Month: November 2016

Diversification to build wealth over time


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The importance of diversification for retirement income


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The pros and cons of real estate in a client’s portfolio


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Stocks Continue Historic Trend

The Canadian stock market rally has been going on (in reality off and on) since March 2009. Stock prices have increased by more than 125% and it appears that some momentum remains. Should we be celebrating? There is certainly a strong bullish case to be made because in 74% of all market declines going back to 1924 stocks gained ground in the second year after a bear market decline. This pattern of longer term market performance offers some reassurance, however we cannot blindly assume that the market will continue to perform as it has recently. Often a stock that builds momentum in one year carries it over into the next. Stocks began surging in 2009 and investors would love to see that trend continue.

Consider the calendar year end returns for Canadian stocks using data from the S&P/TSX (1956 to 2015) and Canadian Institute of Actuaries (1924 to 1955). We find that the market rose in 67 of those 91 years, or 74% of the time. Unfortunately, this means that there were 24 calendar years of negative returns. Just as importantly, in 74% of cases stocks also experienced a rally in the year following the increase. As the chart below shows, the average decline during these 24 declining years was -13.1% and the average return in the year following the declines was 9.8%. Perhaps even more interesting is that in the second year after an annual decline, the market generated an impressive 10.0% average return.

If history is a guide, the second verse will echo the first. The market’s performance so far has mirrored a pattern common to every bull market since 1949. In a rally’s first year, small cap shares typically beat large cap rivals, though a rising tide lifts all boats. In addition, low quality issues generally outdo high quality as investors get more comfortable with risk. The worst become first and economically cyclical sectors outperform defensive ones. During the second year, historically, stocks kept rising. Small cap stocks continue to outperform large caps and higher quality issues with stable and growing earnings trump low quality names. The second year is important because it provides a clue as to the industries that are likely to perform for several years as long as the economy continues to grow.

What really seems to drive the second year after a winning year is mutual fund investors who had continued to remain wary. Ask most financial professionals and they will tell you the same thing: mutual fund investors flee the stock market and then jump back in, but often too late. The evidence of the past year seems to support that view, as new money coming into stock mutual funds has been negligible even as returns have been strong. An influx into stocks in the coming months would suggest mutual fund investors are once again waiting too long.

Stocks have taken a circuitous route to scale the wall of worry and have gained 16.5% in 2016 year-to-date, after the 8.3% decline in 2015. There has been a lot of uncertainty this year regarding the amount of gains and losses, so investors have remained skittish. Still, the rush into equities where prospects are the least tied to the economic cycle (energy and material stocks) has been particularly evident. The fact that investors have been left with few options for meaningful returns has fueled the rebound in stocks since the February 2016 low. The question remains, will investors continue to return this year and next in greater numbers, repeating the pattern of previous bull markets and push the stock market up for a second straight year after a down year? History may not repeat itself, but it could rhyme and that will definitely be great news for diligent investors.



This report may contain forward looking statements. Forward looking statements are not guarantees of future performance as actual events and results could differ materially from those expressed or implied. The information in this publication does not constitute investment advice by Provisus Wealth Management Limited and is provided for informational purposes only and therefore is not an offer to buy or sell securities. Past performance may not be indicative of future results.

While every effort has been made to ensure the correctness of the numbers and data presented, Provisus Wealth Management does not warrant the accuracy of the data in this publication. This publication is for informational purposes only.



The tax credits most Canadians miss out on

Every year Canadians miss out on money in their pocket because of how confusing the Canadian tax system is. With rules, exceptions and hidden information overload, most of us have no idea the amount of everyday costs that can be claimed for tax credits and deductions every year during tax season. This month we talked to our experts to find out what are the most missed out opportunities for tax credits. The list below will help you get organized in advance so you can take full advantage this upcoming tax season.

Children’s Arts Tax Credit (CATC):

This tax credit isn’t just for paint classes. The name and public explanation of this credit leads many parents to dismissing their eligibility. If you check out this loose definition of prescribed programming, you’ll see that many different programs are included in this deduction. Parents can claim up to $500 per child for a variety of children programs, including music classes, language classes, wilderness classes (i.e. Girl Guides), and even tutoring. For a full eligibility list and to find out more click here.

Medical Expenses:

Studies show that despite our publicly funded health care system, we’re still paying around 30% of our health needs out of pocket. The challenge with medical tax credits is that its umbrella is so large, most people aren’t aware of what does or does not count as a medical expense.

A few of these eligible expenses might even surprise you. For example, those with celiac disease can claim the incremental costs between their gluten-free products and the regular equivalent. Caregivers can claim the training time it takes to learn how to take care of an affected dependent. For a full list of eligible medical expenses click here.

Charitable Donations:

Remember that cash you donated to a family member’s charity initiative, or that charity walk in which you participated? Be sure to collect tax receipts from the registered charity. The CRA allows a credit of 15% for the 1st $200 and 29% of amounts over $200. Even better, spouses can pool their donations for a higher tax credit, and your donations can be saved for up to five years to qualify for the higher credit allowance each year. For more information about claiming your donations click here.

First Time Home Buyers:

If you moved into your first home or condo, you’ll want to dig up your files. For first-time home buyers there is a non-refundable tax credit of up to $5,000 that can be claimed in the tax year of the purchase. There are some rules with this one, so click here to find out if you’re fully eligible.

Moving within Canada:

Moving expenses are almost always missed. If you’ve moved within Canada and are employed your costs could be eligible for credit. You’re eligible if you moved at least 40 km closer to the new work, self-employment or school location where you are making income. And it’s not just the money you spent on boxes and movers, real estate commissions are included in the claim too at a 40% marginal tax rate. If you assume those commissions were 15% that translates to a $6,000 value for you. Click here to find out more about this credit.

Work space in the home:

With more and more work conducted online, working from home is increasingly common. In order to be eligible for the work-space-in-the-home expense, the work space must be where you mainly (at least 50% of the time) complete your work for income, and you must use it regularly to hold meetings with clients, customers or other work-related individuals. Meet these conditions, and you could be claiming a portion of many costs such as office supplies, promotion and marketing, car usage and more. For tips on how to best organize your workspace costs for the CRA click here.

Childcare Expenses:

Toronto daycare fees are extremely expensive and luckily these costs are deductible under the childcare expenses credit. What you might not know is that you can claim costs associated to boarding schools, hockey schools or summer camp fees as well. The maximum you can claim is $7,000 for each child under 7 and $4000 for each child aged 8-16. Click here to find out more about which of your childcare expenses are eligible for credit.  

Carrying Charges and Interest Expenses:

A variety of financing charges and investment expenses are included under this tax credit. Examples include: interest on investment loans, interest charged on the purchase of Canada Savings Bonds through an employer’s payroll deduction, fees paid to financial plans and investment advisors, fees paid for someone to complete your tax return, etc. For a full list of which carrying and interest charges are eligible for credit click here.

Other obvious tax breaks:

Another obvious tax break includes any public transportation passes. Single fares don’t apply but if you purchase weekly or monthly passes, they count. You can claim the amount for yourself, your spouse or dependent children up to 19 years old. Tip: Don’t throw out your receipts or the physical pass itself. You’ll need it for proof showing the period of usage and the value amount. For more information, visit the CRA website here.

New opportunities in robo-advisors

The investment industry is embracing and launching robo-advice platforms in one form or another

Financial technology (fintech) – and robo-advice, in particular – may be disrupting the status quo in the financial services sector, but there are plenty of opportunities for financial advisors in using these technological innovations.

Case in point: Toronto-based Glidepath Portfolio Services Inc., the latest robo-advisor to launch in Canada, caters exclusively to financial planners. More specifically, the startup will partner with financial planners who wish to outsource the investment-management component of their clients’ accounts. Doing this will allow these advisors to focus on other financial planning aspects, such as budgeting, taxes and estate planning.

“We believe in the value of financial planners and the role they play in people’s lives,” says Ron Fox, Glidepath’s CEO, “and [Glidepath is] a service that these financial planners want to use to help them continue to add value to their loyal clients.”

Glidepath is an investment-counsel portfolio-management firm that creates customized portfolios, consisting exclusively of exchange-traded funds (ETFs), for financial planner clients. The firm partners with independent financial planners across all distribution channels in Ontario.

At the moment, financial planners are not required to have a specific designation to use Glidepath. However, Fox says, he is looking to work with like-minded financial planners who are committed to financial planning standards. Planners charge their own fee to their clients on top of Glidepath’s 0.5% management fee.

Glidepath is unique among the various robo-advisors operating in Canada in that Glidepath is strictly a business-to-business offering without a direct-to-consumer component. That doesn’t mean, however, that Glidepath is alone in offering an advisor-friendly platform. Wealthsimple Financial Inc., Nest Wealth Asset Management Inc. and Bank of Montreal’s SmartFolio offer advisors access to their platforms to help them manage client accounts in addition to the direct-to-consumer offerings these firms have available. (All three companies are based in Toronto.)

Meanwhile, De Thomas Wealth Management, a Toronto-based mutual fund dealer, has taken the plunge in launching a robo-advisor of its own last year. The service, RoboAdvisors+, is an online platform through which De Thomas serves its clients.

To get started, clients sign up with RoboAdvisors+ by completing an online questionnaire. Once the questionnaire is completed, clients are contacted by and assigned to a De Thomas advisor, who discusses the responses with clients in more detail. A portfolio consisting of mutual funds then is built for each client. All communication with RoboAdvisors+ clients is done via telephone or online.

Tony De Thomasis, president of both De Thomas and RoboAdvisors+, says the dealer firm decided to start up the robo-advisor platform to make the dealer’s services accessible to more clients – and the strategy appears to be working. De Thomasis estimates that the dealer has gained about $30 million in assets under management from clients across the country since launching RoboAdvisors+ last year. The average client with the robo-advisor is about 50 years old with $75,000-$150,000 in investible assets.

“We’re very happy with that growth,” says De Thomasis. “We don’t want to get $200 million overnight; that’s not our market.”

The investment industry’s embrace and launching of robo- advice platforms, in one form or another, is not surprising, says Mike Foy, director of the wealth-management practice at J.D. Power & Associates in New York: “A lot of folks in the industry are thinking about how to use these kinds of tools to enable advisors to be more productive and better able to serve say the mass affluent market than they are today.”

J.D. Power’s research suggests there’s a growing interest in robo-advisors among Canadians, particularly among do-it-yourself investors. According to J.D. Power’s 2016 Canadian Self-Directed Investors Satisfaction Study, 66% of millennials are interested in robo-advice, and 54% of investors of all age groups said the same thing.

Despite this interest, there’s room for the traditional advice model. The study found that self-directed investors still look to work with financial advisors. For example, 37% of self-directed millennial investors said they have a secondary full-service investment account. And 21% of those investors who don’t have a full-service account said they probably will need one in future.

“[Investors are] not putting all their eggs in one basket,” says Foy. “They want to think about treating different pools of money differently.”

Although investors may use different platforms to manage their wealth, research suggests that they will continue to seek the same traditional financial services institutions they have worked with in the past – potentially giving those firms that develop technlology-driven platforms an advantage.

Specifically, Montreal-based CGI Group Inc.’s The Fintech Disruption in Financial Services report found that more than 75% of consumers globally would prefer to use digital platforms through their traditional financial services institution rather than a non-traditional provider.

Indeed, Chris Ambridge, president of Transcend Private Client Corp., an online platform and a subsidiary of Provisus Wealth Management Ltd. (both Toronto-based firms), believes that the hybrid robo-advisor model, in which technology is used to create customized portfolios and to aggregate multiple accounts but in which clients still work with a human advisor, will continue to grow.

Says Ambridge: “It’s one change that’s occurring – and will continue to occur.”

© 2016 Investment Executive. All rights reserved.


By Fiona Collie | November 2016