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Monthly Archives: December 2012

BMO Retirement Report

Institute October 2012

Retirement preparedness requires one to think ahead and to save

for the future. As everyone has his or her own personal financial

situation and specific retirement goals, the ideal saving strategy

will vary by individual. A good place to start measuring one’s saving success

is by completing a net worth analysis, one of the many important

components of a financial plan.

A net worth analysis is an important financial metric that examines two key

factors critical to assessing saving success: savings (or assets accumulated)

and debt load. It is a snapshot of one’s current financial well-being that

shows the amount of equity currently available to sustain one’s lifestyle if

all assets were liquidated and all debt was paid off. The goal is to create a

large, positive net worth and to assess it regularly to ensure it is moving in

the right direction to enable funding for future retirement goals.

Traditionally, Canadian baby boomers have built their retirement nest eggs

by accumulating savings in non-registered and registered accounts and

diversifying investments in stocks, bonds and cash. In the last four decades,

Canadians have also included other asset categories, such as real estate,

in their retirement portfolios. In fact, boomers’ consumption habits have

driven up housing demand and prices, often resulting in an enhanced

feeling of financial security. As real estate values increase, they represent a

larger portion of a boomer’s net worth.1 The old adage, “Don’t put all your

eggs in one basket,” is wise advice; perhaps the diversification of

retirement portfolios should encompass all assets, including the home.

However, these inflated net worth statements may cause many to rely on

the equity in their home to fund their retirement, while failing to address

shortcomings in their savings habits, their intentions for their home and

their personal debt situation.

BMO Retirement September 2009

The BMO Retirement Institute was

established to conduct research and

provide thought-provoking insight

and financial strategies for those

individuals planning for, or currently

in, their retirement years.

Chris Buttigieg, CFP, FMA

Senior Manager,

BMO Retirement Institute

Contact the Institute at

In 1992, the 400th richest person in America made $24 million.

In 2007, the 400th richest person in America made $138 million (or $87 million, inflation-adjusted).

Now, that almost certainly wasn’t the same guy. There’s a lot of churn at the top of the money pyramid. In all of the 1990s, only 25% of the Fortunate 400 made more than one appearance. But the overall message is the same. The rich keep get much richer?

According to the IRS, which recently released 2009 data from the 400 richest individual income tax returns, the real runaway growth in wealth has come from capital gains. In the last years of the bubble, the “Fortunate 400” made nearly half their income from capital gains (a.k.a.: profit from the rising value of an investment, such as stocks or property) and less than 10% of their income from old-fashioned wages.

The average income of a top-400 earner grew by 650% between 1992 and 2007 to a whopping $344 million. Over that time, the average salary didn’t even double. But the average capital gains haul increased by 1,200%. So how do the richest get richer? Not from their wages. From their investments.

Here’s a look at the average salary and average capital gains income of a top-400 earner since 1992. Y-axis is labeled in thousands of dollars and all-time highs are noted in the graph.

Three last things:

(1) Who are these people? As Tim Noah explained on our business page, a 2010 study studied the top 0.1 percent, who currently make at least $1.7 million. That’s 14-times less than our Fortunate 400 group, but it’s the closest we’ve got. Four in ten in this group were executives, managers, and supervisors at nonfinancial firms. Eighteen percent were financiers. Next came law (7 percent), medicine (6 percent), and real estate (4 percent). My guess is that the top 400 skews toward finance and chief exec even stronger. A lawyer/doctor making $2 million I can imagine. But $24 million?

(2) Capital gains absolutely dictate the wealth of the richest Americans. As Matt O’Brien graphed for us, that’s why the income of the top 0.1 percent hugs the S&P so closely.

(3) Remember that as this is happening, the long-term capital gains tax rate has fallen from 28 percent in 1990 to 20 percent for the latter half of the 1990s to 15 percent under George W. Bush.

By Derek Thompson

The Atlantic

Fri, 6 Jul, 2012

The CSA’s new paper explores the possibility of introducing a

fiduciary duty for advisors

Should financial advisors have an explicit duty to place the interests of their clients above their own? Investor advocates scream, “Yes.” The investment industry squeals, “No.” The regulators? They’re not sure.

In October, the Canadian Securities Administrators (CSA) published their long-awaited consultation paper on the question of fiduciary duty – that is, whether financial advisors should be required to act in their clients’ best interests and not merely to ensure the suitability of their clients’ investments.

The CSA paper sets out the case for a fiduciary duty, explains some of the potential drawbacks and examines related developments in various other countries.

However, the paper doesn’t take a position on whether the regulators believe formalizing such a duty is necessary.

In what promises to be a highly polarized debate, with investor advocates on one side and the industry on the other, the regulators are casting themselves as the undecided voter.

The CSA’s paper stresses the regulators’ agnosticism on the issue: “No decision has been made whether a statutory best interest standard should be adopted (and on what terms), whether another policy solution would be more effective or whether the current Canadian standard of conduct framework is adequate.”

The CSA presents its paper as an initial step in soliciting public input. And the paper indicates that if regulators decide that imposing a fiduciary duty is warranted, there would first be “broad public consultation and discussion.”

In other words, the CSA isn’t rushing into anything. The paper is out for an unusually long, 120-day comment period, which runs until late February 2013.

And given the CSA’s professed agnosticism on the issue, its promise for further consultation and the reality of the policy-making process in Canada in general, the imposition of a fiduciary duty is likely to be years away – if it comes at all.

This noncommittal approach worries retired securities lawyer Glorianne Stromberg: “There is so much fuzzy thinking and so little understanding of what ‘fiduciary’ is and what constitutes fiduciary obligations. The bottom line is that a salesman is a salesman, and [the regulators] shouldn’t allow nomenclature that suggests he or she is anything else.”

Yet, as the CSA deliberates, most investors will continue to be under the illusion that financial advisors already have a fiduciary duty to their clients. According to research published earlier this year by the Toronto-based Investor Education Fund (IEF), an online survey of investors carried out in December 2011 and January 2012 found that 70% believe an advisor already has a legal duty to put their clients’ interest ahead of their own; 21% weren’t sure; and just 9% believe that’s not the case.

This common misconception among investors that advisors already have a fiduciary duty to their clients, the CSA’s paper states, is one of the basic arguments in favour of regulators introducing such a duty.

The CSA paper spells out five basic investor-protection concerns that possibly could be addressed by adopting a fiduciary duty, including matching the regulatory reality with investors’ existing beliefs.

The other weaknesses that the CSA paper suggests a fiduciary duty could help solve are that: the suitability standard may not be strong enough, given low levels of financial literacy; the “buyer beware” principle is not adequate; the impact on investors of the fact that suitability doesn’t equal investors’ best interests; and the current conflict-of-interest rules may be less effective than intended in practice.

The CSA paper notes the potential drawbacks of imposing a fiduciary duty, such as the possibility that this duty could ultimately raise the cost of advice and limit its availability.

Other potential negative effects on different sectors of the industry are noted in the CSA paper, such as for mutual fund dealers, which are licensed to sell only one type of product, or the exempt market.

Such concerns are among the industry’s main criticisms of any proposed fiduciary standard. In anticipation of the CSA’s paper, the Investment Industry Association of Canada (IIAC) submitted a report to the CSA outlining IIAC members’ overall opposition to the imposition of a fiduciary standard, arguing that such a move could lead to numerous, potentially negative consequences for investors and the industry, including: possibly reducing choice among business models; reducing access to financial products; and decreasing the affordability of financial advice.

The IIAC also worries that a fiduciary duty could create uncertainty within the client/advisor relationship while imposing onerous compliance requirements and increased exposure to liability for advisors.

The IIAC would rather see any perceived problems with the provision of advice remedied by beefing up aspects of the current regulatory regime, such as the disclosure and suitability rules.

The introduction of a fiduciary standard could have major implications for the self-regulatory organizations as well. Mark Gordon, president and CEO of the Mutual Fund Dealers Association of Canada, says that the discussion about a fiduciary standard “is an important one for regulators all over the world” – and he lauds the CSA for its paper. However, he adds, it’s important to explore all the issues, including how such a standard would work in the real world, before deciding whether to impose such a duty.

Just as important, Gordon suggests, regulators should be examining whether they have been effective in regulating the existing requirements – particularly, the current suitability standard. IE

By James Langton

Investment Executive

Mid-November 2012

© 2012 Investment Executive. All rights reserved.

The Toronto- Based Investor Education Fund (IEF) is takng the approach that it’s never too early to start learning about finances. The IEF is kicking off this year’s Financial Literacy Month with a youth summit in the Greater Toronto Area.

The Toronto-based Investor Education Fund (IEF) is taking the approach that it’s never too early to start learning about finances. The IEF is kicking off this year’s Financial Literacy Month with a youth summit in the Greater Toronto Area.

“What we’re going to be doing is bringing in some of the most dynamic presenters on this topic,” says Tom Hamza, president of the IEF. “People who understand the audience and people who are experts in doing this exact thing.”

The Financial Literacy Youth Summit, which is scheduled to take place on Nov. 1 in Richmond Hill, Ont., will offer about 600 high-school students a crash course in finances. Presenters include Pat Foran, author and consumer advocate; and comedian James Cunningham, creator of Funny Money, an educational program geared toward students.

Reaching out to youth about finances, both at the summit and in schools across the country, is all part of the plan to raise the level of financial literacy in Canada over the long term.

“If we want to have an impact on the financial awareness of the Canadian population, we have to start as early as possible,” Hamza says. “If we can reach [students] with really practical and memorable lessons, then that’s going to be something that’s going to pay off over their lifetime.”

For this year’s version of Financial Literacy Month, which was launched last year by the Financial Literacy Action Group (FLAG), a coalition of non-profit organizations, there are events scheduled across the country meant to educate students and adults alike.

Although FLAG members are still helping with co-ordinating many of the events, the Federal Consumer Agency of Canada (FCAC) has taken on a larger role in the overall organization for Financial Literacy Month.

“We are playing a co-ordinating role,” says Julie Hauser, a media relations officer with the FCAC in Ottawa. “We have the events calendar on our website and we’ve invited partners from across the country to submit their events to the calendar so that we can provide information on what’s going on across Canada.”

One of those events is Financial Planning Week, which takes place from Nov. 19 to 25 and will be hosted by the Toronto-based Financial Planning Standards Council (FPSC). There will be several events across the country, hosted by certified financial planners and covering topics related to financial literacy and financial planning, says Tamara Smith, vice president, marketing and consumer affairs, with the FPSC in Toronto.

Canadians also can go online to learn more about how finances and financial planning work.

The IEF is launching numerous calculators throughout November on its website, (, Hamza says. Some calculators that already are on the website help with a variety of financial issues, such as budgeting and registered retirement savings plan contributions.

The IEF also plans to raise awareness through the promotion of its “eight financial truths,” Hamza says, which are meant to make Canadians realize that while financial matters take some thought, they don’t have to be intimidating. “We’ve put this together to help Canadians get an action plan to resolve some of the financial issues that are out there,” he says, “and create some more effective long-term financial plans.”

There is little doubt that Canadians need help in understanding personal finance issues. Many studies and surveys have highlighted this problem, including one recent survey from the Canadian Securities Administrators (CSA). Of those who took the CSA survey, about 40% failed a test on general investment knowledge. (See story on page 12.)

Many of the financial problems faced by consumers today are highly complex, and are a challenge to understand, says Smith. High levels of student debt, the difficulties of being part of the “sandwich generation” and the boomers’ growing switch from saving to de-accumulation are placing a strain on financial know-how.

“There are a lot of complex needs out there,” says Smith. “And what [the CSA survey and others] tell us is that we are not literate enough to manage all of these challenges without a higher degree of literacy and without a lot of expert help.”

Financial advisors and financial services firms are in a unique position to educate their clients on personal finances. Many financial planners involved in the FPSC encourage clients to bring their children to meetings, says Smith, and also will start working with that child on his or her planning needs as he or she enters post-secondary education. “If you can approach financial planning as a family,” she says, “financial planners see a lot of benefit in that.”

Although actively engaging with clients and their families in meetings is a start, it may take years before the level of financial literacy in Canada truly changes, Hamza says: “A solution is going to happen over decades. And that change can only be brought about by educating the public and leadership from the industry and government to raise awareness of financial issues affecting Canadian households.”

By Fiona Collie

Investment Executive

Nov. 2012

© 2012 Investment Executive. All rights reserved.



Daniel H. Zwicker, Principal
B.Sc. (Hons.) P.Eng. CFP CLU CH.F.C. CFSB

Professional Engineers Ontario
Certified Financial Planner
Chartered Life Underwriter
Chartered Financial Consultant
Chartered Financial Services Broker

Bus: 416-726-2427




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