We all have a vision for our ideal life. The version of our best life that we hope to attain. The difference between achieving that life and dreaming about it comes from whether we are living
our life by design, or by default.

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As seen in the Spring 2017 issue of Iconic Concierge Magazine.

Embracing the entrepreneurial spirit, we subscribe to the idea that the path of life is not a straight line, it is unique series of detours. As such, it is important that your financial plan services your unique set of circumstances and delivers the solutions that matter most to you and your family.

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Lorraine McGregor, Spirit West Management

VELA Wealth is pleased to work with a network of established experts who help deliver outstanding outcomes for clients. This month, we’ve partnered with Lorraine McGregor of Spirit West Management to talk about the realities of business succession planning.

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The Journey to Success is Full of Four Letter Words

The question is which ones will you choose? Our principal and founder, Jason Boudreau recently gave this talk to colleagues are the Advocis Vancouver Strategies for Success Conference. Are you developing a career in wealth management? Here is a highlight of some 4-letter words he suggests you consider you keep in your repertoire.

READ…

soak it in.

TALK…
To mentors (and then do it regularly).
To those who are where you want to be and those coming up.

MEET…
With everyone. Grow your pipeline.

TAKE…
A genuine interest in who they are and what they are up to in life and business. Everyone has something to teach you and can add value to your life

STAY…
Focused!  How will you get to your goals? Stay focused on your pipeline.

KEEP…
Going! Stick with it. Persevere. It’s about timing.

SELF…
Get to know yourself, inside and out. Get out of your own way.
What drives you?
What are you the absolute best at?
What holds you back? Limiting beliefs?
How can you become self-actualized?
Your purpose is inside you, waiting to be discovered. Find it.

KNOW…
Your ‘why’. You know what you do, you know how you do it, but do you know why you do it?

WHAT…
IS YOUR PURPOSE?
Have a purpose much greater than you! How can your business be a vehicle to bring your purpose to the world?

WIFE (TIME WITH WIFE)…
Spend the time. Behind you is a support system.

KNOW…
Your market, inside and out!
What makes them tick?
Why are they successful?
What’s important to them?
What are they concerned about?
Who do they care about and spend time with?
How can you help them?

KNOW…
Their ‘why’.

LEAD…
With planning. Follow with product. Never the other way around!

STAY…
Relevant. Mind, body, heart and soul. Continue to gain education and master your craft. Make the time to relax and replenish your mind and soul. Ensure you are taking time out for yourself and working out in whatever means you are comfortable. You are of no service to anyone else unless you are in full working form.

CALU…
Is making a real difference for our industry and our clients.

SEEK…
Coaching.

LOOK…
For ways to add value beyond your core offering.

TEAM…
Without them, you are just you, and it’s not nearly as fun!

SHOW…
Your gratitude!

GIVE…
Of yourself, from your heart. Everything else will follow.

The value or ‘alpha’ a financial planner provides to their clients is a challenging metric to measure and goes far beyond investment returns .  Financial advice should be unique to every client’s personal situation and goals and the timing, nature and outcomes of advice may be monetary or non-monetary.  Given these quantitative and qualitative aspects to the planner / client relationship, is it even possible to measure the impact of advice and what is the value a planner adds? 

Forbes published an article in 2015 looking at the value of financial advice and focused on studies completed by Vanguard and Morningstar.  Some key points from these studies are summarized below:

Vanguard’s Advisor Alpha

Vanguard developed their Advisor Alpha concept in 2001. The info graphic below shows their overall estimate for Advisor Alpha is 3% on a net basis (4% less an assumed 1% fee).  Vanguard explain their objective is to shift the focus away from “traditional beat-the-market objectives” (i.e. traditional alpha) toward what they view as the “best practices of wealth management.” These best practices are separated into several categories that focus on tax efficiency, costs, risk management, and making good investment decisions:

(1) Build a customized investment plan aimed at achieving goals and meeting constraints for risk tolerance and risk capacity

(2) Minimize risks and tax impacts

(3) Behavioral coaching

Overall net impact of good advice: about 3%

Morningstar’s Gamma

Morningstar created a similar study about the value of good decision making and their research is more directly focused on how retirees can achieve higher income, which they call gamma. Morningstar left out issues like behavioral coaching, and included other matters like dynamic retirement spending.  The dimensions for improving financial decisions considered in their paper are broken down into several issues, along with how a naïve investor might approach each issue and how an improved outcome could be achieved with the guidance of a professional.  Working with an adviser, a client may make improved financial decisions resulting in an increased retirement income. The improved outcome scenario comes out 22.6% ahead of the naïve investor.*

By it’s very nature, value is subjective, however, where the client is at the centre of a relationship, they should experience value from a collaborative relationship with a financial planner, acting in their interests.  Whether this advice results in improved investment returns, objective decision making or both, working with a trusted planner in a long term relationship should result in a beneficial outcome.

*Source: Forbes ‘Value of Financial Advice’ July 21, 2015

We previously introduced you to the Anderson’s, a successful business family with aspirations to create a meaningful legacy. As part of their tax and estate planning, we incorporated charitable giving and life insurance to both achieve these aspirations and help offset the taxes they would owe in their estate.

THE VISION

Now that John and Barb have set themselves up well, it’s time to shift the focus to ‘phase two’ of the planning, their children and grandchildren.

One of the common themes we discuss with clients is that of ‘cascading planning’. If you think of a waterfall or a stream cascading downward from its source to its ultimate destination, you can get a feel for what we mean. Cascading planning involves looking at multiple generations and focusing on ‘continuity’. This is how a family can truly create a lasting legacy.

In this second phase of planning for the Anderson family, we are helping them to get a head start on this planning that we know their children and grandchildren will eventually have to do and, in the context of their family’s legacy, would certainly want to do.

THE PLAN

To help execute on this planning, we will look at two key areas;

Firstly, we will review if all of the children (who are married with their own children) have up-to-date wills. These wills should not only outline the usual pieces of guardianship and distribution of assets, but also the family’s charitable legacy wishes. Wills are some of the most, if not the most, important documents we can have, given that they ‘speak for us when we can no longer speak’. Just as John and Barb have outlined their philanthropic wishes in their own wills, so too should their children. This will help ensure the continuity of the family legacy for generations to come.

Secondly, we are going to implement a permanent life insurance strategy, similar to John and Barb’s, for each of the children and grandchildren. At first, John and Barb were a little confused about why they would do this as most people really do not think about implementing life insurance for their children and grandchildren. However, in the context of cascading and continuity planning, it is the natural evolution of the family planning, given what John and Barb have just done themselves.

These policies will be owned by the family holding company and there are significant benefits to getting a head start on them for generation two and three.

Cost. Given that the heirs are much younger, the insurance premiums will be much less for the same, or potentially greater, long-term benefits.

Living Benefits. Within the policy, there is a tax-sheltered investment component called a cash value. Every year, the cash value (and the death benefit) grow through the reinvestment of what are called ‘policyholder dividends’. This growth occurs on a tax- sheltered basis and during their lifetime, the children and grandchildren can access these funds for any purpose, such as university tuition, purchasing a home, expanding the family business or even making charitable contributions.

THE RESULTS

Eventually, when they reach their life expectancy, John and Barb’s children will have these policies to help execute their own estate planning. Through the direction in their wills and as it was for their parents, there will be a donation(s) made utilizing the insurance, helping to offset or even eliminate the capital gains tax in their estate.

This helps to ensure that there is continuity of the wealth that the family has worked so hard to build and, equally as important, that the legacy that John and Barb created for the Anderson family will now be stewarded by their grandchildren.

This is how families create meaningful legacies that live on for generations.

Most of us become entrepreneurs to bring a vision and a passion to life. This allows for many things such as freedom, flexibility, enjoyment and success. Unfortunately, one of the costs of success is that little three-letter word that we are all too familiar with, TAX.

I was recently having a conversation with John Anderson, a business owner whom I have known for several years. He and his wife Barb have owned a successful family enterprise that they started several decades ago and after a relatively smooth transition, now have one of their three children owning and running the business.

Over the past few decades, the Anderson’s have been able to run a very profitable business and, like most business owners, have saved their profits in a holding company.

They have invested their savings into a mix of rental properties (residential), private investment pools (containing stocks and bonds) and they own the building in which their family business currently operates. John and Barb generate more than enough income from these investment holdings to support a great lifestyle for the rest of their lives and will ultimately leave these assets behind for the benefit of their children and grandchildren.

THE VISION

They are excited about the fact that they will be able to leave a legacy to their heirs, but were curious about how they might also create a legacy that extends beyond the family, that would benefit the causes that are meaningful to them. John and Barb are also unsure about how to plan for their estate because they are aware that there will be tax to pay at some point, they’re just not sure when or how much it will be.

THE PLAN

After some in-depth conversations about their vision for the family, the legacy they wish to leave and the financial figures that support it all, we were able to come up with a plan of action that encompasses all of their wishes with the tax planning they will need for their estate.

The plan is to utilize a combination of life insurance with charitable giving. John and Barb will purchase a joint-last-to-die permanent life insurance policy that will pay out when the last of the two of them dies and the policy’s death benefit is derived from our calculations of what their final taxes owing will be, come estate time.

THE RESULTS

The policy will be owned and funded by their holding company and when the last of the two of them has passed away, the proceeds of the life insurance policy will be paid, tax-free, to the holding company. The proceeds can then be paid out of the company tax-free using what is called a Capital Dividend, which is a special type of tax-free dividend.

A donation of the proceeds is then made to the charities and/or foundation(s) of John and Barb’s choice, as directed in their wills, and the estate receives the tax credit for the donation.

The result is that the donation credit takes care of the taxes owing, the heirs receive the investment assets fully intact (via the holding company shares) and there is a meaningful legacy created by way of the significant charitable donation.

This is the ultimate win-win for the Anderson family and the causes they care about.