My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, July 30, 2012

Choosing The Right Investment Advisor - Book Giveaway

In late April of this year, I read an article by Eric Lam in the National Post titled “Picking advisor best not left to chance”. Despite being sleep deprived at that point in time, I quickly noticed the article was based on the book  Choosing The Right Investment Advisor by Carol Santamaura, and that the proceeds of the book were being donated to the Princess Margaret Hospital in Toronto.

So why did I sit up and take notice? Well firstly, I have known Carol since she started as an investment advisor and we have had mutual clients for years. Secondly, as I have blogged on the topic of philanthropy, or the lack of it, a couple times, I appreciated the fact that Carol was donating the proceeds of her book to charity. Finally, the topic of Carole's book is of great interest to me. My profession provides me a unique vantage point from which to view the performance of many investment advisors and I can certainly tell you that many people have definitely not chosen the right investment advisor.

Recently I had lunch with Carol to catch-up and talk about her book. The book is an easy read and provides Canadians with a methodical manner in which to choose the right investment advisor for them.

During lunch I asked Carol if she would provide me with some comments on why she wrote the book and some of the key aspects of the book. Carol was kind enough to not only provide that information below, but she also provided me with five free copies of the book.

If you would like a free copy of Carol's book, please email your name to Lynda@cunninghamca.com and I will draw 5 names and send the winners a copy of the book.

Choosing The Right Investment Manager- Comments by Carol Santamaura

 

The goal of my book is to educate the public and simplify the process of choosing the right Financial Advisor. Further, by donating all of the profits to Cancer Research at Princess Margaret Hospital, it also allows me to support a cause close to all of us.

Since I started managing clients’ assets in the early 1990s, I have been fascinated by how people select their financial or investment advisors. This a very important decision; after all, much of one’s financial future is in the hands of this person. Yet, it always astonishes me how little research investors actually undertake before they sign up! Some say, “I met him/her at a party” or “he/she coaches my son’s soccer team.” One person even boasted that their advisor had been a professional athlete.

When I ask prospective clients and high–net worth investors how they selected their current advisors, I expect their answers to be based on the level of due diligence that a responsibility of this magnitude requires: quantitative criteria such as credentials, ethics, or returns. But typically that is not the case.

My research into why people don’t do more research into finding the right advisor has led to the following conclusions:

1) The financial services industry is complicated. 

The financial services industry has witnessed explosive growth over the last several years. Much of the difficulty in selecting an advisor lies in the increasingly complex and confusing nature of the industry. These days, it seems that everyone is a financial consultant of some sort, as the term is now broadly defined (e.g., investment advisor, investment executive, financial planner). There is also a substantial overlap in the products and services that can be provided by companies and individual advisors. Yet another challenge facing the average investor is that he/she may not fully understand what he/she needs or what advisors can provide.

2) The industry itself has done little to inform the public about this complexity. Therefore, investors are very often ill equipped and lack the knowledge and tools necessary to make the right decision.

My book unravels the complexity and provides information about selecting an investment advisor. It covers various topics ranging from what products and services the investor needs, to how to apply selection criteria for an ideal advisor. It also discusses strategies to ensure a long-term successful partnership.

Three informative sections guide readers through the complexities of the investment industry. Section one deals with the kind of investor one is and what sort of advice one requires. Awareness of certain characteristics in one’s own behaviour as it relates to investing clarifies the decision to work with an advisor and helps to identify what kind of products and services are suitable. For example, a conservative investor may want a portfolio made up primarily of fixed-term investments with little volatility. A risk-taker who is willing to take on greater volatility may prefer a portfolio of growth stocks. An ‘in-betweener’ would benefit from, that’s right, a middle path.  

Section two offers practical guidelines and useful tips for finding, evaluating, and working successfully with an advisor.

Section three examines the Canadian investment industry as it stands today, from companies and the services they provide, to individual advisors, their qualifications, and the products they are licensed to sell.

My hope is that people will be better off after having read my book for the following reasons:

1)   they will have greater confidence their advisor acts with integrity

2)   they will be able to sleep at night

3)   they will be comfortable in knowing they made the right choice.

So, whether one is looking for an advisor for the first time, or evaluating one’s current situation, this book provides a perspective on how to take an informed approach to choosing and working with the right advisor.

Carol would like to  dedicate this blog in memoriam of Jill Max, former head of RBC - DS Private Client Bond Desk. 


Carol A. Santamaura is a Vice President and Portfolio Manager at RBC Dominion Securities in Toronto. Carol can be reached by email at www.carolsantamaura.com

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Monday, July 16, 2012

Are you Selfish with your Money and Advice?

I think it is commonly accepted that most people do not like to discuss money matters. In fact, I have posted on several taboo money topics ranging from discussing the family will to intergenerational issues surrounding money. I find the fact that people are not willing to discuss money quite ludicrous in some cases and potentially harmful in certain other situations.

But, should this disinclination to discuss money extend to investment or cost saving opportunities where you may be able to financially assist family, friends and acquaintances? Are there situations in which you do not have to reveal personal financial details, such that one can disengage from the money taboo?

So, where am I going with this? Let me ask you the following questions:
  1.  If you are a stock picker and have a new favourite stock, would you inform your family, friends and acquaintances about this stock?
  2. What if you found a great cottage to rent this summer at a great price, but you can only use it two weeks of the summer, would you inform your family or friends of its availability?
  3. What if someone came to you with a private investment which you thought was the next Facebook, would you offer this opportunity to your family, friends, acquaintances or clients?
  4. What if you found a great real estate property you felt could be fixed-up cheaply and flipped quickly, but you would be stretched to purchase it yourself. Would you offer a piece of this property to your family or friends?
  5. Finally, what if you have a client or contact who is a distributor for Armani suits for men and Christian Louboutin shoes for women and they offer you a standard 50% discount and allow you to bring a guest, would you bring a guest?
Personally, I would answer yes to all the above and not think much about doing such. To me, if I can make money and also help someone make money or save money, I am happy to share the wealth, so to speak. In fact, I have done all the above in some shape or form. This does not make me a good person, I have several other faults; but I am just not selfish where I can share the spoils of a good investment or opportunity. 

However, some people are not as forthcoming. The question is why?

I see a couple of potential reasons.

The first and most justifiable reason is; that although many people are willing to take a personal financial risk on a stock pick or investment opportunity, they do not want to be held responsible if others lose their money. I think this is a very valid concern. The only counter argument I have for this concern is; if you know your family and friends well, you probably know to which people you can say, "Here is the opportunity and here is the risk. You are a big boy or big girl, make your own decision, but I am partaking in this investment and if you follow suit, you do so with the same risk I have assumed".

I would suggest for the people in the subset above, most would probably inform family or friends about the cottage rental opportunity and Armani suits/ Christian Louboutin shoe sale, because in these cases, there is no risk of financial loss and blame, as you are just helping others save money.

This leads me to an alternative reason for not “sharing” investment opportunities or cost saving opportunities. Many months back I wrote a blog post called “How we look at money”. The post centered on a study by Dr. Brad Klontz a financial psychologist.
The study which deals with money through a concept of “money scripts” says money causes certain people to be “concerned with the association between self-worth and net-worth. These scripts can lock individuals into the competitive stance of acquiring more than those around them. Individuals who believe that money is status see a clear distinction between socio-economic classes.”


I would suggest it is this subset of people that do not involve or inform others of these investments and cost saving opportunities. Their actions are a result of their competitiveness in acquiring more than those around them, such that they feel more powerful with the exclusivity of being involved in these opportunities while excluding their family and friends.

These people feel that if their investments work out, they will have more money than their family,  friends and acquaintances and reinforce their financial superiority. In the case of the cottage they would not let others know about the deal they received, yet they would invite guests to the cottage to show it off. The same would go for the suits or shoes; they would rather show up in the Armani suit or Christian Louboutin shoes to reinforce their perceived power and status and would not want others to present the same image.

As I have stated on numerous occasions, I find the psychology of money intriguing. Think how you and the people you know would respond to the above five situations and whether these situations would provide a view into your/their financial psyches.

P.S.-- Just so none of my family and friends think they were the inspiration for this blog post, it is based on as Gotye says, "Someone That I Used to Know" (My Own Advisor, how is that for a current music reference?).

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Monday, July 9, 2012

Are your Collectibles, Individual Pieces or an Unbreakable Set?

In March 2011, I wrote a blog post on the taxation of personal use property. In that post, I noted that upon the disposition of personal use property (“PUP”) there are no capital gains if the proceeds are less than $1,000. (See the above link for how PUP is taxed and the various subsets of PUP).

Financial blogger Michael James put forth an insightful question about the blog post when he asked “Suppose that a coin collection is worth more than $1000, but each coin is worth less than $1000. Can the coins be sold off one at a time (or in groups of total value less than $1000) to avoid capital gains entirely?

My answer was as follows: “Michael, great question. You have hit on a bit of a grey area. Where an individual item would normally be disposed of as part of a set such as a coin, stamp or baseball card set, the whole set is considered to be a single item of PUP. The disposition of a single item of a set may result in a capital gain even where the proceeds of disposition do not exceed $1,000 because the $1,000 floor adjusted cost base ("ACB") would have to be prorated among the items that make up the set. The term set is not defined, leaving this a bit of a “grey area”, i.e.: is a single coin, stamp or card part of a set? You can answer yes or no in many cases.”

Former Interpretation Bulletin 332R which is not binding, but represents CRA’s past thoughts, says in paragraph 14 that the term "set" is not defined in the Act and therefore carries its ordinary meaning in the context in which it is used. "The Department considers that a set for these purposes is a number of properties belonging together and relating to each other. For example, in the case of the hobby of stamp collecting, the Department considers that a set is a number of stamps which were produced and issued by one country simultaneously or over a short period of time. The fact that the value of a number of properties, if sold together, exceeds the aggregate of their values, if sold individually, may indicate the existence of a set. However, this is not in itself a decisive factor."

So why am I bringing up this topic again? Because last year the Tax Court of Canada addressed the issue of what constitutes a set in an unusual and slightly amusing case, on whether an insect collection constituted a set. Yes, you read that correctly, an insect collection.

Danielle Plamondon donated a collection of insects worth $25,419 to Laval University. The CRA then re-assessed the taxpayer for a capital gain of $24,419 being the fair market value of the collection less the $1,000 floor on PUP.  Although the judge considered the issue of personal enjoyment of the PUP, the key to the case was whether the 2,158 insects constituted a set. The judge ruled that each insect was a distinct property and did not form an unbreakable set. Thus, the $1,000 floor ACB applied to each insect and there was no capital gain.

It should be noted that in the link above, there is a discussion about the words "set" and "collection" and that according to a tax commentary service, they are clearly not synonymous and, accordingly, a collection of paintings or of stamps would not normally constitute a set of paintings or of stamps.

So, if you have a hockey card set, it would appear most sets are linked. But what if you own a 1966 set with Bobby Orr's rookie card? That card is essentially the set, is that card a distinct property? What if you are a collector of duck decoys, are the decoys linked or separate and distinct properties? What about figurine and plate collections? If you collect stamps, based on the CRA comments noted in IT-332 and the case above, it would appear there would be circumstances in which a stamp collection would appear to be considered a breakable set. Clear as mud in many cases.

The Plamodon case has not necessarily clarified what PUP will be considered distinct property as opposed to an unbreakable set. However, if you are a collector, this unusual case may prompt you to consider how linked the items are in your sets and do they form an unbreakable set?

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Monday, July 2, 2012

25 Years- My Wife Deserves a Medal

Today is my 25th wedding anniversary. In this day and age, 25 years of marriage is considered quite an accomplishment. I think that both my wife and I never expected anything other than to celebrate our 25th wedding anniversary together; a philosophy that has enabled us to accept and overcome the various challenges along the way. 

People (mostly guys it seems); always joke about being married to the same person for so long. However, as an accountant I have observed not only the financial mess left behind by a broken marriage, but the emotional debris. You have to consider yourself very lucky to find a kindred spirit to share your life with.

We all try to figure out what type of person is the right fit for us as a “life partner” prior to getting married, but who the heck really knows if your interests and personalities will truly stay aligned after 25 years. In my case, other than my wife’s less than enthusiastic love of golf and my desire to avoid superfluous social outings which she finds enjoyable, we are very much aligned.

My wife tells me I have only breached one unstated condition of our marriage, that being I have gone from being timely, to slightly late (I tell her that is because I was tired of being timely and often waiting for others). I consider that breach an equalizer to the fact I thought she had a great wardrobe when we got married; when in fact, she had often borrowed her nice clothes from her mother and we had a large unexpected clothing expenditure soon after being married.

So my advice after 25 years, not that you asked? Ensure that from day one you make time for you and your spouse. The second week after our son was born, my in-laws came over and said to my wife and I, “go out for dinner, we will look after your son”. Their message – always make time for you and your spouse, or life and/or your children will consume you both.

To my lovely wife (actually, too good looking for me as I have been told by others), I love you and look forward to achieving our bucket list of items together over the next 25 years.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.