CLU'd In

thoughts on the CLU: underwriting the financial risks attached to a client’s “life"

Advocis — Fri, 04 Sep 2009 13:20:56 GMT

I had the occasion to revisit a December ’08 posting of Greg Pollock’s in the message board and came across a question about the CLU designation’s importance, relevance and name brand. A challenge was presented about the name and its apparent reference to insurance to the exclusion of other contemporary values and expertise that a professional financial services designation should stand for. The perception is that it’s one-dimensional, outdated, antiquated and irrelevant.

Some would argue that the term Chartered Life Underwriter is misleading. The term isn’t misleading. It is in fact quite accurate. The challenge is that the words within it are also ambiguous. And those whose agenda is to downplay the CLU for their own interests (i.e. competing designations) are intentionally exploiting this ambiguity to the uninformed. The uninformed, because they don’t know any better, are buying into it. We don’t need to change the name; we just need to explain the words beyond their current understanding.

Here’s my slant on it for consideration. What do the letters in the CLU designation stand for?

Chartered Life Underwriter is NOT the same as Chartered “Life Insurance” Underwriter. There is a perception that because Life Underwriter is part of the term, it automatically refers to the field level underwriting process behind life insurance. This perception is pervasive in the market and understandably so. Because of this ambiguity, inappropriate assumptions are made to the meaning of the words. Clear up the inappropriate assumptions by changing the slant and you change its perception. Change its perception and you change its value. There’s a reason why it’s called “Life” Underwriter and not “Life Insurance” Underwriter.

A CLU professional underwrites the financial risks attached to a person’s “life”, not the financial risks and obligations attached to that person’s life insurance. This includes the risks attached to an individual’s savings habits, investment strategies, pension programs, retirement income needs, human behaviour influenced through the emotions of greed and fear, investment risk profile, approaches to income protection, long-term care planning, challenges that come with a critical illness, estate wants & needs, lifestyle security, business dependencies, family obligations, wealth transfer, taxpayer responsibility, hopes & dreams.

A CLU professional’s value does not revolve around the sophisticated understanding of insurance products. A well constructed insurance program obviously plays an important role in a person’s security but it is not the whole meal deal. The professional CLU has the competency to handle the whole meal deal – which is a consumer’s entire financial “life” – hence the term Chartered Life Underwriter.

—Rick Johnson, CFP, CLU, CH.F.C., CSA, CFSB

important notice for current & future CFP students

Advocis — Sun, 30 Aug 2009 18:48:46 GMT

Not too long ago, the Financial Planners Standards Council (FPSC) has officially announced changes to its Certified Financial Planner® certification program, which take effect July 1, 2010.

Anyone planning to write the CFP certification exam in November 2009 or June 2010 should consider this preparation course.should consider prepping with Course 5 of the CFP® Education Program from Advocis® and CCH

If you fit one of the following categories, Course 5 can help you get the knowledge and confidence to succeed:

· you hold a CLU® designation

· you hold an approved prior credential

· you’re currently an in-stream CFP student

· you’re planning to take another attempt at the CFP certification exam

Click here to learn more.

originally posted August 4, 2009

time for our summer break -- and yours, too!

Advocis — Sun, 30 Aug 2009 18:45:38 GMT

We’ll be taking a little break from the CLU blog for the next couple of months or so, but be sure to look around in the archives for stuff about regulatory affairs, professional designations , etc.

Have a safe and happy holiday and we’ll see you back in early August!

originally posted May 15, 2009

some good news on the rhu

Advocis — Fri, 28 Aug 2009 18:07:27 GMT

spring is coming!

and that means it's time for you to think about signing up for the Registered Health Underwriter designation. keep your eyes on your e-mail inbox, or go to www.livingbenefitsrhu.ca to learn more

originally posted March 27, 2009

Update on regulation: the OSC, IIROC & the MFDA

Advocis — Fri, 27 Feb 2009 21:50:54 GMT

Advocis standing firm on behalf of financial advisors and planners

The Ontario Securities Commission (OSC) has been garnering a lot of attention in the financial press lately, much of which is not particularly complimentary. And the recent request by the Ontario Legislative Assembly's Standing Committee on Government Agencies for submissions on how to improve services means that the level of buzz is climbing fast.

You can be sure that many submissions focus on introducing better policing power to deal with securities crime, including stronger methods of both detecting and deterring fraud. Indeed, the concept of expanded investigative and enforcement powers has been strongly advocated for at the national level, with much op-ed commentary calling for the introduction of a properly funded and independent Canadian securities crime regime, to tackle both the occasional rogue individual as well as systemic, larger-scale investment fraud.

What's behind this drive for a stricter regulatory regime? Many high-profile observers and analysts have concluded that self-regulatory organizations (SROs) like the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) cannot adequately monitor for illegal activities, much less provide either the OSC or the police with the information they need in order to act effectively.

Another body of critical comment asserts that the OSC and SROs like IIROC and the MFDA—both of which fall under the aegis of the OSC—are guilty of unilaterally introducing rules and regulations which wrongly penalize your typical financial advisor or planner.

That's why, in its submission to the Standing Committee on Government Agencies, Advocis recommended that the OSC and SROs adopt a uniform and consistent procedure before introducing new regulation, to better understand and lessen the impact of their actions on compliant individual advisors and planners:

We recommend the government impose requirements on the OSC and the SROs to ensure that before implementing any new major regulatory requirement that it develop a clearly articulated statement of the problem that the regulation is meant to address... Failure to identify problems that clearly require intervention, and failure to assess the impact on market participants and consumers in relation to the likely benefits, has led to ill-conceived regulatory initiatives.

In regard to IIROC's implementation of the financial planning rule, Advocis submitted that:

The proposed IIROC rule is an example of SRO regulation that is skewed in favour of large dealers with an employer–employee business model and is severely prejudicial to smaller, professional financial planners. This is also an example of an inadequate consultation process. The proposed rule was issued for comment in the summer of 2008 with a very short response turnaround timeline and without prior consultation with financial advisors.

At a time when consumers of financial services so obviously require the widest possible range of choice in selecting qualified financial advice, the OSC, the MFDA and IIROC are moving ahead with tighter and tighter rules-based regulatory initiatives. Their commitment to prescriptive, rules-based regulation tends to favour larger organizations which have the deep pockets needed to comply with such regulations. However, it is the consumer-responsive and fully compliant but smaller advisory practices which will increasingly pay the price for this style of regulation.

The paradox is that such a regulatory approach ignores or even conflicts with the basic principles which underwrite the mandates of organizations like the MFDA and the OSC. In specific, some of these basic principles which are now in harm's way include foundational concepts such as ease and security of consumer access to necessary services and the ability of the individual to freely choose from the widest range of competent service providers. What's more, in their broadest sense, these principles inform not just the raison d'êtreof our financial regulatory regimes, but also underpin the very basis of our system of political economy. At time when the ability of these organizations to enforce rules and ensure compliance are being called into question by experts near and far, it seems both impolitic and even short-sighted to introduce yet more rules and regulations until enough of the stakeholders arrive at a consensus of what's broken, what needs to be fixed—and, most important of all—what we are certain that we can and should fix.

Lipson, Part II: Singleton shuffle still on the dance card

Advocis — Fri, 30 Jan 2009 17:25:54 GMT

The Supreme Court of Canada dismisses the appeal of Earl and Jordan B. Lipson and upholds Tax Court's earlier decision that they breached the general anti-avoidance rule or “GAAR.”

Converting equity into deductible debt: what the Court said
One of the more comforting conclusions offered by Lipson is that the Supreme Court once again confirmed the general principle that interest on investment loans is tax-deductible.

Also of particular importance to advisors is the fact that the Court explicitly stated that the Lipson’s ploy is to be distinguished from the transaction at issue in the 2001 Supreme Court Case of Singleton, where the interest was ultimately found to be properly tax deductible.

You’ll recall that in Singleton, a partner in a law firm borrowed money that he had built up in his law firm capital account and used it to pay off his mortgage. He then borrowed that money back to pay off his capital-account loan at the firm and sought to deduct the loan interest. The Canada Revenue Agency challenged the transaction, but lost at the Supreme Court.

Moreover, in Singleton neither GAAR nor spousal attribution rules were issues before the Court, further reinforcing the conclusion that the Lipson decision should not affect financial planning which strictly derives from the fact pattern in Singleton.

But what of Lipson’s impact on the larger issue of debt-swap strategies generated from the Singleton decision—which are commonly referred to as the "Singleton Shuffle"? These are strategies based on the proposition that one can arrange one’s financial affairs in a tax-efficient manner and make one’s interest on investment loans tax-deductible.

The law, as all advisors know, is that interest on a loan for commercial purposes is deductible. This means that investors may borrow money to acquire income-producing assets, such as shares or rental property, and then deduct that against income. However, when loan money is used for a personal purpose, like purchasing a house in order to live in it, no deduction is permitted.

As you know, this is where Singleton-style planning comes in, with its plethora of strategies designed to capitalize on interest deductibility. These strategies are used many Canadians who own non-registered assets: typically an advisor suggests they sell these assets and use the resulting proceeds to pay off their mortgage. The investor then gets a loan secured by his or her new home equity, and uses the loan for the purpose of earning investment income from a non-registered account. The result that interest on the loan is fully tax-deductible. This strategy of “shuffling” assets converts non-deductible mortgage interest into a deductible investment loan.

It seems safe to say, according to the text of the Lipson ruling, that Singleton shuffles are still permissible and will not invoke the application of the GAAR. In specific, the Court’s opinion was that the Canadian Revenue Agency:

has not established that in view of their purpose (the interest deductibility) provisions have been misused and abused. Mrs. Lipson financed the purchase of income-producing property with debt, whereas Mr. Lipson financed the purchase of the residence with equity. To this point, the transactions were unimpeachable. They became problematic when the parties took further steps in their series of transactions.

The Court found that both borrowing for the shares and the purchase of the house were "unimpeachable." The Court further found that the Income Tax Act’s interest provisions were not "misused and abused." Indeed, it was only the "spousal twist" and the reliance on the attribution rules that made the Court find the transaction to be abusive under the GAAR.

In other words: Singleton-style debt-swap refinancing still appears to be perfectly legal, minus the Lipson twist.

Further impact on advisors, planners and clients
Obviously Lipson is a key decision for tax planners, since it further refines the area of what constitutes acceptable tax planning that began in Singleton.

Whenever the Supreme Court rules on a matter of direct relevance to financial services professionals, a certain amount of uncertainty is bound to result. Indeed, the Court noted that:

the GAAR may introduce a degree of uncertainty into tax planning, but such uncertainty is inherent in all situations in which the law must be applied to unique facts … [but] the GAAR is neither a penal provision nor a hammer to pound taxpayers into submission. It is designed ... to restrain abusive tax avoidance and to make sure that the fairness of the tax system is preserved.

What is certain is that the Court’s decision in Lipson must be carefully considered in all financial planning strategies involving interest deductibility, and especially when spousal loans are proposed.

Looking ahead, the fact that the Supreme Court split 4-3 in a ruling that the Lipsons’ tax-planning strategy was sufficiently abusive to be captured by the GAAR will contribute to a further lack of certainty for advisors and planners involved in sophisticated debt swap schemes and family members.

The bottom line? For advisors and their clients, the decision is both good and bad, The positive side is that your clients can still borrow money against the equity in their homes and use the proceeds to invest in, say, the market, and reap the benefit of tax deductible interest. The negative side is that the case may mean it is now easier for the Canada Revenue Agency to invoke the GAAR, with further uncertainty in providing advice and planning the end result.

The full text of the Supreme Court’s decision in Lipson v. Canada is available here.

Lipson, Part I: Supreme Court says 'no way' to Lipsons

Advocis — Fri, 30 Jan 2009 17:21:19 GMT

Unlike the Singleton case, here the Court looks at the general anti-avoidance rule

The Supreme Court of Canada dismisses the appeal of Earl and Jordan B. Lipson and upholds Tax Court's earlier decision that they breached the general anti-avoidance rule or “GAAR.”

Most advisors and planners now know that on January 8, 2009, the Supreme Court of Canada released its decision on the Lipson appeal.

Here’s the decision, in brief:

Earl Lipson and his wife Jordana Lipson entered into an agreement of purchase and sale for their family residence. Jordana borrowed $562,500 from a bank to finance the purchase of shares in a family corporation. She paid the borrowed money directly to her husband who then transferred the shares to her. Lipson and his wife then obtained a bank mortgage for $562,500. Later that same day, they used the mortgage loan funds to repay the entirety of the share loan. For a three year period—1994, 1995 and 1996 (justice moves slowly!)—Lispon deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income whenever applicable. However, the Canadian Revenue Agency disallowed the deductions for those taxation years and reassessed the Lipson accordingly. The Tax Court of Canada dismissed the Lipsons' appeals (Lipson’s brother had also performed a similar set of transactions), ruling that the transactions constituted a misuse of ss. 20(1)(c), 20(3), 73(1) and 74.1 of the Income Tax Act and the taxpayers’ appeals were dismissed. The Federal Court of Appeal upheld that decision and at long last the case reached the Supreme Court of Canada.

In a 4-3 split, the Court dismissed the Lipson's appeal and confirmed the application of the general anti-avoidance rule or the GAAR to the transaction at issue. The Court noted that that there was no dispute regarding the general tax deductibility of interest expenses under s. 20(1)(c) and s. 20(3) of the Income Tax Act.

Rather, it was the spousal issue which caused the Court to rule that GAAR was applicable:

It has long been a principle of tax law that taxpayers may order their affairs so as to minimize the amount of tax payable. However, this principle has never been absolute, and Parliament has enacted the ... to limit the scope of allowable avoidance transactions while maintaining certainty for taxpayers...

The Court focused on was how the Lipsons handled the transfer of shares.

After determining that the GAAR did apply, the majority of the court found that the use of the attribution provisions of the Income Tax Act was abusive. In particular, the use of the attribution provisions let Lipson reduce his income tax from what it would have been had he and his wife been dealing at arms-length—that is, the rules resulted in a tax benefit to which Lipson would not have otherwise been entitled.

The Court reasoned that the series of transactions did not become problematic until Lipson and his wife turned to the spousal attribution rules, which resulted in Lipson applying his wife's interest deduction to his own income. That is, the attribution rule was used by Lipson to permit him to in effective deduct his wife's interest expenses—something he could not have done if he and his wife were not married. And therein lay the problem, for the Court found that the purpose of the attribution rule is to prevent spouses from reducing tax by attempting to use to their advantage their non-arm's length relationship when transferring property between them.

Before the shares were transferred from Lipson to his wife, dividends on the shares were taxable and Lipson could not deduct any interest expense. After the sale of the shares to Mrs. Lipson, income on the dividends was still taxable back to Lipson—but the employment of the attribution rules to the Lipson's advantage meant that the interest expense could be claimed by Lipson—a situation that frustrated the purpose of the attribution rules and therefore qualified as “abusive tax avoidance."

The GAAR's application was the focus of the appeals and was the proper basis for the reassessments of the transactions. These transactions are caught by the GAAR. Courts should avoid extending the GAAR beyond its statutory purpose. But, bearing this purpose in mind, where the language of and principles flowing from the GAAR apply to a transaction, the court should not refuse to apply it on the ground that a more specific provision—one that both the Minister and the taxpayers considered to be inapplicable throughout the proceedings—might also apply to the transaction.

Finally, in determining the tax consequences of the GAAR's application under s. 245(5), courts must be satisfied that an avoidance transaction has been found under s. 245(4), that s. 245(5) provides for the tax consequences and that they deny the tax benefits that would flow from the abusive transactions. Courts must then determine whether these tax consequences are reasonable in the circumstances. In the present case, the disallowance of the interest expense in computing the income or loss attributed to the taxpayer and allocation of that interest deduction back to his wife is a reasonable outcome.

In the next posting we’ll look at the specifics of the Court’s decision and what it means for advisors and planners moving forward.

Time for the Advocis Psychic Friends Network?

Advocis — Tue, 27 Jan 2009 21:13:20 GMT

Brits turning to the paranormal for financial advice

A few days ago the National Post ran an article by Ben Leach entitled “Turning to a Psychic for Financial Clarity,” which noted that:

Psychics are reporting a big increase in business from wealthy professionals seeking advice on how to survive the credit crisis. Bankers and accountants who formerly put their faith in spreadsheets and complex formulas are now turning to clairvoyants for guidance. Many are even taking in job offers and contracts to be analyzed.

According to the British Astrological and Psychic Society (BAPS), the economic downturn has prompted a “dramatic increase” in the demand for psychical and astrological readings in last three months.

The story quotes a London “clairvoyant,” Jayne Wallace, on who is behind this rise in seeking the opinion of the other-worldly and the occult.

We're getting lots of city workers, particularly men, coming in for readings. A surprising amount of my clients are very high-up, wealthy, important people from within the financial industry. They might be worried about losing their job or a lot of the time they're asking about whether it's right to get out of the finance industry altogether.

BAPS President Jackie Towers states that this is “a difficult time for a lot of people and it's our job to put them at ease—to give them that bit of guidance or clarity that they are looking for."

While we couldn't agree more with Ms. Towers' sentiment, we are concerned about the lack of accreditation and continuing education for her members, not to mention insurance... after all, how many of them warned us about the U.K.'s LIBOR market freezing? (Not that we're calling their abilities into question, but we're just saying...).

For the entire story at the National Post, click here. For an expanded version of the story from the U.K.'s Telegraph, click here.

How do you want the future of the CLU to look?

Advocis — Fri, 23 Jan 2009 20:49:09 GMT

A Mack truck is closing in on you quickly and you can now count the number of bugs on the grill.

Here’s the question you have a split-second to ask yourself: Is it too soon to get out of the way, or should I stand fast?

Now let’s freeze that Mack truck for a moment.

Stephen Covey, author of The Seven Habits of Highly Effective People, offers the following insight: “Don’t engage the research if you are not prepared to go where it leads.”

The CLU Institute has a Mack truck closing in on the CLU designation. The marketing research we’ve conducted within Advocis’ demographic data tells us that—as of June 2008—there were 761 members who are eligible to register for CLU program courses.

Now some will argue “That is not possible?” (They may be some of the same folks who may argue that the earth is flat).

As we all know, Advocis membership is a necessary condition for obtaining and maintaining the CLU designation.

When Advocis membership was a condition of employment in the agency system, there was no membership problem. But Advocis has not had a similar source of membership growth for the last decade. Within Advocis the number of CLU members and CLU designees holding the CLU has remained strong, constant and consistent.

The average age of the CLU designate is 61. This means no new market opportunities have emerged, which leaves the current market niche disabled, retired, successioned or dying.

What does this mean? Well, there is a possibility of 10 or so years of life left in the CLU brand. But there also exists the possibility that the brand as we know could eventually be vapourized.

What if the Institute could market the CLU designation to non-members of Advocis?

Doing so would require changing the pricing, licensing and membership rules—to name just a few of the speed bumps.

Right now in this country there are some 14,500 CFP designates who are not members of Advocis. This represents a lucrative niche market that would immediately be eligible for the CLU Designation.

That’s why, throughout 2009, the CLU Institute will conduct research which will include analysis, price modeling, legal requirements and further investigate the members/non-member issue.

This is your blog. The CLU Institute would love to hear your thoughts, pros and cons.

Ask yourself this: How do you want the future of the CLU to unfold? What should it stand for?

That Mack truck is bearing down on us.

I welcome your feedback.

Richard McKenster, CFP, CLU, CH.F.C., RHU

Advocis, advisors & planners, and Dwight Duncan

Advocis — Tue, 20 Jan 2009 19:51:17 GMT

Regulation and the upcoming provincial budget

The current issue of Investment Executive has an article by Megan Harman which outlines Advocis’ position on the need to reduce the regulatory burden faced by advisors and planners in Ontario.

You’re probably aware that Advocis is urging Ontario Finance Minister Dwight Duncan to use this year’s provincial budget as a platform to deal with the regulatory hurdles advisors and planners face.

Advocis’ pre-budget submission to Duncan made the case for the Ministry of Finance to increase its oversight of provincial regulators, especially in regard to the regulation financial advisors and planners routinely experience, as well as the need to protect Ontario consumers with regulation that does not adversely affect their ability to access competent and efficacious financial planning and advice.

Greg Pollock, Advocis president and CEO, is quoted at length in the article:

We are not asking for a handout or a subsidy… Our members simply want to do business in a regulatory environment that not only protects the public, but also ensures that advisors and planners are not hampered by unnecessary and inefficient regulation…

In addition to smart regulation—not one-size-fits-all regulation, we need to see more and better proof of the need for additional regulation. Our members see the regulation but seldom see any indication of an understanding of the size of the problem the regulation is intended to address. A cost-benefit analysis from the regulator about the benefits of protecting the consumer against the increased burden of compliance costs to the financial advisor or planner would go a long way.

Smarter regulation that’s backed by a convincing cost-benefit analysis in the consumer interest: we can think of no better time that the right now for this concept to gain purchase in the Ministry of Finance’s offices. For the moment, we will await Duncan’s budget and see what he does.

Click here for to read the entire article online at Investment Executive.

On General Motors, volatile markets & financial advice

Advocis — Wed, 26 Nov 2008 21:35:46 GMT

“What’s good for General Motors is good for America”

This famous statement, said by General Motors' president Charles E. Wilson:

a) might have been true, once upon a time, but is true no longer.

b) was and is still true… indeed, now more than ever.

c) is, whether true or not, largely irrelevant to savvy financial advisors and their clients.

Before we answer this question, let’s look at a bit of history. In 1953, during his Senate confirmation hearing to serve President Eisenhower as Secretary of Defense, Wilson was widely reported by the press to have said: “What's good for General Motors is good for America.” Since that time the line has been quoted far and wide to illustrate the hubris and greed of corporate America.

However, what Wilson actually said was: “For years I've thought that what was good for our country was good for General Motors and vice versa." Well, fair enough, one supposes—just another way of saying that the fate of the U.S.’s major corporations is inextricably linked to the economic well-being of the nation as a whole. And in 1953 that was largely true.

But is Charles Wilson’s observation true in today’s economy? After all, the slow demise of the North American auto industry over the last 25 years or so largely coincides with a period of overall economic prosperity.

To bail, or not to bail—that is the question…

General Motors now carries a market capitalization of just $3.6 billion (and remember that it had a market high of $52 billion just eight or nine years ago. The last time that GM’s market cap was $3.6 billion was in 1929 (!), in the months leading up to the Great Depression.

Meanwhile, as we all know by now, the news for the Big Three of Detroit, Windsor and environs keeps getting worse. Earlier this year J.D. Power stated that the global auto market may experience an "outright collapse" in 2009 due to the lack of available credit and the general economic downturn. And the recent refusal of Washington and Ottawa to dole out money at this stage of the game doesn’t bode well.

So if and when General Motors fails, some will undoubtedly herald it as a tipping point or, more precisely, the point of no return for North American manufacturing.

But others currently assert that we’re already there, that at some point in the last decade or so companies like General Motors went from “too big to fail” to “too big to bail,” and so the transition is now complete from the investing for the long haul in the blue chips of yesteryear to today’s ongoing scramble of value investing and the fine-tuning of sophisticated risk diversification products (excluding, of course, the much riskier and off-the-books varieties of asset-backed commercial paper, etc.).

Obviously, the demise of any of the Big Three would be a severe blow to the U.S. and Canadian economies. Equally as obvious is that throwing good money after bad won't help much, either. Perhaps only one thing is clear at this point—that if any or all of the Big Three are to survive, they must not be allowed to do so based on a “business as usual” approach.

…or perhaps the real question is how to restore confidence?

In recent weeks, governments around the world are taking unprecedented steps in their efforts to maintain the solvency of their nations’ financial institutions. But the reforms necessary to restore the person-on-the-street’s faith in the financial system remain to be executed. In Canada, our financial services industry would not be likely to avoid a possible revamping of the global financial industry by way of bolstered regulatory regimes, stricter board oversight and reinvigorated shareholder activism.

But such institutional reforms, whether implemented on the international stage or here at home, may not address the fundamental problem, which is how many of our clients and the public at large seem to see the market. It could be that many of us in North America have bought into the belief that we are entitled to perpetual economic expansion and ever-rising stock markets—without the concomitant market contractions.

If that’s so, then financial advisors and planners need to reinforce the basic rule of the properly functioning market: those investors who take risks in the pursuit of profit not only reap their rewards but also face the consequences when things go awry. Our grandparents certainly understood that ours was a culture in which risks and downturns are a financial—perhaps even a societal—norm.

For their part, advisors may want to re-emphasize to their clients that a good portion of their portfolio is focused on firms whose business objectives are closely aligned with the long-term interests of their shareholders; perhaps by directing greater attention to how sustainable, long-term corporate value is created, we can help our clients avoid the psychological effects of market uncertainty.

In the next post, we’ll take a deeper look at what advisors can do in this present phase of market volatility.

Want a diversion from ongoing market turbulence?

Advocis — Fri, 07 Nov 2008 21:37:19 GMT

If you're looking for a distraction from manic markets, then try some light—or no so light—reading…

A little while ago we were both intrigued and entertained by a column of Jonathan Chevreau’s entitled “Survival Strategies—Some Advice to Get Your Mind Off the Market.” Mr. Chevreau offered some ideas about how to divert one’s mind from the ongoing issue of market losses and the painful impact on one’s portfolio. One of his suggestions was reading:

Fiction: If you've not read a good novel lately, this may be a good time to re-enter the "fictive dream." Immerse yourself in the world of the imagination, whether it's a thriller by Dean Koontz, an old-time Travis McGee detective novel by John D. MacDonald or a horror story from Stephen King.

Well, those authors represent one way to go—a kind of benign escapism. But there’s another approach one could take—to confront the problem head on. For instance, pick up some Tom Wolfe, like The Bonfire of the Vanities or A Man in Full.

While most business fiction is little more than the hackneyed cliché of the honest and honourable working man pitted against the monolithic and conscienceless corporation, Tom Wolfe offers something much deeper—and funnier.

Indeed, when it comes to business fiction, one could argue that only Wolfe manages to capture the spirit of modern capitalism, as well portraying its crowning glory in action: the nuances of high finance which tug and pull the levers of our current economy. Populated by financiers, bankers, lawyers, developers and other professionals, Wolfe’s novels show what happens when great wealth and power in the business sector run up against human vanity and foolishness.

For those who want to read portrayals of business written in a more realistic vein, the venerable tradition in American letters of “high realism” is replete with stories illustrating the dynamics of establishing, developing and managing businesses.

Theodore Dreiser’s magisterial Trilogy of Desire is comprised of The Financier, The Titan, and The Stoic—three novels inspired by the remarkable life of one of America’s first tycoons, Charles Tyson Yerkes. Each novel reads well on its own, but combined as a trilogy they form a brilliant and unstinting portrayal of what it takes to get to the top and stay there in an era of largely unregulated free markets, a time when people believed “the business of America is business.”

Frank Norris, The Octopus: A California Story describes the business raising and selling wheat in California, and the conflict between the growers and the railways. Its sequel, The Pit, shows the machinations of wheat speculation and the dog-eat-dog action in the commodities trading pits at the Chicago Board of Trade Building, as well as the efforts of a tycoon to corner the world market.

Upton Sinclair, The Jungle. A classic of the novel-as-reportage genre, this muckraking story about the Chicago meat-packing industry forced the passage of both the Pure Food and Drug Act and the Meat Inspection Act in 1906. But be warned: the passage in which a workman falls into—and never emerges from—a vat may put you off hot dogs for a while.

For something more contemporary, there’s Canada’s Douglas Coupland, whose satiric novels about the workplace, such as Microserfs, have captured the zeitgeist of the modern big company workplace. His latest, JPod, shows us the lives of the smart and creative younger generation who work in the high-tech business, and how companies function—or don’t function—when they are staffed by people who on confront every day the fear of suddenly losing their jobs and who make their business decisions based on conformity to social norms, not to the business plan. (Plus the Vice President of Marketing turns out to be a befuddled and imbecilic heroin addict—but surely that part is just meant to be satiric?)

For those looking for more comedy to lift their spirits in these dire days, readers may want to locate a copy of Max Barry’s novel Company, which is about intra-departmental squabbling at a large holding company. The story begins with someone in the training sales department taking an extra donut at a morning meeting, thus leaving a colleague without his expected doughnut. Or did Food Services mess up the doughnut count? Whoever is responsible must be identified and fired… from that point on, things start to go very badly for all involved.

For anyone who has ever worked in—or wondered about—the working world of office cubicles, Company shows the curious effects these cubes have on people’s speech patterns, personalities and world views, and Barry has a keen eye for the absurdities of the constant jockeying for position among middle management.

Now, those of a more downward bent of mind—particularly those who don’t see the global economy getting better any time soon, may want to brace themselves for a grimmer future by reading any or all of the following books:

John Steinbeck, The Grapes of Wrath (the Great Depression forces dirt-poor families to migrate from Oklahoma to California, with much hardship along the way).

James Howard Kunstler, World Made by Hand (nuclear war and economic collapse result in a world with no oil, no automobiles and no industrialized production, so everyone reverts back to an 18^th century standard of living).

P.D. James, Children of Men (the human race becomes infertile, society slowly collapses, what to do! Now a movie, too).

Cormac McCarthy, The Road (a post apocalyptic nightmare in which the only food people have is in tins—or each other! A film based on the book is coming soon to a theatre near you).

Finally, for the time being, it would be best for advisors and planners—and anyone else who sells for a living—to avoid Arthur Miller’s Death of a Salesman—the title says it all!

Do Not Call List—Part III

Advocis — Fri, 31 Oct 2008 20:41:39 GMT

Some final thoughts on telemarketing and preliminary ones on Web marketing for financial pros

When it comes to do-not-call lists and consumer registries, the experience in jurisdictions outside of Canada is that businesses will adapt fairly quickly and employ other media to reach consumers who don’t want to receive telemarketing calls. Further, most businesses do continue to use telemarketing, but on a smaller scale.

Anecdotal evidence indicates that telemarketing actually becomes more effective for some companies as they’re able to concentrate their efforts on target groups who are more receptive to telemarketing.

The same result is expected to obtain in Canada. In an interview with the CBC, Wally Hill, Vice President, Public Affairs and Communications for the Canadian Marketing Association, observed that the new Do Not Call List (DNCL) rules might lead to an initial "downturn" in telemarketing while business adjusts to the new legislation. However, Hill believes that the DNCL will eventually make for more productive marketing efforts, since "They will not be making dead-end calls to people who don't want to receive them. There will be more focus on existing customers." So, as we discussed in Part II of this series, those advisors and planners with the wherewithal will still find telemarketing to be a profitable endeavour.

Looking ahead: Social network marketing and younger audiences

Giving the amount of noise and clutter one’s marketing efforts have to cut through, it’s no surprise that that tech-savvy marketers are using social networks to complement or, in some cases, even drive their marketing campaigns—especially when targeting younger generations.

In one case south of the border, a now famous—or infamous—Atlanta mortgage broker named Kal Wayman posted a commercial video for his services on YouTube. Wayman's company, F1rst Discount Mortgage, is licensed in several states, including California. (I won’t bother linking to Kayman’s videos, since he uses bikini-clad women; his tag line is “Putting the Vice in mortgages advice.”) Every video Wayman posted, whether on YouTube, MySpace or other venues, quickly generated thousands of hits and dozens of postings, many disapproving, but many more laudatory, especially from those explicitly identifying themselves as under 30 years of age.

The bottom line? The majority of comments on Wayman’s videos reflect a consensus that ironic viral marketing with an edge works.

Sites like MySpace.com let users build free profile pages—which typically contain personal information and photographs. Users then ask another user to become a "friend" and link to their page. After they’re linked, the users or “friends” can post comments on each other's pages. For example, in MySpace the Wendy's mascot is listed as having more than 81,000 "friends"—MySpace users who have linked to this cartoon character’s page and posted comments. Similarly, anyone who has seen Volkswagen’s recent TV commercials featuring the engineer named “Helga” may not be too surprised to learn that she too now has her own MySpace profile.

What can a financial advisor or planner do?

Obviously large corporations have the money to budget for paid profiles of fictitious characters on social-networking sites. But professionals can post their own profiles on these platforms, as long as they don’t become so overtly commercial that administrators seek to remove them.

So what a practitioner needs to do is create a profile that has a sense of realness and authenticity, and doesn’t contribute to the cascade of commercialism that’s beginning to appear on social networking sites. The content should try to personalize the advisor and his or her team, outline services provided and specialized practice areas of expertise, and, above all, be interesting!

And while the goal of marketing profiles is to draw in other users and convert them to “friends" and to generate buzz, one must accept the risk that not all of the buzz will be positive. Paradoxically, negative comments and feedback tend to make social media profiles appear even more genuine.

A final note: the Canadian Marketing Associations’s Code of Ethics states that marketers should not disguise the purposes and agents of their communications. So always be upfront about who you are and what you do.

Down the road…

Social utility sites are still developing new applications and functionality at a rapid rate. To reach younger markets advisors should become familiar with what’s out there—and anyone with children likely has an in-house expert at hand. As for regulation, just remember: where there’s a will there’s a way. One hopes that we are still a few years away from calls for a government-run "Do Not Text or SMS" registry…

The Do Not Call List—Part II

Advocis — Tue, 21 Oct 2008 20:40:22 GMT

In light of the DNCL, other ways to market your practice

By this time we all know about the CRTC’s new Unsolicited Telecommunications Rules and the National Do Not Call List, and by now you should have consulted some of Advocis’ very useful explanatory pieces. Please be sure to read and become thoroughly familiar with Advocis’ comprehensive centrepiece on the DNCL, entitled Special Report, The Do Not Call List, September 2008.

As well, be sure to have visited our free Continuing Education Session: The National Do Not Call List—What You Need to Know, which reviews the impact of the new DNCL rules on the advisor’s practice and the pursuit of new business opportunities in light of the new rules. It’s worth 1 Ethics (Technical) CE credit upon successful completion of a quiz.

As you likely know, two years ago the issue of launching Do Not Call List (DNCL) rules began to emerge as a major issue before the Canadian Radio-Television and Telecommunications Commission (CRTC).

Since that time, Advocis has continually acted in the best interests of Canada’s financial advisors and planners, as well as the public. Advocis’ efforts have helped ensure that the voice of our membership is heard and our position advanced in an effective manner.

With that said, I’d like to offer some thoughts about what one might consider doing if one’s practice previously included telemarketing as part of its marketing mix.

But first a word of caution: before contacting anyone on the DNCL, be sure to think about it from the point of view of the CRTC—that is, ask yourself what your real motivation on contacting this person is: if it's really a sales call, then that's a violation!

try offering helpful information by way of mailing lead cards

If you have the budget for it, you may wish to mail out what marketers call a “lead card.” For example, you send prospects a flyer on, say the upcoming Tax Free Savings Accounts (“TFSAs”), and ask that the recipients return to you the enclosed postage-paid reply card for free information on TFSAs. Be sure to explain clearly in the reply card that by returning the card the recipient understands that he or she is giving you express consent to call them about the product or service at issue. Then, when your prospect sends back that card, he or she has given you the permission you need to call them, even if the prospect is on the Do Not Call list.

Obviously launching your own direct mail campaign could be time-intensive and costly, so it’s not advisable unless you’re targeting a smaller, higher-end group about a product or service that strikes you as highly suitable for your audience (or if you happen to have very deep pockets!). That’s why you might want to try our second alternative to the DNCL:

e-mails, not phone calls

Consumer surveys have shown repeatedly that a majority prefer e-mail to telemarketing. And when you have prospects on the DNCL, you can be sure they’re not fans of telemarketing. Plus online marketing offers you benefits telephone calls don’t:

a. e-mail marketing is precise: a properly written e-mail can eliminate any chance of “human error” on your part, so you’ll never get caught off guard by an objection or question and you have total control that your message is correct and reaches the right target market.

b. e-mail messaging is easy to segment into groups: i.e., if you want to propose TFSAs to your clientele, you can send out e-mails to young people promoting the use of a TFSA from the position that they can put money into it, and save their RRSP room for later on, when they’re earning more. And then you can send a different e-mail to your retired clients indicating that TFSAs are a way to protect extra income and ensure their benefits are not clawed back. The result is that each group receives a tailored message that’s stripped won so it speaks to them, without wasting their time on unnecessary words.

c. e-mail enables you to “stay in touch” with your clients and prospects. If a prospect “opts-in” to receive e-mail from you, you can legally send periodic e-mails on new services and products — or anything else you might wish to tell them. For example, to keep your practice “top-of-mind” among your higher-end prospects and clients, you could try an online newsletter.

d. e-mail doesn’t hurt your bottom line: Have you ever asked yourself how much it costs you to cold call? Have you ever calculated your cost per close? E-mail lets you decrease your costs to close a sale and, if done properly, can increase your response rates and overall sales. In short, your ROI with e-mail can be much more lucrative than what you’ve gotten in the past from cold calling.

e. Online marketing can be visually appealing, telemarketing can’t: If you’re willing to put the time into it, or hire someone to do the technical work for you, you can send out e-mails with full color graphics, informative charts. And links to product sites, such as the company whose service or product you’re proposing to your prospects.

f. And finally, you can always ask your e-mail recipients to send back an e-mail indicating that they’d like to talk to you over the phone in more detail about the product or service you have in mind for them. Prospects can give you a time to call them – or they can call you – on their own terms and at their own timelines.

Next time: some thoughts on the future of financial advisors and planners marketing efforts.

Blogging season is back!

Advocis — Tue, 21 Oct 2008 20:36:52 GMT

Well, the summer holidays are over, the kids are back in school—thankfully they're bogged down with homework—and we are now busy getting ready to dress up as vampires, monsters, etc., for Halloween (I myself am going out as a government regulator)... and so I am now back, as is CLU’d In, your CLU Blog!

The Do Not Call List — Part 1

Advocis — Sun, 17 Aug 2008 22:36:10 GMT

Ready for the National Do Not Call List?

What do you know about the new rules?

The Do Not Call List (DNCL) legislation, passed by the Liberal government in late 2005, establishes stringent new telemarketing rules and creates a national DNCL registry (along with the requirement that telemarketers fund it, not participating consumers or the taxpayer at large).

Basically we’ve all heard something about the Canadian Radio-television and Telecommunications Commission (CRTC)’s new Unsolicited Telecommunications Rules and the National DNCL which will come into effect on September 30, 2008, but if your practice includes telemarketing as part of its marketing mix, there are certain details you absolutely need to know — with fines for corporations of up to $15,000 for each violation and fines for individuals of up to $1500 for each violation, plus the potential for bad publicity, all advisors must understand what the new legislation means for them.

Some top-level issues you must consider

the national DNCL becomes effective on September 30, 2008
the new rules may affect the way you prospect for new customers
how to determine if the type of telemarketing you do is exempted from the NDCL Rules

The upshot for advisors

In short, for the purposes of DNCL, a telemarketer is someone who uses a telephone or fax machine in an effort to solicit business. So if you’re in the habit of “cold calling” potential clients, or use the phone or fax machine to follow up on a personal referral for the purposes of selling your products or services, then you must register as a telemarketer. Furthermore, before you make a phone call or send a fax, you will have to check the DNCL to ensure that your prospect’s telephone or fax number is not registered.

How the new DNCL rules will work

· The registry: The process is fairly simple. If someone doesn’t want to receive telemarketing calls, he or she registers for the do-not-call list by calling a toll-free number or going to a website. There they can register a land line, a mobile number and a fax machine, to a maximum of three numbers per person.

· Telemarketers: they will be required to register to the National Do Not Call list (there is no fee to register) and subscribe to the list and pay subscription fees.

· Internal Do Not Call List: Telemarketers are required to maintain their own Do Not Call List.

· Restricted Hours for telemarketing: CRTC telemarketing rules will restrict calling hours from 9 am to 9:30 pm on weekdays and 10 am to 6 pm on weekends. The rules will also require telemarketers at the onset of the phone call to identify themselves and the purpose of the call.

· The complaints process: Once someone is in the registry, if they receive a call from am non-exempt telemarketer, they’ll have 14 days from the date of a call to file a complaint with the National Do Not Call Operator. The date and nature of the call, and the phone number of the telemarketer, are necessary for the filing.

· Complaint Investigation: The National Do Not Call Operator will make an initial assessment of the complaint before forwarding the complaint to the CRTC for investigation and enforcement. The CRTC can issue a Notice of Violation and impose a fine for a corporation of up to $15,000 for each violation and a fine for an individual of up to $1,500 for each violation.

· Registration by a consumer of a telephone or fax number on the do-not-call list will be valid for three years. It will be up to consumers to re-register if they want to when that period runs out.

Blanket exemptions from the registry

Certain types of telemarketing calls are exempt from the DNCL and include calls:

made by or on behalf of registered charities
made for the purpose of elections or campaigns by political candidates and political parties
for market research when the call does not involve the sale of a product or service.
Call for subscriptions to newspapers of general circulation
to a business
to an existing customer

Exemptions: where advisors fit in…

Fortunately for advisors, calls based on an existing business relationship with a consumer are exempt. This means that you are allowed to call a someone if they purchased a product or service from you within the past 18 months, or if they made an inquiry to you about a product or service within the past six months, or if they have an existing written contract, or had a contract with you which expired within 18 months of the call.

As well, organizations that obtain "express consent" from consumers will also be able to make telemarketing calls.

In Part II…

So that’s a big-picture introduction to the DNCL; the next installment will focus on some of the more important issues for advisors in terms of marketing an advisory practice.

What would Bozo do?

Advocis — Sun, 20 Jul 2008 14:20:24 GMT

Scientific insight into “know your client?

A recent post on the Psychology Today blog entitled “The Evolution of Economic Rationality: Do Monkeys Understand Money?” looks at how we, along with other primates, think about concepts like value, utility and money.

Now consider a problem advisors encounter: that of the client who refuses to act in his or her own self-interest. Call it weakness of the will, a refusal to face facts, or simply a desire to live for today, tomorrow be damned, we all know people mismanage their money even though they obviously know better. Here’s a perfect illustration of what I mean, in a comment posted by reader hank_j a couple of months ago, in response a post called Canadians failing to sock away extra cash:

my problem is that while many of my middle-aged clients have finally gotten the message that they should have started saving in their twenties, they now feel that being in their 40s means its TOO LATE to reap the power of compound interest so they figure they'll keep on spending and leave the rest to government pensions. And that's the roadblock I hit with them and have to work on getting through. Does anyone else have this problem?

Well, to answer hank_j’s question, yes, zoological research scientists have this problem!

As the Psychology Today blog reports:

…studies have shown that monkeys take any handout above zero that is offered to them in a version of what, in humans, is called the Ultimatum Game. In the Ultimatum Game, one person is designated the Proposer (who thus offers the ultimatum) and the other becomes the Responder (who decides whether to take it or leave it). The Proposer offers an amount of money to the Responder out of a total amount that the Proposer has been given by the experimenter - usually this is $10. The whole game involves the Proposer offering the Responder an amount, which the Responder has the option to accept or reject. Accept the split and both sides get what was offered; reject it and both sides get no money at all. This obviously not an evenly matched game. The Proposer has the power to make the ultimatum. All the Responder can do is either take whatever is offered or say no, which is costly to both players.

When humans play this game, the Responders will sometimes refuse offers that they deem too low. Depending on the person and the circumstances, people tend to refuse offers below 20% of the total. Monkeys, however, have no such scruples, and will take anything above zero.

The report then observes:

Yet another way of looking at it is to suggest that monkeys are actually pretty smart. Economists continue to scratch their heads at the results of studies with the Ultimatum game. They assume that people are basically oriented to maximize their own profits. If you and someone else worked equally to earn $100, and that person has the power to divide it and chooses to offer you only one dollar while keeping $99 for himself, well, you are still better off with one dollar than with nothing.

Which is in fact what one would expect to happen.

But now consider the report’s surprising conclusion:

Hence economic rationalists find it slightly scandalous that people ever refuse any offer. Economists think that if people were true to financial logic, they would act more like monkeys….Thus, when monkeys play, they behave as economists would have humans do - they accept any offer above zero (emphasis added).

But what about saving for retirement? Most scientists say there’s not much evidence that animals plan far into the future, but then again, how many Canadians plan ahead for their futures? Recall hank_j’s words:

many of my middle-aged clients … now feel that… its TOO LATE to reap the power of compound interest so they figure they'll keep on spending and leave the rest to government pensions.

Isn’t this behaviour scandalous too? Isn’t the idea that it is now “TOO LATE” to start saving of a piece of the thinking that concludes —as illustrated in the Ultimatum Game—with the refusal to accept anything lower than 20% of the possible total?

Obviously people have a more complicated understanding of utility and value than a monkey: people refuse to take 20% or less because of reasons of self-image and equity, in addition to the money’s use value.

But when we’re talking about retirement, we’re talking about the biggest Ultimatum Game most of us will ever play: after all, for most of us, once we stop working, that’s it—there’s no more new income coming into our retirement account. So regardless of where we are now on our life’s journey, isn’t the only sensible thing to start saving before it really is “TOO LATE”? Or is this just all monkey business? Share your thoughts, please!

Get ready to offer TFSAs in 2009

Advocis — Sun, 20 Jul 2008 14:18:46 GMT

Potential value-add to client relationships

A recent article by Mark Noble on www.advisor.ca, “Client relationships the big win in TFSA planning,” reviews the results of a recent research study on the tax-free savings account (TFSA), which becomes available next year. Noble concludes that while advisors shouldn't anticipate a significant amount of revenue generation from TFSAs, the new product should made available to an advisor’s clients as a value-added service.

The recently-released TFSA Market Assessment, from Harris/Decima research, contains the results of Canada-wide polling (sample = 2,500) which reveal the possible short-term reaction of Canadians to TFSAs. Noteworthy among the results are the following items:

Canadians appear eager to open TFSAs, with more than 50% stating that they “will likely open one next year”
however, only 3% of respondents said they knew a "great deal" about TFSAs, with 95% of them averring that they "know only a little" about or have "absolutely no awareness" of TFSAs
87% of those planning to invest in a TFSA will leave the money in cash or a cash equivalent, like a high-interest savings account or a GIC
just 39% of those intending to open a TFSA will use it for equity products
fully 28% of Canadians with an RRSP reported that next year they will invest less in their RRSPs to free up money to place inside TFSAs

That last statistic indicates quite clearly that advisors will have work to do by way of explaining to clients that the RRSP and the TFSA are best used in a complimentary—and not a competitive—manner.

Indeed, this is the area that Noble sees as the chance to add some cement to the advisor-client relationships: TFSAs represent for advisors a chance to show clients the usefulness of their advice, since advisor guidance can prove to be the main driver in bridging the tremendous gap between the public’s interest in TFSAs—recall that the majority of those pooled said they wanted to open a TFSA—and their knowledge of them.

However, the initial $5,000 cap on a TFSA means that the advisor’s profit from opening a TFSA will be quite modest. That’s why the advisor should see that his or her real return on opening a TFSA lies in augmenting the advisor/client relationship.

In addition, a major surprise of the report, according to Bob Murphy of Harris/Decima, lies in how the older population thought of TFSAs:

One of the things we found sort of surprising is that, in part, seniors didn't see this as applicable to their own needs. When we looked at verbatim comments, we saw many say this is great for young people. They were projecting its value on others as opposed to seeing its value for them… When you look at the opportunity for seniors, who are required to draw money from RRIFs and LIFFs, they may not need to spend all of that money. This allows them to park it in a more tax-efficient space. Although the return is negligible in the immediate term, any of those earnings in a TFSA will not affect their OAS. Many of them don't understand that.

Again, the role for the advisor in terms of providing counsel and education on this issue is apparent.

Finally, it's worth asking how the general population will react to TFSAs, given the current economic situation. "It's fairly clear that in the short term, the easy spot to put… money is going to be high-interest savings accounts that are TFSA-structured, given people's strong cash orientation right now," Murphy says.

For Mark Noble’s entire story on TFSAs and the Harris/Decima study, please click here.

“There will be casualties”

Advocis — Fri, 04 Jul 2008 17:03:21 GMT

Or, professionalism and the fee-based practice

In our last post we looked at some recent comments by David Wingar and reported Neil Acharya in Investment Executive. Wingar is an independent financial advisor who heads Future Asset Management LLP in Bridgend, Wales. Speaking at the Million Dollar Round Table’s annual meeting in Toronto, Wingar offered attendees some very hard-nosed and, for some, hard-to-swallow commentary.

One thing that struck home was how unapologetically Wingar seems to see maximizing one’s receipts as the sine qua non of financial advising. Indeed, as reported by Acharya, Wingar “was motivated to switch to a fee-based system after he got fed up with not getting remunerated for everything he did.” Or, in Wingar’s own words:

It’s not about commissions or fees, it is about getting paid. As a professional person, if I give advice, I expect to get paid. A lot of the advice I give might not end up with a product, which is the old way of getting being remunerated in financial services (sic).¹

Isn’t this a highly reductive understanding of professionalism: one that sees payment as the prime motivator, and perhaps the sole one?

Indeed it is. After all, won’t Wingar’s call for advisors to follow his model result in an “advice gap,” one which means that the less well-off, those who need financial advice the most, but who can least afford the fee-for-service model, will find it harder to get the service they need?

Wingar himself seems to sense this, in his blunt remarks about the bottom-line effects of advisors transitioning to fees-based practices that target the well-heeled, the entrepreneurial and the deep-pocketed corporations: “There will be casualties, but if I go shopping at Wal-Mart, I don’t tell them what price I want to pay, they tell me.”

Is the possibility of an “advice gap”—between those who can afford the fees-based model and those who can’t—developing sometime down the road a real one? If so, what would it mean for the majority of Canadians?

And what about the idea that seems to lurk behind Wingar’s practice model—that the concept of “being a professional” is essentially a mere proxy for maximizing one’s profits?

Isn’t a requisite part of “being a professional” to act in a professional manner—which in turn entails an active devotion to other areas of responsibility, such as community, the profession itself, and so on? Where in Wingar’s “there will be casualties” vision of the advisory practice is there room for a richer understanding of the advisor as professional?

As always, please share your thoughts!

For Neil Acharya’s complete article in Investment Advisor about David Wingar, click here.

¹Quoted from Web edition of Investment Executive, Thursday, June 26, 2008 (sic note added).

Helping new advisors helps us all

Advocis — Fri, 04 Jul 2008 16:36:02 GMT

Mentoring listed as key MDRT goal

Last week the incoming president of the Million Dollar Round Table, Walton Rogers, asserted that mentoring new advisors results in a productive boon for all concerned, according to Vera Ovanin in Investment Executive. Rogers was speaking to delegates at the MDRT’s annual meeting in Toronto.

That’s why the MDRT is considering expanding mentoring programs, with one of the aims being to help enable more agents reach the MDRT’s rather lofty standards.

Rogers’ vision of mentoring seems to be informed by two themes, only one of which Rogers mentions explicitly, but there is also, I think, one that is implicit in the more general remarks he made to the attendees.

The first driver behind the expanding the mentoring program is purely pragmatic: good mentoring “increases everyone’s production—the advisor benefits, the client benefits and the [neophyte advisor] benefits.”

The second is not so readily apparent, since it is much more abstract: it is the idea that mentoring newcomers to financial advising and thereby helping the consumer is simply the right thing to do, and it is a valuable—and satisfying—end in itself.

In this vein, Rogers describes clients as marooned on a deserted island, with the result that “It is up to us” to provide them with the “right lifeboat” they need. And this vision of the advisor’s relation to the client this prompts Rogers to wax philosophical: “You may be thinking that the world is a cold, crowded place, wondering, ‘What can I do?’ The answer is you can build a better you.”

Consider again Rick McKenster’s blog post of several weeks ago, in which he suggests the value of the advisor lies in being able to answer the big “what if” questions: Doesn’t Rogers’ musing aloud about the place of the advisor’s role in the larger scheme of things situate on a higher plane both the functional utility and the larger life-enhancing value-add that good advisory work is all about?

Or, in Rogers’ own words, in which he echoed the theme of the Toronto conference: “At MDRT, we change lives.”

On a personal note, Rogers shared his own plan for success, which lies achieving the best allocation of education, career, finances, health, family, community service, and spirituality.

On September 1, the 34-year Rogers, who hails from Annapolis, Maryland, will become the MDRT’s 83rd president.

Any readers out there who have been or are currently in a mentor-mentee relationship? If so, please share your thoughts!

For the complete article from Investment Advisor, click here.

The multi-generational advisor

Advocis — Fri, 27 Jun 2008 17:29:11 GMT

Legacy planning helps transfer values and wealth

Our last post raised the topic of advisor specialization. Following up on that topic, a recent piece in Investment Executive caught our eye, when Neil Acharya reported the comments of Michael Babikian, Vice-President of Transamerica Insurance and Investments Group, at this month’s Million Dollar Round Table annual meeting in Toronto.

Babikian’s subject was on ways financial planners can turn themselves into multi-generational advisors by successfully transferring the wealth of their high net worth clients from one generation to another. While most advisors are quite familiar with the methods employed by traditional estate planning, legacy planning is also a useful tool which more advisors should be comfortable using.

Of course, Babikian noted that a significant difference exists between legacy planning and good old-fashioned estate planning: “Estate planning is transferring wealth in the most tax efficient manner, legacy planning incorporates family values… as planners we make sure wealth transfers efficiently and effectively from generation one to two, but we don’t prepare the family for the money,” according to Babikian. As a result, legacy planning is driven by something more a concern about tax avoidance: “Tax is not the major cause of money loss. A planner for a high-net worth client is in risk mitigation.”

All of which suggests to us that, from the point of view of this blog, legacy planning nicely illustrates the point Rick McKenster made several posts ago about the true value of the CLU designation residing in what it enables the advisor to do for the client, especially on a level that goes deeper than just assets and planning, and that provides answers to the plethora of “what if” questions that major life events always bring with them.

As an example, consider the something that all seasoned advisors are familiar with—the delicate issue of estate planning, which is all too often shot through with sibling rivalries and resentments. Most clients are reluctant to raise the matter at all, at least until it is almost too late. But legacy planning gives advisors a way to transform estate planning into a process that is as much about the family’s own values and history—and how to preserve those intangibles—as it is about preserving the family’s tangible wealth. As Babikian asked, “how many people out there know their great-grandparents names? Not many. How many people out there would, if they got a cheque every month from them?”

Babikian further observed that many high net worth clients often express a two-fold anxiety about their inheritors: “Clients fear their children are not going to live as well as they do, but they also fear that they will spoil them.”

One remedy for this problem that advisors can offer to their clients is the “incentive trust,” which can function as a means to keep alive the client’s own sense of family values and vision, to extend their own personal philosophy of life well beyond their own life. Babikian’s example was a client who placed great value on education. The legacy plan ensured that any benefactors who pursued an academic career would have their salaries matched dollar for dollar. One can be sure the children of those academics will grow up infused with the grandparent’s veneration of higher learning.

On a more prosaic level, the incentive trust can provide a useful means to breaking the cycle of one of estate planning’s most dire problems, that of assets disappearing before they can be transferred from “generation one” to “generation three.” Babikian offered the eye-opening U.S. statistic that only 6% of wealth is transferred from grandparents to their grandchildren. The rest? Gone in a generation.

What are your thoughts about legacy planning? Are there any readers out there who have been doing it?

To read Neil Acharya’s article in its entirety, please click here.

Becoming the advisor of choice

Advocis — Wed, 25 Jun 2008 19:44:59 GMT

A narrow niche can be the best path to success

A recent National Post column by Jonathan Chevreau profiles the path to success taken by one CFP holder, BMO Nesbitt Burns managing director and senior vice-president Michael Dorfman, who opened the Top Advisor Summit in Toronto earlier this month. According to the article, the secret of Dorfman’s rise to riches is his ability to find the niche opportunity no one else has yet discovered, and then mine it so “the strategy [becomes] a self-fulfilling prophecy.”

Of interest to CLUs is the basic premise of the article: while the vast majority of financial advisors continue to operate as generalists, by choosing a niche compatible with your personality and interests you can position yourself to become the proverbial—and sought-after—“advisor of choice.”

To harness the power of niche positioning, Dorfman suggests choosing a group whose values you share and that is "relatively under-served" …. which can mean "looking beyond the obvious."

According to Dorfman, a good starting point is to review your existing book of business, determine who your favourite clients are, and from their commonalities come up with your niche category, one that reflects your own personality, values and interests. Then "no matter what the niche, network like mad.... niche marketing works.”

Chevreau’s profile offers this final bit of advice, which should be of interest to CLUs past and future: “you need to take a commitment to the profession seriously and work industriously to acquire multiple professional designations.”

One wonders how many new advisors are currently exploring or at least contemplating the possibilities of niche marketing, as well as how many plan to forge ahead as generalists.

Also of interest is the possibility for transition from niche to mainstream, when the demand driving the niche market grows beyond its confines to become a more mainstream demand. Typically the demand for this transition product or service continues to expand until its owners or dealers recognize it as worthy of marketing to a broader population.

In this regard, the demographic projections of Canada’s aging population suggest that the area of living benefits—and the concomitant Registered Health Underwriter designation offered by Advocis—will soon become a potentially lucrative niche, and one with the definite promise to eventually become a bigger marketing opportunity with a wider appeal to the fast-aging population at large.

Now I’d like to find out what’s worked for the blog’s readers in marketing their advisor services.

Has anyone positioned their practice as a niche specialist—for example, specializing in the senior marketplace by dealing with annuities and health care insurance?

All successful niche marketing secrets and experiences—successful or otherwise—are most welcome.

To read Jonathan Chevreau’s column on Michael Dorfman in its entirety, please click here.

Differentiating yourself with the CLU

Advocis — Fri, 20 Jun 2008 16:55:51 GMT

For the CLU, the proof is in the process

Have you ever been face to face with a client or prospective client and realized that the solution was about more than product or transaction, more than an event? That the need or solution would be found in the process?

If you have, then you need the CLU. It is so much more than a life insurance designation.

It is a designation which enables the advisor to recognize the value that’s locked into the overall planning process—in the various planning for security, business success and retirement that all tie together into an integrated process. In short, the CLU takes the advisor a step beyond, by building a holistic, principle-based fiduciary relationship with the client on a foundation of consistency and trust.

A previous blogger put it very well: "We underwrite the what if of the client's income." The what if?—what should we do upon death, disability, diagnosis and or retirement—that’s the great question of CLU-driven planning.

The CLU underwriter's professional goal is to create financial security. And the CLU designation is a set of competencies like no other. Which leads us to another fundamental question:

Do you want to differentiate yourself?

Rick McKenster

Trustee, The CLU Institute

Two sure things: Golf and taxes

Advocis — Fri, 20 Jun 2008 12:39:14 GMT

When your handicap isn't your game but the game itself…

Here’s an interesting story for any advisor who (a) works for firm that wants its staff hobnobbing with clients on the gold course and (b) is decidedly less than a golfing enthusiast.

Earlier in the week the Globe and Mail reported on a recent Tax Court of Canada case involving a senior executive of Canada Life Financial Corp. In 1998 Harry Rachfalowski joined Canada Life as a senior executive, and was offered a paid golf club membership as part of his employment arrangement.

Since Mr. Rachfalowski is not a golfer, he asked Canada Life if he could pass on the golf membership and receive cash or a curling club membership. The company refused, and covered the $5,000 initiation fee and the approximately $2,000 annual membership. As it turned out, Mr. Rachfalowski only used the club’s dining room a few times with clients, and shot just a couple of rounds before packing away his clubs for good.

The trouble started in 2005 when the Canada Revenue Agency reassessed Mr. Rachfalowski’s 2002 taxes to include the $2,049 annual fee as a taxable benefit.

The matter eventually wound up in Tax Court this past April, before Mr. Justice Donald Bowman.

There the CRA characterized the paid membership as "perk, a symbol, and a demonstration that rank has its privileges in the corporate structure... [providing] an economic benefit."

In response, Mr. Rachfalowski’s position was that Canada Life benefited from the membership, not him.

Ultimately, the Tax Court agreed with Mr. Rachfalowski, ordering the CRA to exclude the membership fee from his 2002 income.

In doing so, Judge Bowman reviewed the employee benefit case law to conclude that the case at hand boiled down to "what did the employee get out of the alleged benefit that ought to increase his or her income?"

In finding for Mr. Rachfalowski, the Court reasoned that:

the membership was clearly not an advantage to him. He did not even want it … It is a fair inference that the employer wanted its senior executives to belong to a golf club. It enhanced the company's image and prestige and provided a place for its executives to entertain clients of the company. I do not think the employer's insistence that he join a golf club (or at all events, the very strong pressure the employer put on him to do so) is particularly attributable to paternalistic altruism. Objectively, I think the membership in the golf club was primarily for the benefit of the employer.

Unfortunately the Court did not address the issue that affects too many of us: does the person who “golfs for fun” but ends up purple in the face after a frustrating day on the links still have to report those membership fees as a “benefit”?

To read the Globe and Mail article in its entirety, please click here.

Textbook updates: How to get yours

Advocis — Fri, 13 Jun 2008 13:33:40 GMT

Get online for the latest CLU texts

A little while ago a CLU member posted a question about the disappearance of hard copy updates for our course texts.

Remember the good old Gutenberg days?

Some of you will recall (back in the pre-Internet days) how CLU designates would receive a printed reference library in a three-ring binder, just like lawyers and accountants did. The contents were basically copies of textbooks from the CLU program; periodically, a hard copy update would be sent to CLUs whenever a textbook was revised or expanded.

As the CLU program changed the number of textbooks declined. At the same time the cost of providing hard copy updates became prohibitive, so a decision was made to simply send a copy of a revised textbook to the CLUs.

Finally, the program textbooks were made available electronically on the CLU website and the hard copy reference service was discontinued.

How to access the current library contents

The library currently contains four publications on law and taxation that are accessible for members of the CLU Institute. A CLU member can access these texts by logging on to www.cluinstitute.ca and going “Resources” on the navigation bar at the top of the screen. The Reference Library is under this tab. First-time visitors to the CLU Institute’s site will need to log into the Institute’s home page with their member ID number and create a password.