Do-It-Yourself Investing

A majority of Canadians with investment assets utilize the services of a fee based investment advisor. The advisor will help the investor develop an appropriate asset mix of stock, bonds and other assets and then recommend a mix of securities such as mutual funds, pooled funds, exchange traded funds and sometimes individual securities. The cost of such services when all fees are totaled is often in excess of 2%. On five hundred thousand portfolio that would be $10,000 in fees per year.

A growing percentage of Canadians are following a do-it-yourself investing approach in order to save fees which over the years can add up to a substantial sum. Today, there are a good number of self directed investment services available from companies such as Questrade and TD Direct Investing. Opening an account is quite easy and accounts can be transferred in from other providers without significant tax implications or costs. Within the self directed account there are many low cost investment options available.

Myself and a lot of sophisticated investors are proponents of index investing. This essentially means accepting the market rate of return and not trying to beat the market. Many Canadian investors are in high cost active funds that try to beat the market. After fees and over a medium or long time horizon the vast majority of active funds underperform the market. My favorite index investment fund family is Vanguard funds. The annual fee on many Vanguard funds is one tenth of a percent i.e. five percent of the cost of active funds.

Do-It-Yourself investing is a good option for many Canadians. It does take some effort to self educate on markets and to monitor and rebalance investments. Using the services of a Fee-Only advisor for an annual check up and to help with other aspects of your personal finances is also a good option.

Selling a Business - why confidentiality counts

Selling a business is a confidential process - you do not want anyone to know your business is for sale. Here’s why:

Employees will have questions you can’t fully answer. Insecure about their future, they may look elsewhere for a job. Losing key employees could affect the sale of your business.

Customers might go elsewhere, reducing sales and profit, making your business less attractive to a buyer. Thinking you’re having financial difficulties, suppliers may take steps to protect themselves, demanding cash rather than credit and transferring your exclusive agreement to a competitor.

Competitors may take advantage of what can be a period of uncertainty to chip at your business base.

Business brokers have established systems to protect the confidentiality of a business. A broker with a well-established firm can expose the opportunity to hundreds of prospective buyers without employees, customers or a competitor knowing the business is for sale. Advertising won’t specifically identify the business.

A broker will also screen prospects to confirm their resources and potential for assuming your business, so you don’t waste time with tire-kickers. A more detailed business prospectus is only provided to qualified prospective buyers after a strict and detailed, legally enforceable non-disclosure agreement (NDA) has been signed. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. It also prohibits the potential buyer from letting anyone know you are selling.

Meetings are facilitated between the business owner and buyers that are serious. Then, if the seller agrees, the buyer is given proprietary financial and operating information, including strengths, weaknesses, opportunities and threats facing the business, to make an informed decision about proceeding with an offer.

When should a seller tell their employees? When the deal is done! It’s the same for key customers. You’ll want to introduce the buyer and give both staff and clients confidence about the changes to the business after closing the deal.

Individual Pension Plans

If you’re a business owner or an incorporated professional, an Individual Pension Plan (IPP) is an option you should consider to save more money for retirement.

 You can start at any time with an IPP, but especially if you’re over the age of 40 with 10+ years of employment income from your corporation.

 Here are five reasons why an IPP may be better for you than an RRSP:

 1.      Accumulate greater retirement account values. At the retirement age of 65, you could have accumulated twice as much in an IPP vs an RRSP. * See note below.

 2.      Generate significant tax deductions for the Corporation. Contributions your company makes to the plan are tax deductible. On retirement or as part of a sale of the business, significant additional deductions may be available.

 3.      Get passive assets off the Corporation’s balance sheet. Passive assets are cash or investments. If you have over $50K in passive income (income earned off investments), your small business deduction will be clawed back.  The small business deduction is a reduction in corporate taxes for Canadian controlled private corporations. The reduced rate of tax (12% in Nova Scotia for 2019) is available on active business income up to the corporation's business limit for the year. The federal business limit is $500,000 for 2009 and later years

 4.      Creditor proof significant assets. Funds in your IPP are well protected from creditors.

 5.      IPPs are easy to set up and not costly to administer. Here are key steps to set-up an IPP:

a.      Select an Actuary and an Investment Manager

b.     Provide key information (age, employment history) to the Actuary

c.      Actuary sets up a plan for you and will file it with Canada Revenue Agency

d.     Investment manager opens a trust account and manages your funds.

 IPPs are not well understood but represent an attractive option for business owners. If you’d like to learn more, I’d be happy to speak with you.