The Building Blocks of Financial Literacy

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By iA Private Wealth, November 10, 2021

November is Financial Literacy Month. It’s a great initiative, but in reality, every month is a good time to learn about personal finances. As you gain more knowledge, you’ll become a better saver, spender, consumer and investor.

Being financially literate touches almost every aspect of life. This article will consider some of the basics, giving you a foundation in case you wish to learn more about topics that are most relevant to you.

It can pay to shop

The world of financial products is more complex than ever, given the growth of online platforms. With so many financial institutions and so many products to consider, it can be overwhelming.

Before making a decision, shop around and weigh your options. Let’s say you want to open a bank account. Conduct an online search and learn what services each bank provides and what features each account type offers. Do you require a physical branch nearby, or will you do most of your banking virtually? Based on your circumstances, determine which account best meets your needs.

Similarly, credit cards come in all shapes and sizes, so shopping around can help you find the card with the features, rewards, fees and interest rates that work for you. Shopping around for the right mortgage is also crucial because purchasing a home is a major long-term financial commitment. Since mortgage rates and conditions vary by institution, careful shopping can make a big difference over the long run.

Know your rights and responsibilities

To satisfy regulatory requirements, financial institutions use clear, plain language in their contracts and other documents. For instance, banks provide easily understood information about their credit products, while investment managers publish materials like a Simplified Prospectus and Fund Facts document that highlight a product’s key features and risks. You should read these materials before signing any agreement, as understanding all terms and conditions will ensure you know what you’re getting into.

If your financial institution experiences insolvency, there are safeguards to help protect your money. For example, the Canadian Investor Protection Fund (CIPF) provides clients with limited protection for assets held by investment dealers that are CIPF members. Similarly, the Canada Deposit Insurance Corporation (CDIC) provides limited protection for eligible deposits held at CDIC members, such as banks, credit unions and trust companies.

Watch for scams

Protecting assets is the responsibility of every individual. Fraud and cybercrime are on the rise, targeting those who are vulnerable or careless. Scammers may call, email or text you, posing as a someone from a recognizable company or government agency. They often use aggressive tactics and threats that pressure you to provide banking or credit card information. If you question the identity of someone claiming to represent a legitimate organization, get their name/contact details and call the organization to confirm.

The Financial Consumer Agency of Canada (FCAC) ensures that federally regulated financial organizations comply with the appropriate measures to protect consumers. The FCAC also provides information to help you understand consumer rights and responsibilities, as well as how you can spot and avoid scams.

Understanding investment products

Everyone wants to build wealth for the future, but there are many investment products to choose from – and some are highly complex. Your advisor can help you choose products that best match your investment objectives, time horizon and risk tolerance.

If you don’t have an advisor, do your research as there are many options. Some people try investing on their own, but usually lack the necessary time and expertise. Others may use “robo advisors” that offer lower fees but typically provide limited services. For most investors, it makes sense to work with a professionally accredited advisor – one who offers personalized advice that can help them stay on track to meet their long-term financial objectives.

An iA Private Wealth Investment Advisor can help you navigate the financial marketplace as you work to achieve your wealth goals. Speak with one today.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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How to Pass on the Family Cottage

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By iA Private Wealth, May 4, 2022

Canadians adore their escapes from the city. And what’s not to love? Not only is a cottage a great getaway, bringing joy to families and friends for generations, it’s also proven to be a profitable investment for many who purchased their property decades ago.

It may be hard to believe, but this cherished home away from home that has brought your loved ones together over the years can also cause strain on family relationships in the future. When you pass away, an inherited cottage often becomes a source of sibling friction as disagreements arise about how to share it, whether to sell it and what to do about the capital gains that’s accrued on it. That’s because, unlike a principal residence, which isn’t subject to capital gains, second homes are considered investment properties, and capital gains tax is owed when an estate is transferred from parents to children.

The only way to avoid the tax — and only for a finite amount of time — is to roll over the deed to a spouse, as you would with an RRSP or RRIF. That’s not possible to do with children, so eventually, taxes must be paid.

There are four main strategies for passing a secondary property like a cottage to the next generation:

Gift it now instead of later

A popular way to deal with the capital gains tax conundrum, especially if you only have one child, is to gift the cottage to them while you’re still alive. Doing so means you can pay capital gains based on the property’s value today, which makes sense if its value keeps rising.

To minimize the capital gains tax burden from the transfer, you may want to consider stretching out the gift over five years. Keep in mind that doing so might push your annual income into a higher tax bracket each year, instead of just once. And that means the government may claw back income support like Old Age Security.

Don’t forget about renovations

Capital gains tax is calculated based on the adjusted cost base of the property. That means you can count any major renovations you’ve made to the property over the years. This raises your “starting” purchase price and reduces the gain you’ve made, so you may be able to reduce your taxes. As always, it’s best to speak with an advisor and a tax professional to decide if this option makes the most financial sense.

Consider life insurance

Purchasing a life insurance policy that covers future capital gains your heirs will have to pay once you’re gone is another option. The policy may even be set up to cover other taxes — like those payable on the disposition of your RRSP, RRIF and other taxable investments. Finally, with enough life insurance, your children could also have enough to fund ongoing maintenance on the property.

Sell it

It’s worth having a frank discussion with your children about what they may want to do with the cottage after you pass on. Parents often assume their kids will want to keep it in the family, but the reality is that many children would either prefer to buy one for their own spouse and children or aren’t interested in the upkeep once the property becomes their responsibility. Another possibility is that one child may be more attached to the cottage and want to preserve its legacy while another may prefer instead to inherit some other portion of your estate.

If you decide to sell, you may choose to do so while you’re still alive or you can stipulate in your will that the property be sold after your death, with taxes and transaction costs paid by your estate and the remaining funds shared by your heirs. While selling it may be emotionally difficult for you and your family, it may also be the most straightforward solution.

Interested in finding out more? Contact us for seasoned advice on all your estate planning questions.

Stay in Control of Your Future Through Powers of Attorney

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By iA Private Wealth, April 29, 2022

Being prepared for whatever life circumstances you may experience is at the core of a comprehensive wealth plan. This includes making plans for potential mental or physical incapacity. Once your wishes are formalized, it can bring you, and your family, peace of mind knowing that your decisions will endure if you are unable to communicate them.

What is power of attorney?

Most adults are responsible for making their own decisions about key aspects of their lives, such as personal finances, health care and living arrangements. When needed they might consult family members, trusted friends or professionals with proficiency in certain fields, but generally they are in control of their own choices.

No one likes to think about the possibility of having to give up control of these responsibilities, however, if there is a significant deterioration to mental or physical health, who would you want making these decisions for you? This person (or people) will act as a substitute decision maker, and is officially called a power of attorney (POA).

A POA document specifies the decision-making authority that a person (typically referred to as the “grantor” or “donor”) gives to a third party (known as the “attorney”). Note that the attorney doesn’t need to be a lawyer, but can be if the grantor so chooses. While the attorney is legally obligated to act in good faith and in your best interests (otherwise known as “fiduciary duty”), careful thought must go into choosing this person. They will have the ability to make highly impactful decisions on your behalf.

It is important to note that a POA document is different from a will. A POA is only valid while you are alive. After death, your will dictates how your estate should be handled and distributed.

Types of POAs

Depending on your personal circumstances, you may choose to make different types of POA arrangements. The most common are:

  • POA for property. This allows the attorney to make decisions regarding your financial matters, such as managing your investments and other financial accounts, paying your bills, renewing policies, implementing estate planning strategies and selling property.
  • POA for personal care. This allows the attorney to make decisions regarding your health care, such as medical treatments, hygiene, personal safety and long-term care or other housing arrangements. It helps ensure continuity of care, guided by your principles and preferences.

A POA for property only gives the attorney powers when the grantor is mentally capable. If you want this arrangement to continue should you become mentally incapacitated, then opt for an enduring POA (also known as a continuing POA). A POA for personal care takes effect only if the grantor becomes mentally incapacitated, as determined by a thorough assessment by a qualified evaluator or medical professional.

For any POA, you have the ability to place limits on the attorney’s powers, such as restricting them from selling your home. Also note that an attorney is not allowed to designate or change beneficiaries for your registered plans or insurance policies.

Importance of beneficiary designations

Since your chosen attorney cannot designate beneficiaries, it’s important to do it while you maintain adequate mental capacity. This way, you’ll have the comfort of knowing that your assets will be distributed to the people you have specifically selected. Through your will, you may also decide how your assets are distributed (for example, it’s common to set up trust accounts for minors).

Without named beneficiaries, your assets will go to your estate and the court may decide how to allocate them. This might be a slow and expensive process, plus there’s no guarantee your assets will be distributed as you desire. It’s in everyone’s best interest to designate beneficiaries on insurance policies and registered plans like RRSPs, RRIFs and TFSAs.

Similarly, if you don’t have valid POA documents, the court will appoint someone to manage your assets if you become incapacitated, which can also be time consuming, costly and not aligned with your wishes.

Ready to incorporate POAs in your wealth plan? Contact us today.

Client Focused Reforms: Putting Clients First

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By iA Private Wealth, April 25, 2022

Finding an Investment Advisor who provides unbiased, professional advice is foundational to a successful relationship. Securities regulators recognize this important aspect of the investor experience and continue to enhance regulations that focus on building trust.

Over the years, improved disclosure, reporting and fee transparency have refined the overall client experience. In 2021, Client Focused Reforms (CFRs) were introduced to help ensure that clients are the top priority in a client-advisor relationship. As the Canadian Securities Administrators (CSA) continues to implement new rules that put clients’ best interests first, we welcome these efforts to uphold a consistent and high standard of care for clients.

Conflicts of interest

Reforms implemented last year require registered dealers and the advisors who work for them to inform their clients of any conflicts of interest that may arise. The CFRs place the onus on dealers and advisors to explain in clear and straightforward language what these conflicts of interest might be and how they will address them in the best interests of their clients.

An example of a potential conflict of interest would be if an advisor is in a position to earn higher compensation for selling a certain type of product, or where the dealer might stand to receive a greater benefit, such as “proprietary” mutual funds managed and operated by the firm.

With the rollout of the CFRs, the advisor needs to prove the chosen product is truly in a client’s best interests and is most appropriate for their particular circumstances – even if a similar, lower-cost solution is available. The advisor must document this discussion and any decisions emanating from it, with justification as to why the recommended product is most appropriate. Many advisors have already been doing this in their practice, but now there’s a universal framework to formalize the process.

Suitability of investments

Advisors continue to be responsible for determining if an investment is suitable for a given client, and the CFRs help them accomplish this important task. The advisor can gain greater insights into each client through an enhanced Know Your Client (KYC) document. An advisor uses the KYC to gather an expanded range of information about a client’s financial situation, risk tolerance, time horizon and investment objectives, while making a reasonable effort to keep the KYC updated in a timely manner as a client’s circumstances change.

Also, the Know Your Product (KYP) requirement ensures that advisors maintain strong knowledge of any securities they recommend and buy/sell on behalf of their clients. Factoring into an advisor’s recommendation is the robust understanding of a product’s primary characteristics, risk potential and total costs (and how, over time, those costs may impact a client’s return on investment). The dealer firm is required to implement specific procedures and controls to properly assess and monitor any investment security available to clients.

Enhanced disclosures

Upon opening a client account, dealers and advisors must deliver enhanced information to give clients a sound understanding of their overall offering. This information includes disclosing which products and services might be available (or unavailable) to the client, how advisors are compensated, what types of costs the client may incur through their ongoing relationship, and what specific responsibilities the dealer and advisor have when serving clients and managing their accounts.

The measures contained within the CFRs help to educate clients, inform their investment decisions and keep their interests at the forefront. While it involves additional time and effort for the dealer and advisor, there isn’t any action required on the part of the investor. For iA Private Wealth, the CFRs are a welcome development as they reaffirm our longstanding commitment to meeting the highest standards of integrity, transparency and professionalism.

We’re proud to focus on our clients’ best interests as we help them achieve their financial goals. If you have any questions about these changes, reach out to your advisor directly or contact us today.

Millennials & Retirement: Redefining the Future

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By iA Private Wealth, March 30, 2022

It may be hard to imagine, but older millennials are celebrating their 40th birthday this year, while the younger part of the cohort is turning 25. As millennials make their mark on the workforce, they are also redefining the way we think about retirement.

Our grandparents and great-grandparents subscribed to an ideal notion of retirement: build your career at one organization, retire at 65 and receive your coveted defined-benefit pension plan – where years of service guaranteed a steady retirement income. Add to this the equity from your home, and you’re set for life.

But times have changed. Defined-benefit pensions are now very rare, and home ownership is out of reach for most millennials. The result? These traditional sources of retirement income are hard to come by.

At the same time, millennials are also reconsidering what it means to retire. They don’t necessarily want their grandparents’ retirement – many will choose to remain active in the workforce in some capacity, not only out of financial need, but also for societal enrichment and personal satisfaction. As conventional thinking on retirement evolves, so too will the way millennials plan for it.

New challenges, new opportunities

Many millennials are either just establishing themselves in the workplace or firmly putting down roots for family and career. What is clear for everyone is that the workforce is changing quite dramatically. While there was evidence of a shift before the pandemic, we are witnessing its acceleration with “The Great Resignation” currently underway. Employees are finding better opportunities with other companies, taking time off and even working for several employers (in the office, remotely or a mix of both). Entrepreneurship, either full-time or as a side hustle, is also an emerging trend.

Without the comfort that relative job security brings, millennials will find that saving and planning for retirement is more complicated. Add to this the likelihood of a longer lifespan – thanks to advances in health care – and this means millennials may have to save more than their parents did.

Looking at it another way, these are actually positive changes – millennials will have greater flexibility around when and how they spend their mature years, and there is good reason to believe they will be much healthier during retirement than any other generation.

The value of advice

If you’re a millennial, it’s never too early or too late to take what will likely be the most important financial step of your life: partnering with a skilled and trusted advisor. Here are three important ways an advisor can help you achieve your retirement goals:

  1. Develop a strong retirement plan. Although it may be decades away, creating a plan today will help you achieve your goals down the road. Start by having a conversation with an Investment Advisor who has experience creating comprehensive, realistic wealth plans.
  2. Encourage retirement saving. The earlier you start saving for retirement, the more you can benefit from the power of compound growth. An advisor can implement effective strategies, including pre-authorized contribution plans, to help you save regularly for the future.
  3. Invest for growth. A skilled advisor will build a portfolio around your unique time horizon, risk tolerance and financial goals. Your advisor can also develop strategies to help you stay disciplined over time – decreasing the chances of emotional decisions that could erode your returns.

Keep in mind these are just the basics. Retirement plans are as unique as you are and should be designed that way. Contact us today to learn how an iA Private Wealth Investment Advisor can help you plan and invest for a long and prosperous retirement.

Why Share Your Notice of Assessment?

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By iA Private Wealth, February 22, 2021

It may have taken some time and effort, but you managed to complete your income tax return for another year. While most of your work is done, you’re not quite finished yet.

After the Canada Revenue Agency (CRA) reviews your tax return, they will send you a Notice of Assessment (NOA). Go through it carefully and also think about sharing it with your Investment Advisor. Before we consider the main reasons why, let’s look at the basics of the NOA.

What is a Notice of Assessment?

The NOA is an annual statement that the CRA sends (through the mail and/or electronically) after you file your income tax return. It will state whether you received a refund or had an amount owing, and will provide the exact figure. If a balance due remains outstanding, you should pay it promptly to avoid additional interest charges.

The NOA is also an itemized tax assessment. It will list details from that specific tax year, such as your income, deductions, credits and tax payable (both federal and provincial). If you made an error when filing your return, CRA will correct it and provide an explanation of the adjustments they made. The NOA will also indicate your RRSP contribution limit for the next calendar year, as well as the dollar amount of unused net capital losses (if any) from previous years that you may apply to reduce taxable capital gains in the future.

An advisor can help decipher your NOA

As you can see, the NOA is a practical and informative snapshot of your finances for the past year. When you read through it, enhance your overall understanding of the types of income you generate and your primary sources of tax relief. Take note of any mistakes or incorrect calculations you may have made, so you can avoid them when filing future tax returns. You may also wish to meet with your Investment Advisor to share your NOA.

An advisor has the experience and relevant skills to review your NOA with a critical eye and offer specific advice regarding matters you might be unaware of. Maybe you missed capturing some deductions or credits that would lower your income tax payable or increase your tax refund. If you donate to charities, an advisor may recommend – depending on your financial situation – that you donate securities instead of cash, or defer claiming donations to a future tax return in order to maximize your tax savings.

An advisor may also uncover opportunities to adjust your investment portfolio to increase tax-favourable capital gains and dividends while reducing income generated from interest, which is taxed at your highest marginal rate. Advisors are trained to develop and execute tax-efficient investment strategies so you can reduce the amount you owe each year. They may also collaborate with other professionals* in their network, such as an accountant or tax specialist, to help build a tax-smart plan that is customized for your unique financial circumstances.

It’s also valuable for your advisor to know how much unused capital losses you have from previous years, as it may impact decisions on selling securities in the future that may trigger capital gains. Knowing your RRSP deduction limit for the upcoming year will help your advisor create or revise your strategy regarding how much to contribute. Your advisor may help you take advantage of a pre-authorized contribution plan so you can automatically contribute a set amount to your RRSP on a regular basis (e.g., monthly) rather than try to make a large annual lump-sum contribution.

We can support all your wealth planning needs and help you manage your finances in a tax-effective manner. Contact us today.