Mikestrathdee’s Blog

Finding a fee-based financial advisor isn’t always easy
April 28, 2011, 6:41 pm
Filed under: Investing | Tags:

Originally published in Christian Week Ontario, March 2011, Your Money Column

As more people take the time to educate themselves about investments, there is growing interest in paying advisors for financial advice instead of paying ongoing fees for products such as mutual funds.

Part of this trend may be due to the fact that the salesperson’s interests aren’t always in line with the investor’s. The salesperson who sells a typical mutual fund gets the same one per cent commission – known as a trailer fee – year after year, regardless of whether the investor made money or suffered a loss. (Investors with large portfolios can often get a better deal by investing in F class funds, which charge much lower fees).

But increasing choice in low fee exchange traded-funds, which often deliver better returns than mutual funds, often at a fraction of the cost, has led many folks to want to try the “do-it-yourself” route. They want to make their own choices, then pay a professional for occasional checkups and suggestions on tweaking their investment mix.

The Financial Planners Standards Council (FPSC) licences certified financial planners (CFPs) in Canada and promotes awareness of the need for financial planning. About 80 per cent of the calls from consumers that come into their office are people looking for fee-only financial planners, an FPSC spokesperson told me.

Those people may have to look hard to find a fee only planner that fits their needs, let alone shares their values.

Under 1,100 of the 18,000 certified financial planners in the Financial Planners Standards Council database across Canada identify themselves as being fee-only planners. Another 1,600 say they work on a fee plus commission basis.

That may seem like a lot, until you realize that there are as many as 75,000 mutual fund sales reps in Canada, and 25,000 people licensed to sell stocks.

There are several reasons for this situation. Some planners say it is difficult to get people to take the time, share all of the necessary information and spend the money required to develop a complete financial plan. Some firms quote fees of $3,000 to $5,000 for preparing a full plan, and $400 and up for annual meetings.

And in some cases, advisors aren’t trying to do much convincing. “Advisors may not want to take the time to convince a client to write a comprehensive plan if they have the prospect of placing product (and getting a commission) without it,” an FPSC staffer admitted.

But as more accountants, who have traditionally worked on a fee-for-service basis, get their CFP designations and enter the financial planning field, this may change.

To find a list of fee-based financial planners in your area, search the FPSC website at:  http://www.fpsc.ca/find-cfp (click on advanced options)

For further information, the website Unbiasedportfolio.blogspot.com is a collection of thoughts from a fee-based advisor that is worth reading.

Warren Mackenzie’s book The Unbiased Advisor – 108 ways to make more money, achieve financial health and avoid costly investment mistakes is a good reference guide if you already have a reasonable understanding of investment concepts.


It is a gift, but is it charitable?
April 27, 2011, 3:32 pm
Filed under: Charitable Giving

Originally published in Christian Week Ontario, May 2011 Your Money column

People who attend church regularly donate significantly more money than the general population, studies show.

But not all “gifts” are eligible for a charitable receipt.

To understand the difference, we need to distinguish between charitable gifts, which are receiptable, and donations which Canada Revenue Agency (CRA) views as private benevolence, where the donor controls the use or specifies a person or family to receive the funds. No tax receipts can be issued for private benevolence. Here are some examples of gifts that donors can’t get a charitable receipt for:

  • Designating a gift to pay the tuition of a child, grandchild or some other relative at a Christian high school or college. This is private benevolence.
  • Donations designated for camp staff salary. Young people who serve as counsellors or in other summer camp positions may only receive only a small honorarium for the season’s work. Some donors want to give a camp a gift so a particular individual can receive a higher honorarium. A camp can’t issue a receipt for that gift.

Congregations are becoming more aware of the rules around what is and isn’t charitable, says Milly Siderius, manager of stewardship services for the Canadian Council of Christian Charities. “It’s moving, which is really good.”

At the same time, “We’ve still got a lot of work to do” in increasing awareness, she said.

Other things that are not always well understood:

  • Donations of services are not eligible for a charitable receipt.
  • Reimbursement of expenses. Some people who buy supplies for a program at their church are willing to accept a charitable receipt for the value of the out of pocket expenses. CRA strongly encourages churches not to give receipts, but to issue cheques for the documented expense.
  • Renting space to a church for meetings, youth group gatherings or other events. A church issuing a gift receipt in lieu of payment is offside of CRA rules. If the owner of the space truly wants to make a donation, an exchange of cheques is necessary.
  • You can’t make a profit from a charitable donation. As thousands of Canadians are now learning to their sorrow, the leveraged donations of medical supplies and other goods that were all the rage a few years back are now leading to massive tax reassessments, penalties and lawsuits against financial advisors and lawyers who promoted or blessed these shenanigans.

Flow-through shares are the latest example of an abused gifting vehicle. At time of this writing, the fate of the 2011 federal budget is an open question. But regardless of who is in charge of our government this fall, it’s likely that proposed changes around gifts of flow-through shares will become law. This type of gifting had become flavour of the month. Ottawa is cracking down because some organizations were approaching charities, offering to match buyers and sellers, and valuing donations up front, when the true value of the shares wouldn’t be known til later.