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The older we get the more important it becomes to look after not only our own financial situation but that of our parents as well. No matter what they’ve saved and tucked away for retirement, those funds may be at risk due to cognitive declines as they age.
The Huffington Post reports that over $36 billion is scammed in senior fraud and financial abuse every year. This is only the tip of the iceberg when it comes to these types of elderly scams: law enforcement officials estimate that only about eight per cent of crimes are reported ever year.
CNBC reports that women are also twice as likely as men to become a victim of fraud. They are considered easier targets, especially if they are in their 80s and living alone.
While knowledge goes a long way towards combatting these scams, obviously it’s not going far enough. Here are five ways to help protect your loved ones from scams, frauds, and financial ruin in their naive older years:
1.) Know the scams
The first line of defense is to know more about the common scams. This will help you anticipate and expect certain fraudulent activity, give you an edge heading them off from the first contact.
Why can’t investment management firms share the risk with their clients? Why does it always feel like it is stacked in favour of the investment managers and not the clients?
The answer to those questions is that investment managers CAN share the risk with clients, but they don’t want to. TriDelta Financial launched in 2005 and has charged traditional fees since the beginning. Today, we felt that we had the right investment management and infrastructure in place, and it was time to introduce a new approach.
I know that we wanted to be known as a firm that thinks differently and acts differently. It was time to put our money where our mouth is. As a result we have just launched the TriDelta Partnership Fee. At a high level, if your investment returns are negative, your management fee is credited back to you. If your 12 month return is between 0% and 3%, you will have 0.5% credited back to you. If your 12 month return is over 7%, there will be a performance fee charged to your account.
For the longest time, the investment industry was set up in a way that was tilted in favour of the industry. In fairness, every industry works that way to some degree. What is interesting about the investment industry is that there is a lot of discussion about risk and reward. Of course, this is only in relation to the clients’ portfolio. For the investment firm the only risk has been ‘don’t do too poorly or you will lose clients’.
Sharing gain and pain
If a client is down 5% on their portfolio, the portfolio manager will still make their 1% to 2.5% fee. If a client is up 15%, the portfolio manager will still make their 1% to 2.5% fee. There is no question that all investment managers would prefer a higher return for their clients. Having said that, the clear disconnect is the sharing of gain or pain.
Even worse is the traditional hedge fund industry. The fees of 1% to 2% are considered a weak year for a hedge fund. They decided that if they do ok or well, they should get a ‘performance fee’. If they do poorly, they don’t give back anything. Essentially their fee model is “you do poorly, we do well, you do well, we do great”.
If a manager can deliver something truly exceptional they deserve to be rewarded. The problem is when the truly average are simply charging very high fees.
Our new Partnership Fee truly shares the risk. In fact, if you lose money in a year, your management fees will be returned to you. On the other hand, if you earn 7% or more, you will pay a performance fee.
In addition to being a model that better shares the risk, it also lowers the clients overall volatility, essentially lowering their downside risk.
No other Canadian firm has this kind of fee-sharing model
Donald Trump has claimed the US presidency. While this may be another “unthinkable,” no one should be surprised. Rising populist sentiment has been a defining feature of the post-crisis world.
While a confluence of factors are driving discontent, an overriding theme is the perception that gains since 2008 have accrued to a wealthy few. Trump successfully tapped into those views and won. Clearly, America has sent a message to the political elite: “you’re fired.”
Where to from here? Not to be denied is that market volatility is set to rise. Trump’s anti-trade rhetoric could particularly create instabilities and imperil prosperity. But in a globalized world defined by a move toward closer interconnectedness, the “biggest loser” would undoubtedly be the United States.
Trump and Dump? Not Yet
Volatility should also be viewed opportunistically. Our Investment Team has written extensively on “Trump proofing” client portfolios. The first line of defense is wide global diversification with exposures to longer-running megatrends. For example, commodities are stuck in a grinding sideways market. Politics cannot change that meaningfully.
There are approximately 1.2 million Canadians capable of saving for their retirement and mimicking the ‘gold plated’ pensions of federal civil servants and teachers. Are you among them?
It’s well-known in policy circles that traditional defined benefit (“DB”) plans are better for employees but worse for the employers that underwrite them.
Why? Because the nature of the pension promise itself builds in an assumption that there will be sufficient assets, on an actuarial basis, to replicate a certain level of income, well into retirement. If markets do well, the promise is met. If markets underperform, these DB plans require that the employer dip into its corporate pockets to make up the difference through ‘special payments’. Short of a corporate insolvency, the DB model offers a guarantee of financial security that does not exist in any other type of tax-assisted plans (such as the RRSP, DPSP, PRPP or Defined Contribution plans).
While the mention of DB Plans conjures up visions of large public sector behemoths like the Ontario Teachers’ Pension Plan or the Healthcare of Ontario Pension Plan, they also exist at the other extreme: small professional corporations created by a single individual to carry out a given profession. Recently, small business owners and professionals are turning to the Personal Pension Plan (“PPP”), a type of registered pension plan that offers both DB and Defined Contribution (DC) accumulation methods under a single roof, with the freedom to select between the two each year.
The reason why the PPP works so well at the individual professional corporation (“PC”) level is that the interests of the plan member and of the shareholder are perfectly aligned. In years of market underperformance the requirement that extra tax-deductible contributions (special payments) be made, is simply a transfer of wealth from the owner’s taxable corporate pocket to his/her tax-deferred personal pension pocket. Likewise, strong market performance can lead to a “contribution holiday” for the PC and an even safer retirement pension for the shareholder/member.
Investors are inquiring how to invest their nest eggs after the U.S. election and the unexpected win by Donald Trump.” Let’s keep it very simple and explore a dose of reverse engineering. I highlight seven top tips for adoption:
1.) Ask where you want your nest egg to be in five, ten or twenty years.
2.) It’s imperative to always think and act logically, not emotionally.
3.) Accept that bond and stock market volatility is here to stay.
4.) Revisit your expectations as to goals, needs, objectives and plan of action.
5.) Implement, tweak and be patient with your long-term strategies.
6.) Cut to the chase and focus on managing your investing risks.
7.) Keep cash available for buying opportunities during market sell-offs.
These straightforward, sensible tips can stickhandle your nest egg out of trouble most times.
Adrian Mastracci, MBA, is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios
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