I have happy news and gems for you making this one of our most important letters of the past 5 years. Get your favourite beverage (and chocolate?) and let’s dive in. First we recap a successful 2016. Second we look at the advisor-client relationship, and as you’re paying for this, do you know its value? We then share the changes on your soon-arriving statements …and without spoiling the show I’ll help you understand how some people get 380% more value than other people …which will lead to some good questions and discussions together. Finally for 2017 and beyond we remain riveted on your goals, your freedom, safeguarding your dreams always!
First, recapping 2016 investment results.
2016 smiled very well on us, paying significant returns over the year. Our Canadian Dividend funds rose 20%. Our domestic equities (large-, mid-, small-cap) ranged 10-20%. Emerging Market funds rose 12-18%.
Europe and the U.S. suffered various difficulties until the closing weeks of 2016. There were no favourable breezes for Real Estate (up 16% in 2015) nor for Global Infrastructure (multi-year returns >8%). Europe today, despite political uncertainties, offers historically high dividend yields. While indices may idle many specific companies are going to shine brightly. Current values in global real estate and infrastructure suggest high-yields and strong growth for the seasons ahead.
No betting on bonds. Last year we mentioned the half-dozen primary levers of managing a bond portfolio and it hasn’t become any easier. 1/3rd of government bonds in the world are paying less than zero – that’s a guaranteed loss! This is historically unprecedented. Canadian 30-year government bonds now pay just 2.3% (but less after costs) so a typical bond portfolio will force people to lose purchasing-power and eventually run out of money. In corporate, global, and higher yield bonds some better results are possible. Our Infrastructure and Real Estate positions can help lift our boats – but even a rising tide cannot help a bond that is anchored to the bottom. (Ask me on this.)
#2 – How to describe an advisor’s Value?
“Value” is a personal experience ... “in the eye of the beholder.” Each of us has personal aspirations for our lives, our wealth, how to enjoy life’s journey. We have a variety of tastes in music and restaurants, choice of cars or neighbourhoods, vacations and entertainment. Consider also the generations represented in this family picture – they’re all happy, but may I suggest each person is happy in their own distinctive ways. Similarly you have your own way of thinking and describing the “value” you experience working with our team. I know this because you have told me and we’ve discussed it, and you have thanked me in so many ways for the value of our relationship and trust.
- SIMPLICITY is a value because we live amid overwhelming information overload. You can reach me anywhere and anytime to ask about your wealth and financial planning and we can answer clearly. We follow simple and proven principles to protect your wealth, and we can describe this in simple terms that you could describe to your grandparents or grandchildren, and among friends.
- LIFE QUESTIONS can be about money and so much more! Some of the following arise in our discussions from year to year. Changing jobs, expanding career, opening/selling a business. Family discussions of children and teens, celebrating new families, caring for aging parents, battling illness, surviving job losses. Vacation choices and expanding horizons for mid-life, retirement, and aging. How to prepare and launch a retirement lifestyle – even how to expand skills and experiences when you have more time and want to keep living vibrantly.
- KEEPING THE BOAT STEADY through years of tumultuous change testifies to our confidence in working together. A couple were leaving my office when she turned back, paused, and said to me, “We’d never be where we are today if it weren’t for you.” I reminded her that they did their part too, paying off debts, making regular investments, insuring against risks, and having the courage to travel, cherish one another, and filling their life with more and more great memories along the way.
- FREEDOM TO SPEND MONEY is “budgeting” but consider this; budgets are the permission slip to spend confidently, enjoying the lifestyle you choose. A young family learns to control impulsive spending to get more life for the same money! A gentleman at 67 was frightfully hesitant to retire: clarifying a lifestyle budget showed they’d never spend all their money. Some advertising says you can have it all, but if money fails you’re looking for work at 75? We help you align life and wealth …and this means you can enjoy life now and live abundantly to age 95 and beyond!
- SEEING THE BIGGER PICTURE … our agenda for each meeting brings up wider needs of health and family, Wills and Powers of Attorney, your accounting, and issues to settle ahead for your Estate or to ease burdens if you’re serving as Executor for someone else. Frequently we have people who are changing homes or facing health challenges and we can introduce other specialists who help manage those kinds of concerns.
- WE ALSO INCLUDE THE FOLLOWING:
- Personalized Investment Plan
- Integrated Life and Financial Planning
- Customized Estate Planning
- Charitable Gift Planning
- Research/monitoring risks/investments.
- Re-balancing portfolio assets
- Online & phone-access to accounts/resources
- Support to family and friends, survivors and heirs.
- Tax strategies: living and beyond . . .
- Individualized reports/summaries
#3 – Value in our New Account Statements.
I haven’t seen my own year-end statements but here is some background and why these statements are changing.
Starting in Britain, Australia, New Zealand there has been a movement to eliminate all advisor-compensation from investment funds. This means advisors are forced to charge clients fees directly rather than get paid from the firm where money is invested. This has resulted in thousands of advisors quitting, and millions of people losing access to certified financial advice. Canada may go this way, or not: regardless, this won’t impact our firm’s ability to continue serving you.
Recent changes on investor’s statements will confirm what people are paying to invest. Many of my clients have had this information for years – it’s not new for us. We’ve also discussed compensation when relevant to your investments through the years.
What are we paying, and what do these costs represent? Consider for example we invest in XYZ Equity fund. XYZ can’t manage money for free because they have administration, global research, professional staff, rising office costs. XYZ also pays a dealer (e.g. Quadrus) which has regulatory authority over their financial advisors. Such a dealer pays a fraction to the advisor who then has their own costs of staff, office, compliance, licensing, insurances, other overhead …before getting paid a dollar for guiding clients.
The system is efficient and far better regulated than it used to be. Fees have been reducing, and with higher-wealth clients we also qualify for reduced fees. You’ll also see now, fees we’ve never charged but which are typical elsewhere: admin fees, account fees, switching fees, trustee fees, various other charges we’ve been able to waive and avoid. (Even buying funds at a local bank branch with no advice will show 1% going from the fund manager to the branch …other bank fees on top of that too.)
Our firm Sovereign Wealth continues including our financial planning at no extra charge. This is value we all appreciate because our firm is distinguished for giving this value, and our clients are beneficiaries of lower-risk and sustained growth. Outside research has now actually quantified this kind of value. Controlling all other factors (i.e. comparing identical individuals) people who own and follow a certified financial plan end up with near 380% more wealth after 15 years than people who did not have the benefit of such advice.*
- The Gamma Factor and the Value of Financial Advice, by Montmarquette and Viennot-Briot, 2016.
TV and newspapers have confused the issues so here are two clear examples. One is comparing costs of a mutual fund in the U.S. (not including advisory fee or taxes) with costs of a Canadian mutual fund (including advisory fees and taxes). That’s an apple and an orange! Media could clarify this easily, but they don’t. Another example is comparing a lower-risk mutual fund against a higher-risk ETF and suggesting ETFs cost less (but intentionally hiding risks, advisor-fees and other costs). That’s an ape for a chimp!
They’re comparing the apple and orange, the ape with a chimp. Does it make sense? NO! What matters to you and me is the result! What matters absolutely is the result over time …and to grasp this we focus on NET RISK-ADJUSTED RETURNS to fit your personal comfort and lifelong goals.
#4 – Reaching your Financial Goals – 2017 and beyond.
We consistently and clearly focus on your goals and personal financial plan. As you ponder this, you know there are certain specific goals you want to achieve and enjoy …short-term, medium-term, and longer term. Ask the question this way: “What needs to happen over the next 3, 5, 10 years, so when you look back you’ll feel the gratitude and joy of accomplishing the results you’ve wanted?”
This type of question deserves time …and you sometime meditated on something you really want in life, then also take a moment to design the exact question you want to ask, and how you would phrase it for yourself. Share it with me too as we continue to shape your financial planning to achieve these great desires.
Usually the goal isn’t “money” but the Freedom and Confidence to shape your Lifestyle. Retire early? New career? Deciding how/where to volunteer? Art or music? Outdoor activities? All this and more, we find how to express the freedom and financial wellbeing that gives you and your family what you want.
Choose your questions carefully. Someone worried about money looked at life’s opportunities and asked, “Can I afford it?” Others came to realize their strong foundation and said, “How can we lift even more enjoyment, impact and gratitude, in our lives now and for as long as we live?”
This is your life! Now, next year and onwards we continue aligning your resources to preserve and protect the life you choose and the opportunities you wish for life and loved ones.
Concluding today ...
I’m grateful you’ve given time to review this; each of these four sections is important for us now. Come back again and review ...and we can discuss these areas also when we’re together.
Challenges hitting today’s investment industry will hurt banks and advisors who were coasting on autopilot instead of concentrating and confirming the value people need and deserve. As we can be of help to someone you know, thank you for sharing a good word and introducing us.
SHARE this letter freely with a friend or anyone who needs strong financial results to design and enjoy life and protect loved ones!
Yours in Financial Security for LIFE!
Brian Weatherdon, Certified Financial Planning, Retirement Coaching.
905-637-3500 x 223. 1-877-937-3500 x 223. Brian@SovereignWealth.ca
Author: A Lifetime of Wealth. Protecting Life... Halton Retirement Study.
** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns whether historical or forecast are from publicly available sources and research from a variety of firms including but not limited to GLC, RBC, CIBC, Mackenzie, Franklin Templeton. Opinions reflected in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to consult alongside your legal and accounting firms to advance your financial security and unique goals. We are grateful always to receive your comments and questions.