qualify for Canada Pension Plan (CPP) payments – age 60 – you should start taking them.

While this approach may be suitable for some, for many people – particularly those with significant savings and potential for longer-than-average life expectancy – acting on these assumptions would mean leaving a surprisingly large amount of retirement income on the table.

Bucking conventional wisdom

Instead of taking CPP payments early and RRIF income late, many would benefit from doing the exact opposite: delaying CPP until age 70 – or as close to age 70 as possible – and starting RRIF payments well in advance of the conversion deadline to meet cash flow needs.

When you take CPP before age 65, your benefits get cut by 0.6% a month, or 7.2% per year. This means that if you start taking CPP at age 60, you’ll see a total reduction of 36%. By contrast, if you start taking CPP after age 65, your benefits increase by 0.7% a month, or 8.4% a year, which means that delaying for as long as possible – to age 70 – boosts your CPP payments by a startling 42%.

A recent study put a dollar figure on this difference, explaining that “an average Canadian receiving the median CPP income who chooses to take benefits at age 60 rather than age 70 is forfeiting over $100,000 (in current dollars) worth of secure lifetime income.” Despite this, over the past decade most Canadians began taking CPP at age 60, with fewer than 1% holding off until age 70.

Let’s take a look at a hypothetical, but very typical, example to illustrate how this powerful insight can be integrated into a tailored, holistic retirement income plan.

Case Study: Bob & Judy

Long-time neighbours Bob and Judy both plan to retire at age 60 after decades of hard work and diligent saving. In addition to a $30,000 annual pension, they each have $500,000 in RRSP savings and both are eligible for $1,100 in monthly CPP payments at age 65. A $4,500 net monthly income ($54,000 annually) would allow them to live the retirement lifestyle they each envision for themselves.

Bob and Judy have nearly identical financial circumstances, apart from one very important detail: Judy has an Investment Advisor, while Bob does not.

CPP: Worth the wait

Bob begins taking his CPP benefits as soon as he retires. Like most people, he’s focused on the short term and concludes that since he’s eligible to have that extra money in his pocket, he may as well take it. He receives $704 per month ($8,448 annually), which is well below the $1,100 he would have received had he waited until age 65 and less than half of the $1,562 he would have pocketed had he waited until age 70.

Bob enjoys a very fulfilling retirement and passes away at the end of his eighty-seventh year. Overall, he collected $312,000 in CPP income (pre-tax) over his 27 years of retirement.

Judy takes a very different approach. At the suggestion of her advisor, who always encourages long-term thinking, she delays her CPP payments until age 70. For the income she needs until that time, she makes withdrawals from her retirement savings. Once Judy turns 70, she begins collecting $1,562 in monthly CPP benefits ($18,744 annually), which her advisor points out is 42% higher than what she would have received had she started taking CPP at age 65.

Like Bob, Judy enjoys a fulfilling retirement and passes away at the end of her eighty-seventh year. Over the course of her 27-year retirement, she collects $487,000 in CPP income (gross).

Bob’s lifetime loss for taking CPP early is $175,000 (the difference between Judy’s $487,000 and his $312,000). This loss becomes particularly important when we consider that Bob had a 45% chance of living to age 95, which would have significantly increased his cash-flow needs.

RRIFs, death & taxes

Judy had to rely on higher RRIF withdrawals to meet her income needs in her early retirement years, while Bob took more modest withdrawals to meet his after-tax income goal. What impact does this have over the long term?

Assuming equal rates of return, at age 70, Bob’s RRIF is valued at $444,000, while Judy’s is $336,000. Importantly, however, at age 70, Judy’s income needs are met with her increased CPP income, and as a result her RRIF withdrawals can be saved in her TFSA and non-registered account for future use.

Fast-forward to age 87, Bob’s RRIF is now worth $256,000. Approximately $137,000 in taxes will be payable on this amount by his estate, leaving a net estate value of $119,000.

At age 87, Judy’s RRIF is worth $222,000, while her TFSA and non-registered account have grown to $85,000, for a total of $307,000. Estate taxes of $117,000 leave a net estate value of $190,000, which is $71,000 more than what Bob was able to leave to his loved ones.

Final thoughts

As is often the case in life, the most common way of doing things isn’t necessarily the best way. And so it is with retirement income planning.

For many, delaying CPP and relying more on RRIF withdrawals during the early years of retirement can result in more income overall, a lower lifetime tax bill, and a larger bequest to loved ones and charities.

As with all aspects of wealth management, your best course is to speak with a specialist – an Investment Advisor with expertise in holistic financial planning – to learn which approach to retirement income is most appropriate for your personal financial circumstances.

Erin Gendron, CFP® is an Investment Advisor and Financial Planner at CrossPoint Financial, iA Private Wealth in Ottawa, Ontario. She can be reached at (613) 228-7777 or erin@crosspointfinancial.ca

Post

Understanding Fees

read

By iA Private Wealth, May 27, 2021

Many people invest because they believe it’s a good way to achieve their financial goals. They also know that getting professional financial advice can help them invest better.

If you’re working with a financial advisor (or considering it), you should understand how advisors are compensated. The topic of fees can be complicated, but we’ll stick to the basics.

There are three main forms of advisor compensation: a commission-based model, a fee-based model or by salary.

Commission-based. Advisors working in this structure receive compensation when their clients buy or sell an investment (e.g., mutual funds, exchange-traded funds or stocks). The commission they earn may depend on the investment type, the dollar value of a trade or other variables. Advisors may also receive ongoing compensation from fund companies in relation to the funds their clients hold (more on that later).

Fee-based. Advisors working in this structure earn a fee based on the value of assets they manage on a client’s behalf. Even if a client makes many trades and frequently uses certain advisory services, the fee charged remains a prearranged percentage (e.g., 1%) of the value of assets being managed. Sometimes the fee percentage declines as a client’s assets increase.

Salary. An advisor working for a bank or credit union will often earn an annual salary plus a performance-based bonus. Salaried advisors provide value to clients but may not hold the same industry licencing as commission- or fee-based advisors, which may narrow the range of services they can offer.

Some advisors are compensated through a mixed structure. For example, they may charge a flat fee for creating a financial plan and earn commission on trades they execute for your account.

Management expense ratio (MER)

If you invest in mutual funds, segregated funds or ETFs, you’ve likely heard about MERs. They’re calculated as a percentage (e.g., 2%) of fund assets and deducted from the value of your investment. MERs are used to compensate fund managers and dealers, and to pay related taxes.

Fund manager. This is the firm that operates the fund you invest in. They set the fund’s strategy and objectives, and employ portfolio managers who decide what (and when) to buy and sell, in order to help enhance fund returns and manage risk. They also provide administrative duties like recordkeeping, as well as legal, accounting, audit and custodial services. For these important duties, fund managers earn a portion of the MER.

Dealer. This is the firm where your advisor is registered. Dealers maintain account records, produce and deliver account statements, and provide the technology for online account access. Dealers also ensure their investment advisors meet all regulatory requirements. Part of a dealer’s MER allocation (also called a “trailer fee”) typically goes to the advisors responsible for client-oriented tasks like planning, portfolio construction and monitoring, and trade execution.

Taxes. A portion of the MER is used to cover federal and provincial taxes charged on fees and services related to the fund manager and dealer.

Client Relationship Model 2 (CRM2)

Implemented in 2017, an industrywide initiative known as CRM2 obliged dealers to provide clients with a personalized annual report that summarizes charges and compensation related to a client’s account. This report is designed to be transparent and is written in straightforward language. For a better understanding of fees (e.g., what you pay and where the fees go), check your personalized annual report.

To learn more about the costs of investing, speak with an iA Private Wealth Investment Advisor.