HOW TO THROW A FIRST-CLASSCLIENT APPRECIATION EVENT THAT’S

THE ENVY OF YOUR PEERS.

The ins and outs oflong-term care insurance

Why advice is winningthe online brokerage war

The ins and outs oflong-term care insurance

Why advice is winningthe online brokerage war

CLIENTSOFCOMPANY

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HOW TO THROW A FIRST-CLASSCLIENT APPRECIATION EVENT THAT’S

THE ENVY OF YOUR PEERS.

INSIDE:

ADVISOROF THE YEAR

AWARDENTRY FORM

PLUS

IN THE

COMPANYCLIENTSOF

30 LONG-TERM CARE

38 DIANE McCURDY’S EDGE

23 CLIENT ENTERTAININGINSIDE EDGE

7 Entertaining Etiquette Client entertaining is not about gaining new business.

LETTERS

13 Intrigued by DivorceReaders ask about the Certified Divorce Planner designation.

TOOLBOX

15 Investing in InsuranceInsurance can be used for clients who want a safe investment with higher returns than GICs.

KNOW YOUR CLIENT

20 Home Sweet Home Buying a home may be the biggest decision some clients make.Here’s what you can do to make that process smoother.

COVER STORY / MARKETING

23 IN THE COMPANY OF CLIENTSHow do you make your client appreciation event a success? By following some key entertaining dos and don’ts. By Peter Boisseau

INSURANCE

30 CARE PACKAGE Long-term care insurance can ensure that your clients’ future healthneeds do not erode their savings. By David Wm. Brown

INVESTMENTS

34 VOLATILITY HIGHWAYDo some of your clients embrace risk in exchange for potential high-growth return? Consider emerging markets. By Geoff Kirbyson

MY EDGE

38 Quantum LeapRookie advisors should not be discouraged during their first five years,says financial advisor Diane McCurdy (right).

YOUR BUSINESS

41 Test RunHow to prepare for the CSA’s financial planning proficiency exam.

43 Tax Break with Gena KatzIncome splitting can help your clients reduce their taxes.

45 Ask Julie with Julie LittlechildHere’s how to introduce an associate to your clients and their portfolios.

46 Value of Advice with Sandra FosterThere are 10 good reasons why advice is winning the online brokerage war.

47 Managing with Harvey SchachterMeetings are an effective way to align the interests of employees and management.

49 Quest for Excellence with Nick MurrayBoth veterans and neophytes are faced with cold call challenges.

NEWSMAKER

50 Peter Bernstein Bernstein, an investment consultant, doesn’t worry about the stock market, but about the uncontrollable happening.

MAY 20015

May 2001 Volume 4, Number 5

Everyone loves a great party,which is why client appreciationevents are often seen as the quintes-sential gesture to solidifying theadvisor-client relationship.

Clients enjoy gatherings that allowthem to leave their pocketbooks athome. In fact, they may be soimpressed with the food, other guestsand overall ambience that they’ll referyour services to friends and family.

That’s what will happen in a per-fect scenario. But while editing andverifying information for this month’scover story on client entertainingstrategies by Peter Boisseau (page 23),I read this entertaining “don’t” sug-gested by financial planner LianeChacra. “Don’t insist that clientsbring a prospect,” she advised.

Chacra believes you shouldn’tblatantly target prospects at theseevents. But a percentage of you aredoing so. According to a study of531 advisors conducted by Toronto-based Advisor Impact, 23% of advi-sors surveyed target prospects at theirclient appreciation event.

Chacra’s suggested entertainingfaux pas reminded me of my post-university days. My three roommates

and I were known for our lavish par-ties, which usually didn’t end untildawn.

Then we thought we had the per-fect party idea. Why not have a sin-gles party, where the only requirementfor admittance was that each guestbring a single friend? Any singlefriend would do... as long as the guestwas a handsome, heterosexual male,of course.

Some friends politely declined theinvitation, mostly citing anotherengagement. (We would learn thetruth much later.) The ones that didcome with the required guest werecriticized for not having broughtsomeone more interesting. The oneswho came without the required guestspent the whole evening apologizingto four perturbed hosts.

Needless to say, the festivitieswrapped up earlier than expected.

What we forgot was why peopleliked our previous parties so much.There was no hidden agenda, just acoming together of friends. In com-parison, our singles party screamedinsincerity. When some friends heardour stipulations, they thought, “Isthis a genuine invite because we’re

friends or are you only interested inwhat I can give you?”

Which was Chacra’s point. Yourevent’s purpose is to thank the clientsyou do have. As soon as you ask yourclients for something in return,whether it’s new business or a newprospect, the event is no longer aboutthem. If you keep this in mind andthrow a first-class event, your clientswill want to refer you on their ownaccord, not because you asked them to.

● ● ●

You may notice this issue ofAdvisor’s Edge looks different thanprevious issues. Visually, you’ll finda cleaner and bolder look, thanks tothe outstanding work of our artdirector David Heath. Editorially,you’ll see more features on a range ofissues and more articles from practi-tioners like yourselves. Rather thanexplaining all the changes, I’ll let yoube the judge. As always, I welcomeyour comments and suggestions.

DEANNE N. GAGEMANAGING EDITOR

dgage@rmpublishing.comMAY 2001

7

INSIDEEDGEENTERTAININGETIQUETTEClient appreciation events should beabout your clients, not you.

Deanne N. Gage Managing Editor(416) 596-5991 (dgage@rmpublishing.com)

Jennifer McLaughlin Assistant Editor(416) 596-5971 (jmclaughlin@rmpublishing.com)David J. Heath Art Director(416) 596-5059 (dheath@rmpublishing.com)

Contributing Editors: Harvey Schachter, PeterBoisseau and Bert Vandermoer

Darin Diehl Content Director(416) 642-4837 Advisor Properties

(ddiehl@advisor.ca)Paul Williams Executive Publisher

(416) 642-4848 (pwilliams@rmpublishing.com)

Kori Kobzina Associate Publisher(416) 596-2662 (kkobzina@rmpublishing.com)Garth Thomas Account Manager

(416) 596-5564 (gthomas@rmpublishing.com)Maryse Gauthier Montreal Account Manager

(514) 843-2126 (mgauthier@lactualite.com)Marie Atkins Executive Assistant

(416) 596-5070 (matkins@rmpublishing.com)Adrian Valks Production Manager

(416) 596-5035 (avalks@rmpublishing.com)Denise Brearley Director of Circulation and

(416) 596-3470 Marketing ResearchNancy Matheson Marketing Manager

(416) 642-4943 (nmatheson@advisor.ca)Clodagh Rohan Promotions Manager

(416) 596-5937 (crohan@rmpublishing.com)Katisha Rasheed Promotions Coordinator

(416) 596-5043 (krasheed@rmpublishing.com)

Editorial Advisory BoardElaine Andrew Investors GroupJohn De Goey Assante Capital Management

Robert Fleischacker CAIFASandra Foster CaratConnect

Catherine Hurlburt CAFP, IFC Planning GroupGlenn Lightfoot RBC Life Insurance

Ian Niven BMO Harris InvestmentManagement Inc.

Rémy Richard Rémy Richard & Associates Ltd. Jim Rogers The Rogers Group

Financial Advisors Ltd.Ralph Sommerfeld Raymond James Ltd.

Thane Stenner Merrill Lynch Canada Inc.Dan Thompson National Bank of Canada

Lynne Triffon T.E. FinancialShirley Webster Bank of Montreal

ADVISOR’S EDGE is published by Healthcare & FinancialPublishing, a division of Rogers Media Inc.

Rogers Media Inc.Anthony P. Viner President and CEO

PublishingBrian Segal President and CEO

Terry L. Malden Chief Operating Officer, Executive Vice-President

Healthcare & Financial PublishingJames O. Hall President, Medical

PublishingJohn Milne Senior Vice-President

Published in Canada by Rogers Media Inc. since June 1998.Rogers Media Inc., 777 Bay St., Toronto, Canada M5W 1A7,(416) 596-5000, fax (416) 596-5940. Offices: 1001 deMaisonneuve West, Montreal H3A 3E1, (514) 845-5141; Ste.900, 1130 West Pender St., Vancouver V6E 4A4, (604) 683-8254.Full subscription price: Canada $62 per year, 2 years: $102, 3 years:$132.00, USA/Foreign: $127.00 (one year only). Single copy: $15.Published 12 times a year. G.S.T. #137813424RT.ADVISOR’S EDGE is indexed by the Canadian Magazine Index byMicromedia Limited, and the Canadian Periodical Index. Canadianback copies are available in microform from Micromedia Limited, 20Victoria Street, Toronto, Ontario M5C 2N8. Indexed by the CanadianBusiness Index and available online in the Canadian Business & CurrentAffairs Database. Publications Mail Agreement Number 749990.Canada Post: Please return undeliverable address blocks to RogersMedia, 777 Bay St., Toronto, ON, M5W 1A7. ISSN 0703-7732.Copyright © 2001 Rogers Media Inc.

May 2001, Volume 4, Number 5

FEEDBACK

Advisor’s Edge and Advisor.ca welcome your comments, story ideas and

inquiries. For Advisor’s Edge contact Deanne Gage at (416) 596-5991 or

e-mail dgage@rmpublishing.com. For Advisor.ca, contact Jim MacDonald

at jmacdonald@advisor.ca. Letters to the editor can be sent to

advisorsedge@rmpublishing.com or faxed to (416) 596-5940.

FRENCH CONTENT

Objectif Conseiller, a sister publication of Advisor’s Edge, serves

financial planners in the Quebec market. For editorial inquiries, contact

Yves Bonneau at (514) 843-2142 or e-mail ybono@lactualite.com.

DAILY NEWS

Advisor.ca offers daily A.M. and P.M. e-mail bulletins that feature news as it pertains to

you.To register, e-mail service@advisor.ca or contact Philip Kahn at (416) 596-5779.

CONTENT FOR CLIENTS

Want to show your clients articles on specific investment strategies? Articles that

have appeared in past issues of Advisor’s Edge are available online at

www.advisor.ca/advisor/edge/archives.

Any Advisor.ca article can be e-mailed to your clients by clicking on the icon that

appears at the top of each article.

ADVERTISING

To advertise in Advisor’s Edge and Objectif Conseiller, contact Kori Kobzina at

(416) 596-2662 or e-mail kkobzina@rmpublishing.com. For advertising opportunities

on Advisor.ca, contact Ari Aronson at (416) 642-4838 or e-mail ari@advisor.ca.

ADVISOR OF THE YEAR AWARDSThe Advisor of the Year Awards Program was started in 1999 to

showcase outstanding advisors who serve their clients’ needs. Online

entry forms are available at:

http://www.advisor.ca/images/other/Advisoroftheyearentry.pdf

AT YOUR SERVICE!

SUBSCRIPTIONSTo subscribe or renew Advisor’s Edge or Objectif Conseiller, or to inform us of changes of

address, call (416) 596-5038, fax (416) 596-5023 or e-mail bjardine@rmpublishing.com.

Looking for some strategies and ideas for building your practice? Visit the practice

management, career and product zones at www.advisor.ca. Or try participating in an

online discussion with your peers. Go to www.advisor.ca, click on Talvest Town Hall and

click on Advisor’s Edge Forum.

REPRINTS

Want to purchase multiple copies of articles that have appeared in Advisor’s Edge or

Objectif Conseiller? Contact Pam Lee at (416) 596-5015.

ADVISOR’S EDGE8

INTRIGUED BYDIVORCE

I read your “Divorce Court” arti-cle (March 2001, page 22) and wasinterested in some more informationabout the Certified Divorce Planner(CDP) designation.

Can you provide me with an e-mailaddress or a Web site?

Sal Garofalo, Family Counsellor Regional Municipality of DurhamSocial Service Dept. Whitby, Ont.

I was not aware of the CDP desig-nation and I am now interested. Can youforward names, addresses or e-mails forme to follow up? Any assistance you canprovide will be appreciated. Your articlewas valuable as I have begun to workwith some prospects who are in theprocess of divorce.

Don Parcells, CFPInvestors GroupLindsay, Ont.

Editor’s Note: For more informa-tion on the Certified DivorcePlanner designation, go towww.InstituteCDP.com.

NON-TAXABLE GIFTS

John De Goey’s response to thequestion about bonuses of gifts to anemployee (“To Give or Not to Give,”February 2001, page 11) was only par-tially correct. In order for the gift to beconsidered non-taxable to the employeeit must not be used for a deduction foryour taxes and must be equal to or lessthan $100.

The following information is takenfrom the Canada Customs and RevenueAgency publication regarding taxablebenefits:

A gift, either in cash or non-cash,that you give to an employee is consid-ered a taxable benefit from employment.

If the gift is for Christmas (or an

occasion like Christmas) or a weddingand is $100 or less, you do not have toinclude the amount in the employee’sincome, if you do not claim the cost ofthe gift as an expense when youcalculate your taxable income. Thisadministrative policy only applies toone gift per employee per year. How-ever, two gifts (with a value of $100 orless each) are allowed in the year anemployee marries, as long as one ofthem is a wedding gift.

Other special rules may apply.For more infor mation, go to www.ccra-adrc.gc.ca.

Kathie Ross, CGA, CFPStark & Co. Victoria

LETTERS

6No.INTERNET LESSON How to stay informed

on all the industry news and marketinformation—without spending allthat time flippingthrough the papers.

1. Go to www.advisor.ca2. Sign-up for the Advisor.ca e-mail bulletins.3. Click on Register.4. Fill out all fields on the registration form.5. Remember to select a box beside the A.M. and/or

P.M. Advisor.ca bulletins.

MAY 200113

MAY 200115

Graham and Margaret Reid (nottheir real names) have been living inOttawa for the past 40 years. Graham,70 years old, has been living on anannual income of almost $40,000 (heretired in his early 60s). The income ismade up of his work pension, a smallRRIF, his Canada Pension Plan andOld Age Security.

Margaret, also 70, has a taxableincome of less than $15,000. TheReids’ combined RRIF assets are about$200,000, which is their sole source ofdiscretionary income.

The Reids will be receiving about$1 million from Graham’s mother whorecently passed away. They plan to passthe bulk of this money to the next gen-eration. They have low risk toleranceand simply want to preserve theirinvestments.

At first, the Reids owned GICs andCanada Savings Bonds. But when inter-est rates on those investments plum-meted seven years ago, they decided tomigrate to mutual funds. While theReids say they understood that mutualfunds would be more risky, they nowwant off the volatility treadmill. Theyare not interested in having their invest-ments fluctuate.

But at the same time, the Reids don’twant to return to GICs’ low-interestrates. Graham wondered if there was aconservative way to protect the $1 mil-lion, but produce a higher rate of

return. One effective way to protect theReids’ inherited capital is through thepurchase of a joint and last to die,Term-to-100 (T-100) life insurancepolicy. The insurance’s premium is fixedat a level rate and can never increasedespite future changes in the Reids’health. The cost is relatively low becausethis type of policy is usually strippedof all cash values. Perhaps more impor-tantly, purchasing this insurance offersa high rate of return.

A rate of return can be calculated bymaking an assumption of when the lastdeath will occur. While morbid, look atthe internal rate of return on insurancepolicies. In the Reids’ case, the annual

premium for $1 million ofjoint and last T-100 coverageis $18,000. How many timeswill that premium cheque bewritten before the death ben-efit is paid out? A lifeexpectancy study from Mar-itime Life shows that 70-year-old men and women have 14and 17 years left, respectively.But that said, 50% of menwill not reach 84 and 50%will live beyond age 84. Inter-estingly, on a joint and lastbasis there is a much higherlikelihood that one of theReids will live beyond theiractuarial mortality age.

So let’s calculate the inter-nal rate of return (IRR) on this T-100policy. The present value (PV) is zeroas the policy has no value today or anycash value, but the future value (FV) is$1 million. The annual payment or pre-mium is $18,000. Assuming the lastdeath occurs in 15 years, then the IRRis 16.9%. Assuming 20 or 25 yearsbefore the last death occurs, then theIRR becomes 9.7% or 6.1%. These arefair investment returns in and ofthemselves but it gets better. Death benefits are tax-free in Canada. So itcould be argued that these returnsshould be almost doubled to get apre-tax equivalent return.

TOOLBOXBy Bruce Cumming

Think bonds and GICs are the only options for conservative clients? Think again.

INVESTING IN INSURANCE

Continued on page 17

Illustration by Blair K

elly/Sharpshooter

The Ultimate Strip BondHowever, there is a counter argument.There remains a possibility that one ofthe Reids could live longer than 25years. While 25 years may be a stretchin today’s terms, with medical advancesand no pandemics, there is a greaterlikelihood for increased longevity, whichmay negate any rate of return argument.

Aside from the longevity argument,there is a more practical concern. WhileGraham liked the idea because it meetshis goals, he was not too happy abouthaving to write an $18,000 chequeevery year. So the simple solution is tobuy an annuity that delivers $18,000annually. The cost of buying a pre-scribed, life-only annuity on a joint andlast basis with no reduction at firstdeath is $200,000.

This annuity promises to pay theReids, as long as one of them is alive,the equivalent of the annual T-100insurance premium. In effect, by payingthe first year’s insurance premium andbuying the annuity (total investment of$218,000) Graham has created the ulti-mate strip bond.

There is an added bonus to using aprescribed annuity. Not all of the$18,000 annuity income is taxable.Canada Customs and Revenue Agency

have determined that only $6,450 or36% of the annuity income is taxable.The remaining portion is deemed to bea return of original capital and there-fore not taxable. This has a dramatic

effect on the yield of the ultimate stripbond. Moreover, reducing Graham’staxable income with the prescribedannuity helps him to avoid the Old AgeSecurity (OAS) clawback.

Let’s do another IRR calculation.This time the PV is $218,000, repre-senting the cost of the annuity and first-year premium. The FV is $1 millionand the annual payment out, to coverthe annual tax bill is $3,000, assuminga 46.5% marginal rate. Again if theassumption is a 15-, 20-, and 25-yearlife expectancy of the last Reid, the IRRis 11.4%, 8.7% and 7%. Furthermore,all the taxes are paid each year so thepre-tax equivalent return is demonstra-bly higher still.

Better ReturnsWhat’s another way the Reids can holdconservative investments with betterreturns? By combining T-100 life insur-ance and a prescribed annuity.

Let’s say Graham wants to take hismother’s money and buy a $1-million-dollar life-only annuity on his life onlywith the income being paid out on amonthly basis beginning one year fromnow.

The monthly income would approx-imate $10,000 or $120,000 annually.The taxation impact is appealing sinceonly $40,000 of the annual income isdeemed taxable. This means that afterpaying his taxes (assuming a 46.5%marginal rate) on the annuity income he

TOOLBOXContinued from page 15

Continued on page 19

THE INSURANCE’S

PREMIUM IS FIXED AT

A LEVEL RATE AND CAN

NEVER INCREASE DESPITE

FUTURE CHANGES IN THE

REIDS’ HEALTH. PERHAPS

MORE IMPORTANTLY,

PURCHASING THIS

INSURANCE OFFERS A

HIGH RATE OF RETURN.[[

would be left with $101,400 annually. However, when Graham dies, Mar-

garet would be left with no income asthe annuity payments would cease.Obviously, this is not the desiredresult, so $1 million of T-100 lifeinsurance is added to the investment.

Let’s look at the investment return.From the after-tax annuity income of$101,400, the annual premium isdeducted for the T-100 policy, whichis $40,000 (note the much higher costof insurance when working on a sin-gle life rather than joint). This leavesGraham with an annual income of$61,400 and he has paid his taxes andhis insurance premium. Given that theoriginal amount invested is $1.04 mil-lion ($1 million for the annuity plus$40,000 for the first-year insurancepremium), the return is 5.9%. Moreimportantly, this equates to an 11%pre-tax equivalent return.

If Graham can find a monthly pay-ing bond or GIC at 11%, he wouldhave roughly the same cash flow result.But no such investment is offeredtoday. (Note: These rates of return areonly approximate and are slightly over-stated as they assume a monthlyincome but an annual insurance pre-mium payment and different sequenc-ing when paid out.)

This strategy has substantiallyincreased the yield over today’s availableproducts yet the credit risk has notincreased, the OAS clawback has beenminimized, probate issues were avoided,and either Margaret or the family areassured the safe return of the originalcapital—tax-free. On the downside, inorder to provide this large, safe, monthlyincome, the money is effectively illiquid.Graham cannot easily access the origi-nal capital. Therefore, in all likelihood,

the full amount of the inheritancewouldn’t be invested this way.

Intergenerational Wealth TransferIf the Reids want to ensure that theirchildren leave a million-dollar inheri-tance for their grandchildren, theycould buy a Universal Life (UL) pol-icy on each of their children and nametheir grandchildren as the beneficia-ries. By depositing a total of $100,000into each policy over the next threeyears and assuming they earn an aver-age rate of return within the UL pol-icy of 5%, the death benefit on eachpolicy will be over $1 million.

Once again you can calculate theIRR on this death benefit and willfind that the IRR approximates 6%all the way to age 90, which is tenyears over life expectancy for a manand six years for a woman. While it isanyone’s guess what tax rates may be50 years from now, a case can still bemade that this is likely a double-digit,pre-tax rate of return.

Insurance is definitely an investmentwith quantifiable rates of return.When the right circumstances arepresent, insurance can be used to cre-ate synthetic bonds and pseudo termdeposits offering double-digit rates ofreturn. Insurance may be an alterna-tive solution for clients who don’t wantto experience volatility but want adecent rate of return.

Bruce Cumming, CFP, RFP, CLU, CH.F.C.,CIM, is the founder of Cumming &Cumming Wealth Management Inc. inOakville, Ont.

TOOLBOXContinued from page 17

To talk about this article, visitour discussion forum onwww.advisor.ca. Click onTalvest Town Hall, then click on Advisor’s Edge Forum.

ADVISOR’S EDGE20

BY JENNIFER MCLAUGHLIN

Not every client plans aheadfor their first home purchase. Buyinga home can sometimes be an impulsedecision that is emotionally charged.“Often clients come to us and say,‘we’ve found the perfect home, nowhelp us find a way to pay for it,’ ”explains Laurie Sylvester, a certifiedfinancial planner and franchise presi-dent of Money Concepts in Pentic-ton, B.C.

But Sarah Fisher (not her realname) knew that her first home pur-chase was a necessity. As a singlemother of a six-year-old daughter,Fisher really wanted to purchase ahome for stability. She had alwayslived in rental properties, moving

every few years. But she was tired ofmoving and wanted a place she andher daughter could call home.Sylvester worked with Fisher toachieve that goal.

“We started off by looking at hercash flow to see what she couldafford,” says Sylvester. This includeddetermining appropriate mortgagepayments and planning for relatedexpenses. Next, she looked at Fisher’sexpenditures and found places whereshe could cut back and start savingmoney. “She waited until she was in aplace that she was financially happywith, which took about two years,”says Sylvester.

When Fisher was ready, she found

a reputable realtor who worked withinher price range. She also went to amortgage broker to find the bestmortgage. “For a single mom, it’s aplan that we are very proud of. Andshe’s proud that she accomplished itby planning,” says Sylvester.

But many clients, especially youngcouples, don’t know where to begin.Young couples also find it hard to dis-cipline themselves to save. “If theygive up what they were used to doingin their pre-marriage years, such aseating out many times a week or rent-ing downtown, it becomes much eas-ier to build a strategy,” says TonyRickert, a certified financial plannerand managing director of Rickert

Illustration by Suzanna D

entiTrends, statistics and demographicsKNOW YOUR

HOME SWEET HOMEA first-home purchase may be the most

important decision your clients make.

CLIENT

Financial Group Ltd. in Waterloo, Ont. You can help young couples by

showing them ways to cut back andreminding them that this is only a tem-porary state of their cash flow. “Theyare going to continue to earn moreincome,” says Rickert. “They just needencouragement to get the strategytogether. Once they start the discipline,they adapt quickly because they seetheir money growing.”

One fatal error that first-home buy-ers often make is purchasing a housethey can’t afford, and lenders don’thelp the situation. “The banks tell theclient what they are prepared to lend,but it might be a little too optimistic,”Rickert says, adding that banks don’ttake into account other anticipatedexpenses clients may have, such as pur-chasing a new vehicle or starting afamily.

You also need to remind your clientsof the other expenses associated witha home purchase. These include windowcoverings, appliances, moving costs andsetup costs for natural gas, electricity,phone and cable hookups. Many ofthese expenses are included as part ofrent and clients may not consider thesecosts. Clients also need to be told toshop around for a mortgage, assome don’t know that banks havedifferent rates.

But advisors aren’t always in the loopfrom the start. In that case, RRSPs canbe a great help, thanks to the home buy-ers’ plan (HBP). First-time home buy-ers purchasing a primary residence canwithdraw up to $20,000 from theirRRSPs, tax-free. The catch, however, isthat the client must pay back the moneyover 15 years, one-fifteenth each year.And the client is trading in futuregrowth for present needs. (See “Mak-ing Payments,” this page).

Rickert says you must determineyour clients’ preferred investment strat-

egy. “If the client is a debt-manager ora conservative player, I would tend tosay use your RRSPs,” he says. This way,the client is more comfortable with lessdebt. Otherwise, when mortgage inter-est rates are low, Rickert will suggestleaving the RRSPs alone. “It would bemore of an opportunity to keep themoney in the RRSP.” Les Wiens, a cer-tified financial planner with InvestorsGroup in Winnipeg, says he sometimesencourages clients to take money out ofthe RRSP and use it to start a non-registered portfolio.

For those clients who haven’t beentopping up their RRSPs every year,cycling their down payment throughtheir RRSP can provide them withsome extra cash. In the case of one cou-ple without RRSP savings or a downpayment, Wiens suggested their parentsloan them each $20,000 to put intotheir RRSPs. “By the time they wereable to withdraw the money using theHBP, they also had their tax refund inhand,” says Wiens. Both receivedapproximately $8,000 in tax refunds fortheir contributions. The couple with-drew the RRSP money through theHBP and paid their parents back. “Forthe parents it was a short-term loan butit put 15 years’ worth of tax refundsinto the couple’s pocket. It was likemoney that wasn’t there.”

But whatever the RRSP strategy,clients must be prepared to pay themoney back. “This can become quite dif-ficult for clients,” says Sylvester. “If aclient takes $20,000 out of an RRSP, itcould take years to get that money back,as well as try to maximize new RRSPcontributions.”Which is why a lifelongclient relationship can begin with thepurchase of a first home.

Jennifer McLaughlin is assistant editor ofAdvisor’s Edge. jmclaughlin@rmpublishing.com

MAKING PAYMENTSMake sure your clients

know which contributions

qualify for HBP repayments.

The repayment period starts the

second year following the year of

the withdrawal. In the fall of each

year, your client will receive a

statement outlining the amount

repaid, the balance owing and

the repayment due for the next

year. Keep in mind the following

conditions:

❶ Even if your client declares

bankruptcy, he or she still has

to repay the RRSP amount

withdrawn under the HBP.

❷ Your clients cannot use contri-

butions made to spousal RRSPs

to pay back the HBP amount.

❸ Contributions that are

transferred directly to a client’s

RRSP from a registered

pension plan, deferred profit-

sharing plan, registered

retirement income fund, the

Saskatchewan pension plan, or

another RRSP cannot be used.

❹ A client also cannot use

contributions designated as a

repayment under the Lifelong

Learning Plan.

❺ If your client does not pay back

the required amount for the year,

the difference must be reported

as income on their tax return.

❻ If your client turns 69 before all

repayments are made, he or she

can choose to repay the HBP

balance in that year. Otherwise,

the amount that would be the

annual repayment must be

reported as income each year

following as it becomes due.

—J.M.

MAY 200121

Get copies of the HBP FormT1036 at www.advisor.ca.Click on “Revenue Canada Forms.”

lients and advisors agree. If

you want a sure way to thank your

clients for their support, there’s

no thing l i ke annua l c l i en t

appreciation events.

We asked five of your peers—

each based in a different region—

about their client appreciation

strategies, and their entertaining

dos and don’ts. Each profiled

advisor believes it’s the little

details that can mean the

difference between an average

party and a first-class event that

your clients will talk about for

weeks.

By Peter Boisseau

In theCompany

Clientsof

C

Client appreciation

events allow you to

know your clients at

a deeper level.

W H A T ’ S I N S I D EBritish Columbia:Symphony orchestras . . . . . . . . . . 24

Prairies:Weekend fishing expeditions . . . . . 25

Ontario:Wine and cheese parties . . . . . . . . 27

Quebec:Garden tours . . . . . . . . . . . . . . . . 28

Atlantic Canada:Golf tournaments . . . . . . . . . . . . . 29

Illustration by Jason Munger/R

eactor Art &

Dessign

Marketing

For more client appreciation strategies,visit the Take 5 zone atwww.advisor.ca

MAY 200123

W hen Tara O’Hare and her partners at The RogersGroup Financial Advisors Ltd. decided to spon-sor the Vancouver Symphony three years ago, they

had no idea it would strike such a popular chord with theirclients. “We weren’t quite sure about supporting a symphony.It’s not a huge thing in Vancouver,” explains O’Hare. “Butwhen we started doing it, there was incredible client response.”

Clients get the red-carpet treatment one Sunday afternoona year, when O’Hare and partners Clay Gillespie and JimRogers escort a group of about 40 to the symphony and abackstage reception afterwards to mingle with the conductorand performers.

Occasionally, they’ll also take a smaller group of 10 or fewerclients to dinner and an evening concert. “The symphony isa comfortable situation for them, and often a situation thatputs them ahead of us, in a sense, because they’re often verywell informed about the music and performers,” says O’Hare.“So it’s a time where we can learn from them.”

The firm’s other big annual event is a swanky five-course mealfor top clients held every September at an exclusive country club.Besides the meal, the evening includes a performance by a funnyor inspirational speaker. “A lot of clients like to go away in

September, but they wait until after the dinner, because theylook forward to it and they come every year,” she says.

The common rule for both the dinner and symphonyevents is that no business is discussed and no outside spon-sors are used to defray costs, says O’Hare. “We fund it all our-selves because we want it to be something to thank the clients,not have it sponsored and make it sound like we’re trying tosell a product.”

The dinner costs about $7,000, split between the threepartners, and the symphony sponsorship is around $20,000,divided among the whole firm, which includes 13 advisors.

O’Hare says there’s no doubt the expense is worth it andsays every advisor should consider similar events for theirclients. “I know a lot of advisors shy away from it becausethey don’t like to be in those situations, but it really lets youget to know clients in another way,” says O’Hare, whotogether with her two partners handles approximately 1,000clients.

Anne Piternick, O’Hare’s client, says she thoroughly enjoysthe dinners. “It’s nice that we’re all treated as individuals anda special relationship is developed,” says Piternick, a professoremerita of the University of British Columbia.

ADVISOR’S EDGE24

Private symphonyTara O’Hare’s client appreciation strategy is music to her clients’ ears.

Tara O’HareFinancial plannerThe Rogers Group FinancialAdvisors Ltd.Vancouver

DO send out personal invitations if it’s a small event.DON’T invite clients at the lastminute. It’s in poor taste.

B R I T I S H C O L U M B I A

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L arry Lee spends thousands of dollars a year oneverything from theatre tickets to baseball gamesto show his clients he appreciates them.

But he found a new hook when it came to entertain-ing client Neil Stern—a three-day trip to a fishing lodgeon a pristine lake in northern Manitoba. “This guy isa passionate fisherman and Manitoba has some of thecountry’s best fishing,” says Lee, a senior financial advi-sor at Berkshire Investment Group in Winnipeg.

The trip went so well, he’s expanded the trip to fourpeople this year. “One of the clients going has referredquite a bit of business to me, so the trip is a combina-tion retirement and client appreciation gift,” explainsLee, who has another full-time planner and four sup-port staff to help him manage 350 client families.

Lee has been arranging client appreciation events forthe last dozen years, part of the 10% to 15% of grossrevenues he spends on gifts and entertainment eachyear. “It’s so important for people to understand it’snot a short-term cost, it’s a long-term investment,” saysLee, who has $80 million in assets under management.“There’s a certain amount one has to spend to main-tain profile and get profile, and spending it on the indi-vidual clients is truly appreciated.”

Stern agrees. He says it’s important to him that hehave a close relationship with his financial advisorbecause of the intimate knowledge of his personalaffairs. “The trip definitely showed a different light tothe relationship, and I appreciate the fact he appreci-ates my business,” says Stern.

Over the years, Lee has treated clients to an eveningat the Manitoba Theatre Centre, where clients get torub elbows with the actors and director.

“That sort of thing makes people feel special, andtherefore the relationship is strengthened,” says Lee.

MAY 200125

Catch of the dayLarry Lee takes some of his clients onweekend fishing expeditions.

P R A I R I E SLarry LeeSenior financial advisorBerkshire Investment Group Winnipeg

DO invest in educational gifts forclients.DON’T invest in buying golf balls ortrademark pens. It’s trinkets andtrash—not something that emphasizesa long-term relationship.

Photography by G

erry Kopelow

“The publicity that’s resultedfrom this award is priceless.”Promote yourself. Enter the 3rd Annual

Advisor of the Year Awards!Be part of this showcase of excellence and professionalism in the advisor community.

For details, see page 40 or visit www.advisor.ca.

—Sheila Munch, 2000 Advisor of the Year Award winner

Y ears from now when Ryan Small looks backon how he got started doing client apprecia-tion events, he’ll likely recall those days of

Rhine and rosés.“I started my first event one year after I was in busi-

ness, a wine tour of the Niagara Region,” says Small,a financial planner at IPC Securities Corp. in Toronto.“We rented a bus and visited three wineries, and alsostopped at a restaurant for lunch,” says Small. “It wasa great way to solidify relationships with clients.”

Small is planning another day-long wine tour in Junefor a group of 16 clients, as well as launching a newformat of regular wine and cheese evenings he hopeswill become a bimonthly event. “We were looking forsomething that would get us in front of our clients ona regular basis, and that was cost-effective and at thesame time entertaining,” he says.

The wine-tasting events are popular with his aver-age client age group of 40 to 55 years old. Thebimonthly wine and cheese events cost between $1,500and $2,500, while the day-long wine tours run between$5,000 and $6,500. Often he’ll use his line of creditto pay for such events. “You’ve got to spend the moneyto build your business, and sometimes you have to goout on a limb to do that,” says Small, who does retire-ment, tax, estate and insurance planning for about 100client families and plans to hire a second assistant.“Statistically, advisors lose clients due to lack of con-tact. But if you’re fostering a relationship with yourclients, it will help to ensure they remain your clients.”

Small’s client John Casullo says the wine tour is thekind of activity that helps build “a different kind ofrapport” with his advisor. “I’ve previously dealt with afinancial advisor where it was strictly business, but therelationship didn’t open up beyond that,” he says.

Wine and dineClients of Ryan Small put their tastebuds to work at his appreciation events.

O N T A R I ORyan SmallFinancial plannerIPC Securities Corp.Toronto

DO build events around your clients’interests.DON’T be afraid to spend money tomake the event memorable.

Photography by R

ob Waym

en

Measure yourselfagainst the best in the biz.

Enter the 3rd Annual Advisor of the Year Awards!

Get the recognition you deserve from peers—and clients.For details, see page 40 or visit www.advisor.ca.

MAY 200127

ADVISOR’S EDGE28

F ew things seem more welcome after a Montrealwinter than a stroll through the city’s BotanicalGardens. “It’s always a very big hit with the

clients,” says financial planner Liane Chacra, who takesher clients on tours through the ever-changing displays.“They appreciate that, and it’s a nice way to get intospring.” The tour is followed with essential touches suchas music and hors d’oeuvres, says Chacra, who startedclient appreciation events shortly after joining InvestorsGroup seven years ago.

Last year, Investors Group sponsored the AlfredHitchcock exhibit at Montreal’s Museum of Fine Artsand set aside a day for advisors who wanted to bringtheir clients. The year before that, it was a Monet exhibit.

And every Yuletide season the firm sponsors the Nut-cracker Suite, allowing Chacra and other advisors tobuild some intimate client events around an afternoon

or evening at the theatre. “Sometimes it’s better to takefewer people and do things more often, because then youhave that interaction with them.”

Chacra, who recently cut her client load from 300to about 50 to concentrate on her new duties as aregional director, says organizing events is at the top ofher agenda. “This is how I built my business, and that’swhat I’m doing for my region as well,” she says. “I’ve hadmillion-dollar account referrals out of these things.”

Earl and Isabell Kennedy, Chacra’s clients, say theyalways appreciate being asked to social events. “It’sthoughtful of her to invite us,” says Earl. “We have otherbrokers, but we just see them when it’s time to renew thecontracts, and that’s about it.”

Isabell says the events also bring her a sense of secu-rity. “You meet other people who have invested with her,and are doing the same things that you are.”

Garden partyLiane Chacra’s clients experience a guidedtour of Montreal’s Botanical Gardens.

Liane Chacra Financial planner

Investors GroupMontreal

DO thank your clientspublicly during the event.

DON’T say that clients mustbring a prospect with them.

Q U E B E C

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Selling a book of business? Tell people in a position to buy with a classified ad on Advisor.ca.

TO PLACE YOUR AD, call Philip Kahn at 416-596-5779,or send it by e-mail to service@advisor.ca

Advertise now on

Tell the RIGHT people what you’ve got!

R on Hatcher admits there are times he ques-tions the wisdom of some forms of cliententertaining. “You do a lot of soul-searching,”

says Hatcher, “and you have to wonder sometime howto measure the value, because it’s very difficult.”

But there are client events on his calendar thatHatcher has no doubts about: two charity golf tour-naments clients have embraced with enthusiasm.

The golf tournaments held in June and Septemberhave raised more than $50,000 over the last five yearsfor the Canadian Paraplegic Association of Nova Sco-tia. They usually involve up to 250 high-value clientsand 60 advisors from all threeregional company offices in theprovince, says Hatcher.

While it can cost an advisor$600 to sponsor a foursome,“there aren’t too many reps whohaven’t seen an immediate pay-back, whether it’s clients think-ing about increasing their port-folio or referring new pros-pects,” he says.

An advisor thinking of start-ing appreciation events shouldfirst sit down and segment theirclient base to determine wherethe majority of the revenue iscoming from, and concentrateon those clients, says Hatcher,who manages about $35 mil-lion for 180 clients and has oneassistant and one associate.“Clients expect more,” he says.“You have to look for ways tomake your clients feel goodabout dealing with you.”

Alan Webb, Hatcher’s client,says the golfing expedition hashelped them both gain a littlemore understanding about eachother. “It’s easy to get anyoneto look after your money,” saysWebb, a chartered accountant.“But it’s quite another thing totrip upon a certain person thatgoes beyond the black andwhite of taking your moneyand investing it.”

Tee-off timeClients are ecstatic to hit the golf coursewith their advisor, Ron Hatcher.

A T L A N T I C C A N A D A

7No.

INTERNET LESSON Want to saysomething aboutmutual fund company mergers?You can have your sayanytime,online at theTalvest Town Hall.

1. Go to www.advisor.ca2. Log in by clicking on the “Log In” button.3. Click on Talvest Town Hall.4. Click on Mutual Funds and Other Products.5. Read a message from fellow advisors or send a message yourself.

Ron Hatcher Financial plannerInvestors GroupHalifax

DO make yourevent a first-classevent.DON’T focus on getting newbusiness.

Photography by Ted C

oldwell

MAY 200129

PACKAGEADVISOR’S EDGE

30

In the event of illness or injury, long-term

care insurance can assure your clients that both

spouses can pay for their living costs.

By DAVID WM. BROWN

Illustration by PETER FERGUSON Care

Insurance

HE SYMPTOMS ARE OFTEN SUBTLE: A

forgotten telephone number, misplaced

keys, or a change in personality. Many dismiss

these traits as symptoms of old age, as part of

life’s process. But these gentle warnings can be

signals of a serious health issue, such as Alzheimer’s

disease. At other times, there are no warnings.

An accident or illness can suddenly render people

unable to care for themselves and in need of

immediate long-term care (LTC).TFor your clients, LTC insurance can be the

difference between living out one’s life in a pri-vate room where families can visit at any timeand living in a wardroom occupied by severalpatients. LTC insurance also provides assur-ance that there will be sufficient assets to takecare of both spouses, especially if one spouserequires care in an institution and the otherwishes to remain in the home.

Paying for CareThere is a misconception that all LTC serv-ices are paid for by provincial healthcare sys-tems. Although there are some financial assis-tance programs available, these programs areonly for individuals below low-income bandsand in some provinces an asset test is requiredto qualify for a subsidy. The cost for skillednursing care, personal care and facility costsas well as supplemental costs for some med-ications, special equipment, adaptive devicesand home alterations are in excess of the fundsprovided by the government.

The cost of LTC services ranges fromprovince to province. The provincial govern-ments subsidize a portion of the cost. Gov-ernment-sponsored facilities are $30 to $60daily. Costs for semi-private to private roomsare an additional $2,000 to $4,000 monthly.In fact, many provinces seem to be reducingthe subsidization and shifting the responsi-bilities to individuals and their families.

The risk that a member of an elderly couplemay require home or facility care is significant.Forty-three per cent of Canadians aged 65 andolder will spend some time in a long-term carefacility. The average length of stay is 2.5 yearsand 10% will stay 5 years or longer. If the addi-tional cost of care is $100 daily or $36,000annually, at a 30% marginal tax rate the cou-ple will require an extra $52,000 a year to fundthe LTC requirement. This could significantlyreduce assets and affect the lifestyle of the non-institutionalized partner.

There are a number of standard measure-ments that determine if an individual is eligiblefor LTC benefits. A physician may prescribeLTC if a patient has a disease such as cancer.The inability to carry out basic activities of dailyliving is frequently a measurement for requiringlong-term care services. These activities includebathing, eliminating (control of bladder andbowel), dressing, eating, getting in and out ofa bed, chair or wheelchair without the aid of asupporting device or cane and personal hygieneactivities. Cognitive impairment, such as a per-son’s ability to learn or memorize, is anotherform of measurement in determining LTCneeds. Debilitating injury or illness such asstroke, paralysis or multiple sclerosis may alsolead to LTC.

The target audience for LTC insurance isgenerally the 55 to 85 age group. In some

Continued on page 32

MAY 200131

cases the children will purchase the contracts for their par-ents because of concerns that their own assets may be erodedby their parents’ LTC needs. If a client does not have LTCinsurance, then the cost of care can seriously erode his or herassets.

The ContractsLTC insurance contracts are more complex than life insur-ance or critical illness plans. Much like disability insuranceplans, an LTC contract should be analyzed based on defini-tions and contract provisions. Many of the terms such as“activity of daily living,” “adult day care” and “bed reserva-tion benefit” are unique to the LTC industry. An advisorshould be able to recognize and explain the various terms toa client. Differences in contracts relate to the type of servicesthat are covered; the definitions of eligibility requirements;the triggers for benefit payments and any supplementarybenefits. There are three main structures for LTC contracts:❶ Reimbursement contracts require the insured to submit

expense receipts that are reimbursed up to a dailymaximum. If the expense is less than the daily coverage,

the unused portion can usually be carried forward.❷ Indemnity contracts require no receipts but the insured pro-

vides evidence that a service has been provided. In thosecases, the daily maximum is paid even if it is more thanthe cost of the service.

❸ Income-based plans mean a benefit is paid up to the maximumregardless of the actual level of expenses incurred. There is norequirement regarding where the services are provided or whoprovides them.In general, these types of contracts can only be purchased

before illness or accident. The age of the applicant will deter-mine the amount of medical underwriting necessary. Thecompanies can either issue the policy as applied for, alter theterms of the contract, increase the premium or decline out-right. Companies tend to alter the terms of the policy if theyare concerned with the health of an applicant. For example,they may offer a two- or five-year benefit to an applicant whohas an unfavourable medical history. Apply and see what theunderwriters offer.

The term “care” as it relates to LTC contracts may be usedin different contexts. Care can be described as a location suchas “home care” or “facility care.” It may also be used todescribe a condition or level of care such as “personal care,”

“chronic care” or “extended care.” And it may be used todescribe a service or a provider such as “home care support”or “healthcare agency.” It is important to avoid misunder-standing and ensure that the term is understood in itscontext. The contract should provide clear definitions for allreferences.

In order for the insured client to receive benefits from an LTCcontract, there must be a change in health. This change in healthmay lead to a physician prescribing a level of care or attention.It may be as a result of limiting specific functions or it may beas a result of cognitive impairments, injury or illness. It is impor-tant to understand which changes would qualify an insured tocollect benefits.

Most Canadian LTC contracts include activity of daily liv-ing definitions. These definitions relate to an individual’sinability to perform the activities. If an insured is unable toperform two or more of these activities without the assistanceof another person, he or she is deemed eligible to claim underthe contract. Typically, six are found in a contract, includingbathing, eating, dressing, toileting, transferring and conti-nence. Companies may differ as to how they measure thedegree of these functional losses. The range may be from the

total inability to perform a function to the ability to performa function with an assisting individual standing nearby. Ingeneral, if an LTC contract is liberal, the cost of the plan willbe higher than a contract with a strict definition.

LTC Versus Disability InsuranceAs with disability insurance, most LTC contracts will incor-porate an elimination period into the plan. The purpose ofthis feature is to reduce the premium cost. The eliminationperiod is the period between the time that an insured isdeemed eligible for the claim and the time when the claim ispayable. Elimination periods can range from a zero-day option(no elimination period) to a 90-day elimination period. Thelonger the waiting period until the claim payments begin, thelower the premium. Benefits are paid in arrears, not in advance,so that benefits from a contract with a 30-day eliminationperiod will commence after the 60th day.

In order to satisfy the elimination period, the company maymeasure either “calendar days” or “care days.” This is animportant distinction. The calendar day method will countthe entire week while the care days method will only creditdays when care is actually received towards satisfying the elim-ination period. This difference can significantly affect the

ADVISOR’S EDGE32

Continued from page 31

ost Canadian LTC contracts include activity of daily living definitions. If an

insured is unable to perform two or more of these activities without the assistance

of another person, he or she is deemed eligible to claim under the contract.M

onset of the benefits.An LTC contract may provide for

home care coverage and facility care cov-erage. The daily benefit amount insuredwill determine the extent of the dailybenefit paid. The plan may be integratedwhere the daily benefit is the same forboth types of care or the daily amountsmay be different if home care is issuedas a rider to a base facility care plan. Inaddition, some policies calculate bene-fits on a monthly basis while others areon a weekly basis.

Maximum benefit periods may varyfrom one year, two years, five years, 10years to lifetime. Some contracts maycalculate the maximum benefit period indays, such as 365 days. There is often atotal maximum benefit outlined in thecontract, stipulating the overall maxi-mum as a multiple of the daily benefit.If this maximum payoff is not reachedin the allotted time, the plan may extendthe time limitation until the maximumpayout is reached. This is usually the casein an integrated contract where facilitycare and home care share a pool of available benefits.

In the case where home care is issued as a rider, theamount of time or benefits claimed against the contract mayreduce the maximum applicable to the facility care. If theinsured uses three years of home care on a plan which hasa 10-year home care/facility care benefit, the years of homecare will offset the total 10 years (i.e. seven years of facil-ity care will remain). A policy with lifetime benefits will notbe affected by this provision.

LTC contracts are in their infancy in Canada, partly becauseof the belief that government healthcare plans will pay for allneeds, but they are continually evolving. New features arebeing added to the contracts, which enhance the coverage.

Benefits such as waiver of premiums, limited guarantees onpremium rates, grace period extensions, and non-forfeitureprovisions are commonplace. Other more elaborate provisionssuch as return of premium on death, inflation protection, bedreservation, medical equipment assistance and emergencyresponse benefits may also be added to the plans.

We all know at least one individual who is currentlyreceiving long-term care in one form or another. As advisorswe are positioned to help clients cope with this critical needby educating them about the benefits of LTC insurance.

David Wm. Brown, CFP, CLU, CH.FC, RHU, is a partner atAl G. Brown & Associates in Toronto.

MAY 200133

1. Are facility and home care benefits:

• reimbursement-based

• indemnity-based

• fixed income-based

2. What is the method of calculating the benefit amount?

3. Are calendar days or care days used to satisfy the elimi-

nation period?

4. What activities of daily living are used to trigger

payments?

5. What care facilities alternatives are covered?

6. What conditions will trigger payments?

7. Are premiums guaranteed or adjustable?

8. Can premiums be paid for a limited period?

9. Are there non-forfeiture options?

10. Are additional benefits available?

11. Is there a pre-existing limitation?

12. What exclusions and limitations are included in

the contract?

Long-term care checklistBefore your clients choose an LTC contract, make sure they know the answers to these questions.

ADVISOR’S EDGE34

By Geoff Kirbyson

VOLATILITY

HIGHWAYDespite the risk, the high growth of emerging markets is attracting your clients.

Illustration by Carey Sookocheff

[ ]If some of your clients asked you for aplace where they could invest and receive a good return without investing on the TSE 300 or another North American market,you may think that’s a difficult request. But have you considered emerging markets?

Investments

After having underperformed formuch of the last eight years, a combi-nation of slowing U.S. and Canadianeconomies and the high-growth poten-tial of emerging markets has promptedsome in the investment industry to looktowards these high-risk areas as a meansto earn above-average returns.

“While they are typically quitevolatile, and not necessarily the mostefficient markets, they can also showfantastic returns from time to time,”says Scott Stewart, an investmentadvisor at ScotiaMcLeod inWinnipeg. He adds that there is noclient for whom emerging marketfunds aren’t suitable since these fundsprovide international exposure notavailable anywhere else. “In 1999 agood number of emerging marketfunds showed returns in excess of40%,” Stewart says, but adds a cau-tion. “While I believe some exposureto these funds makes sense, I thinkthey should be considered only fora small part of any portfolio. Youhave to take into consideration therisk and their market capitalizationrelative to the global market capital-ization.”

Typified by very low per capitaincome, above-average GDP growthand the tendency to go through dra-matic political and economicreforms, emerging markets certainlycome with above-average high risk.But because of their low correlationwith the U.S. and Canadian markets,their inclusion in a well-balanced port-folio can actually reduce the portfolio’soverall risk, says James Gauthier, seniormutual fund analyst for Toronto-basedresearch firm, FundMonitor.com.

Gauthier says that it can be difficultto get a solid read on emerging marketsbecause performance varies wildly fromyear to year. He points to 1999’s 51.6%median return for all emerging marketfunds followed by 2000’s negative 29%

median return as examples.Still, the GDP growth rates in Latin

America, Eastern Europe and Asia(excluding Japan and Hong Kong), whichare often two and three times the growthusually experienced in Canada and theU.S., are hard to ignore. “When you com-bine tremendous GDP growth and thefact that these economies are so beaten up,the valuation gap between domestic andemerging markets is wider than it’s beenin quite a while,” Gauthier says.

He notes that a leading indicator forthe future of emerging markets is thediscount that closed-end emerging mar-ket funds trade at in the U.S. Today,that discount is between 20 and 25%,indicating that the asset class is verymuch out of favour, he says.

“That signifies the downside risk isrelatively low and we could see somegood upside here. It’s definitely a con-trarian play right now. Emerging mar-kets are an element of a portfolio that

people tend to avoid due to fear, butthere is a tremendous amount ofgrowth in the economies and great val-uation in particular stocks,” he adds.

While emerging markets have cer-tainly been volatile, they continue to bepopular with both fund companies andinvestors, says Stephen Burnie, directorof research and analytics at Toronto-based firm Morningstar Canada.

Back in the early- to mid-1990s,there were only a handful of emerging

market funds, but today there are 46with $1.5 billion in assets. Despite thefact that the median emerging marketsfund in Canada lost 29% last year,there was still a positive net investmentin the category. Burnie says the darkestdays for the asset class were from July1997 to August 1998 when the medianfund lost 46%. On the bright side, thereturn-to-date from that low point hasbeen 26%, just below the returns on the

MAY 200135

Continued on page 36

World Equity (28%) and U.S. Equity(30%).

Also, the cumulative return of themedian emerging markets fund fromDecember 1998 to February 2001 was9%, outperforming both the SalomonWorld Equity Index (6%) and the S&P500 (4%), but underperforming theTSE 300 (28%) during the sameperiod.

One of the top performing fundsduring the past five years is the C.I.Emerging Markets with a 7.3% return.Its manager, Nandu Narayanan, says hiscriteria for investment in an emergingmarket include a combination of polit-ical stability and economic policies thatensure a minimum level of socialwelfare.

Narayanan says one of the few areaswhere investors can find growth char-acteristics since last year’s technologymeltdown is in developing countries.Countries such as Korea, Taiwan, India,China, South Africa, Brazil and Mexicopresent unique investing opportunitiesin light of the economic slowdown in

both the U.S. and Canada and the free-fall of technology stocks and funds, hesays. “There has been a substantial shiftaway from anything that has an oldeconomy flavour, like roads, powerplants, steel and food. Outside of a fewstocks, pretty much all of them havebeen neglected as money has flowedinto technology.”

As a result, old economy companieshave been taking a beating in the

market and their valuations are at“throw-away” levels, he says. “You canbuy a lot of infrastructure companies,ones that make power turbines or indus-trial equipment, or heavy engineeringcompanies for three or four times earn-ings,” he says.

Gauthier says that the choice of man-ager in an emerging market fund is cru-cial because the markets in developingcountries aren’t nearly as efficient as inCanada and the U.S., where teams ofanalysts provide volumes of informa-tion on individual companies.

In emerging markets where far fewerprofessionals are on top of the latestdevelopments, there is far greater

potential for managers to add value bydoing their own research, learning theins and outs of particular economiesand the companies that make them tick,and making the appropriate buy and selldecisions.

“It’s tough for managers to do theirown research and uncover hidden gemsin the U.S. and Canada. Studies haveshown that it’s easiest for managersto add value in emerging markets,”

Gauthier adds. Paul Edmond, president of Edmond

Financial Group Inc. in Winnipeg, saysmany of his clients have had little inter-est in emerging markets since the AsianFlu in the late 1990s. But with theirhigh growth rates and low covariancewith North American vehicles, hesays there’s a place for emerging marketinvestments in most investors ’portfolios.

“It makes so much sense to havesome exposure to these markets,” hesays. “The emerging market economiesare growing at much faster rates, typi-cally, than North American economies,thus the greater potential in their stock

Continued from page 35

One of the few areas where investors can find growth

characteristics since last year’s technology meltdown is in developing

countries. Countries such as Korea, Taiwan, India, China, South

Africa, Brazil and Mexico present unique investing opportunities.[ ]

Show the worldyou have the right stuff!

Enter the 3rd Annual Advisor of the Year Awards!

For details see page 40, or visit www.advisor.ca.Join this celebration of excellence and professionalism in the advisor community.

ADVISOR’S EDGE36

markets over the long term. But it’s anextremely volatile road.”

The low covariance is a key attribute,Edmond says, noting that there aresome investors who invest exclusively inNorth America and suffer when thosemarkets inevitably turn down. Hepoints to studies that show for the 10-year period ending December 31, 1999,a hypothetical portfolio made up of60% foreign stocks and 40% Canadianstocks provided less risk and higherreturns than a portfolio comprisedexclusively of Canadian stocks.

To get the lowest risk portfolio withthe highest rate of return, Edmond rec-ommends having between 30% and50% exposure to foreign content. Ofthat foreign content, his advice to hisclients is to have between five to 15%in emerging markets, depending ontheir risk tolerance.

Dan Hallett, senior investment ana-lyst at Windsor-based Sterling MutualsInc., says on the whole his sentiment onemerging markets is neutral. On thepositive side, he says countries likeSouth Africa will benefit from contin-ued strength in the prices of com-modities like platinum and despite aslower than expected corporate restruc-turing process, stock valuations inJapan, Asia’s economic nucleus, arecompelling.

The most attractive region may beLatin America where both Brazil andMexico, the biggest and most liquidmarkets in the Latin region, are show-ing some economic strength, Hallettsays. Negatives include slowing eco-nomic growth on a global basis, disap-pointing restructuring and politicaluncertainty in Asia, he says.

But Steve Kangas, fund analyst atFundlibrary.com in Toronto, says hewouldn’t recommend emerging marketfunds to anybody because as far as he’sconcerned, their returns don’t ade-quately compensate investors.

“Why would I want to put up withall that volatility if the best fund in itsclass is only going to give me 7.3%?I might as well invest in a tech fund orthe S&P,” he says.

Instead, Kangas says investors whoare adamant about getting some emerg-ing markets exposure can do so withgrowth funds. And if a client has a par-ticular fondness for an emerging mar-kets manager, that expertise may beavailable through a multi-manager fund.

Dan Richards, president of Toronto-based industry consulting firm, Mar-keting Solutions, says while emergingmarkets were the place to be in 1993when they returned 67.5%, since theninvestors have been exposed to signifi-cantly above-average volatility withouthigher returns. “If you’re making a deci-sion for the future based on the recentpast, it’s difficult to make a convincingstory to have them as a part of yourportfolio,” he says.

But for investors who are prepared tohave a five-year or longer time horizon,Richards says investing in emergingmarkets with strong economic growthshould provide above-average returns inthe future.

That said, however, emerging marketsshould not be considered for the appre-hensive client, Burnie says. “Investmentin emerging markets is not for the timidinvestor,” he says. “The risk of theemerging markets class measured as the

annualized volatility of median returnsover the last five years was 25%.”

Burnie explains that only a few sec-tor-based fund classes, such as Scienceand Technology and Precious Metals,and a few country-specific classes, suchas China and Latin America, have beenriskier investments. “Where this cate-gory will go in the next year is anyone’sguess,” he adds.

Geoff Kirbyson is a writer based in Winnipeg.

MAY 200137

WITH THE INTERNET and all the other information available today, someadvisors are concerned that their clients are going to try to manage their ownaffairs. But I find that the more information clients get, the more confused theybecome. As a result, we’re able to be financial guide dogs for our clients. We haveto be able to sift through the information for them and manage their emotionswhen the markets are down. That’s where we can give added-value service.

I absolutely love it when my clients are informed. The more information theyget, the better. We’re there to help them through the maze. That’s why the dif-ference between one advisor and another is the service. The reason that someadvisors gain more new clients and develop better relationships is that they makethe extra effort. It’s not always easy, but sometimes it only takes 20% more effortthan other advisors are willing to give. I ACTUALLY STARTED IN INSURANCE when I was 21. Whenyou’re that young with no experience, it’s hard to convince people theyshould buy life insurance.

I wasn’t getting many entrepreneurs as clients. My deduction at thetime was that I didn’t have enough credibility because I wasn’t a busi-ness person. So, I started a couple of little businesses on the side. I hada little property development firm and an ice cream store. I ran themfor about five years. I also established credibility by giving clients addedvalue, some type of information that they weren’t familiar with or get-ting anywhere else. NOW MCCURDY FINANCIAL PLANNING manages about $125 mil-lion and does employee benefits and estate planning. There are four assistants inthe office, three who help with money management and one who does estateplanning and employee benefits. We receive remuneration in one of two ways:either fee for service or a service fee paid by the financial institutions. The clienthas the choice. We don’t take both. We find clients like having the choice.OFTEN NEW ADVISORS want clients so badly, they promise somethingthey can’t deliver. So even if they do an excellent job when compared to otheradvisors, they still over-promise and under-deliver. We should always under-promise and over-deliver. As soon as you disappoint a client you’ve lost credi-bility. For example, let’s say you tell someone you’re going to have somethingdone in two days and it’s something no other advisor could do in a week. Ifyou manage to somehow get it done in three days, your client’s still disappointed.And you’re a day late.

If this business were easy, everybody would be doing it. The first five years aretough. Once you pass that five-year period, a quantum leap occurs. For some

Rookie advisors, don’t despair. Just get through your firstfive years and watch what happens. By Diane McCurdy*

QUANTUM LEAP

EDGEMY

MINI-PROFILEDIANE MCCURDY, CFPMCCURDY FINANCIAL

PLANNING INC.NUMBER OF CLIENTS: 1,100AVERAGE AGE RANGE: 45 TO 65ASSETS UNDER MANAGEMENT:$125 MILLION

YEARS IN BUSINESS: 27OTHER: AUTHOR OF HOW MUCH

IS ENOUGH?

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ADVISOR’S EDGE38

MAY 200139

“

people it may happen sooner, but don’t bediscouraged before those five years. Any-one who wants to build a business knowsit doesn’t happen overnight. GOAL-SETTING is critical to the suc-cess of anyone in business. There are only24 hours in a day and 365 days in a year.If time is slipping by and you look at allthe unfulfilled things you wanted to tryor do, it’s very frustrating. But when you’veactually given it some thought and put apen to paper, you can review your goalsfrom time to time and get refocused.When we don’t have focus, we missopportunities.MY EDGE IS that I can take informa-tion that some people find really compli-cated and overwhelming and make it sim-ple. Clients are not going to make lifedecisions based on information they don’tunderstand. But you also don’t want tointimidate them with too much knowl-edge. Until they are comfortable with you,they don’t care how much you know.

Today’s population is probably themost well educated in history. So eventhough some clients don’t understand thefinancial field, they are educated andthey’ll figure it out if you aren’t doingwhat’s best for them.

I don’t sell returns to my clients. I sellthat I’m there for them. I sell the doingand the planning.

Sometimes we’re fortunate and aninvestment does better than expected, butthat isn’t the plan. It’s consistently invest-ing that’s important. Clients understandthis. It’s not about being their friend. It’sabout giving them solid advice.

*As told to Advisor’s Edge contributingeditor Peter Boisseau. peter@freelancebureau.com”

The more information clients get,the more confused they become. We haveto be able to sift through the information

for them and manage their emotions.

Show theworld youhave the

right stuff!

Sheila did!—Sheila Munch, 2000 Advisor of the Year Award winner

The Advisor of the Year Awards honouroutstanding financial advisors for their

determination, resourcefulness and dedicationto serving clients’ needs. A panel of industry experts

will judge your case study on how you helpedyour client achieve the desired goals.

Enter now, and show the worldhow good you are!

Tear out the entry form in this issue orgo to www.advisor.ca, fill out the entry

form and submit your case study.

Entry deadline is June 22, 2001.

Enter theAdvisor of the Year Awards

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Like it or not, the regulators’financial planning proficiency exam(FPPE) is just a few months away.

If you haven’t been grandfatheredor enrolled in one of the grandfa-thered courses and you want to pro-vide financial advice to consumers,you need to write the FPPE beforeFeb. 15, 2002. That’s the date whenfinancial planning restrictions, titlesand service descriptions must com-ply with the regulators.

Julia Dublin, chair of the Cana-dian Securities Administrators’(CSA) financial planning commit-tee, says the first crop of registrantswill write the exam this September.

Dublin has heard many miscon-ceptions about the FPPE amongadvisors. One myth is that all afinancial advisor has to do is sign upfor a grandfathered course and

they’re covered. “What they don’trealize is that they can’t use the titleuntil the [grandfathered] courses andcorresponding exam are passed,” sheexplains.

And most grandfathered pro-grams must be completed by March31, 2003 to comply with the rule.The exception would be thepre-1995 version of the CharteredLife Underwriter (CLU) designa-tion, which must be finished byMarch 31, 2002.

The FPPE will take a full day tocomplete, with multiple-choice ques-tions in the morning session and casestudies to do in the afternoon portion.

For further information about therules and registration for theFPPE, go to www.osc.gov.on.caand click on “Financial PlanningRule.”

Illustration by Marlena Z

uber

Wealth and practice management strategies

BUSINESSYOUR

Income splitting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Delegating work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Upcoming events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

The resurgence of advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

The joy of meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Nick Murray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

TEST RUNNeed to write the new CSA exam for financial planners? Here’s how to prepare.

By Deanne N. Gage

MAY 200143

BUSINESSYOUR

TAX BREAK

Another tax season comes toan end and your clients are now ask-ing for strategies to reduce their taxbills in the future. No doubt youwill continue to promote tax-effec-tive investing, but don’t forget aboutincome-splitting strategies.

Conceptually, income splitting isvery simple. By diverting incomethat would otherwise be taxed at ahigh rate to family members withlittle or no income, to use up thelower rates available to them, theoverall tax liability for a family isreduced. But there may be someroadblocks to successful execution.

First and foremost are the attribu-tion rules, which apply to income andcapital gains earned on funds orproperty transferred to a spouse andto income earned on funds or prop-erty transferred to a related minor.The rules can also apply to incomeearned on funds loaned to other adultrelatives, where the purpose of theloan was tax reduction. Under theattribution rules, this income is taxedin the hands of the transferor, negat-ing the benefits of income splitting.

In addition to attribution, thereare the Kiddie Tax rules. Dividendsfrom private corporations receivedby minor children are taxed at toprates, instead of marginal tax rates.

But there are still opportunities tosplit income with family membersand reduce the family tax burden.

Spousal RRSPs permit couples tosplit retirement income and RESPsallow parents to split income withchildren by saving for post-second-ary education. Here are nine otherstrategies to consider: ❶ Invest for capital gains in relation

to funds or property transferredto minor children. Remember,when it comes to children, attri-bution does not apply to capitalgains.

❷ Deposit child tax benefits in thechild’s bank account. Incomeearned on these receipts is specif-ically not subject to attribution.

❸ Income split with second-genera-tion income. Although incomeearned on funds or propertytransferred to a spouse or minoris subject to attribution, once theincome is attributed and taxed inthe hands of the transferor, itbecomes the transferee’s capitaland new income earned is notsubject to attribution. It is impor-tant to put the already attributedincome in a separate account.

❹ Transfer assets between spouses. Ifthe low-income spouse owns per-sonal property, perhaps jewelry orone-half of the family home, andsells it to the high-income spousein exchange for cash or invest-ments of equal value, attributionwill not apply to the subsequentinvestment income.

❺ Have the higher-income spouse pay

all personal family expenses. Thatway, the lower-income spouse hasmore funds to invest.

❻ Make gifts to adult children. To theextent that a parent would other-wise be providing assistance forliving expenses, repaying studentloans or for the purchase of a firsthome, making that gift a little ear-lier means some of this funding isprovided on a pre-tax basis.

❼ Gift or loan funds, interest-free, toa spouse or child to start up abusiness. Business income is notsubject to attribution.

❽ For business owners: hire childrenand spouses and pay them rea-sonable salaries for work done.The salaries are deductible to thebusiness and included in therecipients’ incomes.

❾ For corporate business owners:

share corporate profits with otherfamily members by having themsubscribe for company shareswith their own money. Familymembers with no other incomesources can receive approximately$27,000 in dividends and pay notax. Remember this does not workwith minor children because ofthe Kiddie Tax.

Gena Katz, CA, CFP, is a senior principalwith Ernst & Young’s National TaxPractice in Toronto.

Clients can reduce their tax burden with a number of income-splitting strategies. By Gena Katz

INCOME SPLITTING

BUSINESSYOUR

ASK JULIE

I want to give my associatemore responsibility for client contact. How do I do that withoutangering my clients?

Patience may well be the watch-word when shifting to a team-basedapproach to client contact. Too oftenwe think the process should happenovernight, or worse yet, that itshould happen naturally. Neithercould be further from the truth.

Your transfer plan should startwith clear goals and definitions. Doyou want clients to call your team forroutine matters only? Do you wantto transfer responsibility for your“C” clients to an associate? Do youwant to share responsibility on some,but not all, client accounts? Oncethat is determined, you can map out

a plan that should take from one tothree years to implement. Here areseven action items for your plan:

❶Send a communication to yourclients explaining how you areimproving service by including yourassociate. Explain each of your rolesto let the client know you aren’tbailing out of the relationship.

❷Create a team profile highlightingthe expertise of your associate.

❸Run meetings with target clientsjointly with your associate for aperiod of time.

❹Let your associate take the lead inmeetings and do whatever youhave to do to keep quiet.

❺Ensure your associate follows upon significant issues that ariseduring the meeting.

❻Have your associate contact keyclients in advance of the meetingto outline important areas for dis-cussion to build the degree ofproactive contact.

❼Give your associate the floor ifyou run client educational work-shops or a column in yournewsletter.

I have been using a contactmanagement system but don’t feel I have enough information on my clients. How can I gatherbetter client data?

The process of gathering client

information is relatively straightfor-ward. Once you have identified theinformation that will be helpful inbuilding client relationships, you’llneed to decide what method worksbest for you and your team. Here arefive typical methods of collectinginformation:

❶ Include some basic profile ques-tions in an annual satisfactionsurvey and send it to each client.

❷Have a team member conduct atelephone survey of clients toupdate their profiles.

❸Send a profile update form toclients before an annual reviewand have them fill in the gapsbefore the meeting.

❹Ask clients for informationdirectly during meetings.

❺Have a team member sit withclients for five minutes beforeeach meeting and gather any newor relevant information, both tohelp you focus the meeting onchanges and to update the clientprofile.Once you have decided which is

the most appropriate method foryour clients, set specific timelines forcreating a standard profile and put-ting your plan in motion.

Julie Littlechild is president of Toronto-basedAdvisor Impact. Send your questions toaskjulie@rmpublishing.com.

An associate should handle a client’s portfolio with care. By Julie Littlechild

DELEGATING TASKS

Q

A

Q

A

June 17 to 19Investment Dealers Association ofCanada (IDA) Annual Meeting and Conference 2001 Pointe-au-Pic, QuebecTo register go to www.ida.ca or call(800) 465-9670 ext. 503.

June 26 to 28 Forrester’s Canadian eBusiness Leadership Forum Westin Harbour CastleToronto At this forum, firms can learn to develop and implement new e-businessstrategies. Call (888) 343-6786 or visit www.forrester.com to register.

Mark your calendar

MAY 200145

ADVISOR’S EDGE46

BUSINESSYOUR

VALUE OF ADVICE

The financial advisory businessis not the only industry whose serv-ices are being challenged by the Inter-net. Travel agents are also facing chal-lenges, so much so that the Assoc-iation of Canadian Travel Agentscame up with 10 reasons why a con-sumer would use a travel agent, as amethod to promote their services.

So why, with today’s onlineoptions, do investors choose to workwith a qualified financial advisorrather than invest on their own?Here are my top 10 reasons:

1. Expert advice and guidanceThe advisor understands investmentmanagement, financial planning andinvestor behaviour and can explain itin terms the client understands so heor she can take advantage of oppor-tunities and avoid mistakes.

2. Personalized service and communicationThe advisor takes the time to under-stand the client’s objectives andthinks in terms of personalizedadvice and service, not just products.

3. Choice and flexibility The advisor and his or her firm pro-vide a variety of investment optionsand help the investor select theoptions that are most appropriate tohis or her individual situation. Theyalso provide access to research for

the investor who likes to do his orher own homework.

4. Convenient one-stop shoppingThe advisor can save the consumertime, money and stress by advisingon every aspect of financial affairs,including shopping for a mortgage,investments and insurance.

5. Customer advocateThe advisor always puts the needs ofthe client first. This includes helpingthe client focus by prioritizing finan-cial issues and resolving any finan-cial concerns that may arise.

6. Time savingsThe advisor filters through the avail-able financial information and inter-prets how it applies to the client.

7. Value for the dollarThe advisor offers good value forthe services the client requires.

8. ProfessionalThe advisor operates as a profes-sional and outlines the scope oftheir services without promisinganything they can’t deliver, such asinvestment performance or pickingthe “best” investment.

9. Works from written agreementsThe advisor puts in writing theappropriate client agreements, which

could include a written financialplan, investment strategy or letter ofengagement, as well as the firm’sclient application form.

10. Unbiased informationThe advisor works for the client, notthe product supplier. Where there isthe potential for a conflict of inter-est, it is fully disclosed to the client.

Trading is down at online broker-ages and many financial advisors havetold me their meetings with clientsand new prospects are up. This is evi-dence that investors are less confidentin their abilities to manage their ownportfolios when markets are uncer-tain—and are again looking for help.

A qualified advisor can enrich thelives of the client in ways that nevershow up on their investment state-ment or in their investment per-formance. Clients know their trustedadvisor does more than just buildinvestment portfolios. He or sheprovides their clients with person-alized advice and support.

There are lots of other goodreasons. Let me know your top10 reasons by e-mailing me atfosters@caratconnect.com.

Sandra Foster, CFP, FCSI, is the author ofWho’s Minding Your Money?Financial Intelligence for CanadianInvestors (John Wiley & Sons).

Thanks to uncertain markets, many investors are choosingyou over the online brokerages. By Sandra Foster

RESURGENT ADVICE

Meetings often seem like thebane of a manager’s existence. Theychew up an enormous amount oftime—in some fields, much of theday—forcing managers to catch upand do what they consider their realwork during evenings and weekends.But to my mind, organizational liferequires a healthy dose of meetingsand managers, in particular, mustlearn to live with them. To manageis to meet.

I think the place to start is withunderstanding the counter-pressuresat work in meetings:

❶Forward versus Lateral: Eli Mina, aVancouver-based consultant, notesin The Complete Handbook of BusinessMeetings (Amacom) that in everymeeting there is an urge to rushahead and solve problems quickly.But it’s also vital to know when toslow down and wallow in some lat-eral thinking about the issue athand. As a manager, that’s your role:You are generally charged with thetask of getting everybody througha meeting quickly and “back towork,” as we like to say, implyingthat a meeting isn’t work. You needto know when to fight that ten-dency, slow everybody down, brain-storm options and rethink assump-tions, rather than gallop to theobvious, and not necessarily opti-mal, solution.

❷Strategy versus Operations: A bigproblem is not being able to sep-arate operational matters fromstrategic matters, and ensuringstrategy gets sufficient attention,preferably in regular meetingsassigned to that task. In The Strat-egy-Focused Organization (HarvardBusiness School Press), authorsRobert Kaplan and David Nor-ton note that 85% of manage-ment teams spend less than onehour a month discussing strategy.I once had a boss who, evenwhen we held a once-a-year off-site retreat, typically let us getsidetracked 15 minutes into thesession into one of our opera-tional sinkholes, discussing tem-porary fixes (always the samesinkhole, naturally, and generallythe same “solutions”). Strategyneeds its own time.

Of course, sometimes strategywill overwhelm operational mattersin an operational meeting—whichis fine, since strategy should also beemergent, bubbling up from thedaily activities, as McGill ProfessorHenry Mintzberg reminds us.When that happens, it’s importantto try to hold the moment, recog-nizing that you are in a hot strategydiscussion, and not feel compelledto shut it down because it has arisenduring the 10-minute operationalcheck-in.

❸Limited versus Broad Attendance:

The fewer people who attend ameeting, the less the meeting costsin salaries. But the fewer peoplewho attend, the more people whowill be outside the loop. Peopleresent not going to meetings thatthey feel their rank or ability mer-its attending—and that can affecttheir performance. Moreover, mes-sages about what was decided at themeeting will never get through tothose individuals in the same wayas if they had been full participants.

One of my former bossesrequired his management teammeet every morning. On manydays, it was purely social andseemed a total waste for such busyindividuals. But as I think back,those meetings were crucial.We developed friendships withinthe team and a fondness for eachother that broke down departmen-tal silos and rivalries. When crucialmatters required attention, the teamwas together at 8:30 a.m. ready todeal with them. Often, I couldsolve an interdepartmental issue ina 30-second side-chat with a col-league that otherwise would take usthree days of voicemail to dealwith. It’s important to celebratemeetings, not bury them.

Harvey Schachter is a contributing editor ofAdvisor’s Edge.

MAY 200147

BUSINESSYOUR

MANAGING

Meetings are an effective way to align the interests ofemployees and management. By Harvey Schachter

MEETING HALFWAY

MAY 200149

BUSINESSYOUR

QUEST FOR EXCELLENCE

When I began writing thisseries of essays back in mid-January,only the stock market’s technologysector was in a bear market. Ex-tech,the broad market was gently cor-recting in some areas and even hold-ing like a rock in others.

So I started off thinking thatthese pieces would simply addressthe general problem of call reluc-tance for people relatively new to thebusiness—those doing a high vol-ume of prospecting for the firsttime, and facing the inevitableonslaught of “rejection.”

But now that virtually the entireequity market has gone on sale—and remember: the amateur’s bearmarket is the professional’s bigsale—I’ve been hearing from a lot ofestablished producers whose prac-tices have taken some major hits.

There’s a lot of shock in this lat-ter category, and more than a littledenial. But, for purposes of this dis-cussion, the veterans are back inmuch the same boat as the relativeneophytes. They’ve got to rebuildrather than build, but what’s the dif-ference? For those who stoppedprospecting a while ago becausebusiness was so good, the stresses ofreturning to the process ofapproaching strangers are quite sim-ilar to those the rookie feels—if notworse, because the experienced advi-sors may have thought they’d neverhave to do it again.

So it seems appropriate at thispoint to expand this extended

discussion of prospecting to encom-pass the challenges facing advisorsreluctantly returning to it. Startingnext month, I’ll ask you to investapproximately $500 in your career.If you haven’t got it, borrow it.

(If you hesitate instinctively to dothis—if you fear the borrowed $500might be lost—it’s probable thatyou’re already clinically depressed.Please understand that this isn’t acriticism; it is—however specula-tive—a diagnosis. Hell, a quarter toa third of the advisors I talk to thesedays are clinically depressed. It’s epi-demic at times like this. You’re justgoing to need a little extra profes-sional help to make your miraclehappen, that’s all. Take a deep breath,and stay tuned.)

The very first thing you have todo—neophyte and veteran alike—isto climb down off your own back.No matter what mistakes you’vemade, no matter how far short ofyour goals you’ve fallen, recriminat-ing with yourself isn’t going to getyou anywhere. And it may evenbecome a self-fulfilling prophecy, as“I’ve done so badly” unconsciouslyslides into “I am bad” which is ashort, easy step from “I’ll never beany good.”

Reasonably sane people seem tofeel, at any given time, that the bestthey could do up until now is… thebest they could do up until now. We(and I use the pronoun very advis-edly) aren’t like that. Psychic self-flagellation is our art form. We con-

stantly and unmercifully beat our-selves up about the gap betweenwhere we are and where we “should”be. (But “should” by whose stan-dards? Usually only by ourwretchedly self-recriminatory own.)

Neophytes who fantasized aboutquickly getting to $100 million inassets under management, andinstead are (a) at $10 million and(b) paralyzed, lash themselves un-mercifully about their imagined lackof “motivation.” (As if someonewho had the guts to take a job withno salary weren’t motivated enoughfor 10 lifetimes.)

Veterans who used to have $100million under management lamentthe cruel injustice of a few bigclients who blew themselves up inthe market, and then withdrew $20million, claiming it was the advisor’sfault. (It was, of course—you did-n’t prevent them from underdiversi-fying/speculating/leveraging intechnology. And you know it. That’swhy you’re really mad at yourself andnot the clients.)

Enough. By all means accept theresponsibility for what you haven’taccomplished yet. But don’t blameyourself. You’ve learned a lot abouthow the business works by learn-ing, however painfully, what doesn’twork. Next month, we’ll start free-ing you to build on what you’velearned.

© 2001 Nick Murray. All rights reserved.Visit www.nickmurray.com.

By Nick Murray

CRUEL NECESSITY,PART THREE

Given that the price of gold shows very

little reaction to political events these

days, do you view it as simply another

commodity like copper or silver?

What is today may not be tomorrow. Idon’t know whether it will be, but to saythat gold will never be anything but acommodity would probably be wrong.It is clear from the experiences of thelast couple of years that it is going totake the mother of all crises to restoreit. In the event of a U.S. dollar crisis,then I think something will happenwith gold.

In The Power of Gold you mention how since

1987, when the market recovered quickly

from a bear market,people tend to view dips

in the market as buying opportunities.Do you

think this is dangerous?

Yes. I don’t think you make any kind ofdecision without thinking. I do thinkthe environment is shifting now. Thecontinuation of higher than averagelong-term returns in the stock market,along with manageable volatility, makessense under one condition. The condi-tion is that the underlying economicfundamentals remain in place—if wedon’t have a slowdown this year or ifnothing bad happens. Nothing bad hashappened recently. Even when Asia fellapart, the developed world kept mov-ing along. But any scenario other thanthis ends up with negative returns onthe three- to five-year horizon.

Will you hazard a forecast for the price

of gold?

Gold has this magic quality in the worstof times as a store of value, because it isstateless money. In the mother of allcrises, I would fully expect the price ofgold to rise up again. A big collapse inthe price is very unlikely because currentproduction is less than jewelry demand,and the difference is only made up bycentral bank sales. Take central bank salesout and the price would be higher than itis simply on a commodity basis. So, therisks of owning gold are small and thepotential is enormous.

What about the stock market? Are we

headed for a period of lower equity returns?

I think the lessons of the 1930s and thelessons of the 1970s, both of whichwere decades of terrible policy errors,have been very well learned, so a repe-tition of the worst in terms of eco-nomic mistakes is very unlikely.

My concerns are not economic butpolitical. I live in daily terror of terror-ists, which has nothing to do with thestock market except that there are mil-lions of people out there who are notpart of our system and have no particu-lar interest in being part of our system.North Americans in general are hated inthe underdeveloped world. What kindsof chaos could develop from that and ourability to manage that, I don’t know. So,my worry is not in the policy area, itis about something uncontrollablehappening. I don’t know if there isanything you can do about it other thansit and pray.

Barb Clapham is a Toronto-based writerand editor.

Teacher, writer, editor, air force captain and investment consultant: these are justa few of the hats Peter L. Bernstein has worn during his distinguished career.Bernstein is the founder of Journal of Portfolio Management and was thepublication’s first editor. He is the author of eight books, including his most recentbook, The Power of Gold: The History of an Obsession (Wiley).

NEWSMAKERBy Barb Clapham, CFA

PETER BERNSTEINNothing lasts forever, but the price of gold is unlikely to collapse.

ADVISOR’S EDGE50

Digital illustration by M

arcelle Faucher