Managed accounts provide piece of mind

A managed account is a broad term that has been used in the financial-services industry to describe a certain type of investment account where a portfolio manager has the discretion to make changes to your portfolio without verbal confirmation.

There are different names and types of managed accounts which may be confusing for investors when looking at options between financial firms. To assist you in understanding the basics of managed accounts, we will divide the broad category into two subcategories — individually managed accounts and group managed accounts.

Both individually managed and group managed are fee-based type accounts, as opposed to transactional accounts, where commissions are charged on activity. Individually managed accounts must be fee-based and generally have a minimum asset balance of $250,000.

Before we get into the differences between individually managed and group managed accounts, we should also note that strict regulatory and education requirements are necessary for individuals in the financial-service industry to be able to offer managed accounts. The designation portfolio manager is typically awarded to individuals who are able to open managed accounts. Financial firms may also stipulate certain criteria prior to allowing their employees to provide discretionary advice or portfolio management services. Examples of additional criteria that may be required by financial institutions include a clean compliance record, minimum amount of assets being managed, good character, and significant experience in the industry.

For the purposes of this article, the term investment adviser is different from portfolio manager.

A portfolio manager may have the ability to offer individually managed accounts on a discretionary basis, whereas an investment adviser does not. An investment adviser must obtain verbal authorization for each trade that they are recommending. A client must provide approval by signing the appropriate forms in order for the portfolio manager to manage their accounts on a discretionary basis.

Above, we noted the two broad types of managed accounts — individual and group. A portfolio manager is able to offer both individual and group accounts on a discretionary basis. The individual account is a customized portfolio where the portfolio manager is selecting the investments. Although an investment adviser is not able to offer individually managed accounts, they can offer group managed accounts through a third party.

A simple example of this is a mutual fund which is run by a portfolio manager. A more complex example of this is the various wrap or customized managed accounts offered by third party managers. An investment adviser can recommend to their clients a third party group-managed account.

The role of an investment adviser in a group-managed account option is to pick the best third party manager and to assist you with your asset allocation. When looking at this option, you must weigh the associated costs over other alternatives. The group-managed account has set fees. With individually managed accounts, the portfolio manager has the ability to both customize the portfolio and the fee structure.

Trust is an essential component that must exist in your relationship to grant a portfolio manager the discretion to manage your accounts. Prior to any trades, the portfolio manager and investor create an Investment Policy Statement (IPS) to set the trade parameters for the investments. The IPS establishes an optimal asset mix and ranges to ensure that cash, fixed income, and equities are suitable for the investors risk tolerance and investment objectives.

Quicker Reaction Time: Having a managed account allows the portfolio manager to react quickly to market changes. If there is positive or negative news regarding a company, the portfolio manager can move clients in or out of a stock without having to contact each client individually. With markets being volatile this can help with reaction time. For an investment adviser to execute the movement in or out of a stock, it would involve contacting each client and obtaining verbal confirmation.

Strategic Adjustments: If a portfolio manager has numerous clients and would like to raise five per cent cash, this can be done very quickly with an individually managed account. It is more difficult for an investment adviser to do this quickly as verbal phone confirmation is required for each client in order to raise cash. Even with a group- managed account, an investment adviser would have to contact each client to change the asset mix weighting.

Rebalancing Holdings: With managed accounts, clients have unlimited trades. This is important as it allows a portfolio manager to increase or decrease a holding without being concerned about going over a certain trade count. As an example, we will use a stock that has increased by 30 per cent since the original purchase date. Trimming the position by selling 30 per cent is easy for a portfolio manager as a single block trade can be done. This block trade is then allocated to each household at the same price. If an investment adviser wanted to do this same transaction, it would likely take multiples days/weeks and over this period each client would have a different share price depending when the verbal confirmation was obtained.

Extended Holidays: If you are travelling around the world or going on a two month cruise, then you probably want someone keeping an active eye on your investments. An investment adviser is not able to make changes without first verbally confirming the details of those trades with you. A portfolio manager is able to make adjustments within the IPS parameters, provided you have a managed account set up before your departure.

Aging Clients: When our clients are aging, we often recommend that they introduce us to their family members and the people they trust. We encourage most of our clients to set up a Power of Attorney (POA) and to plan for potential incapacity later in life. Portfolio managers have a distinct advantage in this area as we can have a meeting with the family and document everything very clearly in an IPS. Having managed accounts, clearly documented IPS, and a POA will ensure that a portfolio manager can continue managing the investments appropriately.

Not Accessible: If you work in a remote area (mining or oil and gas industry), chances are you may be out of cell phone reach from time to time. In other situations, your profession does not easily allow you to answer phone calls (a surgeon in an operating room). In other cases, a lack of interest may result in you not wishing to be involved. A managed account may be the right option for clients that are frequently difficult to reach to ensure opportunities are not missed. In these situations, the portfolio manager can proactively react to changing market conditions.

Managed accounts greatly simplify the investing process for both you and the portfolio manager. It enables our clients to focus on aspects of their life that are most important to them while knowing that their finances are being taken care of.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.


Portfolio manager can react quickly to market changes

Many people do not feel they have the knowledge to best manage their own money. Some have the knowledge but they do not have the time.

Both portfolio managers and Wealth advisers can assist people with financial decision making. A wealth adviser must obtain consent from the client prior to any trades. Often this is done over a quick telephone call where the wealth adviser is recommending for you to either buy or sell an investment.

The client receiving the call is normally not as informed about the specific recommendations. Typical responses would normally be: “Whatever you think,” “You’re the expert, do whatever you think is best,” or “That is why I pay you for … to make those decisions.”

It is tough for most people to make decisions on something they do not feel informed about. With investment decisions it can still be challenging even when you are informed and trying to make decisions independently. There is so much contradictory information that it is hard for many to feel comfortable making decisions.

Over the years I have had great discussions with people about this process of financial decision making. When you work with a portfolio manager or wealth adviser, you have another person to discuss investment options with. With the traditional approach of working with a wealth adviser, you will be presented with some investment recommendations or options.

At this point you still have to make a decision with respect to either confirming the recommendation and saying “yes” or “no.” In other situations you must choose amongst the options presented to you.

As an example, an adviser may give you low, medium, and high risk options for new purchases. An adviser should provide recommendations that are suitable to your investment objective and risk tolerance.

Another option that clients have is to have a managed account, sometimes referred to as a discretionary account. Portfolio managers are able to offer the option of having a managed account. When setting up the managed accounts, one of the required documents is an Investment Policy Statement (IPS).

The IPS outlines the parameters in which you authorize the portfolio manager to use his or her discretion. The main items that are outlined initially are asset allocation, investment objectives, risk tolerance, unique preferences, and cash flow needs.

As an example, you could have in the IPS that you wish to have an optimal asset mix of 20 per cent in fixed income and 80 per cent in equities. Another client may wish to have 40 per cent in fixed income and 60 per cent in equities. The three investment objectives are Income, Growth, and Speculative Trading. Within an IPS you could state 40 per cent Income, 60 per cent Growth, and 0 per cent Speculative Trading. The three risk tolerances are low risk, medium risk, and high risk. A client could state 10 per cent low risk, 80 per cent medium risk , and 10 per cent high risk. Another client, could have 30 per cent low risk, 70 per cent medium risk, and 0 per cent high risk.

The IPS can also state specific investments that you do not wish to be purchased. If a client did not want any weapons/arms or tobacco/alcohol related companies then we could outline those as unique preferences. If they are outlined in the IPS then we are prohibited from purchasing those holdings.

The IPS also outlines the periodic cash flow needs that you have and where those cash flows are coming from. For example, the IPS may state that the annual Registered Retirement Income Fund payment will be paid to the non-registered account on December 15th annually with 20 per cent tax withheld. Another paragraph could state that every January we are to move funds from the non-registered account to top up the Tax Free Savings Account. Another typical paragraph is to outline the systematic withdrawal payments that are sent from the investment account(s) to the bank account.

Every two to three years we have a comprehensive meeting where we update the IPS. If a significant life event or withdrawal/deposit is made then the IPS is update at that time. We encourage clients to always communicate to us any material change in their circumstances so we can update the IPS. Clients make the decision with respect to the investment objective, risk tolerance, asset mix, unique preference, and cash flow needs. Once this is completed, clients do not have to make the specific decisions regarding the underlying investment holdings.

Portfolio managers are held to a higher duty of care, often referred to as a fiduciary responsibility. Portfolio managers have to spend a significant time to obtain an understanding of your specific needs and risk tolerance. These discussions should be consistent with how the IPS is set up.

The nice part of having a managed account with an up to date IPS is that your adviser is able to make the decisions on your behalf. You can be free to work hard and earn income without having to commit time to researching investments. You can spend time travelling and doing the activities you enjoy.

Many of my clients are intelligent people who are fully capable of doing the investments themselves but see the value in paying a small fee. The fee is tax deductible for non-registered accounts and all administrative matters for taxation, etc. are taken care of. A good adviser adds significantly more value than the fees they charge. This is especially true if you value your time.

For couples, it is pretty typical that one person in the household takes a great interest in the finances. In some cases one person has made all the financial decisions for the household. If that person who has independently managed everything passes away first it is often a very stressful burden that you are passing onto the surviving spouse.

I’ve had couples come in to meet me primarily as a contingency plan. The one spouse that is independently handling the finances should provide the surviving spouse with some direction of who to go see in the event of incapacity or death. In my opinion, the contingency plan should involve a portfolio manager that can use his or her discretion to make financial decisions.

In years past it was easier to deal with aging clients. Clients could simply put funds entirely in bonds and GICs and obtain a sufficient income flow. With near historic low interest rates, this income flow has largely dried up for seniors. When investors talk about income today, higher income options exist with many blue chip equities. Of course, dividend income is more tax efficient than interest income as well. A portfolio manager can add significant value for clients that are aging and require investments outside of GICs.

Try picturing a wealth adviser with a few hundred clients. A wealth adviser has to phone and verbally confirm each trade before it can be entered. The markets in British Columbia open at 6:30 a.m. and close at 1 p.m. Meetings with clients are often booked a week or more in advance.

On Tuesday morning a wealth adviser wakes up and some bad news comes out about a stock that all clients own. That same wealth adviser has four meetings in the morning and has only a few small openings to make calls that day. It can take days to phone all clients assuming they are all home, answer the phone call, and have time to talk.

A portfolio manager who can use his or her discretion can make one block trade (the sum of all the clients’ shares in a company) and exit the position in seconds. Sometimes making quick decisions in the financial markets to take advantage of opportunities is necessary. Hands down, a portfolio manager can react quicker than a wealth adviser who has to confirm each trade verbally with each client.

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonsit. Call 250-389-2138.

Act today to minimize a massive final tax bill

Taxpayers, naturally, are fixated on trying to minimize tax in the current year. This is a classic scenario of someone not being able to see the forest for the trees. The forest is your ultimate final tax liability. The trees are the current year taxes. The final tax bill in Canada consists of any income up to the time of death, accrued gains are deemed to be realized at the same time and estate administration tax (probate fees).

Annually, in early June we will look at our client’s tax returns and see the level of taxable income and tax payable they incurred in the current year. When the current tax payable is too low we may schedule an estate planning meeting.

The estate planning meeting typically starts off by a rough tax calculation of what your final tax liability would be today, based on your current assets, if you were to pass away. If you have not gone through this exercise, then it is worth doing. In some cases, the government stands to inherit a significant portion of your net worth if not structured appropriately. The conversation is setting the framework for a more detailed analysis done as part of the financial planning process.

Throughout our working lives we commonly reduce our annual tax bill by making Registered Retirement Savings Plan (RRSP) contributions. An important item for people to understand is the tax consequences when withdrawals are made and also the tax consequences upon death.

Withdrawals from registered accounts are generally considered taxable income in the year the payments are made. Over time your RRSP account may have generated different types of income including dividend income, interest income and capital gains. All of this income would have been deferred. All RRSP and Registered Retirement Income Fund (RRIF) withdrawals are considered ordinary income taxed at your full marginal tax rate regardless of the original type of income.

When a registered account owner dies, the total value of their registered account is included in the owner’s final tax return. The final tax return is often referred to as a terminal tax return. The proceeds will be taxed at the owner’s marginal tax rate. The highest marginal tax rate (British Columbia and federal) is currently 49.8 per cent. An individual that has $800,000 in an RRSP/RRIF account may have to pay $398,400 of that amount to Canada Revenue Agency in income taxes. If the RRSP names the estate as beneficiary, then an estate administration tax or probate fee of approximately $11,200 would apply. Accounting, legal, and executor costs can result in less than half being directed to your beneficiaries and more than half going to taxes and other fees.

These taxes must be paid out of the estate. CRA considers you to have cashed in all of your registered accounts in the year of death. Paying over 50 per cent of your retirement savings to CRA is not something investors strive for. There are a few situations where this tax liability can be deferred or possibly reduced.


Registered assets can be transferred from the deceased to their spouse or common law spouse on a tax-free rollover basis provided they are named as beneficiary. The rollover would be transferred into the spouse’s registered account provided they have one. If the spouse does not have a registered account, they are able to establish one. The registered assets are brought into income on the spouse’s return and offset by a tax receipt for the same amount. This rollover allows the funds to continue growing on a tax-deferred basis. The rollover does not affect the spouse’s RRSP contribution room.

If your spouse is specifically named the beneficiary of your RRIF account, then you should consider designating your spouse as a “successor annuitant.” As a successor annuitant, the surviving spouse will receive the remaining RRIF payment(s) if applicable and obtain immediate ownership of the registered account on death. These assets will bypass the deceased’s estate and reduce probate fees. You should discuss all estate settlement issues with your Wealth Advisor and financial institution to obtain a complete understanding.

Minor child or grandchild

Registered assets may be passed onto a financially dependent child or grandchild provided you have named them the beneficiary of your registered account. In order to be financially dependent, the child or grandchild’s income must not exceed the basic personal exemption amount. A child that is under 18 must ensure that the full amount is paid out by the time that child turns 18.

Financially dependent child

A child of any age that is financially dependent on you can receive the proceeds of your registered account as a refund of premiums. This essentially means that the tax will be paid at the child’s marginal tax rate, likely to be considerably lower than your marginal tax rate on the terminal tax return.

Rollover to Registered Disability Savings Plan

In 2010, positive changes occurred to help parents and grandparents who have a financially dependent disabled child or grandchild. Essentially this enables the RRSP accounts of parents and grandparents (referred to as the annuitant) to be rolled over to the RDSP beneficiary. The estate benefit is that up to $200,000 of the annuitant’s RRSP can be transferred to the beneficiary’s RDSP. Care should be taken to make sure the transfer qualifies under current tax rules and thresholds. The end goal is to minimize tax and hopefully your beneficiaries receive a larger inheritance. We recommend you speak with a Wealth Advisor if you are considering naming a disabled child or grandchild the beneficiary of your registered account.

Rollover to Registered Retirement Savings Plan

The RDSP is my favourite option for rollover, but what happens if the RRSP/RRIF is greater than $200,000 (the maximum rollover for the RDSP)? Another good option to explore if the child is dependent on you by reason of physical or mental infirmity is the tax free rollover of the registered account (i.e. RRIF) into the disabled child’s own registered account (i.e. RRSP). With disabled children there are no immediate tax consequences and there is no requirement to purchase an annuity. You may want to discuss the practical issues relating to having your registered account rolled into registered account in the name of a disabled child.

Other planning options for children with disabilities

A combination of the RDSP and RRSP rollover is normally sufficient if the annuitant has a small to medium sized RRSP/RRIF account. Other planning options are available if you have a sizable RRSP and are worried about disabilities payments from the government.


Care should be taken when you select the beneficiary or beneficiaries of your registered accounts. If you name a beneficiary that does not qualify for one of the preferential tax treatments listed above, then it could cause some problems for the other beneficiaries of your estate. An example may be naming your brother as the beneficiary of your RRSP and your children as beneficiaries of the balance of your estate. In this example, the brother would receive the full RRSP assets and the tax bill would have to be paid by the estate, reducing the amount your children would receive.

Important points

Every individual situation is different and we encourage individuals to obtain professional advice. Below we have listed a few general ideas and techniques that you may want to consider in your attempt to reduce a large tax bill:

  • Pension credit — you should determine if you are able to utilize the pension tax credit of $2,000. If you are 65 or older, then certain withdrawals from registered accounts may qualify for this credit. Rolling a portion of your RRSP into RRIF would allow you to create qualifying income. For couples this credit may be claimed twice – effectively allowing some couples to withdraw up to $4,000 per year from their RRIF account(s) tax-free (provided they do not have other qualifying pension income).
  • Single or widowed — single and widowed individuals will incur more risk with respect to the likelihood of paying a large tax bill. Single and widowed individuals should understand the tax consequences of them dying as no tax deferrals are available.
  • Charitable giving — one of the most effective ways to reduce taxes in your year of death is through charitable giving. Those with charitable intentions should meet with their professional advisors to assess the overall tax bill after planned charitable donations are taken into account.
  • Life insurance — one commonly used strategy is for individuals to purchase life insurance to cover this future tax liability. The tax liability created upon death coincides conveniently with the life insurance proceeds. This would enable individuals to name specific beneficiaries on their registered account without the other beneficiaries of the estate having to cover the tax liability.
  • Estate as beneficiary — if you name your estate the beneficiary of your registered account then probate fees will apply. An up-to-date will provides guidance on the distribution of your estate.
  • Life expectancy — Individuals who live a long healthy life will likely be able to diminish their registered accounts over time as planned. Ensuring your lifestyle is suitable to a longer life expectancy is the easiest way to defer and minimize tax.

A wealth adviser should be able to generate a financial plan to review with you and your accountant. The financial plan should outline the tax your estate would have to pay if you were to die today. This will begin a conversation that may allow you to create a strategy that reduces the impact of final taxes on your estate and throughout your lifetime.

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.


Enhancing financial growth through re-investment

Not everyone who purchases investments wants or needs the income today. Many clients are trying to grow a nestegg to fund a future goal, such as retirement. Investors who are not requiring income may want to invest in growth stocks that pay either no dividend or minimal dividends. It is my opinion that good dividend-paying stocks should be part of nearly every portfolio. The income earned on these stocks can also help build the nestegg.

Many investments have both a growth and income component. Fortunately, most of these same companies offer the dividend reinvestment program — often referred to as a DRIP. Growth is often achieved through price appreciation of the investment and also reinvesting the income.

Stock dividends or cash dividends

Companies have the choice to pay stock dividends, which effectively means shareholders receive stock of the company. The most common type of dividend is a cash dividend. With a cash dividend, the default is for cash to be paid into the account in which the position is held. Once the dividend is paid, the cash sits in the account and unless it is invested right away, will not be earning anything. The DRIP program is perhaps the most efficient way to keep the dividend still growing — income on income.

DRIP illustration

An investor purchased 400 shares of the common shares of ABC Corporation, currently trading at $100. Total invested would be $40,000 (400 x $100). The current quarterly dividend is set at .45 per share. Based on these values, when the dividend is payable, the investor would receive (400 x .45 / $100) about one share of ABC and $80 cash. After the dividend, the investor would own 401 shares.

Adjusted Cost

The DRIP program has investors acquiring shares at different prices with each dividend being reinvested. For taxable accounts, it is important to keep track of the costs at which the new units were reinvested. The cost of the original purchase plus the total value of the shares reinvested on the date of the DRIP, equals the adjusted cost base.

Stock splits

When a stock has a split, this often means more shares and less cash on the DRIP. Using a two-for-one stock split as an example you will see this is normally good for people who have the DRIP set up.

Let us use the above as an example, in a two-for-one stock split. Before the split, the investor owns 400 shares with a market value per share of $100. Total invested would be $40,000. After the split, the number of shares would double to 800, and the market value per share would decline to $50. Total invested would remain at $40,000. The dividend itself would be lowered to .225 per share.

Based on the new quantity, stock price and dividend amount, the investor would receive ($800 x .225 / $50) three shares of ABC and $30 cash. After the split and dividend the investor would own 803 shares.

Tax effect

Although the investor above may have requested that their dividends be reinvested, the dividend income will still be considered income for taxable accounts in the year the dividend was declared. Investors will receive the applicable taxation slips and should ensure they have sufficient cash on hand at the end of the year to pay any tax liability. DRIPs in an RRSP account are ideal as any income is deferred and is not taxed immediately.

Fractional shares

Unlike mutual funds, it is not possible to have fractional shares of common shares. The illustration above highlights that the fractional portion (less than the amount to purchase a whole share) is paid as cash into the investment account. Stock splits are generally a good thing for individuals that have the DRIP program. Share prices are generally reduced resulting in a greater portion of the dividend being reinvested.

Discount to shares

Not all companies pay a DRIP. Of those companies that offer a DRIP, some of those may offer a discount on the share price of the amount reinvested. These discounts typically range from one to five percent. How the discount is calculated can change for each company that offers it. It is not uncommon for a stock to have a discount in the past and then remove the discount. It is often dependent on the corporations need for capital.

Odd lots

Years ago, investors were warned that they may have difficulties selling shares of companies if they had an odd lot. A lot is generally considered 100 shares. One can easily see how the DRIP program would result in an odd-lot situation. Today this is less of a concern for any position that has a moderate volume of shares traded daily. With reorganization, spin-offs and computerized trade execution many investors have odd lot holdings.

Position size

Investors should take care to monitor their position sizes. Investors may find over time that certain positions that are set up as a DRIP may become overweight within their overall portfolio. Investors who have charitable intentions may want to consider donating shares or sell a portion of their holdings as a means to rebalance the portfolio.


A DRIP can easily be cancelled. An investor may want to cancel a DRIP when they begin to require income from their investments. Setting up a drip and cancelling a DRIP are very easy.

Growth oriented investors may find the DRIP a low maintenance way of dollar cost averaging while reducing the costs of investing and employing cash that may otherwise be earning a low return in an account. The DRIP allows compounding of investment returns which can enhance total returns.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director, wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.


Measuring your tolerance for volatility and risk

People are often told not to invest in equity markets unless they have a long-term time horizon. While for some people one to two years might seem like a long time, most investment professionals feel a long term time horizon would be seven years or greater.

Here is some perspective as to what the markets have done over the past two decades in Canada. Between Jan. 1, 1999, and Dec. 31, 2018, the S&P/TSX Composite Index returned a total of 260.50 per cent. This represents an annualized compound rate of return of 6.62 per cent. Most decades the compound rate of return for equities has been declining.

The actual annual percentage returns (losses) of the S&P/TSX Composite Index were as follows:

  • 1999 (29.7)
  • 2000 (6.2)
  • 2001 (-13.9)
  • 2002 (-14.0)
  • 2003 (24.3)
  • 2004 (12.5)
  • 2005 (21.9)
  • 2006 (14.5
  • 2007 (7.2)
  • 2008 (-35.0)
  • 2009 (30.7)
  • 2010 (14.4)
  • 2011 (-11.1)
  • 2012 (4.0)
  • 2013 (9.6)
  • 2014 (7.4)
  • 2015 (-11.1)
  • 2016 (17.5)
  • 2017 (6.03)
  • 2018 (-11.64)

To summarize, we noted that in the past 20 years there have been six years where the S&P/TSX Composite Index posted declines. For the same time period, the S&P/TSX Composite Index posted 14 years in which there were positive returns. We also noted the extremes of a loss of 35.0 per cent in 2008 immediately followed by a gain of 30.7 per cent in 2009. The above information reinforces something we already know — the stock market does not move in a straight line.

An important component to investing is having an Investment Policy Statement (IPS). One component to an IPS is establishing your investment objectives and risk tolerance for each account and outlining the type of portfolio you want.

The above annualized 6.62% rate of return over the last 20 years assumes a 100 per cent Canadian Equity portfolio mirroring the index. Of course, many investors may have fixed income and investments outside of Canada. With interest rates being at low levels, many investors would have opted to decrease fixed income and increase the equity component to achieve greater long term returns.

We encourage most investors wishing to overweight equities to focus on well selected medium risk securities. The higher annual growth you desire, the greater degree of risk you will have to assume. Normally this means increasing the equity portion of the portfolio. The types of equities you purchase are almost as important as the asset mix you choose. Increasing risk in your portfolio does not always equate to higher returns. When you add speculation and high risk into the portfolio, then you also add the possibility of severe corrections if the markets move in a negative direction. High-risk and speculative portfolios run the possibility of experiencing an extreme negative year (i.e. 2008 and 2015).

How does a negative year in the markets impact the investor’s portfolio? The table below shows how the first year investment returns effects the average annual returns required to reach respective targets of six, eight, and 10 per cent.

Potential reward for risk-tolerant investors


Annual First Year                  
Growth   Actual Time horizon to meet your annual growth target *    
Target Returns          1          2          3          4          5          6          7          8          9
  15%    (2.3)      1.8      3.2      3.9      4.3      4.6      4.8      4.9      5.0
6% 5%      7.0      6.5      6.3      6.3      6.2      6.2      6.1      6.1      6.1
-5%    18.3    12.0      9.9      8.9      8.3      8.0      7.7      7.5      7.3
  -15%    32.2    18.4    14.1    12.0    10.8    10.0      9.4      9.0      8.6
  15%      1.4      4.7      5.8      6.3      6.7      6.9      7.0      7.2      7.2
8% 5%    11.9      9.5      9.0      8.8      8.6      8.5      8.4      8.4      8.3
-5%    22.8    15.2    12.7    11.5    10.8    10.3    10.0      9.7      9.6
  -15%    37.2    21.7    17.0    14.7    13.3    12.4    11.8    11.3    10.9
  15%      5.2      7.5      8.4      8.8      9.0      9.2      9.3      9.4      9.5
10% 5%    15.2    12.6    11.7    11.3    11.0    10.9    10.7    10.6    10.6
-5%    27.4    18.4    15.5    14.1    13.3    12.7    12.3    12.0    11.8
  -15%    42.4    25.1    19.9    17.3    15.8    14.8    14.1    13.6    13.2
* Required average annual return to reach stated annual growth target (with different outcomes)

An investor who began investing in early 2001 or 2002 may have a significantly different outcome then an investor who began investing in early 2003 or 2009. When we have new clients that have a lump sum to invest from selling a home or receiving an inheritance, we communicate the importance of reducing market risk. Several simple strategies exist to reduce this risk.

To illustrate, we will use a made up example of John Smith, 50, who plans to retire in five years. John has been managing his own investments and has determined that he requires annual growth of six per cent each year to reach his retirement goals.

A positive outcome after year one would be growth of six per cent or greater. Assuming markets are good, let’s say John’s portfolio returns 15 per cent in the first year. If we look at the table we see that John can now reach his objective by returning only 3.9 per cent for the remaining four years. John should consider shifting his portfolio to be more conservative based on the lower annual growth requirement to reach his goal and rebalance his portfolio.

The attached table is very effective in illustrating the impact of negative outcomes. Instead of earning 15 per cent in the first year, what if John’s portfolio declined 15 per cent? In order for John to get back on track he would have to earn 12 per cent each year for the next four years. Although this is achievable, it is significantly more difficult to achieve than six per cent annually.

The key point to take away is that portfolios should be structured with the appropriate amount of risk.

As your return expectations increase, so does your exposure to the stock market. Although the stock market is biased in the long run to increase, there will likely be both positive years and negative years over your time horizon.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director, wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.


Online access and paperless options becoming more mainstream

Computers, phones and tablets have all become mainstream in today’s modern households. The thirst for current knowledge in a busy mobile world has never been greater. More than ten years ago, businesses began introducing new online options for clients to get financial information. Although some were slow to adopt this technology change, most clients today desire to have online access to both their bank and investment accounts.

The term online access has caused some confusion, especially when financial firms have both online access through a website (the web) and login access through an application (the app) for a tablet and smart phone. What you can access and do on both of these online platforms are different. We recommend that clients create an account and get comfortable with both to obtain all available information on their accounts. I think the hesitation early on was due to peoples’ comfort level in regard to technology and security issues.

There are many benefits to setting up online access. One of the main reasons people like online access is the ability to set up “paperless” options. With most financial firms, this is done through the website version. Going paperless is an optional choice, or an added benefit, that clients have once they have online access on the web. Let us look at some of the benefits of online access and paperless delivery.


I mentioned that some people may be hesitant to go online for security reasons. Financial firms have spent enormous capital to ensure appropriate security is available for their clients. Some people could easily argue that with mail delivery being a manual process that the arrival of your mail at your home is not 100 per cent guaranteed. When you receive other people’s mail you may wonder if anyone has received yours. Many people feel that it is more secure to go paperless and not have your financial information sent by regular mail.


Clients have the ability to select and customize what documents they wish to receive by paper delivery or by paperless delivery. The three broad categories are statements (monthly statements), confirmation slips (sent after each trade) and tax documents. Clients must elect paperless or paper delivery on each account. For example, a client could elect paperless delivery on the TFSA and RRSP account but wish to have paper delivery on the taxable or cash account. It is normally less confusing for clients if they either go all paperless delivery or all paper delivery.


Another benefit of online access and paperless delivery is that you would be able to access your statements sooner. With paperless delivery you would receive a notification by email that your financial information is available online and you could immediately log in and view this information. With paper delivery, the statements would have to be printed by your financial firm and mailed to you. When Canada Post was going on strike, many clients converted to paperless documents to ensure they continued to get their financial information in a timely manner.

Tax documents

Many clients today like the idea of logging onto a secure website and printing off their tax documents. We also recommend that clients create “My Account” with CRA and print the slips automatically sent to them as a completeness check. Once you have set-up “My Account” with the CRA you can take advantage of their sign-in partner service. This allows you to sign into “My Account” with the CRA using the same sign-in information you use for your online access at your financial institution. This is one less password you will have to remember. If you have online access, you would be able to compile all tax slips provided you have paperless delivery and online accounts set up by March 31. If you have paperless tax documents, the latest your accountant should receive your tax documents is April 1st every year. Even if you are travelling you can access your documents and send these through to your accountant — remember to use secure email.


Paperless documents also has the added benefit of being good for the environment. Financial firms reduce printing costs, mailing/delivery costs and do their part for the environment by reducing the amount of paper they use. Clients viewing the information online can do so in a secure manner. They do not have to print the statements and worry about storing the financial information securely or shredding old documents. When clients select paperless delivery, they can go online and go back several years to look up financial information whenever they need to. It is easy to find and stays secure in the meantime.

Power of Attorney (POA) — monitor parents

In many situations, we are dealing with two or more generations in a family. When our clients are aging, we will typically have a discussion with them about steps they can do today in the event they become unable to make financial decisions. If they have reliable and responsible children, we will often suggest a family meeting where one of their adult children is introduced to us. We have a discussion about financial information for aging clients or clients suffering from dementia or Alzheimer’s disease. We like to have this conversation while our aging clients still have capacity and the ability to set up a financial power of attorney. Financial information can be confusing and create anxiety in some cases. Establishing a power of attorney, to monitor your situation can reduce this significantly. What works really well is to set up the account delivery as paperless and provide full online access to the power of attorney.

Power of Attorney (POA) — monitor children

We are often asked if we will help our clients children get started on the right path with investing. When the accounts are set up we can easily add the parent on as a power of attorney. A parent may want to gift money to their children and the POA on the account enables them to keep an eye on the child’s financial progress. Guiding your children on how to deal with money can be as important as guiding them toward a good education and profession. Children naturally do not know the different ways to invest or the different types of investment accounts.

Transfers between accounts

If you have online access set up with your bank and financial firm, it creates an added benefit of viewing both. Online access enables you to transfer funds from a bank account into your investment account. This can be done quickly and efficiently, without the need of writing physical cheques.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.

Protecting client information is critical in a digital world

Today there are many different ways for us to communicate financial information with clients: in-person, over the phone, email and so on. With all of these ways to communicate, it is important for us to continue to keep client information confidential and secure. Social insurance numbers, dates of births, investment account numbers, bank account numbers — it’s all sensitive information that must be protected.

Years ago we would regularly share confidential information by fax with clients. The information would then be printed out and stored in physical files. Clients would have a landline and often owned a fax machine as well. With the introduction of the personal computer and the internet, email became an alternative mode of communication. Most view email as quick and efficient; however, using email to share confidential information does have some risks.

One of the major risks involved in sending confidential information by regular email is having that information getting into the wrong hands or having someone else trying to extract this information. With a regular email, information that you receive, or is sent to you, will be sitting within your email account. Anyone who inappropriately accesses your email account will also have access to all of the information within your account (sent box and inbox). If you have confidential emails saved in your Gmail, Hotmail, Yahoo, or Shaw accounts, it could be at risk.

When we receive an email from a client we must take the extra precaution to ensure the information is legitimate. For example, when clients contact us via email to request funds we always require a phone call as well to confirm that this is a legitimate request coming from our client.

In an effort to help keep information secure and confidential, there are some extra steps that both advisors and clients are starting to take. One example is by using the financial firm’s own server to share confidential information. A simplistic explanation of a secure email is that you are really not even getting the information emailed to you. I know that sounds confusing.

Let us use an example of an adviser who is setting up a telephone meeting with a client who has never used the secured server. Beforehand, the client would like to obtain a copy of their holdings detail report and recommendations for the account. The portfolio manager types a message to the client that looks like a regular email, types “[Secure]” in the subject line, and attaches two PDF documents — the holdings detail report and recommendations.

On the client’s side, they will not initially get the message with the two attachments. What they first receive is an automated message that the portfolio manager has attempted to send the client a secure, encrypted message. Within this automated email message is a link that will direct the client to the firm’s own server.

For clients that have not used the secure service, they must click on the register button. This triggers the client to receive a temporary password to their email account to enable them to register for the secure email service. To register as a first-time user, a client will need to immediately establish a secret password (different from the temporary password), as well as create a challenge question(s) that can be used to verify your identity.

An added safety measure that is available is having your secure account automatically locked if there are multiple failed attempts with an invalid password. In order to recover this password you would need to answer one or more of the challenge questions mentioned above. Other features may also include having the original message deleted automatically after a certain time period.

The process for registration takes less than five minutes. Once the client has the account set up then they will be able to see the message sent by the portfolio manager.

It is important to note the confidential information remains on the firm’s own server and is encrypted. It will look like you are accessing an email within your email account, but the information is actually accessed through the password-protected account on the financial firm’s server.

By viewing information only on this encrypted service, you greatly minimize your exposure to your information being compromised. Using the above phone meeting example, the client can easily print the holdings detail report and recommendations or simply view them online. The information does not sit within the client’s email account.

Of course, clients have the ability to download the information from the encrypted server to their own personal devices and accounts. Once the information has been forwarded from the server, rather than just viewed or printed, then clients could be potentially exposing themselves to other risks.

We understand that having to create an account and enter a password to view your financial information might feel a bit cumbersome. In the end you can have more comfort that your confidential account information is being treated appropriately and ensuring that information does not get into the wrong hands.

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.

Looking at total rate of return rather than yield alone

Yield is essentially the income an investment will pay, such as interest or dividend payments, and is normally expressed as a percentage.

Yield will fluctuate on equity investments based on the current share price. Typically, as the share price goes up, the yield goes down. On the flip side, as the share price goes down, the yield goes up.

The board of directors of a company makes the decision with respect to the dividend(s) the company will declare. This is normally stated as a dollar amount. Using ABC Bank as an example, the share price of the bank is currently at $80 per share. The board of directors would like the annual yield to be approximately four per cent. The board declares a dividend of $0.80 per share for the current quarter. If this dividend was kept the same for the next three quarters, the annual distribution would be $3.20 per share owned. Assuming the share price stays the same, the annual yield would be four per cent ($3.20 / $80).

The board of directors can choose to increase the dividend, and this is often done when the stock price appreciates. If the share price for ABC Bank increased to $100 per share, the yield would drop to 3.2 per cent ($3.20 / $100). The board of directors would have to begin declaring a quarterly dividend of $1 per share to maintain a four per cent annual yield based on shares valued at $100.

It is always nice when your investments will return dividends to you. The dividends are normally only part of the equation when looking at the holdings for your account. The change in the share price is also another important part to every investment. An investment that just pays income, with little hope of capital appreciation, would typically be classified as an “income” investment. An investment that does not pay a dividend, would typically be classified as a “growth” investment. The rate of return on a growth investment, that does not pay a dividend, would be 100 per cent determined by the change in the share price.

Many companies would be considered “balanced,” meaning that they would pay some form of dividend and also have an expectation of share price appreciation. As an example, three companies all make the same level of income in a given year, say six per cent. The first company chooses to pay a six per cent dividend to shareholders. The second company chooses to pay a three per cent dividend to shareholders and retain three per cent. The third company chooses to not pay a dividend and retain the full six per cent. When a company does not pay out some, or all, of its earnings, the share price would normally appreciate in value. Of course, many other factors influence the share price.

In the above example, we would anticipate that the share price for the third company would increase greater than the first company. Total return on an equity investment is the sum of the dividend plus the change in the market value of the shares.

Capital deployment

One of the many important components for us when we are analyzing new companies to add to the model portfolios is deployment of capital. As a portfolio manager, we are always assessing management and how they deploy capital that they are not distributing. If a company distributes all of its earnings, it is not necessarily building up extra capital. Investors will receive the dividends and it is up to the individual investors to ensure those returns are reinvested for continual growth.

Income needs

Retirees often require regular income from their portfolio. If we are sending monthly amounts to clients, this is often referred to as a Systematic Withdrawal Plan. The natural tendency when income is needed is to look at only stocks that pay a high level of dividends. Within our clients’ Investment Policy Statement, we outline the cash-flow needs that they have for the next two to three years. In the majority of cases, we create a one to two year wedge, the portion of the portfolio that is not in any equity (dividend or no dividend) — it is set aside in a cash-equivalent type investment that will not be impacted by changes in the stock market. We refer to this as a wedge. When a wedge is created, it takes the pressure off of a portfolio to create dividends to replenish cash. The focus can then shift to ensure you pick the best risk adjusted total rate of return group of investments. Some of those investments will pay large dividends, some smaller dividends and some no dividends.

Fixating on yield

I have had many conversations with clients about the danger of being fixated on yield. Occasionally, I will have someone ask me about some “high yielding” names that are paying very high dividends. In some cases, we will see that the companies are distributing more than they are actually earning which is not sustainable. In other cases, we see people being caught in the “income trap” and not factoring in the capital cost of the investment. As an example, you purchase 1,000 shares at $10 per share of High Yield Company totalling $10,000. You purchased this company because you read in the paper it is paying a six per cent dividend. If after a year the share price drops to $9.40 then the market value of this company would only be $9,400. The dividend of $600 would be taxable despite you really not making any real return if you were to liquidate at the end of the year. Essentially, a high yield is only part of the equation. An equally important component, if not more important, is the base amount invested in each company.

Universe of investments

If an investor focuses only on higher dividend paying stocks, much of the investment universe would be excluded as an option. Many dividend paying stocks are interest rate sensitive. Many sectors such as technology and certain communication stocks are known to have either no yield or low yields. Adding a mixture of income and growth investments reduces risk in a portfolio and should help smooth out volatility in the long run.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.


It’s tough to get it right on both sides of the equation

During the last quarter of 2018, the TSX/S&P Composite declined 10.11 per cent on a total return basis while the first quarter of 2019 the TSX/S&P Composite posted gains of 13.27 per cent on a total return basis.



When the stock market takes a sharp downward correction, the natural response from investors is to try to anticipate the decline and sell off before this happens.

It sounds easy when you are looking in the rear view mirror. Timing when you are in or out of the markets is in essence basing your investment strategy on a speculative approach rather than a disciplined investing approach that incorporates a long-term vision and goals. Short-term emotional thinking can cloud long-term investment decisions.



The best way to illustrate the challenges of trying to time the stock market is by looking at an investor who is currently fully invested.

Mr. James has $1 million invested in a non-registered account and is currently earning $35,000, or 3.5 per cent, in annual income (primarily dividend income and minimal interest income). In addition to this income, Mr. James’s investments have averaged 4.5 per cent annually in capital gains over time.



The total annual average rate of return is the sum of both of these parts — the income and capital gains. The total average annual rate of return over the last five years has been approximately 8.0 per cent annually.

Mr. James decided that he wanted to be a market timer. By market timer, I mean that he felt he could predict the direction of the stock market and would sell his investments if he anticipated a decline in the markets.

If Mr. James sells off his investments and converts his portfolio to 100 per cent cash, then his income will drop to $16,000 per year, assuming that savings accounts are earning 1.60 per cent.

The downside to savings accounts is that interest income is fully taxable each year in a non-registered account. Mr. James currently has the majority of his investments earning tax-efficient dividend income with some tax deferred growth. As a result of the difference in taxation between interest income and dividend income, the impact on income would be even greater than 1.90 per cent (3.50 to 1.60).

For purposes of this article, we have assumed that both interest income and dividend income are equal. In additional to the differential in the income lost, Mr. James would not have potential for capital gains while out of the market.

Mr. James should also factor in that if all of his investments are sold then he would have to report all the realized gains on his investments and lose the deferral benefits that exist with non-registered equity investments. If you have stock that has increased in value, you do not have to pay tax on the capital gain until it is sold.

If Mr. James has a stock that has declined in value and he realizes a loss then he has to use caution when timing transactions. He must wait at least 30 days before repurchasing a stock sold at a loss or risk violating the superficial loss rules and having the original loss declined.

From an income standpoint, Mr. James will immediately see his dividend/investment income drop $19,000 a year ($35,000 to $16,000). He will also possibly be losing capital growth on his portfolio. The potential tax liability, superficial loss rules and loss of income are the easy components to quantify for Mr. James. It is the change in the capital side or growth that is the tough part to compute in order to determine if Mr. James made the right decision to liquidate.

If the markets increase, Mr. James clearly made a mistake. He will have lost the differential in the income and the capital growth. If the markets remain flat, Mr. James still made a mistake with the differential as his income will drop $16,000 a year.

If the stock market goes down, it’s not necessarily a given that Mr. James will benefit from having liquidated his account.

If Mr. James makes a correct prediction that the stock market declines then for him to benefit he has to also make another correct timing decision to buy back into the market at lower levels to potentially be better off.

If the markets decline and Mr. James does not have the insight to buy back in (before it rises back to the level that Mr. James originally sold at) then he would still be worse off. In essence Mr. James has to make two correct timing decisions: (1) selling before the markets decline, and (2) buying back before they rise.

Mr. James should also factor in the timing in which he feels his predictions for the market will unfold. To illustrate this component we will assume no transaction costs, only the income component (we will exclude capital changes) and no tax impact to the trades for simplification purposes.

The difference between the current income Mr. James is earning of 3.5 per cent and the new income of 1.60 per cent if he converts everything to cash is 1.90 per cent. Depending on how long Mr. James is out of the market impacts how much the stock market would have to decline to make the strategy of going to cash successful.

Let’s assume that Mr. James waits six months, one year, two years and three years before buying back into the stock market. If every year Mr. James is losing 1.90 per cent in income then the longer he waits the greater the stock market has to decline. At the six month point, the markets would have to decline 0.95 per cent (1.90 x .5) or greater, at the one year point the markets would have to decline 1.90 per cent (1.90 x 1) or greater, at the two year point the markets would have to decline 3.80 per cent (1.90 x 2) or greater, and at the three year point the markets would have to decline 5.70 per cent (1.90 x 3) or greater.

Making two correct short-term timing decisions against a stock market that has a long term upward bias is not as easy as it may seem. The markets can rebound incredibly fast — the 13.27 per cent increase in the first quarter of 2019 is only one example. From a psychological standpoint, most people would have the tendency to fear that the markets will decline further after the 10.11 per cent decline in the last quarter of 2018. Most investors would not have had the natural tendency to purchase investments at the beginning of this year. Sticking to a long term disciplined strategy helps deal with the short term quarterly swings of the market.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.