Posts Tagged ‘Kevin McAmmond’

Who likes to Pay high Commission? That’s what we thought.

Tuesday, November 23rd, 2010

These days, more than ever you need to save as much money as you can for your own retirement. Having an investment account should not mean that you have to sacrifice results for high service fees but unfortunately in many cases that is still a concern today.

Asking you about paying financial commission’s today and the consensus would generally agree it does not work in the client’s best interest. You want to know what you’re going to pay for and the services that will be provided up-front. This fee based financial planning model is based on a percentage of assets under management or (AUM) which can range from .75% to 2.5 % depending on the size of your account and varies from advisor to advisor. One of the main benefits to come out of this route is the counselling fee charged on an annual basis or a flat rate can be largely a tax deductable for you at year end outside of a registered plan.

When you look at your financial statements

Mutual funds sell in different classes of the same fund which allows your account to be purchased in a number of different ways. All funds charge a MER (Management Expense Ratio) If today your investment in fund earns 10% and there is a MER of 2.5% then your actual return is 7.5%.  If the MER is 1.5% then your return would increase to 8.5%

Mutual funds are grouped into various classes such as Class A or FEL, B or DSC, Low Load, Series F and Corporate Class to name a few.     

You need to be aware of Class B or DSC which stands for Deferred Sales Charge. When your advisor purchases mutual funds with a DSC / B Class, you do not pay the advisor directly but the fund company will pay the advisor a commission, usually in the 5% range. On-top of the commission your advisor will also get a trailer fee, normally in the 0.5%. range. Since you did not pay the advisor directly out of your pocket you still end up paying in more than one way. The mutual fund company who paid the advisor will increase your MER on the fund about 0.5% and more importantly with this type of fund class can have you locked-in for a period of up to seven years!

If you sell prior to this, you will have to pay a penalty to the fund company allowing them to recoup the commission they paid to your advisor. Between the locked-in period and the higher MER this option is simply not in the client’s best interest and represents a healthy percentage of funds on the books today.

 The Class “F” Plan

The way to avoid this is to have a fee based advisor that charges you an annual fee for managing your money as a percentage. All you mutual fund investments should be in F class series of funds. These funds remove fees associated with paying commissions and trailer fees to your advisor so the MER is normally about 1% lower again saving you more money to help you reach you long-term plan.

This is just one small tip that will save you some money and you will have the benefit of knowing your financial advisor is on your team by providing you unbiased recommendations that are not commission driven.

Have a question?

Just fill out the form on my contact page  or e-mail me: kevin_mcammond@scotiamcleod.com

* This publication has been prepared by Kevin McAmmond, Wealth Advisor at ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as tax or pension advice.

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Raise your Expectations not your tax bill

Wednesday, November 17th, 2010

One key question that goes by the “weigh side” much too often is are the investments you hold, tax effective for you. It is very important to understand the implications going into the right investment instrument prior to the purchase and knowing up front the benefits or liabilities that may be involved when selling.

Corporate Class, is a special investment structure that allows multiple funds to be administered within a single tax-efficient “umbrella”. Here’s a look at four of the main tax advantages this creates and how you can benefit from them.

  1.  Tax effect gains on fixed income investments. Fixed income investments are a critical part of well diversified, balanced portfolios. There’s only one problem: they provide interest income that is taxed at nearly twice the rate of capital gains. By investing in a managed yield class, you can expect to gain the stability of fixed income returns with the tax efficiency of capital gains.
  2.   Minimize tax on income distributions. Return on capital (ROC) distribution series on a number of income-producing portfolios. Since ROC is the most tax efficient form of income distribution, this enhances your after tax income position. 
  3. Use current losses to offset future gains. Investors can take advantage of volatile capital market environments and use realized losses from the sale of trust funds today to offset any future gains on the sale of corporate class funds. 
  4. Rebalance your portfolio without tax. Working with your advisor, you can make changes to your portfolio without paying extra tax. Keep your assets properly balanced without incurring taxable capital gains when you sell shares of one corporate class fund to purchase shares of another corporate class fund within the same mutual fund corporation.   

 Example of Significant Savings

 (9% equity, 6% fixed, 5% interest,1.5% dividends, 2.5% turnover rate on equities, monthly rebalancing and 0.50 % management fee using Ontario’s  highest marginal tax rate)

 * John and Lisa are 20 years away from retirement. Their advisor recommends investing $500,000 in a “Corporate Class structure consisting of 80% equities and 20% fixed income. As retirement approaches, their advisor gradually shifts their portfolio mix to 35% equities and 65% fixed income. Thanks to the corporate class structure, John and Lisa will minimize the taxable distributions from their portfolio and capital gains taxes when the portfolio is rebalanced within the same mutual fund corporation. When they reach retirement, corporate class will have provided John and Lisa with $1,748,140 total, a accumulative increase in savings of $259,003 over $ 1,489,137 from a non-corporate class portfolio structure.

If you have investments outside your RRSP, “Corporate Class” offers an opportunity for superior growth and income potential, plus compelling strategies for tax and retirement planning and beyond such as creating a stream of income for your beneficiaries or a charitable cause that is important to you.

Have a question?

Just fill out the form on my contact page  or e-mail me: kevin_mcammond@scotiamcleod.com

* This publication has been prepared by Kevin McAmmond, Wealth Advisor at ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as tax or pension advice.

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Is Borrowing to Invest an Option for you?

Monday, November 1st, 2010

Just hearing those words “Retirement Plan” makes most of us cringe and that little voice in our head is saying “sure right” I’m just plugging along here trying to keep up with life’s daily grind while the years are slowly ticking away but I will get to it!  Then one month turns into a year and then ten years have passed.

If you were offered $100,000 today or $100,000 a year from now, which would you choose?

The majority of people asked this question would choose to take the money today.   

The problem is how do I get the money today to invest for my retirement tomorrow?

“This real life scenario is playing out for most of us today”

  • What can I do?                                
  • How can I do it?
  • What are the costs?
  • What value would that bring?

Here is one idea that won’t compromise most lifestyles.

For our example, we will take the Jones, a 40 year old couple, nice home, two cars, kids, a secure income, high tax bracket + $10k in credit card debt. They purchased their home five years ago when the couple first got married for $380,000. They put down $80,000 and mortgaged the balance. Five years later, the mortgage is $ 250,000. The home has an appraised market value of $500,000. The Jones have today no free money available for any type of investment plan.

Tomorrow, the Jones obtained an $110,000 secured home line of credit taken out for investment purposes and then it is used to start their retirement investment portfolio. The Smith’s interest payment associated with the loan for “investment purposes” is 100% tax deductable in Canada.

Using a simple time, value, money calculation, $100,000 invested today, earning an average rate of return of 7.0 % annually would earn $ 542,740.00 less interest costs. This is of course a “general estimate” using TVM and does not include dividend reinvestments or the couple making any more contributions to their investment account during the entire 25 year period from age 40 to 65. Counsellor fees associated with the portfolio “outside a registered” account are mainly a deductable expense.

Over periods longer than 10 years, the total return on a well-diversified portfolio of Canada’s best dividend earning stocks run around 7.5% after inflation. Your plan has to be designed and managed with quality Canadian dividend income earning investments that can pay the interest on your investment loan with a after tax investment return that is greater than your after tax interest costs. You receive a dividend tax credit on qualified Canadian stocks and you only pay income tax on 50% of your capital gains when you sell.

Structuring your non-tax-deductible interest expenses into tax-deductible debt, can reduce your overall borrowing costs. This may include your current mortgage balance.

With careful planning and evaluation, we can help you determine the suitability of an investment borrowing strategy. Like all aspects of financial planning, it is so important to find the right balance for your own specific needs and objectives.   

* If you have any questions about this subject or any other concerns about your financial portfolio, consult with us today. (905) 849-3425  Email: kevin_mcammod@scotiamcleod.com

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