Wealth

http://www.wealthstrategistnetwork.com/

In our continual search to upgrade our own education in how to better look after our clients Wealth Management needs we come across a significant number of publications.

Currently we are reading one that we think is very accessible and certainly is very client oriented. (link above for more info).

"Wealth" (by Stuart Lucas) is written for anyone concerned about wealth creation, wealth management, families with wealth, retirement planning, and multi-generational estate management. Most of the book's guidance applies whether you are worth a few hundred thousand dollars or a few hundred million, and whether you are a wealth owner or advisor. Affluent professionals and successful entrepreneurs can use "Wealth" to adopt a strategic, focused, and disciplined approach to growing and diversifying their financial assets. "Wealth" is equally useful to wealth industry professionals who want to strengthen their relationships with clients by better serving their long-term interests.

We have also just finished reading the Capgemini and Merrill Lynch Global Wealth Report, 2009.

This report focuses on and analyzes the macroeconomic factors that drive wealth creation and helps us (wealth management consultants) better understand the key trends that affect High Net Worth Individuals (HWNI's) around the globe.

Some highlights:

At the end of 2008, the world's population of HNWI's was down 14.9% from the year before.

Their wealth dropped 19.5%

Equities as a % of HNWI portfolios dropped from 33% to 25%.

Cash holdings increased by 7% to 21%

HNWI's are expected to remain fairly conservative in the short-run.

More than 1/4 of HNNI clients surveyed withdrew assets from their wealth management firm or left that firm altogether in 2008, fueled by lack of trust/confidence.

Service quality was by far the top driver of client retention in 2008.

On-line access and capabilities was deemed very important by 66% of clients.

Risk management and due diligence capabilities, 73%

Fee Structure, 48%

There is plenty more at http://www.capgemini.com/resources/thought_leadership/2009_world_wealth_report/

The Elite Circle

Last Tuesday I presented two of my investing team at One Capital Management: Andrew Buckley, a retired Special forces Green Beret, sniper team leader(Alpha company) in the U.S. Armed forces and now a client services associate and Patrick Bowen, President, with previous experience in Private Client Wealth Management at two of the finest Wealth Management institutions (Bernstein, Oppenheimer) in the U.S.

In a Q and A format, Pat quizzed Andrew about some of his experiences in the special forces and Andrew regaled us with some powerful stories (he could only tell us of things that were not "classified" ) with some very interesting slides to accompany them:

Like the time in Haiti when he was dropped in to secure a section of the city and ensure that senior negotiators had safe passage to their location for talks.

Interrupted by an ambush, Andrew and his team of 15 had to ensure the safety of very high level VI P's : Colin Powell and Jimmy Carter.

As Andrew told a riveted audience quite succinctly: the first 1.8 seconds of an ambush is crucial to survival.

He also told us that each team member had a very specific role to play in any circumstance which required 100% trust in each member: believing that they could perform their role as you carried out yours, was the only way that the team would be able to survive that first 1.8 seconds.

This was called "The Elite Circle".

According to Andrew: casualties occurred only when one of the team members stepped out of this circle of trust. Taking on a role that was not theirs to perform.

One can draw many parallels to a "team" situation that are not as life and death oriented, but the message is clear: In times of crisis, we need to count on our team members to perform their roles, so we better have 100% faith their abilities.

We have just endured a significant economic setback, some have referred to it as a crisis.

Tony Fell, retired chairman of RBC Capital Markets and one of the most highly regarded investment professionals in Canada recently described the last 2 years as the most devastating that he had witnessed in his 50 years in the investment industry.


How have you fared through this time?
Has your financial team been working with you in a consultative, coordinated and comprehensive manner?
Do you have 100% confidence that they are looking out for your best interests?
What are your end goals? and where abouts are you on the path to achieving them?

Andrew and Pat will be back with their stories in the fall, if you would be interested in hearing them, let me know.

Current Thoughts on the state of Capital Markets 2

On Dec. 14th, 2008, in this blog, I wrote that I expected markets to turn in March or April of '09.

The TSX bottomed on March 6th at 7479.96. Yesterday, June 2nd, it closed approx 40% higher at 10,588.79. The TSX is still some 30% below it's June 08 highs of 15,154.77.

In Sept. '00 the TSX hit a high of 11, 423.70, before falling 50% to 5678.28 in Oct. '02.

If one were to have bought the TSX index in Oct 2002, at current levels you would be up approx 10% yr/yr. after approx 8.5 years. Some would say that is a reasonable return.

But what a ride to get there!! Most, it appears, have no stomach for the violent volatility of seeing a portfolio cut in half at any given time.

What are your goals?
Why are you investing in the first place? You have a goal, usually it is a lifestyle goal (sometimes it is a legacy goal) : you want to achieve and maintain a certain lifestyle once you have moved to the next stage of your life.

When do you need the money?
How can you even begin to understand what risk you can take if you do not have a grasp of your cash flow: now, in 5 years, 10 years, 20 years, 30 years....do you have an idea?

How can you invest if you do not understand what risk you can take?
Many advisors will sell you an investment, touting it's merits for potential appreciation. But how does it fit into your cash flow plan, that is really the key. It has to fit into your plan. You have to have a plan.

The markets will go up, the markets will go down. If you need cash flow and the markets are down and you have no liquidity then your plan (if you have one) is not working.

Did you invest new money when the market was down?
If you were too emotionally charged by the on-going media circus of negativity and were unable to participate, then you need 3rd party money managers who understand the necessity to remain emotionally detached and systematically capture the opportunities that are available when the market makes new lows.

What is the next move in capital markets?:
1) The expectations that are being built into current markets are for economic recovery:

• the fear of "depression" has been taken out of expectations
• some improvement in consumer attitudes is being built in

2) Investors are coming back, equity mutual fund sales are improving

• there is still a significant amount of "fear" money parked on the sidelines in money market funds earning close to no return

3) As economic statistics are announced there could be surprises that either do or do not meet expectations, the markets will be vulnerable to those, especially if they are negative, because the markets are expecting better things moving forward.

4) TSX is likely to be bound by a trading range until there is more clarity: 9,000 to 11,500.

• remember the trading range on Oct. 14, 2008 was 9065 to 10,700 , approx. 18%. One day!

5) Early next year, 2010, providing global economic recovery stays on track and rising interest rates (governments funding deficits and inflation) do not choke it off (and there are no unforeseen economic shocks) we may be able to break out of this range to the upside.

How are you positioned?

Are you positioned to take advantage of the opportunities that exist now to positively impact your future goals?

Do you have an idea of your future cash flows?

Do you have a strategic plan?

We can help: www.jstomenson.ca

Thinking ahead of the curve: Solutions to your Challenges.

"For Sale By Owner"

I had a conversation with a prospective client the other day, someone unhappy with her current advisor. The conversation was not centred around the state of the markets or their portfolio, it was about contact. She just did not feel that her advisor was staying in touch.

The discussion at a certain point turned to fees. Turns out that she is very cost conscious and has a diversified basket of global index funds or ETF's, which mimic various indexes (the S&P 500 for example) around the world. It is a good strategy, because, historically, few portfolio managers are able to beat the indexes (approx. 30% or less). This means that paying a portfolio manager 2% or more (most mutual funds) vs. the fee for an index fund which is a fraction of the cost (approx 0.5% depending on the index) is not worth it.

Problem for her, she paid an up-front transaction fee for the advisor to buy the fund, 1%, based on the advisor's asset allocation model. When the advisor wants to earn another bit of commission, he "updates" the asset allocation model and will call the client to do so. But that's the only time he calls.

This same prospect told me that it was difficult to understand the "wealth management model". Why pay the fees?

It really depends on what you are trying to accomplish:
If you are a do-it-yourself person and feel that you have all the tools that you need to accomplish your financial goals, then by all means.

It reminds me of the house that sat on the corner of our street that had the "for sale by owner" sign out front for about 2 years. After giving up on that method the owner tried the "old fashioned" but more costly method of hiring a real estate agent and it was sold in a month.

As a professional "Wealth Management Consultant", I will charge you for our services, depending on the size of your portfolio and the complexity of your financial affairs, somewhere between .75% and 1.5% (of your invested assets, annually). In most cases add between .50% and 1.0% for an experienced portfolio manager who have proven to me that they have the ability to beat "the indexes" (some of whom will add a performance fee when they do) . In most cases and on average, clients pay 1.5%-1.75% all in.

What do they get?
Stewardship: a consultative, comprehensive and coordinated plan that we create (according to their goals), implement and monitor for as long as they and their family (we work with multi-generational families) are happy with what we provide.

Contact: regular emails, phone calls, monthly webcasts (multiple wealth topics), quarterly or at least semi-annual face to face meetings to discuss progress and any necessary adjustments that need to be considered.

We earn our fees and you have the right to question them at every meeting. If we aren't earning them, we'll adjust them.

visit our website: www.jstomenson.ca
or contact me at jstomenson@wellwest.ca

IPP vs. RRSP...Business Owners...take note!!

An Individual Pension Plan (IPP) is a registered defined benefit plan that typically has only one or two members.

An IPP is a pool of assets set up to fund a retirement income to a single beneficiary (employee). In most cases the plan is set up for the principal in an owner-operated business or partnership but plans may also be used for key employees.

1. Every 3 years an actuarial evaluation is completed to determine the funding requirements for the following 3 years.

2. Each year a contribution is made by the company on behalf of the employee, in an amount established by the actuarial evaluation. The contribution is tax deductible to the company.

3. If the employee/beneficiary retires before reaching age 65 they may also benefit from terminal funding. Terminal funding allows for additional lump sum contributions to be made to add indexing, bridge benefits or various other options to the pension plan. This could result in over $100,000 in additional tax deductible expenses in the year of retirement.

4. Upon retirement, the beneficiary employee has three options:

- The beneficiary employee may withdraw the prescribed annual pension amount from the plan. The plan sponsor remains responsible for ensuring that the IPP can meet its obligations

- Alternatively, the beneficiary employee may “commute” their pension. Commuting the pension is a process where a lump sum related to the cost of providing the future pension is withdrawn from the pension plan and paid to the employee. The employee then becomes responsible for managing their own retirement income.

- The final option is the purchase of a life annuity with the value of the funds.

5. Unlike most conventional defined benefit plans, payments do not necessarily end with the death of the pensioner’s spouse. If assets remain in the pension plan at the time of the employee’s death, the remaining value will be used to pay a survivor pension to the spouse. Upon the spouse’s death the remaining assets transfer to the employee’s estate. In short, all of the assets accumulated in the plan are paid out for the benefit of the employee.


The Benefits of an IPP :

Avoiding the damage of a bear market

IPP members have an edge over RRSP investors in the event of weak investment performance. Under pension legislation, if a pension plan has fewer assets than will be required to meet its income obligation the company can increase tax deductible contributions to the plan to increase the asset base. RRSP investors can only envy this ability.

Creditor protection
As a registered pension plan, the IPP is creditor protected, providing an additional benefit to small business owners and incorporated professionals.

Individual Pensions are a complicated product and you should always seek professional advice prior to initiating a plan. But if you meet the following criteria, the benefits certainly make it an option worth investigating!

Age 40 or above
Employee/owner of corporation engage in active business
Corporation has surplus income and cashflow
Have a T-4 Income of $100,000

We can help. Call us. Visit our website : www.jstomenson.ca

This Too Shall Pass

I listened to Steve Cowley speak this week and what a contrast in perspective between what he has to say and what the overly sensational media continues to report.

Steve is a certified financial analyst and portfolio manager at LA based One Capital Management, LLC, a portfolio management and strategy firm that I have worked closely with over the last few years.

Steve is busy looking for value in and amongst the myriad of companies who's stock prices have been battered in the wake of the meltdown in global equity markets resulting from the financial and liquidity crisis that peaked in the final quarter of 2008.

Steve's voice is one of reason in a world that has been shaken to the core and is still reeling from the erosion of personal wealth.

To Steve the future is exciting from a global growth perspective (once we get beyond 2009) and current valuations therefore represent "the best we've seen in years"! In 5 years returns have significant upside as the economy reverts back to a normal, non-recessionary environment.There are tremendous opportunities that exist for investors right now, especially in Financial Services (currently one of the most depressed sectors in the economy).

As Steve wrapped up his discussion he summed it up by saying that "this too shall pass" and that, despite what we are reading and hearing in the media, this downturn is not as severe as either the 70's or 80's recessions. Nowhere near the Great Depression. We are in the midst of some fairly difficult times, but that the future is exciting.

The future.....the future has tremendous upside potential.
Time to stop worrying about what is now and get busy positioning ourselves appropriately to take advantage of what the future is going to bring.

Listening to Steve was like a fresh breeze blowing in bringing a new weather system.

I will be hosting Steve at my next Webinar event on April 8th at 4pm. Tune in if you would like a "fresh" perspective.


Title: This Too Shall Pass
Date: Wednesday, April 8, 2009
Time: 4:00 PM - 4:30 PM EDT
After registering you will receive a confirmation email containing information about joining the Webinar.


Reserve your Webinar seat now at:

https://www1.gotomeeting.com/register/832044908

If you missed the webinar: visit this site for a replay:

http://www.onecapital.com/ourcomments.html

and click on the webcast for "This Too Shall Pass".




System RequirementsPC-based attendeesRequired: Windows® 2000, XP Home, XP Pro, 2003 Server, Vista
Macintosh®-based attendeesRequired: Mac OS® X 10.4 (Tiger®) or newer

Private Equity : Diversify Your Wealth

As an independent business owner who has put years of hard work into your successful enterprise, it is pretty important to take stock and have a good look at your Diversification Risk.

How much is your business worth and how much of your wealth is tied up in it?

In many cases owners are so focused on their business that they do not get an opportunity to step back and look at their over-all financial picture.

In some cases owners are not even sure what their business is worth.

From a planning perspective, this becomes difficult, because at some point you are going to need an idea of your net worth and exactly how you will strategically create an income stream for yourself (and your family) in your next stage of life: post ownership (we used to call it retirement!!)

"Succession planning is all about taking the helm and setting the course for your eventual exit from the business...Failure to plan, communicate, and manage succession is the greatest threat to the survival of a business" (Succession Planning Toolkit for Business Owners, Weigl et al).

Even if the next stage (of life) is years away, there may be a significant amount of risk in having most of your wealth tied up in one asset: your business.

In her book Money Magnet: How To Attract Investors To Your Business, Jacoline Loewen discusses some very interesting ideas for not only taking some of your hard-earned wealth out of your business, but also getting a capital injection at the same time so that you can continue to maximize its growth potential.

Diversification (to make your wealth manager happy) and the ability to continue to grow your business, sounds like getting your cake and eating it too!

How? Private Equity , or as Jacoline so eloquently puts it : "O.P.M. (other peoples money)".

"Money Magnet is a guide for entrepreneurs interested in accessing capital from the private equity market. It is addressed to entrepreneurs, in accessible language, by an author who has spent a career helping businesses grow.
Undoubtedly, owners and founders of businesses need capital, but too often a trip to the dentist seems more appealing than dealing with financing."

http://www.moneymagnetbook.ca/

Succession planning and Private Equity can work hand in hand to help business owners diversify and strategically plan their (and their families) future.

It only makes sense to click on the above link and delve a little further into this great option. Can I help? Contact me to explore the possibilities!