Re-investing in your business should be seen as a way of “paying it forward” in the sense that you will reap the reward in future earnings. Depending on a company’s growth stage, distributing profits back into the company can encompass a range of benefits. Proper planning is imperative. If you recall from the first article, we determined proactive ways in which to deploy retained earnings. These are listed here again for reference: 

1. Take the Money As A Dividend To Shareholders
2. Grow Your Business Through Acquisitions
3. Invest in Your Team Members 
4. Invest in A Participating Life Insurance Policy 
5. A Combination Of These

How Do I Decide What to Do?

Our advice? First, evaluate if your company can grow at a rate of return that is higher than at least 5% either through acquisitions or increasing resources such as key personnel, office space, or equipment and machinery. Consider growing from within or externally as in points 1 through 3.

For a young small business, the choice might be simpler. If a business has received funding from investors but still needs to establish itself, it might want to consider reinvesting in the company and stick with point 2 and 3. If a business can afford dividends, giving your investors some payback can be a good choice so opt for point 1. Please note, this should be considered with the help of a CPA and Certified Financial Planning professional as to how and when to withdraw these.

Supposing a company has been in business long enough and are well established, the shares of the corporation will likely have value. Now consider a situation where a sole shareholder or a partner passes away, how will the final tax bill of the deceased get taken care of?

When a shareholder dies, those shares cannot pass tax-free (other than to a spouse) as it will be considered a deemed disposition. Enter point 4 – the absolute need for a well-designed life insurance policy as it is the best Estate Planning vehicle available to business owners. This is especially true if entrepreneurs have retained earnings in which they can fund or transfer into and in turn, build up the cash values. To what avail you may ask? It is a well-established fact that cash values from a participating policy act as an anchor on the balance sheet as this strong and stable asset increases tax sheltered every year. In turn, since the shareholder doesn’t need to die in order to benefit from a participating policy, it can be borrowed against or used in other cash flow needs in future. Life insurance cash values are the ONLY tax-sheltered account available to a Canadian corporation!

Moreover, if life insurance is not an option for whatever reason, and your company does not have a buy-sell agreement please get one in place ASAP! Buy-sell agreements are a lot like prenuptial agreements, in that they set up in advance a plan for breaking up a business and moving on after a partnership is no longer viable. Every well-seasoned CPA and CFP professional can share horror stories about the surviving shareholders who did not have one in place and both the shareholders and businesses suffered. If a company has enough retained earnings, then it can alternatively create a sinking fund to fund such a buy/sell plan. 

A combination of all of these (point 5) is most likely where a majority of businesses lay. Until you do decide, keep the money safe where it can be accessible in a moment’s notice. To note further, start-ups and small businesses cannot afford to be complacent. Every reinvestment made in your organization represents a seized opportunity!

A Final Thought

When profits first start to trickle in, many business owners get a bit caught off guard. Instead of making the money work for them, inexperienced CEOs might reap the rewards too early and loosen the belt a bit too much. However, start-ups and small businesses might not be able to afford these in the long-haul as mistakes of all kinds can be made in the beginning. Every successful entrepreneur should look to the future when deciding where to allocate their new cash inflows!

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn, Facebook or Twitter.

The post What Do I Do With My Retained Earnings? (Part 2) appeared first on Black Spruce Financial.

This is a good problem to have! Imagine your business as a fruit-bearing tree – it gets reset every year. The tree needs the support of a strong trunk (the balance sheet) and one that gets thicker with each passing year. Also, preferably lots of water (cash flow) to produce large and juicy fruit which is the measure of the annual orchard’s yield (though the income statement).

In a company’s balance sheet under the shareholder’s equity section, you will find a line item called retained earnings (or less commonly called accumulated earnings). REs are after-tax profits that are built up over the years held within a corporation. They represent the portion of net income on a company’s income statement that is not paid out as dividends. Rather, these earnings are retained. In case you’re wondering, it is definitely adding esteem to the fair market value of your corporation.

Similar to a tree, a business produces an annual yield and at the end of each year, net earnings are added to Retained Earnings on the balance sheet. Now, how can a company look to the future when deciding where to allocate their new cash inflows? Reinvesting business profits back into the company is the best way to ensure longevity. In view of this fact, we’ve provided you with a guide on what we suggest to do with your Retained Earnings.

Proactive Ways to Use Retained Earnings

Studies show retained earnings are more precious to a business owner than any other asset or portfolio an individual has and therefore, states the reason why they are usually held in GIC’s or other fixed income type assets for safe keeping. Some alternative uses for this money may be better served by one of the following options:

#1. Take the Money As A Dividend To Shareholders (Yes, they would need to pay taxes on that income!) – Once a company starts making money, then it’s retained earnings start to rise. After the company has satisfied earlier losses, a positive balance in its retained earnings will allow it to pay dividends if it chooses. If a company’s shareholders agree that they could make a better, safer, or even stronger return on their investment dollars outside of the company than within it, then it may make sense to take the dividend and invest elsewhere. 

#2. Grow Your Business Through Acquisitions – This has become a popular business strategy for companies looking to expand into new markets, gain a competitive edge, or acquire new technologies and skillsets. This includes commercial or industrial real estate property too, namely renting vs ownership. Whether the acquisition is a share buyout or just an asset/equipment purchase, and working with qualified financial professionals, this can be a viable medium-term growth strategy.

#3. Invest in Your Team Members –  Investing in human capital will ensure organic long-term growth for your business. Further, reinvesting some of your business’s net profits to provide continuing education and training for your employees eventually leads to offering promotions and benefits packages. This way, your employees will be more motivated to stay. Experts say employees usually care about benefits before even salaries or raises are mentioned!

#4. Invest in A Participating Life Insurance Policy – That the company owns facilitating a buy/sell agreement or an Estate Plan. Life insurance is a benefit that is used to preserve the value of a shareholders estate, provide financially for dependants or a surviving spouse/shareholder, and ensure money is available to pay for any taxes, fees, or other outstanding debts upon death.

Did you hear?  Insurance is the ‘new’ fixed asset class. Although the natural inclination is to keep retained earnings safe in an investment of a fixed asset class nature, a Corporate Owned Life Insurance policy with Cash Values, namely a Participating Policy, may just be the tax-sheltered solution for these corporate assets. Safety comes first!

#5. A Combination Of These – Depending on the rate of return (ROR) of each point.

I know these methods might seem intimidating, or even confusing at first. It’s important to note that I’m here to make things less of a hassle. In Part 1 of this article, we’ve talked about (a) what retained earnings are (b) why it’s important to focus on this column of your balance sheet and (c) proactive ways to use these retained earnings. Now, you might be thinking “Okay Gino, but how do I choose between all of these options?” Well, that’s what we will be talking about in Part 2 – how do you decide what to do with these retained earnings?

About The Author

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn, Facebook or Twitter.

The post What Do I Do With My Retained Earnings? (Part 1) appeared first on Black Spruce Financial.

On a block of darkened establishments in Toronto, some small businesses are managing to keep a light on with the financial choke from the coronavirus restrictions that are leaving millions of people avoiding unnecessary shopping. About one in three businesses say they cannot survive the current pandemic conditions for more than a couple of months, according to a survey by the Canadian Federation of Independent Business. Taking this into account, 2020 might be a year of loss, but does that mean small businesses should power off completely?

No one said running a business would be easy. The world is constantly changing, with that so should a company’s framework. A proactive attitude will be the difference between the year being a write-off or simply writing it off as a lesson in budgeting and losses so that once the gates of the economy open up again, efficiency will be the driver in 2021. Already we have seen shifts in worldwide supply chains and disruptions within almost every industry. If a business owner thinks there is no significance in keeping operations flowing, they might run the risk of failing to seize some of the opportunities that are out there. 

In the Face of Our Decisions

Your business is your baby, so treat it like one. We all want them to grow, be successful and self-sufficient. The decisions we make prove it. Now is the time to get involved with your business more than ever and recommit! – I mean, don’t you have the time? Surprisingly, a lot of businesses are shutting down all of their functions and operations because they don’t know how they are going to make it through. However, it might be time to close the door on old ways of thinking and open the ones that lead to creative alternatives. 

Ask yourself: How is your company looking to frame the rest of the year? 

COVID-19’s brutal world tour is not over yet, but when businesses of all sizes do end up opening, supplies will be low and people will be shopping again. If so, will your company’s orders double? No one knows what is going to happen next. For that reason, start doing your research and reach out to clients to see what they will be needing or searching given these circumstances. During this time, it is significant for you to get personally involved with your business affairs, as you are the visionary. 

Much like we go through enduring changes in the seasons, conserving in the winter and indulging in the summer, the economy also undergoes seasons. “Whether you suffer, or whether you succeed, is not based on the season,” says Tony Robbins in one of his Business Mastery events. “It comes down to what you do.”  No matter how your business is being affected during these uncertain times, we want you to know that If you search for it hard enough, the help is out there. Look at these times as a way to clean house, get efficient, and carry those losses over to the next year to offset profits. 

With this in mind, for small businesses, is 2020 a write-off or should you write it off? We would think the latter thereby, making small businesses stronger going into 2021.

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs.

The post For Small Businesses Is 2020 A Write-off or Should You Write It Off? appeared first on Black Spruce Financial.

When people think of investments, they usually think of stocks and bonds. But there is a whole world of investments available beyond the traditional asset classes. Most investors aren’t familiar with the many alternative investments available, which means they may be missing out on the benefits these investments can bring to their portfolio.

What Are Alternative Investments?

An alternative investment is an asset that is not one of the standard investment types, such as stocks, bonds, and cash. There is a myriad of alternative investments, with the most common ones being real estate, private equity, hedge funds, commodities, options, and futures.

Alternative investments are commonly held by institutional investors, high net worth and even accredited individuals. This is partially due to their complex structure; however, it is mostly due to regulations surrounding them. That said, some of the more common alternatives such as real estate and certain commodities are widely held and available to most investors.

Some investors choose to add alternative investments to their portfolio to diversify their portfolio and reduce risk.

The Cons of Alternative of Investments

Before we dive into the potential benefits of alternative investments, let’s look at the downside of using them. Personally, I believe they have a place in some investors’ portfolios, but they are not necessarily beneficial for everyone, nor are they ideal for risk-averse investors.

• Most alternative investments are not as liquid as traditional securities, so it can be more difficult to sell those shares due to a more limited number of potential buyers. This can result in longer hold periods than an investor may be comfortable with. Other reasons include the fact that most alternatives are valuated on monthly basis and therefore an investor needs to wait out the month before cashing out.
• Alternative investments can be less transparent than conventional investments. The reasons are that there may be less information available for these investments and that they are at times complex to describe even to the astute investor, resulting in a broader stroke commentary within statements and performance reports.
• Alternative investments can have higher upfront investment fees than other assets, as a built in risk ‘safety measure’ as well as a higher initial investment ticket, often ranging from $250,000 to $25 million (though it can be as low as $25,000 and as high as $100 million).
• Falling under a broad range of regulators, and therefore as little disjointed, alternatives can and have been susceptible to fraud and investment scams. For this reason, it is imperative to conduct extensive due diligence or work with an experienced investment professional before investing.
• Some alternative investments can be volatile, leading to more stringent regulations. You could potentially risk a substantial part or even all of your capital, since the underlying investment vehicles do not generally fit into the traditional investment class types. It is typical to find underlying vehicles such as commodities, futures, options, and to a certain extent, any asset that can be charted, traded, or that matures at a certain time in the future.

The Pros of Alternative Investments

While there are some downsides to alternative investments, there are also multiple upsides that may be appropriate for some portfolios.

• You are in it for the long hull, meaning, that you will not have the luxury or temptation to trade in and out of these alternative investments. Believe it or not, they are meant to be held through thick and thin so that the maximum potential can be realized.
• While alternative investments can have higher upfront costs, they often have lower transaction costs if they’re held for a long period of time.
• Alternative investments can offer tax benefits. As these assets are usually held over a longer period of time (more than 12 months), they may be subject to a lower capital gains tax.
• In my opinion, the feature benefit that alternative investments offer is a very low correlation with standard asset classes, which can smooth portfolio volatility and overall drawdowns when markets have periodic corrections. As hard assets have an inverse relationship with stocks and bonds, they can help hedge against rising inflation. By including alternative assets in your portfolio, you can more broadly diversify your portfolio, reduce risk, and increase returns.
• The historical compounded rates of return and performance are quite impressive when compared to staple indices such as the S&P 500 or even the Dow Jones Industrial Average.
• With alternative investments, you can gain access to instruments called ‘fund of hedge funds’ which offer an extra layer of risk aversion when investing in alternatives. Through these investment strategies, an investor holds a basket or pool of alternative investments instead of investing directly in commodities, futures, and option etc. This can be one way to reduce volatility, in other words reduce risk, and diversify your portfolio as you are not putting all of your allotted cash into one alternative investment. Additionally, through a pooled structure, you have an opportunity to gain access to investments that would normally be far out of reach.

Are Alternative Investments Right For You?

Most alternative investments are complex by nature and widely regulated, so it is important to work with a knowledgeable financial professional to help you understand if they make sense for your portfolio and if you should invest in them. ;.

About Gino

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.

The post Should You Jazz Up Your Portfolio with Alternative Investments? appeared first on Black Spruce Financial.

Have you ever read a financial article or blog post and put it down after reading the first paragraph because the terminology didn’t make sense? If so, you’re not alone. Many of you have probably heard the word “fiduciary” tossed around when it comes to your finances, but do you know what it means? More importantly, do you know what it means to you and your money?

What Is a Fiduciary Anyway?

A fiduciary is like a trustee, someone who is given and accepts the responsibility of managing assets for a person, usually a client. The primary duty of a fiduciary is to put your needs first and to give advice and recommendations that will benefit you. This duty protects you from conflicts of interest. For example, fiduciary duty prevents an advisor from making an investment with your money solely for a kickback commission. This standard includes providing guidance that is unbiased, is considered beneficial to you, and fees that are clear and upfront. This gives you confidence that your hard-earned money is in good hands.

Why Should You Work With a Fiduciary?

Let’s look at the benefits of fiduciary rules in more detail.

1.  Fiduciary Advisors Are Open and Transparent

Canadians spend billions of dollars in fees and commissions on an annual basis, not all of it warranted. Aside from the obvious goal of maximizing value for your money, working with a fiduciary will give you confidence that your advisor is working in your best interests rather than his/her own. As fiduciary rules become increasingly strict internationally, financial advisors will need to be up front about how they will help you invest. This means no more too-good-to-be-true sales pitches with hidden fees and convoluted fine print. Advisors will need to be transparent about the various options available to you.

2.  No More Conflicts of Interest

Fiduciary advisors are required to create the most sensible plan for each client, no matter what. To help you realize your dreams without potential conflicts of interest, Black Spruce Financial operates mainly on a fee-based framework, with the exception of the commission structure on some of the products we offer, such as insurance products. Our goal is to be transparent and to work in your best interests first.

3.  You Get to Call the Shots

The bottom line is that by working with an advisor who is held to fiduciary standards, you are empowered to make the best decisions for you and your finances. Clients have the power to ask questions and to demand the highest value for the service that advisors are providing. As a company in the financial world, we understand people’s reservations or even negative connotations towards the underlying motivations of some advisors. We want to assure you that you can trust in the fact that our relationship with you is built on integrity.

At Black Spruce Financial, we are, and have always been committed to providing you with the best advice we can give without any conflicts of interest. We only recommend solutions that we believe align with a client’s individual goals, and we adhere to the aim of creating unique financial strategies for each of you. We are required to act with undivided loyalty to you and provide complete transparency and disclosure when it comes to our compensation or investment approach.

We take pride in our transparency and objectivity. If you’re unsure about your current retirement strategies, haven’t re-evaluated your investments in several years, or are just interested in learning more about what it means to work with a fiduciary, we would love to sit down with you and talk through things. To set up a meeting, contact me at 416-553-5004 or gino@blacksprucefinancial.com.

About Gino

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.

The post The Importance of a Fiduciary appeared first on Black Spruce Financial.

Becoming a parent is a life-changing event, one that brings overwhelming emotions. You’ll probably experience joy at the sight of your precious child, relief that he or she made it out of the womb, and for many, fear and anxiety because you somehow have to turn that seven-pound little human into a happy and successful adult in a world that is changing drastically!

As parents there are numerous things we have to teach our children, beginning with the basics of how to eat and use a toilet to more complicated things such as making decisions and getting along with others. As a society, we are excelling in some areas of parenting, but falling behind in others. In a recent National Financial Capabilities Study, only 24% of Millennials (age 23-35) were able to answer the first three financial literacy questions correctly, and a mere 8% answered them all correctly. (1)

Most parents agree that we need to do a better job teaching our kids about money. Last year, T Rowe Price reported that 80% of parents didn’t think schools were doing enough to teach kids about financial matters. (2) However, parents cannot abdicate all responsibility to the schools. Raising children and teaching them to navigate the world is first and foremost a parent’s responsibility, and it’s easier to start when they’re young than try to catch-up when they are teenagers.

Practice What You Preach

The first step in teaching your kids about finances is letting them watch you make financial decisions and modeling what you want them to learn. The same T Rowe Price study mentioned above found that 69% of parents are very/extremely concerned about setting a good financial example for their kids. The vast majority, eight out of ten, feel that they are setting a good financial example, but two-thirds also admit to doing things that wouldn’t qualify as setting a good example.

A significant 40% said that when it comes to talking to their kids about finances, it’s “Do as I say, not as I do.” Anyone who has raised kids knows that won’t cut it. The first step in teaching your kids about money is simple: Show them.  

Start the Conversation

Sometimes a silent model isn’t quite enough, and some areas of personal finance aren’t very visible. That is why it is critical to talk to your kids about finances. Unfortunately, talking about money is a long-standing cultural taboo. A 2013 study found that 63% of Americans would rather share their body weight with co-workers than their bank account balance. (3) Often this reluctance to discuss financial matters spills over into the home as well.

Forty-nine percent of the parents in the T Rowe Price study said they rarely or never discuss family finances with their children. Eighteen percent admitted to being very/extremely reluctant to discuss financial matters with their kids, and 72% of parents experience at least some reluctance to having such a discussion. Many parents even say they would rather discuss drugs or sex with their kids than money. (4) But how are kids going to learn about money if you avoid talking to them about it, as 41% of T Rowe Price respondents admitted to doing? Most parents don’t expect their kids to understand the dangers of drugs just because they have never seen their parents shoot up. Some things require more in-depth discussion and openness, and finances are one of them. And if you set the precedent of being open about finances when they are young, hopefully they will still come to your for advice or assistance when they get older.

Let Them Try

For financial understanding to truly sink in, you need to get your kids involved. Learning theory and research have consistently shown that the more active a learning experience is, the greater the learning gains and retention. (5) Most people have to do something to really learn it.

How does this work with kids? The Financial Consumer Agency of Canada has some creative ideas for every age level, such as letting them divide their allowance into different categories, set short-term and long-term goals, and helping them understand what things are worth. Practically, give your 5-year-old some money to buy something at the store so they learn the value of different items and realize that in order to obtain something (a toy), they have to exchange it with something else (money). Try letting your 10-year-old figure out the cost of the new video game he wants, plus tax, and help him save up his allowance for it. Let your teenager buy her back-to-school clothes on her own with a set amount of money. Don’t be afraid to let them make mistakes either. Sometimes learning the hard way is the best way to grow, and it’s better for them to learn those lessons when they are young and the consequences aren’t as severe.

Imparting financial wisdom to your kids is a challenging process that takes years. So, if you don’t feel like you’re doing an adequate job of teaching your kids about money, you’re not alone. Even if you are doing a good job, you probably agree with the 77% of the T Rowe Price survey parents who said that they wished there were more resources available to help them teach their kids about financial matters.

Here at Black Spruce Financial, we I believe that every child can learn critical financial lessons at a young age that will set them up for future success. I want to provide you with the tools to help you on this journey. To set up a meeting, contact me at 416-553-5004 or gino@blacksprucefinancial.com. Together we can make sure that this next generation enters adulthood with the knowledge necessary to build a secure financial foundation for their bright futures.

About Gino

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.

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(1) http://gflec.org/wp-content/uploads/2015/01/a738b9_b453bb8368e248f1bc546bb257ad0d2e.pdf

(2) https://corporate.troweprice.com/Money-Confident-Kids/images/emk/2015-PKM-Report-2015-FINAL.pdf

(3) http://www.countryfinancialsecurityblog.com/cfsi-april-2013/

(4) http://www.dailyfinance.com/2009/06/11/parents-would-rather-talk-with-their-kids-about-sex-than-money/

(5) http://www.joe.org/joe/1994august/a6.php

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A penny saved is a penny earned. This adage has been around forever but is just as true today as it’s ever been. In fact, in our current investing environment, it can sometimes be easier to save a penny than it is to earn one through investing. The prevalence of low-interest rates has made saving much more valuable for anyone who wants to build, or keep enough wealth to retire comfortably.

What We Learn From History

Historically, falling interest rates were profitable for bond investors, whereas rising rates lowered bond returns. When interest rates fall, bonds have returned an annual average of 3.6%, which drops down to only 0.3% when rates are increasing. The researchers calculated in the effects of inflation to get to these numbers. This makes rising-interest rate environments a challenge for both stock and bond investors.

Economists have found that since 1913, stocks have performed well during periods of falling interest rates, but barely deliver a positive return when interest rates increase.

Where We Are Today

For the first time in our nation’s 149-year history, the yield on 10-year Government of Canada bonds fell below 1%. (1) The low rates we are experiencing right now are not unprecedented, as these rates were common in the 1940s and 1970s.

The major difference between now and then is the relationship between low rates and inflation. Often, low bond yields are accompanied by high and unexpected inflation, as was the case in the 1970s. However, our current low-interest rate environment was purposefully created by central-bank policies in an attempt to stimulate growth in the economy.

While it is true that spending is generally healthy for an economy, these low interest rates are taking a toll on investments, like guaranteed investment certificates (GICs), that many retirees and others on fixed incomes rely on.

Take a look at this example of what is happening with a five-year GIC. In 2006, the income generated on a GIC was almost double what it is today. Based on today’s average rate of 1.76%, (2) a $100,000 investment only made $1,760, compared to $3,200 in 2006. And with the consumer price index hovering around 1.45%, (3) GICs are barely bringing in any profit.

The Appeal Of Alternative Investments

Historically, the asset class of alternative investments has performed reasonably well where traditional asset classes have suffered in a rising interest rate environment. This is partially due to the fact that the various underlying investments have a low correlation with equities and fixed income assets.  Generally, many of the same risk tolerances can be created to suit various clients’ values. This is one possible option to look into.

The low rates we see now will not last forever, and are already forecast by industry experts to rise again soon. As we saw with the historical figures, rising rates mean dismal returns for both stocks and bonds. With future interest rate increases inevitable, investors will not be able to depend on the markets to build their wealth in the same way as they have in the past.

What This Means For You

Investing is said to be a partnership between you and the markets. Sometimes, as in the 1980s and 1990s when both stocks and bonds were soaring, the markets did most of the work. In our current investing environment, the markets have decided to take a break, requiring you to take over the bulk of the work.

What does that mean? It means that you need to rely on saving, rather than returns, to preserve or even grow your wealth. In this environment of substantially lower returns, saving more and spending less is the order of the day if you want to continue to grow your nest egg in order to sustain your lifestyle into retirement.

How We Can Help

At Black Spruce Financial, we understand the complexities of the current investing environment and your need for a sustainable income in retirement. We can help you calculate how much you need to be saving right now in order to maintain your lifestyle after you stop working. Together, we can develop a plan that will enable you to live the life that you want during your golden years. Contact me at 416-553-5004 or gino@blacksprucefinancial.com.

About Gino

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.

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(1) http://www.canadianbusiness.com/investing/the-low-interest-rates-forever-portfolio/

(2) http://www.financialpost.com/personal-finance/rates/gic-annual.html

(3) http://www.inflation.eu/inflation-rates/canada/historic-inflation/cpi-inflation-canada.aspx

The post Even the Wealthy Need to Save More and Spend Less Today appeared first on Black Spruce Financial.

The world of finance is known for its confusing terminology and baffling acronyms. As a result, clients often feel that they need to learn a foreign language to understand it all!

But if clients don’t understand the language of finance, they can end up making mistakes and incorrect assumptions, especially in the area of advisor compensation. “In The Black” blogs try to help explain terms and definitions so that they are more easily understood and relatable.

Two terms that are crucial for clients to understand are fee-based compensation and commission-based compensation. These two payment models can make a huge difference in the type of advice a client is paying for and the kind of relationship they are able to build with their advisor.

Differences Between Fee-Based And Commission-Based Advice

Fee-based advisors charge a flat fee directly to their clients for their services. This fee can be structured in multiple ways, such as an hourly rate, a monthly retainer, a flat annual fee, or a percentage of assets under management (AUM). Sometimes fee-based advisors receive commissions based on the products that they sell, but that is secondary and not the basis for their compensation structure.

On the other hand, commission-based advisors charge nothing to their clients and are compensated solely through commissions. These commissions come from accounts they open and financial products they sell. These products can be anything from insurance to mutual funds where the commissions are embedded into the actual products themselves.  

There has been a lot of backlash against compensation-based advisors, as the assumption is that they will be biased towards selling their clients the most lucrative product. Lucrative for the advisor, that is. There is definitely merit to this argument, but it is important to recognize that not all advisors are the same. They don’t all have the same motivations or predilections. Regardless, we should understand the pros and cons of both systems and how the compensation method may affect an advisor’s brand and practice, which can also influence how well the advisor’s and clients’ goals align, the quality of their long-term relationship, and the legal standard to which the advisor is held.

Compensatory Independence

A commission-based advisor has to accept the commissions offered by financial product companies and has no say in what he earns. The profitability of the client-advisor relationship is dictated by a third party, and once the sale is made, neither the advisor nor the client exerts any influence over the matter. My hope is that a commission-based advisor will have the fortitude to always put the client’s interests first when fact finding or going through a needs analysis with their clients. They also need to make sure that the client understands fully the products or services that are being recommended and include an honest discussion about the commissions that result.

In contrast, a fee-based advisor has complete control over what he chooses to charge and the fees are always agreed upon by the client before the advisor begins his work. As an independent advisor, he alone decides what his time and knowledge are worth and who he wants to serve. He has the flexibility to set his fee schedule to correspond with his ideal client’s willingness to pay. Unfortunately, this doesn’t necessarily mean that fee-based advisors are more principled or that their advice is better. However, it does give clients the opportunity to approve the fees set by the advisor, which is not possible with commission-based advisors or products. As already mentioned, even fee-based advisors may end up selling commission-based products in which they are licensed, such as life insurance. However, there is usually the backing of a financial plan that has also prompted the recommendation.

Transparency and Goal Alignment

Fee-based compensation has the benefit of allowing an advisor to better align his clients’ goals with those of his own practice, offering clients the transparency needed when staying within a certain budget. With commission-based advisors, the rules and regulations have been changing rapidly to make these embedded fees transparent where they are literally brought to light and signed off on at the point of sale. Many financial products are not yet regulated in this way and we believe that it will not be long before the whole industry will be forced to be transparent. As already stated, commission-based compensation, which is generated by the sale of products, may not always be in the best interest of the client.

Fee-based advisors can be more objective because their pay is not dependent on selling specific products, therefore, it is less likely that they will be biased towards a particular product or company, and they can offer a more holistic approach to the value-added financial advice they stand by. For example, advisors who charge based on AUM are usually more motivated to multiply their clients’ assets because the more money they help their clients make, the more money they make. In the case of a fee-based financial planner, a fee charged for the preparation of a financial plan allows the client/advisor relationship to carry on without bias or conflict of interest, creating a win-win situation.

Relationship Longevity

Commissions are designed to be paid up front, either immediately or within the first few years after the initial sale. Unless a commission-based advisor has a strong service-oriented structure in his practice, he or she may decide that they have little reason to continue their relationship with the client, unless they anticipate future sales.

On the contrary, fee-based advisors are paid recurrently as they serve their clients, which can ensure, although not guaranteed, continued service from the advisor on a consistent and ongoing basis. Due to this factor, fee-based advisors are more likely to take a long-term approach with their clients, building trusted relationships and making recommendations that will work over an extended period of time.

Suitability vs. Fiduciary Duty

Finally, commission-based and fee-based advisors are held to different legal standards. Fee-based advisors have an inherent fiduciary duty to their clients, meaning that they have to put the clients’ best interests ahead of their own, or that of any broker, dealer or other institution.

Commission-based advisors do not have an inherent fiduciary duty to their clients as of yet. However, it is still implied given the position they hold in the advisor/client relationship, as the suitability rule is intrinsic. This means that they cannot sell their clients products that do not suit their needs and objectives. They may not have to do what is optimal for their clients, as long as what they provide them with is considered suitable.

We Are Fee-Based First To Keep You First

At Black Spruce Financial, our first priority as independent advisors is your overall financial success. Therefore, our compensation is mostly structured as fee-based unless dictated by the financial company’s products that we sell, such as most insurance products. We want the freedom to help you realize your dreams without any potential conflicts of interest. If you are looking for a long-term relationship with a fiduciary that will always put you first, call us today at 416-553-5004 or gino@blacksprucefinancial.com.

About Gino

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.

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Black Spruce Financial wants to wish you a Merry Christmas and a Happy 2017! My wife, Lidia, and I hope that this holiday season is peaceful, enjoyable, and filled with family and friends, whether you’re celebrating Christmas or another special occasion. Here are some things we are doing as we get ready to embrace the holidays and leap into a new year:

Reflecting on 2016

Winston Churchill once proclaimed, “Christmas is a season not only of rejoicing but of reflection.” We have taken his words to heart and have been reflecting back on 2016 and all that it held for us. We are shocked by how quickly the year has passed, but it has certainly been a year full of change for us and several of our loved ones.

We have had a change in home and business locations, an interesting and challenging market environment, a distasteful race to the White House, the loss of people we care for deeply (including celebrities and musicians), and so on. In some ways, it has been exhausting. Quite frankly, some of us are just glad to see 2016 go while others take it as a test of their unchanging fortitude, especially as we move into 2017. One thing is for certain, we will not let these past obstacles derail our intentions for making the new year one of positive change (change for the better that is)!

We have also experienced blessings, specifically the births of three beautiful girls in our family; two new nieces, and another niece’s daughter. Technically, the oldest of our newborns was born in December of 2015, but we need to give a shout-out to her since we love all three of them so dearly!

Evaluate and Look Ahead

This December, Lidia and I are taking Lao Tzu’s words to heart: “Muddy water, let stand, becomes clear.” We are going to slow things down, take stock, and think carefully about where and how we want to spend our time and energies in the coming year. Our focus will be on planning and goal setting. I would highly recommend that everyone take the time to do this and start the year off right. We all need to take any opportunity we can to allow for some down time, to regroup, reevaluate, and re-energize.

We hope that you’ll be able to do the same and determine what you would like this upcoming year to be for you, not just in financial terms, but in regards to all your goals. The end of the year is an opportune time for planning, but make sure your plan includes achievable, short-term goals so you don’t lose motivation. Take time to recharge your batteries and get a vision for the coming year so that you can hit the ground running in January. These steps will also help you to avoid the January blues that seem to affect so many people at the beginning of the year. Take some well-deserved rest and get excited for the new year!

Make It A Priority to Give

In the words of the infamous Dr. Seuss, “Maybe Christmas, the Grinch thought, doesn’t come from a store.” If you can, find ways to give to those who are less fortunate or to reach out and do something nice for someone. At the very least, we can start thinking positively, especially considering all the negativity we encounter daily. At best, we can give a kind word or action, whether it’s a monetary or non-cash donation or the gift of your time or expertise. If you need some inspiration, take a look at my suggestions for giving and gifting. Even little things can make a significant difference. We believe that humanity’s greatest advantage is our ability to cooperate and work together towards common goals.

Thank you for being part of the Black Spruce family. We appreciate you all and are thankful for your support. We would love to hear from you about your goals, your reflections on the year, and your ideas for giving back. Contact me at 416-553-5004 or gino@blacksprucefinancial.com.

About Gino

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.

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There is a big difference between ‘gifting’ and ‘giving’, but they can both make the biggest difference in people’s lives. These are not exactly technical financial terms, especially given that CRA (Canada Revenue Agency) uses them interchangeably. However, in day-to-day matters, and for the purposes of this blog, we will describe the two as follows. The term ‘gifting’ refers to the passing down, or transferring, of your assets to loved ones while you are still alive. The term ‘giving’, on the other hand, refers to the donation of funds to a charity or not-for-profit organization, often with the added intent of receiving a tax deduction receipt. My focus in this blog is on the transfer of wealth, while you are living, in a tax efficient manner. After all, ‘tis the season!

Often in meetings with clients, I sense people’s concern about where and how their assets will be handled and distributed once they pass on. This is a valid concern and certainly calls for putting relevant instructions into a proper will. There are, however, some good options for asset distribution that are available to you while you are still alive. Another concern that people have is that they want to gift and/or give assets in the most tax efficient way possible, and enjoy witnessing their decision being carried out. Regardless of when or how you decide to distribute some of your assets, it is always important to follow the legal and tax guidelines as set out by the CRA and our legal system.

For The Sake of Your Loved Ones

“Remember that the happiest people are not those getting more, but those giving more.” – H. Jackson Brown, Jr.

As mentioned, although the term ‘gifting’ is not exactly a proper financial term, it is often associated with giving family members and friends a part of your estate, as cash or non-cash ‘gifts’ while you are in your living years. It’s a personal transaction between you and your loved ones. Cash gifts are not generally taxable provided that the money comes out of your net liquid assets. Non-cash gifts are treated similarly, although any capital gains accumulated on the asset is attributed back to you.

Gifting during your lifetime can provide numerous benefits. The reasons for wanting to give loved ones gifts can be numerous to both you and them. Parents may want to help their kids with their mortgages, boost their investments in order to give them a healthier financial future, to transfer and defer potential future capital gains taxes of appreciating assets (e.g. a cottage) into the hands of the (presumably) younger generation, etc. Another benefit is that it aids in resolving, and even circumventing, disputes that may arise between heirs in regards to a parent’s estates proceeds after death. Tools and strategies which can help aid the transfer of wealth or ‘gifting’ to family and friends include life insurance, family trusts and estate freezes. These are too complex to discuss here save to say that a financial professional should be consulted about what the best course of action is for you.

For The Sake of Your Piece of Mind

“We make a living by what we get. We make a life by what we give.” ― Winston S. Churchill

Charitable ‘giving’, on the other hand, is considered to be impersonal even if the cause is highly personal to you. This is because a nonprofit or charity is not normally ‘related’ to you. According to CRA, “’related persons’” are not considered to deal with each other at arm’s length. Related persons include individuals connected by blood relationship, marriage, common law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons” (see www.cra-arc.gc.ca/E/pub/tg/p113/p113-e.html). Some individuals bequeath a part of their estate to a cause they support. During the course of their lives, they may also ‘give’ to their cause(s), be it a religious organization, a health-related one, a hospital, educational institution, etc., and they can receive a tax receipt if it is a registered charity. Of course, the tax receipt is not the biggest driver of giving. It’s doing something you believe in, giving back to society, helping a worthy cause. It can be very simple to do. Just give!

New Year’s Resolution

Something you should seriously consider is creating a plan for the distribution of your wealth during your lifetime. No, I don’t mean that you should give everything away! But you may want to give your kids the cottage now, so that they’re not fighting over it later. A New Year’s resolution could be to create a complete Life Plan that includes ‘gifting’ and ‘giving’. Let’s close with this final quote which tells it all. Finding out your options and understanding the pros and cons of each can help get the new year rolling on a positive course.

“I know what I have given you… I do not know what you have received.” ― Antonio Porchia

Getting Started

Gifting and charitable giving can be a great way to do something meaningful with your money. Once you start, you realize that giving is much more satisfying than receiving. If you’re wondering how you can incorporate gifting or charitable giving into your financial plan, contact me. I’d be happy to help you navigate charitable giving and identify an appropriate giving method that works for you. Contact me at 416-553-5004 or gino@blacksprucefinancial.com.

About Gino

Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.

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