the ip strategies value · pdf filethe ip strategies value proposition phone: 1327422 toll...

The IP Strategies Value Proposition

Phone: 613-274-2662 | Toll Free: 877-721-1189

Raymond James Ltd., member - Canadian Investor Protection Fund



Phone: 613-274-2662 | Toll Free: 877-721-1189

CONFIRMING THE VALUE OF ADVICE

It’s difficult to quantify the value that is offered from a financial advisor, as the term is quite loose and broad

in Canada. I’m often asked what I do for a living and my response varies from “financial advisor” to “wealth

manager” to “money manager” or “investment advisor”. What do I really want to tell people when asked? Our

team is your financial quarterback. We’re the individuals who work with your other team members and implement

the game plan. With access to information never being higher through the internet, social media and television

programs, many strategies, investment vehicles and recommendations are thrown at Canadians, which often do

have merit and value. However, the missing link in my opinion is that there aren’t enough professionals who have

the knowledge, time or desire to pull it all together for the client. Many strategies when examined on a one-by-one

basis can be attractive, but they’re often examined in separate silos. Similar to the pharmaceutical industry, a drug

can do wonderful things for you. However, if mixed with another drug, there can be contraindications which can

cause serious problems. Some contraindications will be more severe than others, but over 30-40 years this can

equate to lower wealth accumulation amounts, higher taxes and financial goals not being realized. IP Strategies

(Integrated Planning Strategies) focuses on breaking the silos and implementing the overall game plan. This white

paper was written to offer an overview of the following:

1. Who needs a full service financial advisor?

2. What to look for in a financial advisor

a. What types of services do they offer?b. Finding a competent advisorc. What is their commitment to you? Do they put it in writing?

3. What is the quantifiable value of the services you will receive?

4. Are you a candidate for the IP 360°™ Approach?

PART 1: WHO NEEDS A FULL SERVICE FINANCIAL ADVISOR?

With less than half (49%)1 of Canadians having a financial advisor, it’s clear that not everyone puts a value on

having this type of relationship. Many individuals manage their own financial affairs and some do it quite well.

Whether you have an advisor or you do it yourself, the scary statistic is only 31% of Canadians have a formal

written financial plan2. In today’s world, I can’t stress how important it is to have a financial roadmap which is

implemented and monitored on an ongoing basis. So when are an advisor’s services welcomed and advisable?

• Your family assets are significant and you and your family are not comfortable managing them on your own.

• You do not have the financial knowledge needed to make meaningful financial decisions on an ongoing basis.

• You don’t have the interest and/or time in order to implement and monitor your financial affairs.

• You own a business with a complex corporate structure.

• You tend to make changes and abandon your financial plan during periods of market stress.

• Your spouse does not have the experience to manage your family’s finances should you become disabled or pass away.

1 2012 Canadian Securities Administrators Investor Index Executive Summary- https://www.securities-administrators.ca/investortools.aspx?id=1011

2 2012 Canadian Securities Administrators Investor Index Executive Summary- https://www.securities-administrators.ca/investortools.aspx?id=1011

“ Our team is your financial quarterback.”


Phone: 613-274-2662 | Toll Free: 877-721-1189

PART 2: WHAT TO LOOK FOR IN A FINANCIAL ADVISORIn our opinion there are five levels of service offered by a financial advisor.

1. Customer service representative or personal banker

This type of advisor is often found at the financial institution where you have a bank account. They can make investment recommendations

such as GICs or mutual funds; however, they are often limited to the brand/products sold by that specific institution. The advisor is not

allowed to implement or execute any transactions without your consent and is compensated on a salary basis. The bank or financial institution

makes their money through the embedded fees inside the investment product that is utilized (further discussed in this paper).

2. Mutual fund representative

Mutual fund representatives or advisors are licensed to buy and sell mutual funds on your behalf; these types of advisors are generally found

at your local bank. The advisor is not allowed to buy or sell funds without your consent and is often compensated by the fund company

utilized within your portfolio. The ongoing fees paid to the mutual fund company and your advisor are often not shown on your monthly

statements, but are taken off the daily value of the fund at the close of every business day through the management expense ratio (MER)

of the fund.

3. Non-discretionary investment representative or stock broker

Advisors who are licensed to be able to buy and sell stocks, bonds, mutual funds or ETFs. The investment firm they work for (often a

brokerage firm) is registered as an investment dealer. They are compensated one of two ways: making a commission each time an investment

is bought or sold; or on an annual % fee basis based on the value of your overall portfolio. They are not permitted to make changes to your

portfolio without your consent.

4. Discretionary portfolio managers

This is an advisor who manages your investments for you and can provide investment advice on any type of security (stocks, bonds, mutual

funds, ETFs, etc.). They hold the highest level of registration as portfolio managers and can manage your portfolio on a discretionary basis

(without needing your approval for every transaction) as long as they adhere to a formal investment policy statement (IPS) which outlines the

goals, risk tolerance, asset allocation and fees of the underlying portfolio. This type of advisor is usually compensated on a % fee based on

the overall size of the portfolio. Often the minimum household asset level is $250,000 for this platform. A discretionary portfolio manager

solely focuses on providing investment advice.

5. Integrated wealth managers – The IP Strategies ApproachAn integrated advisory team that manages all aspects of your financial affairs by reviewing and implementing the following:

• A formal integrated financial plan

• Discretionary portfolio management (as described in the above section)

• Tax planning

• Estate planning

• Formal review engagements

• Risk management (life, disability and critical illness and health insurance)


Phone: 613-274-2662 | Toll Free: 877-721-1189

The fees associated with the above services are often very similar to the fees paid for portfolio management, but

with many value-added services (financial, tax and estate planning) offered and included in the fee charged to

manage the portfolio. The minimum investable asset level is often higher (usually $500,000 and above) due to the

time and commitment involved in the full service offering. At $500,000 of assets an integrated wealth manager

may charge an annual management fee of approximately 1.75% (decreases as assets grow) which includes all the

integrated services above. The fee is often less than many mutual fund MERs, which are offered by the advisors

in sections 1-3, tax deductible where permitted by CRA, and the management fee decreases as your assets grow

(unlike traditional mutual funds).

Finding a competent advisor

It’s not easy to find an advisor who possesses the character and expertise to provide independent strategies that

are best suited for your specific needs.

Transparency: Look for advisors who are remunerated on the basis of management fees and not transactional

commissions. This approach lowers the chance of a conflict of interest where the advisor or bank may be more

concerned about their compensation, than what makes the most sense for you the client. Ensuring that the

interests of your advisor are aligned with yours is the first step.

Independent advice: There’s no secret that profit margins are higher in proprietary products or services. Think

of your favourite grocery store or pharmacy, it’s everywhere. The same exists in the financial services industry.

Be wary of bank owned products being recommended to you. Often the compensation to the advisor is higher.

Make sure all options have been reviewed, and consider working with an advisor who is not obligated to utilize

in-house products or even better, is affiliated with a company that does not have an in-house product to offer.

Credentials: In order to decide on the right advisor for you, a review of credentials should be examined. In

the financial services industry, many letters of the alphabet are seen on business cards or email signatures. This

article referenced by Morningstar offers a detailed description of what all these letters mean.

Experience and reputation: Ensure that the firm and advisor you’re affiliated with have the experience and

reputation in order to manage your affairs. Knowing a current client who has had a positive experience is

always a good testament. Don’t hesitate to ask for references.

Ask questions: Do not feel intimidated to ask questions that have not been answered as part of your due

diligence process. One should not ask more questions to their car mechanic than they do to the individual(s) who

manage their money.

The commitment

You have now interviewed various financial advisors and have heard many different approaches towards managing

your wealth. The final step is to choose your advisor and put your plan in writing.

1. Creating an integrated financial plan

This examines your personal, corporate and family situation. This process provides both the advisory

team and the client with a financial roadmap which details the necessary cash flow and rate of return

requirements in order to achieve their goals and provides a personal benchmark for your annual

review engagements.

“ The fee is oftenless than many mutual fund MERs, which are offered by the advisors in sections 1-3, tax deductible where permitted by CRA, and the management fee decreases as your assets grow (unlike traditional mutual funds). ”


Phone: 613-274-2662 | Toll Free: 877-721-1189

2. Assessing your risk tolerance

Once the integrated financial plan is completed, a formal risk tolerance questionnaire is

completed in order to assess your willingness to take on risk. The score that is derived from this

tool is utilized in conjunction with the information gathered in the integrated financial plan to

recommend the proper split of stocks, bonds and alternative investments within your portfolio.

3. Preparing your investment policy statement

Once the integrated financial plan has been completed along with the risk tolerance assessment, it is

time to put the commitment in writing. This document will provide the foundation of the advisory

relationship and addresses the following:

a) Purpose of the portfolio

b) Return expectations

c) Time horizon

d) Asset allocation

e) Rebalancing

f) Liquidity constraints

g) Investment vehicles

h) Benchmarks

i) Frequency of review engagements

4. Portfolio construction

Whether it’s real estate, private businesses or your investment portfolio, you invest your money and

take on risk in order to achieve a rate of return in excess of the cost of living or inflation. With the

current risk free rate being so low, it is understood we need to assume risk in order to achieve the

necessary real rate of return for the integrated financial plan. The portfolio manager will examine the

following when constructing your portfolio:

a) Asset classes: Stocks, bonds, alternative investments

b) Geography: Canada, US, and global markets

c) Sectors: Financials, healthcare, industrials, and consumer staples, etc.

d) Currency: Do we own investments in their native currency (ex: in $US)?

5. Integrated tax planning:

Within a full-service integrated wealth management approach, your advisor will examine more than just

your portfolio in order to derive wealth and reduce taxes for you and your family as they have a deeper

understanding of your situation versus an individual who solely manages your portfolio. An example

of integrated tax planning strategy would be to shift investment income from a higher income spouse

to a lower income spouse or children in order to reduce taxes payable and keep more money within

the family.

“ ...they havea deeper understanding of your situation versus an individual who solely manages your portfolio. ”


Phone: 613-274-2662 | Toll Free: 877-721-1189

6. Tax loss planning:

When life gives you lemons, you make lemonade. Throughout one’s investing life capital gains will

be accrued in taxable accounts. A full-service advisor will often look at any opportunities within the

portfolio for any securities which have fallen in value. If sold, these losses can be applied to offset gains

in the current year or can be applied to the previous three years. Once sold, the advisor will look for

similar investment vehicles offering the same exposure which will recover in the same fashion as the

investment that was sold (there are specific rules on buying back the same security immediately).

7. Corporate strategies:

High net worth individuals rarely have a singular layer to their financial strategies. Their financial picture

is complex. The use of incorporation, trusts, corporate governance, exit planning and estate planning is

critical in maximizing after tax income, business growth, and succession planning.

8. Estate planning and philanthropy:

Helping you understand the complex issues surrounding next generation wealth transfer and ensuring

that your estate will pass to your successors as you intended. This process also involves the examination

of all your assets and the tax implications which may exist upon your death. Philanthropy is often

examined as a tool to both reduce taxes and leave a legacy.

9. Annual review of the integrated financial plan:

According to the latest Canadian Securities Administrators (CSA) Investor Index, only 24% of

Canadians3 reviewed their financial plan in the last year. The annual review is a key component to

ensuring that you’re on track to achieving the goals set in the initial integrated financial plan. The annual

review should at the very least examine the following:

• Portfolio performance relative to your personal benchmark: Did you achieve your personal required real rate of return?

• Portfolio performance relative to comparable indexes: How did your portfolio behave compared to the TSX, S&P 500 or a bond index?

• Cash Flow: Did you make the appropriate deposits/withdrawals that were required within the integrated financial plan?

• Have you maximized any available government plans (RRSPs, TFSAs, RESPs, etc.)

• Major life changes: Are there any new changes within your family? (marriage, divorce, birth, employment, real estate purchase/sale, business transaction, health).

PART 3: QUANTIFYING THE VALUE OF THE SERVICES OFFEREDThe value proposition for advisors has always been easier to describe than to define. In a sense, that is how it

should be, as value is a subjective assessment and necessarily varies from individual to individual. There have

been many published reports including Vanguard’s “Putting a Value on Your Value” and the CIRANO (Center

for Interuniversity Research and Analysis on Organizations report, which have used econometric models to

determine the measurable value of advised wealth.

3 Vanguard: Putting a Value on Your Value- http://www.vanguard.com/pdf/ISGQVAA.pdf

“ ...only 24%of Canadians reviewed their financial plan in the last year. ”


Phone: 613-274-2662 | Toll Free: 877-721-1189

1. Behavioral coaching (+1.50%)

Advised client’s demonstrated discipline to a strategy over prolonged periods of time. An advisor assists clients in avoiding emotion-based

decisions which are large factors to negatively impact long-term returns.

2. Asset location for tax-efficiency (+0.75%)

The asset location between taxable and tax-advantaged accounts can significantly improve the after-tax return generated within the portfolio. The

income from bonds and income from foreign corporations is taxed at your personal income rate (similar to your salary). However the Canadian

government offers preferential treatment on the dividends paid by Canadian corporations. With tax being applied at different rates, it is often worthwhile

to examine the benefits of an asset location strategy which places the most punitive income sources in sheltered accounts (RRSPs, TFSAs, etc).

3. Rebalancing your portfolio (+0.35%)

Over time, market fluctuations cause the overall asset allocation to drift away from the strategic asset allocation that was agreed upon in the

IPS. The process of re-balancing ensures that the risk/return characteristics stay consistent.

4. Withdrawal strategy (0.70%)

As you transition into retirement, advisors assist in making important decisions on optimizing withdrawals from their various accounts. This

is extremely important, specifically from a tax-efficiency and estate planning perspective.

Description Potential Value Add

Behavioral Coaching 1.50%Asset Location Strategy 0.75%Rebalancing 0.35%Withdrawal Strategy 0.70%

Total Benefit 3.30%


Phone: 613-274-2662 | Toll Free: 877-721-1189

PART 4: AM I A CANDIDATE FOR THE IP 360° APPROACH?After reading the above sections, you now likely have a greater perspective and understanding of the financial services industry in Canada. You may now be asking yourself the following question: “Am I a candidate for the IP 360°™ Approach”? Perhaps you have never completed an integrated financial plan. Do you know what your personal required rate of return is? Is this tracked on an annual basis? Do your accountant and financial advisor communicate in order to reduce taxes now but also on death? Do you only hear from your investment advisor around RRSP time?

Our approach is not for everyone. It’s much more hands on and comprehensive. We’re a twelve person team all here under one roof in Ottawa that focus on delivering an integrated approach towards wealth management to high net worth individuals (investable assets greater than $500,000), business owners and incorporated professionals. Due to the amount of time invested in each relationship, IP Strategies limits new engagements to twelve per annum.

Our services: As described in section 2, IP Strategies offers an integrated wealth management approach towards financial planning.

Our credentials:The individuals within the team at IP Strategies hold the highest designations available within the Canadian investment industry ranging from Chartered Financial Analyst (CFA), Chartered Professional Accountants (CPA) and Chartered Investment Managers (CIM). These designations are required in order to be licensed as a discretionary portfolio manager in Canada.

How do we get paid?Our compensation is provided through the management of your investment portfolio and by placing risk management solutions (life, disability and critical illness insurance) where needed. Our portfolio management department operates on a discretionary and transparent fee based approach which adheres to a formal investment policy statement (IPS). We do not charge individual commissions for buying and selling securities. Our management fee is often less than what individuals pay for their mutual funds, offers additional tax benefits and decreases as your portfolio grows.

ABOUT IP STRATEGIES:A break from the traditional reliance on the four separate pillars of financial planning – banking, insurance, investments and trusts – all limited by the fact they were offered in isolation, the IP 360°™ process has a far broader, multidisciplinary approach. Founded by Richard Kluska 30 years ago, Richard had the vision to understand that the needs of high net worth Canadians were changing and would not be satisfied with the traditional silo approach to financial planning. Over these years, Richard has added key individuals and leaders with various breadths of knowledge to his team who lead the four different divisions of the IP 360°™ Approach towards integrated financial planning all under one roof here in Ottawa.

If you believe you’re a candidate for the IP 360°™ Approach and would like to have an initial discovery meeting, we invite you to contact us. You’ll be glad you did.

We look forward to hearing from you.

Past returns are not necessarily indicative of future performance. You should not rely on or view any past performance as a guarantee of future investment performance. A recommendation of the above investments would only be made after a personal review of an individual’s financial objectives. Statistics and factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as

an offer or solicitation for the sale or purchase of securities. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.

Securities are offered through Raymond James Ltd., member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a member-Canadian Investor Protection Fund.

Web: www.ipstrategies.ca | Email: [email protected]

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