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. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Wednesday, February 29, 2012

Having the "Talk" about your Will

In my blog post on Monday “Is it morbid to plan for an Inheritance,” I referenced a recent survey undertaken by the Investors Group that stated that 53% of Canadians are expecting an inheritance, with over 57% of those, expecting an inheritance greater than $100,000.

In the press release announcing the survey results there was a paragraph on “Having the talk” which discussed the lack of communication between parents and children in respect of inheritance issues and, more specifically, wills. As I noted on Monday, my most read blog post by far is now One Big Happy Family until we discuss the Will which discusses this exact topic.

In that blog post, I suggest that where a family discussion can be held without creating World War 3, the benefits of such a discussion include allowing parents to (a) explain possible perceived inequities in the will, (b) determine the wants and needs of the beneficiaries, (c) help in determining an executor, and finally (d) allow for full disclosure.

Admittedly, the one aspect lacking in my blog post was actual data in relation to what extent Canadians actually discuss their wills with their children. The Investors Group filled that void in their press release stating “the poll reveals that many families are not taking the time to discuss or deal with inheritance issues. Four-in-ten Canadians whose parents have a will (39 per cent) say they have not discussed the terms of the will with their parents while sixty-one per cent of Canadians with deceased parents who had a will, admit they never had the talk.”

While the Investors Group press release focuses on the fact most families do not have the "talk', a glass half-full view reflects that a significant number of families actually do discuss this sensitive issue. In the Investors Group press release Christine Van Cauwenberghe, Director, Tax and Estate Planning at Investors Group says "When it comes to wills in Canada, there's not enough action and certainly not enough talk," Christine goes on to say that "Broaching the sensitive topics of wills and estate details with loved ones can be daunting but having "the talk" early on can provide security for planning and make the process easier when the time comes."

Finally, in the press release, the Investors Group states “Interestingly, those who have discussed will and estate details with family members indicate it was not a difficult conversation. Three-in-ten (31 per cent) said the discussion was very easy while only three per cent said they found it very difficult.”

That the survey reflected many families are able to have this conversation without issue is heartening. However, I would speculate that these families are most likely families without a black-sheep child and their distributions are probably somewhat equal and not contentious.

Nevertheless, it is nice to have some statistics that reflect that some parents are having this difficult discussion, which allows for estate planning certainty and minimizes the issues for the executor(s) in administering the parent(s) estate.

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, February 27, 2012

Is it Morbid or Realistic to Plan for an Inheritance?

I have written several blog posts on estate planning and inheritances, including “Taking it to the Grave,” a blog I wrote for the Canadian Capitalist, in which I discuss whether parents should distribute future inheritances in part or in whole while they are alive and “How your Family Dynamic can affect your Estate Planning”  in which I discuss how parents have to navigate a minefield of family issues with respect to the determination of executors, the distribution of family heirlooms and the distribution of hard assets.

These blogs elicited a wide range of opinions and comments that I found fascinating. Some people believe they are better off because their parents made them work for everything and they don’t want any financial assistance from their parents either during their life or after they pass away. Others state that as long as parents are careful to ensure they don’t destroy their children’s motivation, partial inheritances make sense. Finally, others say they have been sickened as they observe children waiting at a parent’s deathbed salivating at the thought of their inheritance.

All this leads me to another very touchy subject; should a child (let’s assume the child is at least 40 years old) plan their own future based on a known or presumed inheritance? To add some perspective to this issue, it is interesting to note that a recent survey by the Investors Group states that 53% of Canadians are expecting an inheritance, with over 57% of those, expecting an inheritance greater than $100,000.

Inheritances can be categorized as either known or presumed inheritances. An inheritance would be categorized as known, when a parent(s) has/have discussed the contents of their will with their child(ren) or at least made known their intentions. In these cases, while the certainty of the inheritance in known, the quantum is subject to the vagaries of the parent(s) health, the parent(s) lifestyle, the income taxes due on the death of the last to survive parent and the economic conditions of the day. (Speaking of discussing the will with your children, it is very interesting to note that my blog post One Big Happy Family until we discuss the Will which had limited initial traction, is now by far and away the most read blog I have ever written).

An inheritance may be presumed where the financial circumstances of the family are obvious. A child cannot help but observe that the house their parents purchased 30 or 40 years ago for $25,000 is now worth $800,000 to $1,000,000, or that the cottage their family bought for $100,000 many years ago can be subdivided and is now worth $700,000.
Many average Canadian families have amassed significant net worth just by virtue of the gains on their real estate purchases. These families would not be considered wealthy based on lifestyle or income level, yet their legacy can have a significant impact upon their children. Inheritances are not only an issue for wealthy families.

I think most people will agree that where an inheritance will be so substantial that it will be life changing; parents need to downplay the inheritance issue and/or manage the inheritance by providing partial gifts during their lifetime. Rarely can a child become aware of a life-changing inheritance without losing motivation and experiencing a change in their philosophical outlook on life.

Although life changing inheritances are rare, life "affecting" inheritances are not. So, should children change how they live and how they plan for the future based on a known or presumed future inheritance? In my opinion, if the inheritance is known and will be substantial enough to alter a child’s current or future living standard, the answer is a lukewarm yes, subject to the various caveats I discuss below.

I think it is imprudent to ignore reality and where an inheritance has the attributes I note above, it should be considered as part of your future financial plan. However, I would discount the amount used for planning purposes significantly, to account for inherent risks. Those risks include the longevity of a parent, economic downturns that reduce your parent(s) yearly income stream,  potential medical costs and finally, the ultimate risk one takes in planning for an inheritance; the risk of somehow falling out of favour and being removed from your parent(s) will.

Where there is a presumed inheritance, I would suggest you need to be ultra conservative if you want to plan for the inheritance, since not only are you guessing at the inheritance amount, but you face an additional risk that your parent(s) may have offsetting liabilities such as a mortgage or line of credit of which you are unaware.

So what do the experts have to say on this matter? In the press release for the Investors Group survey, Christine Van Cauwenberghe, Director, Tax and Estate Planning, says that "Knowing the dollars and cents behind your inheritance can have an impact on your financial plans. It is smart to know what you can expect so you can plan accordingly and family dialogue is a good place to start."

Ted Rechtshaffen, a certified financial planner at Tri-Delta Financial, in a National Post article I discuss below, says "he may be in the minority but he encourages clients to count on their inheritances when planning to some degree." He however, goes on to say he tells clients to be super-conservative. Finally, he concludes with "I know it goes against the grain because you are counting on money you don't have", adding, "it depends where your parents are in their life cycle and how clearly they have signalled their intentions".

I think Christine and Ted's comments clearly point out the conundrum here, for which there is no black and white answer. It is probably unwise to ignore a known potential inheritance, but because the final inheritance is subject to so many variables, you must risk assess that inheritance and discount its quantum by a significant amount, such that your planning becomes a paradoxical situation.

But what if you see no risk in your parent(s) financial situation deteriorating and you feel you will never be removed from the will, how can your financial planning be affected? For argument’s sake, let’s say your inheritance will be large enough to affect your future planning, but not large enough to affect your motivation or change your lifestyle.

The most obvious change to your financial plan may be to underfund your RRSP. Most Canadians struggle to make yearly RRSP contributions. They live in mortal fear that they will not have enough money to live the retirement they envision. But, if you know your parent(s) have enough funds to live out their life/lives comfortably, and say your inheritance will be in the $300,000 to $500,000 range, do you need to make your maximum RRSP contributions?

Other planning issues include whether you should purchase a home out of your price range or underfund your children’s education fund, knowing that you will receive an inheritance to pay off the mortgage or to pay off any education related loans. Alternatively, you may over fund your child’s education by sending them to a private school you would never had considered without knowledge or presumption of a future inheritance.

How you deal with debt could also be affected. If you have debt, should you just limit it to a manageable level and not concern yourself with paying it down? Or alternatively, should you pay it off because you can reallocate funds once committed to your RRSP, TFSA or RESP, knowing your inheritance will cover your RRSP, TFSA or RESP?

We have all heard about about the huge debt level many Canadians are carrying. Based on comments made by Benjamin Tal, deputy chief economist for the CIBC, one wonders if at least subconsciously some of this debt level in being carried because people know they have an inheritance coming? Mr.Tal in an article in the Toronto Star on Baby boomers set to inherit $1 trillion says "people talk about how much debt there is without looking at the size of the potential assets to come. Debt is relative to your income today, but your wealth tomorrow will improve when an inheritance comes."

So, have I seen people bank on an inheritance? Yes. To date, where I have observed such behaviour, the inheritances have come as expected. However, these cases may not be predictive of future cases.

Is it morbid to plan for an inheritance? Clearly, it is. Would most people rather have their parents instead of the inheritance? Yes. This topic is a very touchy subject and an extremely slippery slope, but to ignore the existence of a significant future inheritance that would impact your personal financial situation may be nonsensical.  However, if your financial planning takes into account a future inheritance, you should ensure you have discounted that amount to cover the various risks and variable that could curtail your inheritance and be extremely conservative in your planning.

Post script:

As the expression goes "Those who hesitate are lost". I started writing this blog back in late November, but could not come to a conclusion (if one can call the lukewarm recommendation I suggest above a conclusion) until recently on whether one should or should not plan for an inheritance. Thus, this blog post just sat. In the interim there have been two excellent articles on this topic. The first by Garry Marr of the Financial Post, titled Windfall no sure thing from which I quote Mr.Rechtshaffen above and another article by Preet Banerjee of the Globe and Mail, titled An inheritance should be a windfall, not a financial plan.

In Preet's article he notes the potential flaws of incorporating an inheritance into your financial plan. He also concludes with some words of wisdom "There are enough variables affecting your own financial success. Ideally, you shouldn’t bank on an inheritance in your financial plan, but rather treat it as an unexpected windfall. Most people would rather give it up in exchange for having their parents back".

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.

Wednesday, February 22, 2012

Does Money bring Happiness?

I find the psychological aspects of money fascinating and in July, I wrote a blog called How we look at Money. Today, I want to discuss a post on the Psyblog (written by Jeremy Dean, a researcher at University College of London working towards his PhD) called The 3 Reasons Money Brings Satisfaction But Not Happiness.

Jeremy puts forth the following three reasons why money doesn't make us happy:

It's relative income that's important

Jeremy says money is relative. He says “we don't mind so much about our actual level of income, so long as we're earning more than other people around us. Unfortunately as we earn more money we're likely to be surrounded by richer people so we often end up failing to take advantage of the positive comparison.”

I would be interested in knowing if there is a correlation between increasing income and the importance of relative income; or is relative income as an important measure at lower income levels as it is at higher income levels? One would think meeting basic needs would be far more important the lower your income level, but maybe not. As for those with a higher income, I think we all know someone who needs to earn more than their friends and the people they grew up with, but as they earn more, they essentially social climb into another strata and, as Jeremy says, become surrounded by richer people, requiring them to climb another social strata in a never-ending loop.

Material goods don't make us happy

Jeremy says “acquiring things like houses and cars only have a transient effect on happiness.” Jeremy even states that materialism makes us less happy.

I think we can all somewhat relate to this comment. We often strive for a material item and sometimes, after achieving it, there is almost a letdown as the journey was more exciting than reaching the mountaintop. However, let’s say you love to jet-ski; the acquisition of the sea-doo would seem to have a lasting effect on happiness, so I am not sure I am 100% in agreement on this one.

People don't shift to enjoyable activities when they are rich

Jeremy says “people who earn more money don't spend their time enjoying themselves, they spend their time at work, in activities likely to cause them more stress and tension….In fact, to earn the money, they have to spend more time at work, and commuting to and from work.”

Although true in some cases, I certainly observe many people golfing 3-4 times a week or hanging out at their cottage in the summer enjoying themselves and their financial wealth.

Finally, Jeremy in his blog notes that Nobel-prize winning psychologist Daniel Kahneman says “the idea that the reason people continue to think money makes them happier is that chasing it leads to conventional achievements. Conventional achievements include things like getting that coveted promotion or being able to afford that big house - in other words things that say loud and clear: here I am and this is what I can do.”

Jeremy concludes that “in fact, people with more money and status are just more satisfied with their lives, not happier”.

Jeremy asks an interesting question in his blog posting and I will conclude this posting with the same question, “before you scoff at this think about whether you'd rather be satisfied or happy?”

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, February 20, 2012

Employment Insurance Refund Claims- The Unexpected Income Tax Implications

You have probably heard one of the radio advertisements from companies asserting that they can get your business or company a refund if you have paid Employment Insurance (EI) premiums on behalf of your family members. These advertisements can be misleading and they have led some people to believe that EI premiums are not required when remuneration is paid to a spouse, siblings, children or parents employed in a family controlled business. This assumption is incorrect, and in some cases, companies that have not remitted EI have been subject to interest and penalties upon a reassessment.

As if the criteria to determine whether EI must be submitted in the first place on behalf of family members are not confusing enough, there is an insidious income tax issue associated with requesting an EI refund. If you make a claim, you are in many cases essentially telling the Canada Revenue Agency (“CRA”) that the wages you paid to your family are unreasonable.

So let’s try to deconstruct this issue.

The CRA’s position is that EI premiums are required on salaries paid to family members unless the conditions of employment are not similar to conditions that would be enjoyed by an arm’s length individual in similar circumstances (EI is not applicable in the first place if the family member owns more than 40% of the corporations voting shares). This position means for example, that if a family member employee is paid a higher salary or wage than the employer would normally pay to an arm’s length person who had the same or similar responsibilities, EI premiums may not be required. It would also apply to situations where the family member employee is required to work fewer hours or is entitled to more vacation time than what would be offered to an arm’s length employee in a similar position. As the above criteria are somewhat subjective, the answer to whether a company should be paying EI on behalf of family members is not necessarily clear cut. A company can request an EI ruling from the government to determine whether the family member's employment is considered "non-arm's length" and therefore can stop deducting and remitting EI premiums and possibly receive a refund of premiums paid in the current and three prior years.

Various EI refund companies have stepped into this void and may charge a fee of up to 30% for any EI they recover on your behalf. As one can fairly easily file an EI ruling and make their own refund claim, it is a question or your time and sophistication as to whether to hire an EI refund company to make your company's/business's claim.

While there is no doubt that a refund of EI premiums is available in some circumstances, you must be understand that when you claim a refund for EI, you are admitting to the CRA that a salary paid to a family member may have not been what you would have paid to a non-related employee, and, as such, was not reasonable. The Income Tax Act specifically prohibits a deduction for unreasonable salaries. Thus, you may accidentally be providing the CRA a trail to unreasonable salary paid in the past that could be denied by CRA for corporate or self-employment business tax purposes. This has been confirmed by the CRA in a past tax pronouncement I note below: (Since it is not my intention to cause my readers unnecessary audit anxiety, I must note that I have not seen the CRA aggressively use EI refund and ruling information in assessing taxpayers. I am just pointing out a risk associated with ruling requests and refund claims.)

“(the Income Tax Act) will operate to disallow any portion of the salary which is not reasonable in the circumstances…. the conditions of employment being enjoyed by the employee are dissimilar to the conditions which would be enjoyed by an arm’s length employee suggests that some portion of the salary being paid to the employed (family member) may be in excess of a reasonable amount. To what extent the salary is in excess of a reasonable amount can only be determined after a review of all of the facts of the case.”

A simple example illustrates the potential costs if a family member’s salary is denied as a tax deductible expense. Say a small business owner pays his or her spouse $50,000 for administrative services he or she performs in the office. In 2012, the combined employer and employee EI premiums that could be saved or recovered would be approximately $2,000. The additional corporate income taxes that would result if $30,000 of the $50,000 salary expense is denied because it is deemed to be unreasonable would be approximately $4,700 plus potential penalties (unlikely in this situation) and interest. If the entire salary was disallowed, the income tax cost would be approximately $7,800, plus potential penalties and interest. This is a current cost analysis, however, once on CRA's radar, it would be prudent to restrict the future salary to family members, thereby costing you future income splitting income tax savings.

One should also bear in mind that EI protection will cease for family members if EI premiums are recovered or simply not remitted. This should be of particular concern for anyone counting on EI benefits in the future, especially during a parental leave. However, we have seen the government deny EI benefits even when EI premiums have been deducted and made consistently in respect of salary paid to a family member. Thus, if you employ family members you may want to request a ruling from the CRA to determine whether or not the salary paid to a family member is insurable in the first place, however, that then brings the reasonable salary issue back into play.

Although it is true that a refund of EI premiums may be available under certain circumstances, in some cases the potential risk for the non-deductibility of the salary may outweigh the potential recovery, especially where very unreasonable salaries have been paid to family members. I would suggest before moving forward with an EI claim, you discuss the issue with your accountant to best quantify the risk if any.

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, February 13, 2012

Sibling Rivalry-Parents Beware, it is not only a Childhood Issue

This past summer, while driving to a golf course 30 minutes outside of Toronto, my friend and I played a game of high school geography. After playing the game for a few minutes, he asked me if I had heard what had happened to Tiny and his younger brother Tim. I said no, and my friend then related this tragic story.

As part of a family business succession plan, Tiny and Tim were given control of Papahasdough Co. This succession plan was well-founded as both Tiny and Tim had worked in the business for years and were ready to take the business to a new level. Although the brothers were given equal shares of Papahasdough Co., Tiny assumed the role as CEO and Tim was named CFO. However, Tiny, as he had all his life, acted as Tim’s older brother/boss and not his equal. Tim, who had resented Tiny since childhood for acting superior, rebelled. The brothers had a severe falling out and lawsuits followed. The story gets far uglier, but I’ll spare you the gory details.

In this sad saga, sibling rivalry moved from childhood to adulthood. One may think this uncommon; however, according to a 2004 article by Offra Gerstein Ph.D, titled How to deal with Adult Sibling Rivalry, sibling rivalry can significantly impact relationships between adult siblings.

Dr. Gerstein states that “the need to restore one’s worth in one’s eyes may take the form of life long competition. If I “win” and my brother “loses”, then I may prove that my parents were wrong in favoring him. This may not be a conscious thought but the action may reflect this motivation.”

Jane Mersky Leder in her article titled Adult Sibling Rivalry says “Western culture has an obsession with sibling rivalry that began with the story of Cain and Abel and was elaborated by Freud, who labelled and dwelt on the competition between siblings for parental love and attention. It's colored our perception of sibship ever since.”

Sibling rivalry can manifest itself in many ways during adulthood, both financially (the distribution of family assets) and psychologically (perceived favouritism). However, in this blog, I am just going to deal with how sibling rivalry can affect the succession of a family business. The issues of business succession are varied and complex even for families without sibling rivalry baggage.

Family succession issues include: Which child does the parent give the voting shares to? Who is named CEO? If the children do not have the same commitment to the business, should they be given equal shares or equal salaries? These issues are intensified when there is sibling rivalry and I would suggest the parents are ultimately responsible for recognizing that this issue can be divisive and toxic, as in the case of Tiny and Tim.

Even where parents are in a no-win situation, at a minimum they must consider options to mitigate potential issues. Alternatives may include selling the business or giving the shares to one child and equalizing the other child through cash or other means.

A 2001 paper by the National Center for Employee Ownership presented by their research council states “sibling rivalry can pose another obstacle to smooth succession in cases where the retiring owner is transferring company leadership to more than one child. While some rivalries are inevitable, these must be managed so as not to impair business judgement or prevent collaboration from taking place. A wide variety of approaches – such as enlisting one of the retired owner’s trusted advisors or a very senior non-family manager as a mediator – can prove successful in preventing rivalry from becoming destructive.”

Phil Thompson in his paper Succession Planning and the Family Business states that “without careful planning and parenting, including outside counselling, sibling rivalry can wreck a succession plan. Unfortunately, sibling rivalry often stays buried until after the parent is dead. Deal with sibling rivalry right at the beginning, and build a plan that will not fall apart over this issue. Problems can arise either when more than one sibling is involved in the business or when only one of your children is involved. The decision you make with the business can affect how other family assets are considered, including houses and cottages."

Many parent(s) work their entire lives to build a family business with the hope of passing it on to their children. It is very sad that childhood sibling rivalries can be carried into adulthood and it is incumbent upon the parent(s) to recognize this issue and plan to mitigate any potential fallout.

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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.

Wednesday, February 8, 2012

The Balance between Enjoying your Life and Frugality

As I discussed in my “Old and not Thrifty” post on Monday, I don’t care if I save two dollars shopping at Wal-Mart. That is not to say I do not think about what I spend my money on, but once I decide to spend, I am not frugal.

For those who are frugal, there is no debate from me that you definitely save a greater percentage of your earnings than The Blunt Bean Counter. However, my sermon for today is that your frugality must not be a means to itself, but that the monetary benefits you accumulate by being frugal should at least in part, be utilized to enhance your life experience.

The discussion in this blog post is only relevant to people who have savings and are not frugal out of necessity. For the purposes of this post I am lumping spending avoidance with frugality, although they are not necessarily one in the same. For example, many years ago, at a firm I used to work at, a client’s investment advisor believed in fully leveraging this client's portfolio's so that they had the maximum exposure to the equity markets. The client took this leverage philosophy to the extreme, such that he had no money to spend because his cash flow was restricted as result of his debt obligations. This was not frugality, it was actually stupidity; he was not enjoying his life because he was not spending money because he had to avoid spending.

Whether you are not spending money because of frugality or because you have choked off your cash flow as in the example above, be aware that you are postponing the time to enjoy your life. In the case above, the client’s marriage had tremendous tension as his spouse did not agree with the philosophy of leveraging when it impacted her desire for going out for dinners and travel and enjoyment of her life.

At this point, this blog requires a connector. My personal connector is having a father die in his early fifties. My view on life is always impacted by this event because whenever I say this purchase or that vacation can wait for another day, I stop and say to myself, that that day may not come. I am not being morose or by any means saying overspend today and disregard your future; I aggressively and continuously try to build my RSSP. I am just saying balance your today and your tomorrow. Don’t deprive yourself, because you may not have tomorrow to enjoy the financial benefits of your frugality and savings, whether because of health issues or worse.

As I suggested in the second part of my blog Sign That Will, you should consider creating a bucket list to give your frugality some purpose and balance. This year I crossed off one of my bucket list items, Pebble Beach. The cost was excessive, but I did not care, it was an awesome experience.

For what it is worth, my suggestion is that you create a bucket list of things you really want to do during your lifetime and try and build in actual time frames to cross the items off your list. Use your frugality or savings ability to specifically save for a bucket item and thus, leverage your behaviour and financial philosophy while gaining some personal life balance. Don't just save for tomorrow, save for today!

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, February 6, 2012

Old and not Thrifty

There are a multitude of blogs in the blogosphere on how to be thrifty and which stores can help you get more for less. One of the best of this genre is the blog Young and Thrifty. Y&T was one of the bloggers who joined in the Bloggers for Charity initiative, showing she is not only thrifty but also altruistic. Y&T, who decided to be her own guest blogger, wrote a great post on Tibet and the Trans-Himalayan Aid Society.

While I appreciate Young and Thrifty's blog and her related tips, personally, I am far from young and thrifty and a more accurate characterization of myself would be old(er) and not thrifty.  

My wife who is thrifty says I am like a caged animal 5 minutes after she takes me into a Costco or Walmart. She has declared me persona non grata for her shopping excursions to Costco unless she is there to purchase one or two things. As for Winners or Target, I am sure they  have some awesome clothes for sale, the problem is I won’t dig twenty minutes to find that gem of a deal.

So what is my problem? If I navel gaze, I would suggest there are three reasons for my lack of thrift.

A bean counting accountant,
but he is not The Blunt
Bean Counter
1. I am an accountant. You are probably thinking what the heck is Mark talking about, accountants are numbers guys and notoriously cheap. Although counter intuitive, accountants are taught as wee auditors that materiality is important. In auditing a financial statement, if an item is not material to the financial statement, you are taught to ignore it. So I have been programmed to only worry about material dollars, so if I can save 5 bucks, I don't care, talk to me about $50 or $100 and I will pay attention.

2. Secondly, I am a guy. Typically in order to be thrifty you must undertake due diligence and shop around to determine your options and then zero in on the cheapest option. That means actual shopping at an actual store in a crowded mall or superstore. Let’s be honest, most guys cannot stand to shop unless it is for power tools, cars, sporting equipment or swimsuit shopping (yes, girls, we really are shopping for the most up to date swimwear, and we are not there to look at the women trying on their new bikini's), so how can most guys even be close to being thrifty?

Believe it or not, I actually like shopping for clothes. However, this is how I work: if I walk into a store and I like something, I buy it. Why do I need to go to 3 other stores to see if I like something better? If I like the clothing item and I don’t feel I am being ripped off, I buy it and I am done, no shopping around.

3. I have no patience. I just cannot take the time to spend several hours finding the best blender at the cheapest price. I would be willing to bet most thrifty people have far more patience than I do.

There is no doubt, being thrifty is financially beneficial. Also, so I don’t get hate mail for my lack of empathy, I realize thrift and prudence is not a choice for many people.

However, I would suggest if you are playing the thrift game, you have a quick two strikes against you if you are male and lacking in patience.

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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.

Wednesday, February 1, 2012

Multiple Accounts, Multiple Advisors, Minimal Returns

I recently read an excellent post by the Canadian Investor on the blog How To Invest Online titled ETF Allocation across RRSP, TFSA and Taxable Accounts.

In the introduction to this blog, the Canadian Investor provides a very insightful and important message: “The wise investor diversifies across different types of investments to maintain a portfolio asset allocation with the percentage breakdown specified to meet investment objectives. A fundamental principle is that though the portfolio may span many accounts it should be managed as a whole, not as independent pieces.”

What the Canadian Investor is implying above is, that many Canadians have multiple investment accounts from non-registered accounts to RESPs, to RRSPs to TFSAs and often these accounts are not managed as a whole, which can result in less than desired investment returns.

Effectively managing your assets across various accounts becomes a far more arduous task when you muddle the issue by having multiple investment advisors managing the various accounts. Many people seem to "accumulate" multiple investment advisors over time, for a plethora of reasons. The three main reasons I typically hear are:

1. This advisor is a relative (friend); I had no choice but to use him/her.

2. I need to spread my advisor risk around. I am concerned if I have all my eggs in one basket with one advisor and they screw-up, my portfolio returns will be disastrous.

3. I really have not paid attention. I have just accumulated different advisors as I purchased different investments and never gave much thought to the fact I now have multiple advisors.

Whatever the reason for people having multiple advisors, the situation is almost always dysfunctional. Many advisors work in their own silos oblivious to their clients’ other investments and, in many cases, there is no co-ordination or attempt to properly allocate and balance investments across all accounts, by the advisors.

If you find yourself in this situation, I suggest you consolidate your various accounts with one or two advisors. Alternatively, you can provide full disclosure to one of your advisors and have him or her inform your other advisors of their mandates within your overall portfolio allocation. This approach will put one advisor in charge and assist you in achieving proper diversification of your assets across multiple accounts and advisors.

In summation, you should review all your investment accounts to ensure you are managing them as a whole and in accordance with your overall asset allocation and portfolio strategy. In addition, if you are one of those people with multiple advisors, consider whether you should fire one or more of those advisors, and at a minimum, ensure one advisor oversees and quarterbacks your other advisors.

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.