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Instructor Kurt Rosentreter,
CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM
www.facebook.com/kurtismycfo www.linkedin.com/in/kurtrosentreter @KurtRosentreter
The Financial Planning Process
The Various Segments of a Plan
Segments Addressed in this presentation: ◦ Goal planning
◦ Cash flow management
◦ Understanding insurance – life & disability
◦ Tax planning
◦ Estate planning
◦ Income tax planning
What is a “financial plan”? What is wealth management”? How do I differentiate between a financial
advisor, financial planner, portfolio manager, insurance agent or chief guru of money? ◦ What do their designations mean?
If I need a financial plan do I need to buy investment or insurance products?
How do I pay for financial advice or products?
1. Establish the client/planner engagement 2. Gather data and set goals/expectations 3. Develop financial strategies 4. Implement agreed upon financial solutions 5. Monitor effectiveness of solutions annually 6. Follow up and rebalancing strategies as
needed through life.
Facts Assumptions Client values and preferences
Present alternatives Discuss pros/cons of each Make recommendations Discuss resistance / acceptance Modify recommendation if necessary
A process related to addressing goals such as: •Retirement planning •Insurance needs analysis •Children’s savings •Estate planning •Debt strategies •Real estate •Tax planning
Comprehensiveness
Accuracy
Reasonableness / Attainability
Affordable
Timely
Balanced
Developed in partnership
Investments – open accounts; buying and selling investments;
Insurance – buying and disposing of insurance products
Tax – preparation of a tax return; other Estate – Preparation of a Will, trust Debt – set up a mortgage, line of credit Children’s savings – set up an RESP
Key Points Planning vs. implementation Have a plan before you implement Set timing
Deadlines
Who does the implementation? Need for third party specialists
Is implementation paid for? Communication during implementation
Client knowledge, preferences, pace
Advisor limitations Documentation
Review progress ◦ Absolute (vs. goals) ◦ Relative Peers
Other
Frequency of Monitoring ◦ Depends on need Investments – regularly
Estate – every few years
Changes in personal circumstances
Changing tax and legal environments
Economic changes
Changes to Goals
Changes to timelines
Key: pro-action & communication
Transition of your approach to financial management: ◦ Areas of your finances
◦ Strategies (e.g. max RRSP)
◦ Solutions (e.g. prep your own T1)
◦ Products (mutual funds)
◦ Costs
◦ Advisors
◦ Attitude
Why? ◦ This is the point of the exercise ◦ Creates focus ◦ Deals with conflicts ◦ Creates accountability ◦ Provides a measuring stick ◦ Treats your personal finances like a business ◦ Greater likelihood of success
Define your Goals ◦ Write them down
◦ Each family member write down their own
Prioritize / tradeoffs
Time line to achieve
Desired, acceptance, not acceptable range
Measure progress against your goals ◦ Annually
Integrate your planning to consider all goals at once
Evolve your finances as your goals evolve
Good financial advisors track progress of your financial goals
No need to budget unless warning signs ◦ Creeping Debt
Categorize: core fixed, core variable, discretionary and luxury
Save for big ticket items: renos, gifts, vacations & vehicles
Watching timing issues – eg. Bonuses
Have a cushion built up – emergency fund
Know financial impact of major changes: maternity leave, job change, second property, etc.
Spending money involves financial tradeoffs to reach various goals:
1. Proper life & disability insurance
2. Pay off high cost debt
3. RESPs
4. RRSPs
5. TFSAs
6. Pay off low cost debt
7. Invest outside of registered accounts
8. Pay off tax deductible debt
Health and dental insurance
Life insurance
Disability insurance
Critical Illness insurance
Travel insurance
Safety Net Needs
Term Insurance, Disability Insurance, Critical Illness
Insurance, Long term care insurance, Travel insurance
Maximize Wealth Potential - Universal Life Insurance / IRP Net Worth Enhancement
- Term to 100 Insurance
- Corporate Owned Permanent Insurance
Inter-generational - Estate Tax Life Insurance
- Business Succession Life
Insurance
- Cottage Life Insurance
Start up
Career
Minimal
Wealth
Early Stage
Career
Wealth
Creation
Advanced
Career
Wealth
Management
Retired
Wealth
Preservation &
Transfer
Understanding who you are dealing with : ◦ Training
◦ Licensing
◦ E&O
◦ Independents vs. Dedicated
Relationship with insurance companies
◦ Commissions How it works
How it can vary but what you buy
◦ Philosophies – two key types
Individual Plans
(Blue Cross, CAA, Insurance company, etc.)
Degrees of coverage:
Dental, Drug, Ambulance, Private room, etc.
Insurance vs. Pay Cash
OHIP Association plans Commissions Group plans Retirement – what to do? Your kids – what to do? Tax Strategies: health spending accounts
Why do you need life insurance? ◦ Protect dependants
◦ Enhance estate values
◦ Create liquidity
The changing priority of insurance needs as you age: 30’s, 50’s, 70’s
Characteristics of Life Insurance
Policy owner, life insured, premium payer
Joint life (last to die, first to die)
Beneficiary designation
Policy reinstatement
Ratings
Life Insurance Needs
Amount ◦ Completing a Needs Analysis
Considerations
Group coverage
Mortgage insurance
Sale of Home
Family chipping in
Length of Period of Insurance Needs
Term Life Insurance
Features ◦ Renewable
◦ Convertible
◦ Premium frequency
◦ T10 vs. T20
◦ T100 vs. UL
◦ Private coverage vs. Employer group coverage
◦ Joint vs. individual life coverage
◦ AD&D
Permanent Life Insurance Features ◦ Universal Life vs. Whole Life ◦ Cash value ◦ Investment side fund & investing options ◦ Surrender charges ◦ Policy loans ◦ Non forfeiture options
Cash surrender value APL Extended term insurance Reduced paid up insurance
◦ Level cost
Planning Points ◦ Too little at 40 and too much at 55 ◦ Buying insurance within your master plan Buying rationally, not emotionally
◦ Dangers of employer group insurance ◦ Limitations of mortgage insurance ◦ Old policies ◦ Buying policies on children ◦ Buying policies in retirement ◦ Pricing of term vs. permanent coverage ◦ Understanding agent economics Term vs. Permanent commissions
Transferring old policies
Beware concept selling.
Definition ◦ Vs. critical illness insurance ◦ Vs. long term care insurance ◦ Vs. Worker’s Compensation Insurance ◦ Vs. CPP disability benefit
Occupation Classification Any occ, regular occ, own occ
Elimination period Two years or age 65 for benefit payment Benefit maximum Pre-tax and after-tax Guaranteed renewable Riders (e.g. inflation, return of premium)
Definition ◦ Vs. disability insurance
Purposes ◦ Pay for medical needs ◦ Continue existing quality of life
Characteristics ◦ Range of diseases covered ◦ Return of premium rider
If you budget only goes so far…
Typical Canadian: Credit card, web purchase for a week or two, employer
group plan coverage.
Challenges of this approach: Pre-existing conditions
Limited coverage
Rising cost
Alternatives Tailor made coverage; long term fixed purchase.
Freezing of Accounts
Wills and Probation
The Three Taxation Periods
Length of Time until Windup
Amount of work
– Selling real estate, closing accounts, paying bills, Will probate and tax returns, final wishes, contracts, disputes, legal liability
The role players:
– Executor
– Guardian
– Trustee
– External experts: lawyer and accountant
Do you have an up to date Will? Where are the Wills?
Do you have a copy?
Prepared by a lawyer?
Reviewed by a tax expert I hope?
No do-it-yourself Will
All of the kids or none of the kids as Executors ◦ Are trust companies a good idea? ◦ Pay Executors ◦ Joint Executors with back ups
Guardians should not be money trustees ◦ Story of Brother
Two Wills, maybe three
Are trust companies a good idea for Executor?
Don’t leave one asset to many people
Read the Will out loud to kids.
Spousal remarriage estate issues
Children’s inheritance clause – beware family home facts
Don’t create a great Will and mess it up with joint ownership, beneficiary designations and gifting.
Know What to Do Action Plan:
◦ Understand who the advisors are now; meet them all; evaluate them all; make sure passive spouse knows them; make sure they offer the right services; make sure they are the right age.
◦ Wind down a complicated net worth now.
◦ Have a plan for the non-financial assets.
What to Do with Key Assets In Your Estate What to do with various assets:
Family home
Cottage
Old life insurance policies
RRSPs and RRIFs
Pensions
Certificates in the safety deposit box
Action Plan: Have a plan before death.
How much income tax is due at death?
House
Cottage
Rental property
RRSPs or RRIFs
Cash, bonds and GICs
Equity Investments
Business
On first death versus second death
How to reduce this income tax at death? Joint ownerships (spouse and kids)
Designated beneficiaries
Gifting
Life insurance
Tax planning each year with taxable income levels (e.g rrif).
Charitable giving
How will costs be paid? Assets or life insurance
What are the other costs of an estate? Probate fees
Legal fees
Trustee fees
Executor fees
Accounting fees
Valuation fees
Real estate commissions
What is probate?
When is it necessary?
Probate Fee Planning and an Estate Joint ownership – pros/cons
Gifting – pros/cons
Second Will for assets without probate – pros/cons
Incorporation – pros/cons
Trust – pros/cons
Joint ownership of assets ◦ Bank accounts, real estate, investments
◦ Practical reasons to do it
◦ Tax issues
◦ Estate benefits and pitfalls
◦ Legal considerations
Gifting of assets ◦ Bank accounts, real estate, investments
◦ Practical reasons to do it
◦ Tax issues
◦ Estate benefits and pitfalls
◦ Legal considerations
Power of Attorney What is financial POA? What is health care POA? Explosive family issues can arise from POA.
Power of Attorney vs. Joint Ownership of
assets. Pros/cons Which is better? Tax Legal
Methods ◦ Cash ◦ Appreciated Assets ◦ Annuity ◦ Life Insurance ◦ Foundation ◦ Donor Advised Funds
Before Death and at death
In-sync with rest of financial plan.
Tax Planning Tips Planning review vs. return preparation April vs. December Good debt vs. bad debt Equalizing net worth with spouse (PRL
strategy) Permanent life insurance as a tax shelter Asset based investment fees, not
commissions Self employed vs employee Tax smart investing
Use of corporations for the self employed Defer income tax
Income split
Access to the capital gains exemption
Salary vs. dividend options
Write off medical costs
Professional corporation vs. holding companies
Preserve OAS in retirement
Reduce costs on death to next generation.
Measuring Results
Judge your personal finances just like you are judged in your career.
Accountability of Your Financial Plan
As a business executive, your company has effective accountability measures. Do you have
these same accountability measures in your personal finances? If not, why not?
Corporate
Finances
Personal
Finances
Budgets Prepared
Annual Targets Established and Revisited
Well defined Long-term Goals
Regular, written reports on results
Variance Analysis of Results
Management Discussions & Analysis of Results
Specific Action Plans with Follow Up
Strong Cost Control
Regular Meetings on Progress
Integrated segmented planning within an overall Master Plan
Advisors working in concert within a Master Plan.
Hiring & Firing of Key Team Advisors Based on Success or Failure Against
Goals
Emotion & Relationship Doesn’t Interfere with Decision Making
Think comprehensively about your money.
Demand value and service and expertise.
Evolve your strategies as you evolve.
Document everything.
Get second opinions.
Kurt Rosentreter, CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM
Senior Financial Advisor, Manulife Securities Incorporated
Certified Financial Planner, Manulife Securities Insurance Inc.
416.628.5761 Ext 230 [email protected] www.kurtismycfo.com
Follow Kurt on:
www.facebook.com/kurtismycfo
www.linkedin.com/in/kurtrosentreter
@KurtRosentreter
Next Session we will continue our integrated planning approach and cover: ◦ Managing debt
◦ Financial planning for children
◦ Real estate planning
◦ Retirement planning
◦ Investing
The opinions expressed are those of the author and may not necessarily reflect those of: Manulife Securities Incorporated or Manulife Securities Insurance Inc.
Manulife Securities Incorporated is a member of the Canadian Investor Protection Fund
CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM Chartered Professional Accountant association finance
instructor for the last ten years (Ontario, B.C., Manitoba). Twenty-five years of personal finance industry experience. Past co-founder of the $2 Billion Investment Counsel practice
at one of Canada’s Big Four CA Firms. National best selling author of seven personal finance books. Senior Financial Advisor, Manulife Securities Incorporated. Certified Financial Planner, Manulife Securities Insurance Inc. Instructor / Speaker to more than 500 audiences on matters
of personal finance. Regular commentator on money for CBC, CTV, Globe, Post,
Star, various radio and magazines. Regular contributor as an expert in the Financial Facelift
column for The Globe and Mail. www.KurtismyCFO.com
Instructor Kurt Rosentreter,
CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM
www.facebook.com/kurtismycfo www.linkedin.com/in/kurtrosentreter @KurtRosentreter
The Financial Planning Process
Segments addressed in this presentation: ◦ Risk Management
◦ Retirement planning
◦ Costs of raising children
◦ Real estate planning
◦ Personal investing strategies
1. Establish the client/planner engagement 2. Gather data and set goals/expectations 3. Develop financial strategies 4. Implement agreed upon financial solutions 5. Monitor effectiveness of solutions annually 6. Follow up and rebalancing strategies as
needed through life.
Examples of Major Financial Risks: Lawsuit against your career / business
Heart attack and unable to work
Divorce ◦ Child’s divorce
Car accident and liability
Company in trouble fast
Premature unemployment
Out of money at age 85
Exceptional stock market losses at age 55
Scenario analysis ◦ Net worth today; what must it be in X years? ◦ Estimate costs, investment returns, savings levels ◦ Don’t forget about car purchases, vacations, child costs,
healthcare, end of life care.
Annual re-visitation of progress / results Most folks under-estimate what is needed Goals should not be how to fit your lifestyle into your pension Key: don’t head blindly into retirement
Resources: ◦ Government benefits ◦ Investments RRSP Other
◦ Small business ◦ Real estate ◦ Your spouse’s assets and incomes
Expenses: ◦ “normalize” your previous year’s expenses to get an
estimate of future costs ◦ Fixed costs, variable costs, discretionary costs, occasional
costs.
Few people fully retire under 60 anymore
More people starting businesses or working part time to age 65-70.
WHY? Cost of living is higher
Cost of specific healthcare is higher
Living longer requires more money
Sandwich generation situation
You should have no debt (usually by 55) You should not plan to buy more expensive
real estate to live in You should not still be funding your
children’s expenses You should not be an aggressive stock
market investor with your savings. You should know if you can afford to retire,
and what it will cost to live in 30 years.
You should not start giving large lumps of money to the kids
You should not rush to put the real estate as jointly owned with the kids
You should monitor your spending levels within your income potential.
You should examine worst case scenarios with investment returns.
How Your Retirement Is Affected By Real Estate Decisions
Timing to buy your first home
◦ Dangers of money gifts from parents
◦ Use of the HBP
Mortgage type and payments
Extra money: pay mortgage vs. pay RRSP vs. fun stuff
Renovations and bigger homes
Second properties – affordability
Real estate downsizing
Prioritizing real estate in your master plan.
How Your Retirement is Affected By Those You Love
Cost of having children Private school
Post secondary ($40,000 per child per Bachelor degree.)
How many children?
Financial assistance to elderly parents What will it cost?
Siblings of different economic means
16
Private school
Post secondary education
Weddings
Cars
New home purchases
Other
Four Options: ◦ Formal Trusts ◦ In-trust-for accounts ◦ Corporation after age eighteen ◦ RESPs Individual self directed
Pooled scholarship trusts
Key Factors: Control and Flexibility and Cost
Doesn’t Matter: Tax & Investments
Contribution limit of $50,000 per child ◦ Most parents put in max of $2,500
Level that $500 CESG grant is maximized
Key Points About RESPs: ◦ Can catch up missed years and grant money
◦ Grandparents should not own the plan
◦ Beware time limit
◦ Money in ITF accounts can move to RESP.
Buying your first home – the largest purchase of your life Balance financial and personal goals
Financial: wait until deposit is larger Financial: Better to avoid the Home Buyer’s Plan Financial: Repay the HBP in 5 not 15 Financial: Risk of buying a condo as a stepping stone
Owning a home first, and then getting married Beware different divorce results for common law
Wedding gifts from parents to help with home ownership – avoiding pitfalls
Weekly mortgage payments are best. Buying vs. renting
Biggest problem for 60 year olds today How much real estate is too much? Mortgage free by what age? Will you downsize?
For sure?
How much will you free up?
Can you handle condo maintenance fees?
Reverse mortgages The cottage The commercial property Buying versus renting in old age
1. Have a financial plan first Investing should flow from your broader plan.
Focus on goals
Set targets, savings levels, return expectations
Run from any advisor who doesn’t get this.
2. Limit your stock market exposure Convince me why you need any?
Less with age
Less in the “new” stock market
Less if you don’t understand
Why advisors may be biased to the stock market
3. Stick with high quality securities A. Fixed income: GIC’s and government bonds
B. Equity: Blue chip stocks, ETF’s, no load funds
C. Avoid: labour funds, tax shelters, small cap stocks, most mutual funds, IPO’s, wrap programs.
4. Rebalancing twice a year A. Sell growth / keep core positions
B. Rebalance back to original plan
C. Rebalance for stage of life
5. Do it Yourself or Hire an Honest Advisor Can you be a do-it-yourselfer?
Time commitment / personal interest
Honest advisor:
Four documents: proposal letter, financial plan, Investment Policy Statement, annual results letter
Education
Disclosure
Fee based is the best way to go for equities, commission based for bonds
Don’t blindly trust the way you trust an MD.
6. Stay on top of results A. Have advisors demonstrate what they will do to
monitor results (qual and quant)
B. Understand their investing philosophy – do you agree?
C. Semi-annual face to face meeting
D. Compare results against indexes and peers – give 3 to 5 years before replacing underperformance
E. Know impact of fees and taxes – two main drags on performance.
Think comprehensively about your money.
Demand value and service and expertise.
Evolve your strategies as you evolve.
Document everything.
Get second opinions.
Kurt Rosentreter, CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM
Senior Financial Advisor, Manulife Securities Incorporated
Certified Financial Planner, Manulife Securities Insurance Inc.
416.628.5761 Ext 230 [email protected] www.kurtismycfo.com
Follow Kurt on:
www.facebook.com/kurtismycfo
www.linkedin.com/in/kurtrosentreter
@KurtRosentreter
The opinions expressed are those of the author and may not necessarily reflect those of: Manulife Securities Incorporated or Manulife Securities Insurance Inc. Manulife Securities Incorporated is a member of the Canadian Investor Protection Fund
CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM Chartered Professional Accountant association finance
instructor for the last ten years (Ontario, B.C., Manitoba). Twenty-five years of personal finance industry experience. Past co-founder of the $2 Billion Investment Counsel practice
at one of Canada’s Big Four CA Firms. National best selling author of seven personal finance books. Senior Financial Advisor, Manulife Securities Incorporated. Certified Financial Planner, Manulife Securities Insurance Inc. Instructor / Speaker to more than 500 audiences on matters
of personal finance. Regular commentator on money for CBC, CTV, Globe, Post,
Star, various radio and magazines. Regular contributor as an expert in the Financial Facelift
column for The Globe and Mail. www.KurtismyCFO.com
