At least once a month for the past few years our kids have attended (or have been invited to) a birthday party where the host parents rent out a facility for the kids to run around and then move to a ‘party room’ to open presents and eat birthday cake. For years we resisted this growing trend, as the cost to rent a facility such as a gymnastics centre, trampoline park, or other play centre, seemed outrageous – ranging anywhere from $200 to $450!
Anyway, faced with the thought of having 10 kids over to our house, coming up with an afternoon of activities, and cleaning up afterwards, this year we caved and rented a gymnastics facility for our daughter’s eighth birthday. The total cost was $185 and included one-hour of gymnastics activities in the gym (led and supervised by a gymnastics coach) and one-hour in the party room. We spent another $60 on snacks, cake, decorations, and party favours. The facility had a fridge and microwave, and the staff cleaned up afterwards.
Of course, now expectations have been set and so our youngest daughter, who turns five next month, already has some ideas on where she’d like to have her big party!
One idea suggested by a parent was to hold the party at McDonald’s. Kids love the Golden Arches and there’s no cost to rent the space – you just need to let them know how many people are in your group and they’ll reserve tables and make sure your group has priority at the play centre. A Happy Meal only costs $3, so you could have 10 kids there and spend $30. Not a bad idea!
Is the ‘big birthday party’ a new trend or am I conveniently forgetting all those times I went to Chuck E. Cheese’s as a kid?
This Week’s Recap:
On Monday I wrote about a brain-dead easy solution to start investing.
On Tuesday I had the chance to share the details of how CDIC insurance would protect your deposits if Home Capital were to go bankrupt.
On Wednesday Marie explained the importance of having an accurate Know Your Client (KYC) form on file.
And on Friday Marie looked at the pitfalls of naming your children co-executors.
Weekend Reading:
First up, a sad week for investor advocates as most provincial regulators have abandoned a plan to introduce a best interest standard for advisors.
Ontario and New Brunswick, however, will continue to push for a best-interest standard, or fiduciary duty of care:
“We have been clear all along that we support a best-interest standard and are prepared to demonstrate leadership here. It’s what investors expect and deserve,” said OSC vice-chair Grant Vingoe.
Canada’s big six banks saw their ratings downgraded by Moody’s this week, citing concerns that growing household debt levels and runaway housing prices may leave the banks vulnerable to losses in the face of a housing crash.
Speaking of housing, Garry Marr reports that the ‘spillover effect’ is driving up house prices across the Vancouver region and even into the interior of B.C.
An interesting article about the war for control of the Home Capital story, with a look at famous short-seller Marc Cohodes and his relentless drive to expose the alternative mortgage lender as a fraud.
Equifax Canada has a better way for lenders to verify income and prevent would-be homebuyers (and brokers) from falsifying their documents:
Prices are cheap compared to Vancouver and Toronto – Is Calgary the next hot spot for foreign buyers?
Housing has become Canada’s economic engine and with that in mind here’s a sobering look at how homeownership became the engine of American inequality.
Air Canada announced plans to launch its own loyalty program once its agreement with Aeroplan expires in June, 2020.
Shares in Aimia, Aeroplan’s parent company, plunged almost 63 percent after the announcement Thursday.
Switching gears to investing and retirement, here’s a TFSA strategy in need of diversification.
Dan Bortolotti continues answering your questions about bonds. This week’s podcast looks at whether you should even hold bonds at all, or wait for higher yields.
Jason Heath explains how to get the most out of the capital gains exemption.
Michael James shares his thoughts about Fintech in Canada:
“The best way to make money fast in fintech is to attract as many customers as possible and then sell the company to one of the big banks. Not all fintech companies have this plan, but many do.”
Tom Feigs looks at ways to reduce taxable income in retirement.
This reader thinks her brother will keep everything from their parents’ will. What to do if you don’t trust the executor of the will.
Rob Carrick on how millennials could end up paying the bills for baby boomers.
This CBC article says that care of aging parents costs Canadians an estimated $33 billion annually.
Erin Lowry with an inspiring tale on how she went from making $23k to $100k in four years.
One way to do that is to earn extra income outside of your day job and so finally we have Des Odjick explaining exactly how to track your side hustle income.
Have a great weekend, everyone!
I was named executor on both my father- and mother-in-law’s wills. I had copies of the wills and other documentation I might need. So, imagine my surprise when I just recently found out that I am a co-executor on my own parents’ wills. These wills were prepared in 1992 and I was thinking – “When were you planning on springing this information on me?”
My brother and I are joint executors. You can name more than one person to serve as executor and a lot of people appoint their adult children as co-executors. The primary reasons are they want to treat their children fairly, and they don’t want to hurt any of their children’s feelings. By making sure they are all included in the administration process it can help share the burden.
Related: So you’ve been asked to be an executor
These are perfectly valid reasons. It can be a good idea – or a terrible idea.
Drawbacks of naming co-executors
It is understandable that parents wouldn’t want to appear to play favourites in naming their executor. However, naming more than one child just to avoid hurt feelings could become a problem. All the executors must work together and they are all held responsible for the estate as a team or group. None has the legal right to act alone.
If co-executors are named in a will, all of them must jointly:
- apply to have the will probated
- sign property deeds and titles for transferring assets
- sign on the estate’s financial accounts, investments accounts, final tax returns, and any other paperwork
- be responsible for paying the estate’s bills and debts (including funeral expenses) from the estate assets
- administer their parent’s assets until they are distributed
- and be in agreement on every decision
The estate bank account should be set up so that all cheques and withdrawals need the signatures of both (or all) co-executors. All estate money should be put through there. This makes the accounting much easier and allows for transparency.
Because co-executors must agree and act together, naming multiple executors can cause delays and inconvenience, especially if they live in different cities or provinces. It might be hard to get together to meet with lawyers and financial institutions to sign documents.
This is one problem my brother and I might face as he lives in a different city and works in a different province.
If your children have different views, or perhaps don’t even get along, it can cause conflicts and resentment.
Related: Estate planning for blended families
In my mother-in-law’s case, she passed away just when Calgary real estate prices took a deep nosedive in 2008. My husband’s siblings did not agree with the selling price of her house and they wanted to fix it up and rent it out until property values recovered. I was against this idea and just wanted to sell the house and get the process over with. Can you see how this would have been a much bigger problem than it actually was if they were joint executors with me?
Group decisions are rarely easy. To avoid discord with more than two executors you can provide for a “majority rule” clause in the will.
Often a co-executor can feel like the other is leaving them to do all the work by themselves, such as sorting through belongings and clearing out a house for sale. Or, one might feel the other is not being forthcoming with information.
Final thoughts
If you are worried about discord among multiple siblings, the best solution is often to name the child most likely to be a good executor and explain why you have chosen that particular child. Usually the other children will see the reasonableness of the choice. They may even be relieved that they won’t have the responsibility or work.
Related: 5 ways to prepare your executor before you die
As another solution, you could name the other children as alternate executors so they don’t feel left out. Alternate executors fill the role if the primary executor is unable or unwilling to. This can avoid the appearance of favouritism.
If you feel that naming only one child would cause resentment, then your best choice might be naming someone else entirely.
According to IIROC (Investment Industry Regulatory Organization of Canada), more than half of the complaints they receive are about investment issues – in particular, unsuitable investments. Many of these problems can be avoided with an accurate “Know Your Client” (KYC) document in place. This document is not just another piece of administrative paperwork. It is one of the cornerstones of securities legislation and an essential part of investor protection.
This information is used when assessing the validity of a client complaint. Most retail investors don’t understand the implication of an inaccurate, incomplete, or outdated form.
Why is this personal information needed?
Most of us are familiar with completing a KYC document as it always accompanies a “New Client” application form.
Completing this form is mandatory when a client opens an account at Mutual Fund Dealers Association (MFDA) or IIROC dealer. Your adviser’s firm is required to gather certain information about you. This information is designed to provide a framework for the suitability of any investment recommendation made by an investment adviser.
You are obligated to update the form when there is a significant change in your personal situation such as retirement, divorce, death of a spouse, or receiving a large inheritance.
If you don’t, you may receive unsuitable investment recommendations, and any resulting complaint may be dismissed.
Know Your Client: It starts with you!
Your financial situation, objectives, investment experience and tolerance for risk can only be assessed by collecting accurate information from you. It’s not just another piece of tedious paperwork where you quickly tick off the boxes and move on.
A Know Your Client form asks questions about your age, income, net worth, time horizon and investment goals. The most inaccurate (and least considered) answers come from the questions about investment knowledge and risk tolerance.
Describe your current knowledge of, and experience with, investments?
Research shows there is a natural tendency to overestimate investment knowledge, particularly among men. Don’t let your ego drive your response. If you overstate your experience and knowledge and understanding of different investments, this could harm you in the event of a dispute.
What is your tolerance for risk?
We all know that equity investments are riskier than GICs. We believe that we have a high risk tolerance because we have equities in our portfolio, especially when the stock market is having a good bull run like it has recently. However, most investors are more risk-averse than they initially believe.
Consider the question, “With a $10,000 investment which outcome would you be most comfortable with?” and two possible answers:
- Potential increase of $2,000, or a loss of $1,300
- Potential increase of $10,000, or a loss of $3,600
Most people focus on those potential gains.
However, more to the point is your tolerance for loss. How much can you lose without putting your investment plan in jeopardy? Nobody enjoys an unfavourable outcome, but if a loss actually does occur, how would you react? Really?
Limitations of the KYC form
The theory behind the Know Your Client form is based on the view that the more an adviser knows about a client, the better he or she can serve them.
Another tool that is sometimes used in addition to the KYC is an Investment Policy Statement (IPS) which provides a lot more detailed information. Professional advisers use this to establish such things as return objectives, income needs, liquidity requirements, tax considerations, estate concerns and any unique needs and circumstances. Both documents support the overall financial and investment plan.
In any case, there needs to be a meaningful conversation between an investor and advisor to really understand the needs of a client.
Document any information you provide and any information the adviser told you, and never, never sign a blank form.
A word about suitability
In Canada, the only financial professionals that are under fiduciary obligations (required to act in your best interest) are those registered as portfolio (or wealth) managers with discretionary authority over their clients’ accounts. They are required to determine the suitability of every proposed transaction in your account, whether recommended by the adviser, or initiated by you, yourself.
Related: Why a fiduciary standard for investment advisors is needed in Canada
Be aware that most financial advisers (most often employees of banks, credit unions and mutual fund companies) are not “fiduciaries”. They need only recommend investments that are suitable. Each order or recommendation must be in keeping with the client’s KYC information – often a pre-established model portfolio based on a numerical score of your answers.
Online discount brokerages are exempt because they only execute transactions. They are not responsible for making a suitability determination when accepting your order.
Final thoughts
“Knowing Your Client” goes far beyond the questions on the KYC form. Nevertheless, this is the primary tool used by many advisers in deciding suitable investments and justifying recommendations when a complaint is filed.
That is why you need to be really clear about your investment profile. Engage your adviser in a detailed discussion so he or she obtains a more accurate profile than can possibly be obtained by ticking off a few boxes on a form.
If you can’t have a detailed discussion about your financial situation with your investment adviser, you need to find someone you are more comfortable with.
After all, you wouldn’t accept a medical doctor’s treatments without first giving a thorough description of your symptoms, would you?