Commonwealth Connections

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s r e g o R star search Don’t fear the new kid. The team’s in control.

AE09_OFC.indd 1 08/27/2007 03:02:11 PM SEPTEMBER • 2 0 0 7 • the Volume 10 ON number 9 ADVISOR Group/Groupe Conseiller consists of Advisor’s Edge, Advisor’s Edge Report, cover Advisor.ca, Advisor Live, Objectif Conseiller, Conseiller.ca and Conseillers En Direct.

SEPTember 2007, Volume 10, Number 9 8 Star Search 27 School’s In ADVISOR’S EDGe Philip Porado, Editor; Deanne Gage, Consulting Editor 19 Commonwealth Editor, Advisor Group Conferences Bert Vandermoer, Contributing Editor (416) 764-3802, [email protected] Michael Finley, Production Manager Connections Heidi Staseson, Associate Editor (416) 764-3928, [email protected] (416) 764-3804, [email protected] Marie Atkins, Executive Assistant Aniko Nicholson, Art Director (416) 764-3850, [email protected] 5 SUBSCRIPTIonS ADVISOR.CA CUSTOMER SERVICE Cornerstone, 1-866-236-0608 Cameron Clark, Customer Service Administrator inside edge [email protected] (416) 764-3859, [email protected] Handle Scandal

SALES Investors are getting ner- Kathleen Murphy (maternity leave) Sophie Bellemare Senior National Account Manager Account Manager, Eastern Canada vous, which means advisors (416) 764-3838, [email protected] (514) 843-2133, [email protected] will be put to the test. André Meurer, National Account Manager Eileen Lasswell (416) 764-3838, [email protected] National Account Manager By Philip Porado Amy Nelson, National Account Manager (416) 764-4164, [email protected] (416) 764-3809, [email protected]

CIRCULATIon AND RESEARCH 6 Keith Fulford, Circulation Director Tricia Benn, Director of Research front end load Cindy Younan, Circulation Manager (maternity leave) Elizabeth Hall, Research Manager Vice or Virtue? 8 Donna Kerry, Publisher, Advisor’s Edge, Advisor’s Edge Report We can all learn a thing or sTar (416) 764-3805, [email protected] Jean Goulet, Executive Publisher, Financial & Advisor Services Group, Quebec two from moral dilemmas, quality Paul Williams, Vice-President, Financial Publishing, Brand Extension & Online/Development/Services says Heidi Staseson in EDITORIAL ADVISORY BOARD her review of Randy Cohen’s David Wm. Brown Jim Rogers Al G. Brown and Associates Rogers Group Financial The Good, The Bad & David Christianson Kurt Rosentreter The Difference. And, in Wellington West Total Wealth Management Berkshire Securities Kathleen Clough Nancy Shewfelt “How Things Work,” PWL Capital Wellington West Capital Inc. John Horwood Thane Stenner Levi Folk shows us how Richardson Partners Financial Limited Stenner Investment Partners, GMP Private Client Rebecca Horwood Lynne Triffon real-return bonds can help Richardson Partners Financial Limited T.E. Wealth predict inflation. Cynthia J. Kett Terry Zive Stewart & Kett Financial Advisors Ltd. Gordon & Zive

ROgeRS MEDIA InC. 8 Anthony P. Viner, President and CEO cover story ROgeRS PUBLISHIng LIMITED Star Search Brian Segal, President and CEO 19 John Milne, Senior Vice-President, Business & Professional Publishing Group Don’t fear the new kid. Marc Blondeau and Michael Fox, Senior Vice-Presidents mONEy Immee Chee Wah and Patrick Renard, Vice-Presidents The team’s in control. matES By Steven Lamb , established 1998, is published by Rogers Publishing Limited, a division of Rogers Media Inc. Advisor’s Edge subscriptions include 24 issues per year, consisting of 12 issues of Advisor’s Edge in magazine format and 12 issues of Advisor’s Edge Report in tabloid newspaper format. Rogers Publishing Limited, One Mount Pleasant Rd., Toronto, Ontario M4Y 2Y5. Montreal office: 19 33 1200 avenue McGill College, Bureau 800, Montreal, Quebec H3B 4G7. Aussi-Land insurance insights Subscription price per year: $70 CDN; outside Canada per year: $144 US; single copy price: $15 CDN. ISSN 0703-7732. Printed in Canada. What’s up Down Under? Why Settle? PM 40070230 R10969. Canada Post: Please return undeliverable address blocks to Advisor’s Edge, P.O. Box 720, Station K, Toronto, ON M4P 3J6. Advisors in Australia say A burgeoning insurance E-mail: [email protected] it’s all ‘super.’ scheme may fly in the face We acknowledge the assistance of the Government of Canada, through the Publications Assistance Program toward our mailing costs. Contents copyright © 2007 by Rogers Publishing Limited, may not be reprinted By Diana Cawfield of industry priorities. without permission. Advisor’s Edge receives unsolicited materials (including letters to the editor, press releases, promotional items By David Wm. Brown and images) from time to time. Advisor’s Edge, its affiliates and assignees may use, reproduce, publish, re-publish, distribute, store and archive such submissions in whole or in part in any form or medium whatsoever, without 27 compensation of any sort. Pop Quiz 34 Strategic coaching is key Closing BelL with to a passing grade. Beasley Hawkes By Ron Foran A Cautionary Tale

www.advisor.ca advisor’s edge | september 2007 3

AE09_003.indd 3 8/16/07 4:08:24 PM insideedge

Handle Scandal Investors are getting nervous, which means advisors will be put to the test.

The headlines are screaming advisor from the opportunist is the contingencies and be prepared to move again. Between Bre-X and Lord Black, ability and willingness to work with clients’ money away from firms that your clients are bound to be wondering clients when the picture darkens. As engage in unfair or inappropriate busi- about both the health of their holdings the chits continue to get called in for ness practices. and the fundamental honesty of those the go-go 1990s, the smart advisors Every day, your clients are watching heading the corporations listed on the have tuned in to the fact that clients a stream of embarrassing revelations— publicly traded equity markets. do have worries about corporate gov- security cameras showing documents It doesn’t matter if you don’t have ernance and other seemingly abstract being removed from offices, stories even one thin dime of your clients’ issues related to how companies oper- about questionable contract clauses, money in those stocks. The bad ac- ate. They’re sophisticated enough to tales of e-mails deleted in an effort tions of one or two public companies, have concerns beyond the mere bot- to hamper investigators, and public or the questionable practices of one or tom lines of their monthly statements, hubris displayed toward those looking two funds, can taint the entire invest- and have developed and honed their into wrongdoing. They’re left wonder- ments industry. When scandals break, aversions to those who act as if they’re ing what you’re doing to protect them your clients lose sleep. They wonder to above the law. from that circus. themselves, “Do I own any of that?” Realizing that’s the case, and then Fraud will never go away. Whenever Or, if they know they own it, they’re responding to it, is the hallmark of a lot of money’s at stake, someone, busy asking themselves, “Now what?” a true fiduciary. Such an advisor un- somewhere will take a stab at round- Be prepared to answer either ques- derstands more than just a client’s fi- ing up some ill-gotten gains. What tion. It’s time to get your reassurance nancial needs and retirement expecta- can change, and should, is the method speech ready—along with the necessary tions. He or she also bothers to suss and speed with which you communi- facts and figures to detail the makeup out the client’s moral leanings, as a cate with your clients about the events of client portfolios, and strategies for way to properly prepare for uphold- they’re seeing on the news and how protecting investors from worst-case ing the proxy that’s been delegated. they do—or don’t—affect the content scenarios. And, while you’re at it, keep Some clients will have a real problem and quality of their portfolios. Mak- those talking points handy just in case if they own stock in companies that ing improvements on that front isn’t the predictions of an impending bear are affiliated with a tobacco company just a best practice, it’s your job. market come true. or firearms maker. Others won’t care, Just about anybody can make money but a good advisor knows which clients philip porado and keep clients happy in a bull mar- fall into which camp. Keep an eye on Editor ket. What separates the committed developments among the issuers, plan [email protected]

www.advisor.ca advisor’s edge | september 2007 

AE09_005.indd 5 08/17/2007 08:03:11 AM FRONT Bo oks , trends, events and analysis ENDLOAD vice or virtue? Inflation Nation

x Book: The Good, The Bad & The i Current Canadian long-term real-return p

Difference, by Randy Cohen.

t bond yields are just over 2%, with long-term

i The New York Times Magazine columnist Randy

n inflation expectations at 2.4%.* “The Ethicist” Cohen, may not hold a doctor- ate in Kantian philosophy but he doesn’t miss a Long-Term Real-Return Bond Yield Long-Term Bond Yield (Nominal) beat when tackling all sides of a moral dilemma. The for- 6 Inflation Expectation mer writer for The Late Show got some of his best training while working on set. Boss David Letterman was a stickler 5 for scruples and steered writers to maintain a moral compass 4 that ensured monologue jokes attacked a victim for “what he 3 does,” not “for what he is.” In other words, go full throttle with the young Hollywood jailbird trend, but stay away from 2

the innate physicality beneath the suit. 1 Chockablock with ethics reflections, the book assesses conventional behaviour—everything from withholding 0 - 0 3 - 0 4 - 0 5 - 0 6 - 0 7 r t - 0 2 t - 0 3 t - 0 4 t - 0 5 t - 0 6 e b - 0 3 e b - 0 4 e b - 0 5 e b - 0 6 e b - 0 7 u g - 0 2 u n - 0 3 u g - 0 3 u n - 0 4 u g - 0 4 u n - 0 5 u g - 0 5 u n - 0 6 u g - 0 6 u n - 0 7 O c O c O c O c O c J J J J J A p r A p r A p r A p A p r F F F F F D e c - 0 2 D e c - 0 3 D e c - 0 4 D e c - 0 5 D e c - 0 6 taxes to public denouncing of fur wearers. Though not A A A A A targeting advisors per se, one segment entitled “If it Ain’t *See “How Things Work,” next page a Broker Don’t Fix It,” sees Cohen preaching the evils of Source: Bank of Canada, 2007 a breach in client confidentiality. He reminds readers that clients should buy a stock on its own merits and not simply History Repeats because their broker told them to. And, that by extension, U.S. figures for 30-year periods indicate it’s up to the advisor and his fiduciary binding to pick the inflation hikes of 2.4%, 80% of the time.* stock that’s right for them. Had the book been written post-

Enron, World Com, and Lord Conrad verdicts, the author 6 might have laced his lecture with more of an acid tongue. If faced with the “don’t ask don’t tell” conundrum in a 5 job interview, Cohen says speak freely and forthrightly of 4 your last project. That’s not to say the potential big boss in front of you will approve of your previous working life, 3 say, as Boaz Manor’s personal assistant. That’s the risk you 2 take by being honest: Either he’ll think you’ve led an “in-

teresting” life, or wonder if you have a princely cache of 1 diamonds tucked inside your sock drawer. A fun read, if only to remind you that virtue intersects 0 n - 9 4 a a n - 5 2 a n - 5 4 a n - 5 6 a n - 5 8 a n - 6 0 a n - 6 2 a n - 6 4 a n - 6 a n - 6 8 a n - 7 0 a n - 7 2 a n - 7 4 a n - 7 6 a n - 7 8 a n - 8 0 a n - 8 2 a n - 8 4 a n - 8 6 a n - 8 a n - 9 0 a n - 9 2 a n - 9 6 a n - 9 8 a n - 0 a n - 0 2 a n - 0 4 a n - 0 6 all life scenarios. Or, as Cohen writes, “Civic life is a public J J J J J J J J J J J J J J J J J J J J J J J J J J J J park, paid for by all of us, enjoyed by all of us.” —Heidi Staseson *See “How Things Work,” next page Source: “Benefits and Limitations of Inflation Indexed Treasury Bonds,” 3rd Qtr 1995, Federal Reserve Bank of Kansas City Economic Review

 advisor’s edge | september 2007 www.advisor.ca

AE09_006,007.indd 6 08/17/2007 09:03:29 AM turns out higher than expected, then RRBs c hOW will have had a higher nominal yield than ■ september 17, Compliance Forum, Attend- a nominal bonds. Conversely, if inflation ees: IDA-licensed brokers, branch managers,

tHIngS undershoots the market expectation, nomi- and senior management, MaRS Complex, Toronto, l

nal bonds will have had the higher yield. www.advisorlive.ca e

wORK n The current real yield on long-term ■ september 20, Quebec MGA Symposium,

? RRBs is slightly better than 2% on aver- Attendees: MGA senior management, Fairmont d

pREDICTIng age, similar to what 20-year U.S. treasury Queen Elizabeth, Montreal, Que. (this event is conducted in a bonds historically paid from 1929 to 1994, French), www.advisorlive.ca ENDLOAD r

according to the SBBI 1995 yearbook. As ■ september 25 to 27, Changing Channel: pROTECTIOn

recently as three years ago, that same real Profiting From the Future, Westin Trillium o

Advisors looking to estimate the real return yield was higher than 3.5%—in the depths House, Blue Mountain, Collingwood, Ont., f

for their clients’ portfolios should look to of the equity bear market—suggesting www.advisorlive.ca e the bond market for clues. these bonds were a buying opportunity, ■ september 26 to 27, 12th Annual OSC/SEC

Observing real-return bond yields rela- which indeed they were. Financial Accounting and Reporting Course, v

tive to nominal bond yields is one of the Since advisors undoubtedly invest some Toronto, Optional Workshops: September 25 e

best ways to gauge the market’s inflation of their clients’ money in government bonds and 28, 2007, www.infonex.ca n

expectations over the next decade and over the long term, a sizable portion of ■ november 15 to 16, 13th Regulatory Com- t

beyond. Real-return bond yields are quoted those assets should be invested in real- pliance for Financial Institutions, Direct Energy s as real yields, adjusted for inflation. In return bonds rather than in nominal bonds. Centre, Toronto, www.canadianinstitute.com

contrast, standard Government of Canada Current long-term inflation expectations ■ november 28 to 29, 7th Annual Advanced bond yields are nominal yields. are 2.4%, based on the difference between Forum on Securities Litigation, St. Andrew’s While retirement goals are often stated nominal and real-return bond yields. That Club & Conference Centre, Toronto, in nominal terms, one of the biggest wealth figure is low by historical standards of www.canadianinstitute.com

destroyers is also the one least acknowl- actual inflation (in the U.S.). Looked at ■ december 3, “Take this Case and Solve edged: Inflation. Over the long term, infla- another way, if advisors believe that aver- it,” Attendees: Independent Financial Advisors, tion can erode an investor’s wealth and age inflation over the next 30 years will Mariott Pinnacle, Vancouver, www.advisorlive.ca purchasing power. It happened in the ’70s, exceed 2.4%, they should invest some of For more events go to www.advisor.ca and it could happen again. their clients’ money in long-term real- Advisors looking for strategies to help return bonds (see charts, page 6). protect their clients’ wealth can find no To put that into context, inflation over held it to maturity received a negative better security than the real-return bond all 30-year periods dating back to 1922 1.4% yield on this investment (3 - 4.4 = (RRB) in Canada and the Treasury Infla- has exceeded 2.4%, 80% of the time. And -1.4).” tion-Protected Securities (TIPS) in the it has done so during each instance since Source: 3rd Qtr, 1995, Federal Reserve U.S. These securities are indexed to infla- the 1962-92 period. Bank of Kansas City Economic Review tion, so they pay a nominal yield that’s Using history as a guide, odds are that The cost of higher inflation to your cli- determined post facto based on the actual inflation will exceed 2.4% over the next ents’ portfolios is potentially huge. Even rate of inflation. Both coupon payments 30-year period, thus making real-return though inflation is not a major factor and principal are indexed to inflation so bonds at current rates a smart proposition today for near-term returns, it is definitely the real rate of return target is always for protecting wealth. a factor for long-term plans. maintained. The following example from a Federal When investment time horizons reach In simple terms, the yield on an RRB is Reserve study summarizes the issue nicely: out to 20 years and beyond, advisors the stated real yield, plus the rate of infla- should factor in the potential costs of tion. This yield will differ from the nominal “In 1955, for example, the Treasury inflation to financial plans and utilize real- return on a Government of Canada bond of issued a 40-year bond with a coupon rate return bonds to hedge that risk. similar maturity and duration to the extent of 3%. Because the actual inflation rate —Levi Folk is president and *See “How Things Work,” next page that the market’s expectation of inflation over the past 40 years was 4.4%, an inves- managing editor of The Fund Library and Source: “Benefits and Limitations of Inflation Indexed Treasury Bonds,” 3rd Qtr 1995, Federal Reserve Bank of Kansas City Economic Review differs from actual inflation. If inflation tor who bought this bond at full price and president of Generation Capital Inc.

www.advisor.ca advisor’s edge | september 2007 

AE09_006,007.indd 7 08/17/2007 09:03:48 AM star search

AE09_008-017.indd 8 8/16/07 4:15:41 PM a major U.S. insurance firm First and foremost, the big names come decided it was time to ramp up its little- with a track record, says Chow: “There are known Canadian investments division, it only so many big-name managers in Cana- hired one of the biggest names in the Ca- da, and [they’re the ones who] will get your nadian mutual fund industry. “We’ve got fund on the radar.” Kanko,” the promotional ads proclaimed, as And the Kanko example is no anomaly. The Hartford Investments Canada placed When Kim Shannon’s firm Sionna Invest- star its bets on the star power of a former AIM ment Managers left CI Funds and joined Trimark ace who’d been off the scene for forces with Brandes Investment Partners, two years. the latter co-branded the funds that she “Bill Kanko is a big story for us,” says would control. Within six months, the Mary Taylor, senior vice-president of mar- Brandes Sionna Canadian Equity Fund keting at Toronto-based The Hartford, ex- had amassed $357 million in assets, plaining her company’s bold ad approach. eclipsing the $229.5 million managed in “I think there was some pent-up demand the Brandes Canadian Equity Fund, even to get him back as a manager, so it was though that mandate was opened in 2002. good for us; he is a brand. Whether we had For a company like Brandes, which is a strategy to trumpet him or not, the press well known but doesn’t have a huge mar- was going to pick up on it.” keting presence in Canada, a name like So far, the campaign seems to have Kim Shannon can provide instant cachet, worked. In about a year, The Hartford’s says Chow, noting Shannon’s CI Canadi- Global Leaders Fund, Kanko’s primary an Investments was probably featured on mandate, grew from $16 million in assets numerous brokerage focus lists. “You’re to $117 million. But it wasn’t just Kanko’s probably going to see Brandes Sionna on fund that took off—according to data from some of those lists now,” he adds. the Investment Funds Institute of Canada Name recognition can help to gather a (IFIC), The Hartford’s total mutual fund lot of assets in a relatively short period, assets under management grew from just but relying on a star manager can have its under $487 million in June 2006, to $839 downsides. If the manager decides it is million in June 2007. time to move on, investors may follow him Taylor concurs the company’s success is or her out the door. about more than one star player, although Interestingly, both Brandes and Sionna Kanko’s hire certainly “opens doors, creates were best known for the mandates they a spillage effect and creates industry buzz,” managed for larger companies—AGF she says. To be sure, the value of a star Funds and CI Funds, respectively. Unit- manager is obvious for a low-profile fund holders were faced with a choice: follow company like The Hartford, says Morn- the manager, or stick with the mandate ingstar Canada fund analyst Mark Chow. they had bought. He adds the company still has a relatively Advisors must carefully weigh the pros small asset base, ranking 30th among fund and cons of either route before guiding their sponsors (according to IFIC stats) but that clients to make such a decision. “There are the speed of growth can be largely attrib- going to be some redemptions whenever uted to name recognition. Continued on page 11

www.advisor.ca advisor’s edge | september 2007 

AE09_008-017.indd 9 08/17/2007 10:01:43 AM Continued from page 9 do not fit their criteria. As with any there is a manager change, because sudden shift in the investing land- certain advisors are a little more scape, client communication is of trigger-happy when they see an the utmost importance. In times event like that happen,” says of uncertainty, investors need the Dom Rando, vice-president, advisor to provide them with an investment manager research, evaluation of the new manager, TD Asset Management. “But and above all, avoid getting too ex- for the most part, even with cited by the change. some big redemptions that “Any responsible advisor is go- we have seen over the years, ing to have a prepared statement they are a small fraction of for all their clients holding that the overall fund assets.” fund,” says Rando. “I stress the fact Redemptions might that the fund companies are very range from 10% to 15% good at replacing managers going of assets over the 12 to out and they try to do it in a fairly 18 months following a reasonable time frame. But incom- star manager’s depar- ing management is never a dog, so ture, Rando says. Fund let’s take a look at who the incom- departing star manager,” explains redemptions can make ing management team is and evalu- Chow. “You may not be able to life difficult for the ate them.” get another star, because there are incoming manager of Chow, a former investment ad- only so many of them, but what the mandate, as they visor himself, says there’s little you want to do is what CI has may have to sell off evidence to indicate investors will done—they picked someone who some positions to dash out the door to follow the is not a household name but has an cover the outflows. manager. Investors may be sitting extremely strong track record, and

The impair- on a sizable gain and not want to is similar.” NOM NAME ment on their in- trigger a capital gain by moving In other words, continuity is key. vestment strategy their money. Deferred sales charges So when—not if—a star manager may be mitigat- are another good reason for clients leaves, make sure you’re prepared to ed, however, if to sit tight. preach the consistency message to there are suffi- “A lot depends on how it was advisors and ensure it gets down-

cient assets in sold by advisors to clients, and streamed to clients. No. the fund that who’s coming in to replace the Continued on page 12

www.advisor.ca advisor’s edge | september 2007 11

Coming in next month’s issue of Advisor’s Edge Does your client expect miracles from you, or is she just looking for solid, sustainable growth that will lead her to retirement? October’s CE Corner author Jim Otar examines the nexus between a client’s financial and emotional capacity to determine just how aggressively you need to invest before a client leaves the working world. It divides clients into Green, Grey and Red zones to help advisors determine the right combination of income need

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AE09_008-017.indd 11 08/21/2007 03:30:19 PM Continued from page 11 actually eerie how similar they are,” to replace the fund. “We have to “You never want to lose a high- Chow says. assess if the end client is getting what calibre money manager, but we’re very Any change of manager will auto- they paid for,” explains Rando. “Is this careful to have plans in place in the matically attract scrutiny, but when a manager going to provide a similar event of a loss,” says Peter Anderson, well-known manager leaves a multi- level of alpha- and risk-adjusted CEO, CI Financial. Recognizing the billion-dollar fund, the replacement will returns using a process that is consis- potential damage of manager mobility, certainly feel he or she is in the hot seat. tent and repeatable?” CI Funds already had its plan in place “Anytime there’s a manager change on Anderson says advisors and analysts when Shannon announced Sionna’s a fund that has a lot of assets or [one] alike can expect a window of incred- departure. The fund company quickly that we recommend, we have to take a ible access to the management team, named Daniel Bubis and his Tetrem hard look at the incoming management as the fund sponsor seeks to reassure Capital Partners as successor and new team,” notes Rando. “I can’t really say these key points of investor contact managers of CI’s $7 billion flagship that I’ve ever seen a dog manager come that the new managers are up to the CI Canadian Investment Fund. in to replace a star.” task they’re being assigned. Chow says Bubis was relatively un- “We certainly had more phone calls known to most advisors because his An Even Keel coming into our call centre from ad- firm specialized in managing pension Analysts are looking for consisten- visors and investors,” he says. “They assets, rather than retail funds. cy—does the incoming manager suit just wanted some assurance that this Morningstar was aware of his track the mandate of the fund? With to- was something CI was paying atten- record, however, and was able to offer day’s carefully crafted portfolios, style tion to, and would be taking care of in a quick analysis. “We knew his style drift may be considered a capital of- short order.” Anderson adds the vast was very similar to Shannon’s ... it’s fence, as the advisor may be compelled majority of callers ended up taking

12 advisor’s edge | september 2007 www.advisor.ca

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AE09_008-017.indd 12 08/20/2007 09:55:15 AM

NOM NAME

a wait-and-see approach, which ent with every constituent that is the way they’ve committed to the bought the incoming team time involved in it,” he says. “Advisors client.” to adjust. knew how to respond to their When Brandes severed its re- And communication between clients so that they could make lationship with AGF Funds in the fund sponsor and the advi- the right decisions.” 2002, millions of dollars in cli- sor is every bit as vital as between The key to a smooth transition ent assets followed the sub-ad- advisor and client. “Advisors, just is to be prepared ahead of time visory firm out the door. AGF like everybody else, don’t like and to communicate with advi- slipped into net redemptions change,” he says. sors and clients. Furthermore, following the loss of the star Anderson says advisors don’t introducing the new manager sub-advisor, and spent the next want to have to field a lot of and explaining why he or she is two years rebuilding its relation- phone calls from clients about the right replacement helps reas- ships with advisors, with then something that has happened to sure investors the mandate they newly hired Ambrosie crossing their portfolios. For the most bought into has not changed. the country to ask advisors what part advisors are willing to have “Do advisors care about man- they wanted.

some patience to give the new ager changes? You bet they care— “They told us that they were No. managers some time, so long they care a whole lot, because the going to deal with a fairly small as there’s a clear understanding investors want them to care,” says number of partners and that about what’s happening and who Randy Ambrosie, president of those partners need to satisfy this new manager is. AGF Funds. “They want to know most of their needs,” recalls “Our goal when this happened that what they bought for a client Ambrosie. “You don’t need to was to be as open and transpar- is going to continue to perform Continued on page 14

www.advisor.ca advisor’s edge | september 2007 13

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Valuable information for your clients

AE09_008-017.indd 13 08/20/2007 09:55:18 AM Continued from page 13 cess, since that can be replicated re- think it brings credibility to our firm be everything for them, but you need gardless of the actual manager. “None and our management capabilities.” to be able to do a lot of the things that of our portfolios are manager-centric; While AGF may be aiming to build they want.” our portfolios are mandate-centric,” assets across the board, there are reports Ambrosie notes there is a definite he says. that as much as 90% of its inflows are marketing benefit to putting manag- “You don’t look at a portfolio and landing in just two funds—both man- ers in front of advisors and clients, but describe its investment management in aged by the AGF International Advi- that it’s important to keep the focus terms of what a person is going to do, sors. Trying to avoid a manager-centric on research and the investment pro- but rather what the team will do. We focus is proving difficult, as the lead- ers of AGF IA, John Arnold and Rory Flynn, are now among the most recog- nized names in the business. Ironically, this is the team that replaced Brandes. Arnold’s Dublin-based team man- ages three of the company’s five larg- est funds: AGF International Value; AGF European Equity Class; and AGF International Stock Class—together they account for about $7.25 billion in assets, while the team manages an ad- ditional $1.3 billion in another four funds.

Changing Times But this time around, the downside of star status may be lessened, as AGF IA is a wholly owned division of AGF Management Ltd. Keeping portfolio management in-house can make it easier to retain talent. While larger firms are opting for in-house management, there is also a growing emphasis on management by committee. Chow says Morningstar is often asked to list management teams, rather than one specific name, in an effort to take some of the spotlight off a single manager. Chow notes the team approach is gaining ground, with companies like AIM Trimark adopting mentoring strategies or maintaining a couple of managers on the fund, to mitigate events such as sudden departures. “When Kanko left, there was a team there that picked up right after him. Even though Kanko was a big name,

14 advisor’s edge | september 2007

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their foreign funds have still done ex- some cases, and it’s becoming more evi- tremely well after that departure,” he dent, but it’s not for every single firm.” says. But every team needs a captain, Chow adds a good fund is a good so Rando will still focus on the lead manager coupled with a mandate that manager, rather than the whole team makes sense. “A fund is just a vehicle; when conducting his own research on

it’s the person making the decisions a fund. The lead manager sets the tone. N

that drives the performance,” he says. “We’ve seen some great examples in N O

“People are less inclined to talk about the U.S. where as soon as you get to be A

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a fund’s performance versus the man- a high-profile manager, there’s a high E ager’s performance. People are getting probability that you’re going to jump into the investment philosophies more; ship and go to a hedge fund,” says Ran- its not the fund that’s value-oriented, do. Part of his due diligence includes it’s the manager.” Continued on page 17 Rando says stand-alone managers,

who do all of the stock selection, N o

sector allocation and . portfolio construc- tion, are the legacy of a bygone era in fund management, and that many firms are now shining the spotlight on co-manage- ment structures. “Ten years ago every- thing would be the oppo-

site,” Rando says. “There N

was a much bigger focus on o . the star manager, but now you’re starting to see the lead manager assisted by a co-manager and maybe two assistant managers, so now you have a team of four.” A team-based approach, with deep 27625I_Gtree Ad 2Final:Layout 1 7/12/07 9:38 AM Page 1 bench strength is a sign that many fund companies recognize the risk as- sociated with manager mobility, and are facing the investor sensitivity in Solid Performance From terms of succession planning. One Generation To The Next “When the managers do leave, as Developing sound, innovative strategies to increase your wealth without added risk they often do, the advisor and the end Gentree Asset Management, merging state-of-the-art technology with cutting- clients are accustomed to having two edge academic derivatives and proven expertise to deliver innovative alternative managers on the portfolio,” Rando investment opportunities. We’re pleased to launch our flagship fund, the Market Risk Reduction StrategyTM, targeting enhanced returns, reduced volatility points out. “If you lose one, you still and steady cash flow distributions for today’s investor and future generations. have the other guy and he’s been there To speak with one of our investment for five years. It mitigates the loss in associates, please call 877.607.3131 A New Generation of Investing or visit www.gentree.ca

advisor’s edge | september 2007 15

AE09_008-017.indd 15 08/20/2007 09:55:57 AM MFD_ThirdPageAd2_07:MFD_ThirdPaageAd_07

2ND ANNUAL MUTUAL FUND DEALERS SYMPOSIUM Continued from page 15 expensive,” says Rando, explaining that PROFITING FROM assessing any handcuffs that may bind stars attract large asset bases which al- THE FUTURE the manager to the fund sponsor. low lower MERs. But if the manager Gilded handcuffs notwithstanding, has a certain specialty, he or she may be WestinTrillium House, Blue Mountain, Collingwood, Ontario compensation is often tied to long- able to command a higher fee. September 25-27, 2007 term performance, and that encourages “They probably aim to start out Presented by the manager to stay for at least three close to the same costs as where the years. Bonuses are often amortized, star just came from, though, to entice in cooperation with the again with three years being typical. their fans to follow,” says Chow, noting Contracts with sub-advisory firms this is especially true if the replacement will almost always include an exclu- manager has a proven track record. “If Gold sponsors sivity agreement. they are relatively unknown, though, Another common incentive for in- the departed star might be able to com- ternal managers to stay put is to pro- mand higher fees,” he says. vide an equity stake in the firm as Assuming the same management fee, part of their compensation. Owner- leaving a $6 billion fund for a $300 mil- ship stakes can be a two-way street, lion fund could slash revenues by 95% though. Rando points to the recent for the manager, so there must be ad- Mackenzie Investments purchase ditional incentives to make the move. Keynote sponsor of The Cundill Group as an ex- Taylor says The Hartford is taking a ample of the employer buying partnership approach with Kanko’s firm, out the sub-advisor. Black Creek Investments, helping to “That’s one way to avoid a build it out, add more investment talent, manager departure—if Cundill and hopefully cement the relationship. Partner Panel sponsor were to leave Mackenzie, that Surprisingly, most sub-advisory con- would be a hugely significant tracts do not include a set term for the event, and they’ve taken steps partnership, with 60 days’ notice typi- to make sure that doesn’t cally being all that either side must pro- Bronze sponsors happen,” he says. vide the other. The Hartford’s contract An ownership stake can with Kanko is no different. “We don’t be an important incentive put a term on them. We approach it by for a fund sponsor seeking saying we have a long-term partnership,” to lure a star manager away says Taylor. from another firm, espe- “While the contract is important, cially to start up a new what I think is more important is how fund. To compete with well you’re working together and achiev-

E Welcome Cocktail sponsor M

M the fund the star is leav- ing the goals of both parties.”

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N N ing, fees will need to And perhaps that’s best. In a competi- be comparable—few tive business environment where depar- Lunch sponsors investors will follow tures of star managers are inevitable, in- their favourite man- vestment firms need to place the emphasis

ager to a new man- on the fact that the institution will press Cocktail sponsor Dinner sponsor

date if they’ll face a on and provide the investors’ returns, no

. o significantly higher matter whose names are on the door.

N MER. “They’re typi- Steven Lamb is news editor of advisor.ca.

cally not overly [email protected] ADVISOR’S EDGE ADVISOR’S EDGE REPORT ADVISOR.CA OBJECTIF CONSEILLER CONSEILLER.CA

www.advisor.ca advisor’s edge | september 2007 17

AE09_008-017.indd 17 08/20/2007 09:56:18 AM aussi- land What’s up Down Under? Advisors in Australia say it’s

all ‘super.’ Canadian pension veteran Dr. Leo internal, risk-management strategy for By Diana Cawfield de Bever recently took on the position the $39 billion in Victorian insurance of chief investment officer of Victo- and pension monies. rian Funds Management Corpora- A key driver of the Australian in- here’s not a lot of “down” in the con- tion (VFMC) in the heart of bustling vestments industry, says de Bever, is tinent Down Under these days. Cana- Melbourne. “In Australia, they call so-called superannuation (or super) da’s commonwealth partner, Australia, themselves the lucky country,” says de funds. They’re similar to pension has been riding a bull-market wave that Bever, a former executive vice-presi- funds in other countries and current still shows no signs of stopping. Just dent, Global Investment Management Australian law makes it mandatory for like Canada, Australia’s equity markets at Manulife Financial, and senior vice- employees to sock away 9% of their are robust, and the countries share an president for risk management at On- annual incomes into superannuation urban-clustered culture, resource-rich tario Teachers Provident Plan Board. coverage as a salary benefit. Further, landscapes, and parallel economic and “In the last 15 years, the stock market money that goes into a super fund is environmental challenges. returns have been so good that when I taxed at a rate 15% below the marginal The financial services sector is the came here, people said, ‘Leo, Australia’s tax rate. Much like RRSPs in Canada, Tthird largest in the Australian economy different, the stock markets do much employees are given the option of top- and the country is considered a hub better than the rest of the world.’ ” ping up their contributions. for money moving in the Asia-Pacific While all markets have their ups With these upfront benefits, it’s no region. The sunburnt continent now and downs, he notes Australia did miss wonder that 2006 Australian Bureau accounts for the world’s fourth largest the big market downturn of 2000 and of Statistics data shows super funds funds management portfolio (with the adds, “They’re like Canada without a made up more than 50% of market total pool of funds under management tech sector.” His mandate upon joining share of Australia’s funds under man- over $1 trillion). VFMC was to create a more efficient, Continued on page 20

www.advisor.ca advisor’s edge | september 2007 19

AE09_019-025.indd 19 08/20/2007 09:56:49 AM Continued from page 19 agement. They’re categorized as corpo- rate funds, industry funds, retail funds, public sector funds, and self-managed funds, depending on the issuer. In recent years, government-man- Difference Down Under dated tax sweeteners have combined A few facts and figures on Australia’s with an aging demographic and greater financial planning industry: awareness of retirement needs to boost the assets of superannuation funds in • While the industry is still dominated by independent advisors, commercial banks have Australia. Similar to Canada, unused acquired a wide range of investment firms and savings banks which now account retirement savings plan room in Aus- for some 29% of all planners. While many work from the banks themselves, others tralia is enormous, says de Bever, and operate via seemingly independent firms. he believes that was the impetus be- • Insurers account for an additional 23% of the investments industry. hind the government’s introducing the • Australia’s $1 trillion (as of Dec. 2006) of funds under management is the fourth mandatory 9% contribution. largest in the world (after the U.S., France and Luxembourg). This funding base “Well, just think of it, he says. If means that most international fund managers now have offices in Australia, adding someone earns $100,000 a year, they to both the quality and competition in local services. would normally pay 40% in taxes. • The funds management business cuts across the commercial banks, investment banks, But put it into a superannuation fund insurance companies, trustee companies and independent fund managers. taxed at 15% and they’ll pick up • At one time, life insurance companies dominated this business, but the banks have $25,000,” de Bever says “As a further since gradually replaced them. —Michael Skully tax incentive, effective July 1, under new government legislation, a lump lump-sum withdrawals don’t pro- Sandy Grant, chief executive officer sum of superannuation funds can be vide any incentive to keep the money of Cbus (Construction & Building withdrawn tax-free at age 60.” building during retirement, he says. Industry Super Fund), has seen fund While superannuation funds have Secondly, a much larger proportion of assets grow by over $2 million in each been attracting investors like a mag- pension assets in Australia are defined of the last two calendar years. Cbus net in the last few years, de Bever says contribution, so if you outlive your as- manages $6.5 billion on behalf of there are two flaws in the system. First, sets, that’s your problem. 430,000 members who receive con-

20 advisor’s edge | september 2007 www.advisor.ca

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AE09_019-025.indd 20 08/20/2007 09:57:12 AM tributions from almost 40,000 partici- pating employers. As the name implies, the fund tailors its products to workers in the construction sector. Fund man- agement at Cbus is outsourced, as well as administration and insurance work. Current asset allocation is 32% Aussie equities, 28% international equities, 13% infrastructure (such as roads and airports), 13% properties, 7% fixed income instruments, 1% cash, and the remainder in private equities. While a thriving market and robust Confi dence inspired investing returns have accelerated money into super funds, the number of funds has diminished. New licensing regulations You can have confi dence knowing your clients’ assets are well invested and have reduced the more than 1,300 su- protected. We’ve designed RBC Insurance Guaranteed Investment Funds (GIFs) to be a powerful investment solution to help you meet the needs of your clients perannuation funds to fewer than 400. and grow your business. RBC Insurance GIFs offer you: simplicity, strength and Most of the whittled-down funds were trust. It all adds up to a compelling investment solution for you and corporate funds, not industry-tailored your clients. offerings such as Cbus. At present, there are about 80 industry-specific RBC Asset Management® has been recognized as the manager of super funds. the Best Overall Fund Group in Canada by Lipper, with the best Many in the industry question risk-adjusted performance over 3 years*. whether the tax advantages of super Performance of some of the underlying funds as of June 30, 2007: funds will survive. “There are a lot Since Fund Name 1 Year 3 Year 5 Year 10 Year of people looking at it and saying, Inception ‘Hang on; the impact from a tax take RBC Balanced Fund 12.8% 11.5% 9.4% 6.5% 8.3% is going to be very substantial,’ ” notes RBC Canadian Dividend Fund 18.8% 17.5% 14.9% 12.9% 14.5% Grant, explaining recent speculation RBC O’Shaughnessy 18.0% 11.5% 9.8% – 8.4% surrounding the funds’ eventual ex- U.S. Value Fund tinction. He also suggests the catalyst Visit us online at www.rbcinsurance.com/gif or speak with your RBC Insurance® for the establishment of the financial sales representative at 1 866 850-6090. planning industry in Australia was the ability of people to get their super- annuation at retirement and still quali- fy for the old age pension. “Tax drives the investment decision in Australia,” says Michael Skully, a professor in the Department of Ac- * As of December 31, 2006. Lipper Inc. (a Reuters company). The net return of the segregated fund which invests in an underlying fund will vary from the performance of counting and Finance at Monash Uni- the underlying fund since the segregated fund has higher costs, mainly related to the guaranteed benefi ts, and each fund’s performance is based on timing differences of deposits and redemptions. Past performance versity in Melbourne. Skully believes fi- is not indicative of future returns. nancial planners play a more significant Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. RBC Insurance Guaranteed Investment role Down Under than in some other Funds are segregated funds and are referred to as individual variable annuity contracts. RBC Life Insurance Company is the sole issuer and guarantor of the guarantee provisions contained in these contracts. The countries, citing a large percentage of underlying mutual funds available in these contracts are managed by RBC Asset Management Inc. and the portfolios are managed by RBC Life Insurance Company. When clients deposit money in an RBC Insurance new university graduates moving into Guaranteed Investment Funds contract, they are not buying units of the RBC Asset Management Inc. mutual fund or the underlying investments in the portfolio and therefore do not possess any of the rights and privileges Continued on page 22 of the unitholders of such funds.

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advisor’s edge | september 2007 21

AE09_019-025.indd 21 08/20/2007 09:57:28 AM 41616 AD_GIF_AdvrEdge_E.indd 1 8/7/07 9:15:44 AM Continued from page 21 30,000 advisors operating in Austra- Fee Fracas the financial services area. According to lia, about half of whom are members As a result of a government-mandated Kevin Bailey, CFP and chairman of fee- of the Financial Planning Association 9% superannuation retirement contri- only firm The Money Managers Ltd., (FPA) there. bution, the banks and big accounting based in Melbourne, Australian univer- “There’s a huge demand for advice,” firms have moved into financial plan- sity graduates of financial planning can says Bailey. Advice, he notes, is partic- ning. Bailey’s firm provides fee-only expect to earn six-figure salaries within ularly sought-after by older investors advice that varies depending on the

30tw14o tAod fvoiusro yresaErds _o fS ceopn v4o.c6a2ti5oxn7. .5 8/7/0w7it h1 0re:t5ir1e mAMent Psaagvien g1s that are close scope of the service. Much like the He adds there are approximately to the values of their homes. Canadian scene, there’s been ongoing debate in Australia about whether fee- based or commission-compensated advisors best serve their clients. Bailey says the majority of advisors They need more income You can earn more than 60% of their incomes unlock the from commissions or trailer fees and value of their considers having $10 million to $20 biggest asset million in assets under management as a fair indication of success. One call to CHIP That, however, doesn’t preclude is all it takes industry funds from having an ongo- We help homeowners ing war with financial planners, notes 60 and older unlock Grant. He attributes this to the fact up to 40% of the fund companies don’t pay commis- equity in their homes sions. As a result, he says advisors without moving. make a point of downplaying super We can provide up to $500,000 in funds among clients. To illustrate, tax-free cash that you Grant cites a recent regulatory inves- can invest to enhance tigation that found 35,000 cases in their income. which inappropriate advice had been An experienced given at a large investment firm. CHIP representative Despite the required superannua- will answer all your tion contribution, conventional wis- clients’ questions dom says clients need about 15% of and complete all their annual incomes to retire comfort- the paperwork. You ably. The old age pension in Australia, receive a referral fee and the opportunity which amounts to about $13,000 an- to invest the proceeds. nually for individuals and $20,000 for a couple, can make up the difference. Find out how you Donna Dunn, a nursing coordinator can offer the CHIP Home Income Plan. at Victoria University in Melbourne, Call 1-866-536-2447. bought her first home in 1982 and www.chipadvisor.ca when she sold it 12 years later, the house had more than doubled in price. The huge gain inspired her to begin investing in residential housing. About 70% of Australians own their homes, says Grant, and there’s no TM Trade-mark of the Canadian Home Income Plan Corporation.

22 advisor’s edge | september 2007

Publication: Advisor’s Edge Size: 4.625" x 7.5" Bleed: 0.25" all 4 sides Material Due Date: Aug 7/07 Insertion Date: Sept/07

AE09_019-025.indd 22 08/20/2007 09:58:05 AM capital gains tax on the sale of a prin- backwards, it would be a surprise to a hind the times,” he says, “because we cipal residence. As a result, buying the lot of people.” For a super fund, there’s only charge $550 for most financial house next door and renting it to cover only been one year in the last 15 with a plans,” and then a percentage of the the mortgage has become a favourite negative return, he adds. assets invested. way to create supplementary income Peter Dunn, managing director, One question that keeps popping and additional savings. Moneyplan Australia (MP) Propri- up, says Dunn, is if they move to So when Dunn recently sought the etary Ltd., offers clients the option purely a fee-based service, how will advice of a financial planner, his coun- of a fee-based or commission-based younger people or those who don’t sel came as a complete surprise. After service. “We’re probably a bit be- Continued on page 25 carefully taking into account her age, finances, risk tolerance and goals, the advisor stated quite clearly that super- annuation, not a rental home, was her best option. The reason for his caution? The risk factor of an overheated real estate market. Last year, the Reserve Bank of Australia increased interest rates three times, cooling inflation, and another increase is expected in the next year. Since high mortgage rates tend to sap housing booms, advisors are starting Don’t gamble with to urge caution. Dunn paid a $2,000 one-time fee your client’s future! for drawing up a financial plan and pays an annual 0.55% fee for ongoing As a Certified Divorce Financial Analyst™, you’ll be able portfolio management. “It’s a relatively to help your divorcing clients arrive at a settlement that high-cost model,” says de Bever, “and fully addresses their long-term financial needs. if you want to set up the equivalent of an RRSP—they call it an individually managed account—it costs a couple Why you should become a CDFA™ of thousand dollars a year, because it • Create a new source of revenue and business referrals is set up as a trust in Australia.” • Increase your expertise in the financial aspects of divorce, from spousal and child support to property division to tax Jeff Rogers, chief investment of- Live Training and insurance issues ficer, IPAC Securities Ltd. in Sydney, The next live training • Get referrals from lawyers and mediators • Be part of our “Client Referral Program” considers the fee structures very trans- courses will be held in: parent for the firm’s 1$ 5 billion in as- • Receive CE Credits; check out our website for details � Calgary, Sept. 24–26 • The course offers up-to-date Canadian content and sets under management. The typical instructors with extensive professional experience Australian superannuation fund in one � Toronto, Oct. 22–24 of his client’s portfolios has a strong ™ Register for the course today! equity bias toward Aussie stocks. CDFA training will Home-country tilt is common. be available across Mention this ad to receive 20% off* “The thing that’s untested in all Canada in 2008. Visit our website or call For more information, or to take advantage this,” says Rogers, “is if we were to of this time-limited offer, please contact: run into an environment, say a U.S. or for more information. Canadian pension fund in 2001, � (800) 875-1760 2002, where the equity market is going www.InstituteDFA.com

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advisor’s edge | september 2007 23

AE09_019-025.indd 23 08/20/2007 09:58:10 AM Continued from page 23 charges $300 an hour, that’s a minimum Skully, who moved from the United have adequate wealth afford a finan- $2,400 fee. “It’s all very well for the States to Australia more than 15 years cial planner? He notes that a typical consumer advocates to say you should ago, says the national licensing require- financial plan takes between eight and charge a flat fee, but there are some ment, brought in around 2002, has had 12 hours to prepare, so if the advisor pretty significant issues,” says Dunn. a big impact on the financial services Bailey points out one key difference industry. Basically, anyone who provides between Aussieland and Canuck ter- financial advice in Australia must first fund choices ritory is that Australia has a national have a licence, and second have a cer- Australian funds under regulatory body for the securities in- tain level of training in order to be ac- management, by market dustry. He adds Canada’s “province- credited. The licensing requirement, he share, 2006 based regulations are a little bit more says, has forced out a number of play- difficult for planners to get around,” ers who were unwilling to go through Super funds 54.4% making it harder for advisors to run the accreditation process. Public unit trusts 21.6% fee-only practices. In the end, that’s good for inves- Life insurance offices 19.1% Despite Australia’s federal regulatory tors. Says Bailey: “We’ve spent a lot Others 4.9% system, “there’s still lots of chances for of time in this country educating a lot individuals to get their fingers burnt of our legislators, building very strong Source: Professor Michael Skully: very badly,” says Kevin Davis, a profes- relationships, so we get sensible legis- “Lecture Seven: AFF9260” sor and director at the Melbourne Cen- lation and sensible licensing.” Australia Capital Markets, tre for Financial Studies. “People don’t April 16, 2007 understand that high returns probably Diana Cawfield is a Toronto-based involve pretty high risk.” freelance writer.

www.advisor.ca advisor’s edge | september 2007 25

Donna Kerry, Publisher of Appointment Notice Advisor’s Edge, Advisor’s Edge Report is pleased to Andrew Milne Vice-President, National Accounts announce the appoint- Standard Life Investments Inc. ment of Andre Meurer to National Account Manager of the Advisor Group on contract for a maternity leave. Andre Standard Life Investments Inc. is pleased to announce brings to his role a strong the appointment of Mr. Andrew Milne to the position of Vice-President, National Accounts. Andrew is responsible for background of experience the national distribution and client service strategy of the WRAP having worked for seven programs in which Standard Life Investments Inc. participates. years in media sales and advertising. Most recently, Andre held a senior role in a Andrew has several years of experience in sales and service positions at financial institutions, including the construction and boutique agency and prior to that led the interactive sales oversight of the separately managed wrap programs at a leading team of CanWest Global launching many new initiatives North American brokerage firm. with key clients in all categories including financial services. Andre is enthusiastic, hardworking and a Standard Life Investments Inc. has been providing investment management services in Canada since 1973 and manages welcome addition to the Advisor Group team. approximately $27 billion of assets. (www.sli.ca)

Advisor's Edge, Advisor's Edge Report, Advisor.ca, are a part of Rogers Publishing, a division of Rogers Media Standard Life Investments Inc. is a subsidiary of Edinburgh-based Inc., a division of Rogers Communications Inc. (TSX: RCI; NYSE: RG) Rogers Communications Inc. is a diversified Canadian communications and media company. It is engaged in cable television, high-speed Internet Standard Life Investments Limited, a leading asset management access and video retailing through Canada's largest cable television provider, Rogers Cable Inc.; in wireless voice company with approximately CDN$310 billion of assets under and data communications services through Canada's leading national GSM/GPRS cellular provider, Rogers Wireless Communications Inc.; and in radio, television broadcasting, televised shopping and publishing management. (www.standardlifeinvestments.com) businesses through Rogers Media Inc.

7AE22730AE09_019-025.indd 1 25 07/16/2007 02:54:30 PM 08/20/2007 09:58:39 AM answer questions. Multiple-choice ex- ams are based on specific details, such as numbers, time periods, ages, and dates. For example: “How often must a registered individual in the securi- ties industry in Canada have his or her licence renewed, and on what date?” The answer is: “Annually, on Decem- ber 31st.” Note how specific the ques- POP tion is in respect to the material. Detail also factors into what’s on, By Ron Foran and not on, a list. For example, there quiz are three purposes of a securities act: to protect the investor; to promote fair capital markets; and to promote effi- Strategic coaching is key to cient capital markets. An exam ques- a passing grade. tion could be: “What are the purposes of a securities act?” or “What is not a purpose of a securities act?” followed by a short list. Either way, you have to it’s a fact in the financial services Don’t fret, though, because for each know the three correct answers to get of industry that passing course there is usually a breakdown high- the question right. life exams is a stepping- lighting the exam relevance of each area. stone to achieving suc- Pay atTention to details cess. However, the securities and insur- Test tactics We teach students to pass multiple- ance commissions, Investment Dealers Before setting up Foran Financial In- choice exams by stressing specificity Association, and Mutual Fund Dealers stitute in 1987, I spent 10 years as and using memory techniques, includ- Association, among others, are raising an investment advisor with Merrill ing acronyms and other associations, the bar with respect to educational re- Lynch Canada and Wood Gundy. I to help them remember the material. quirements for advisors. Similarly, the was required to pass numerous indus- Acronyms are powerful tools to investing public is demanding advisors try exams, including the Series 7 (U.S. help people recall data. Imagine you be more knowledgeable to help them securities) and options, futures, and are studying economics and want to meet their diversified needs. insurance courses. For career purposes, remember the five stages of a business The norm for industry exams is to I obtained designations including the cycle, which are: Trough; Recovery; Ex- register with the applicable institute, CFA and CFP, which required me to pansion; Peak; Contraction. The first for example the CSI (securities cours- pass several six-hour exams. Based on letters are T.R.E.P.C. So, as a memory es); Advocis (insurance, CLU cours- those experiences, along with studying key we suggest: People in Toronto are es); the Financial Planners Standards psychology about how people learn, I in a cycle and Torontonians Really Eat Council (CFP examination); the CFA developed the following approach to Potato Chips (TREPC). Institute (CFA exams); and IFIC (mu- help people pass these tests. Once the type of exam has been tual funds exams) to name a few. After How you should approach an exam determined, the learning approach registering you’ll be sent the course is dependent on its composition. Is comes into play. Now it’s time to ex- materials. And then reality sets in. the exam multiple-choice, essay-style, amine course content. We tell students Most course materials consist of short-answer, or a combination? The to think ahead while studying the ma- at least one text, roughly 300 pages of vast majority of financial industry terial and ask: “How would the exam- small print. Or, if it’s a program such as exams are multiple-choice. However, iners test me on this content?” the CFA, several textbooks are assigned. a few incorporate essay and short- Continued on page 29

www.advisor.ca advisor’s edge | september 2007 27

AE09_027,029,030.indd 27 08/16/2007 04:42:57 PM Continued from page 27 KNOW THE CONTENT To properly learn the material, start by simple perusal: • How many chapters or texts must be learned? Examine the major headings of each chapter, along with sub-head- ings and minor headings to get a perspective of the over- all content. • Read the introductions and conclusions for each chapter, then notice illustrations and major examples. • Learn terminology and defi nitions from glossaries. • Read material thoroughly and make notes on key areas.

EFFECTIVE CLASSROOM INSTRUCTION The goal with teaching adults is to make the reading mate- rial animated, interesting and fun. This is quite a challenge FUNDWRAPFILTER & with topics such as “The harmonization of securities laws in Canada based on the CSA MRRS.” If you can relate ASSETALLOCATIONFILTER the material to the experiences of the participants, then the lights go on. For example, while a textbook provides a defi nition of selling short, I relate a story about a famous stock market trader who shorted the market on Black Monday in 1987 MORE HANDS. and made just over $1 million in profi t on the crash. MORE HANDS ON.

PASS POTENTIAL One program—two free tools—to Structuring the content in a logical manner and using a va- filter, sort and streamline asset riety of teaching techniques to relay information are cru- allocation and fund wrap programs. cial for adult learners. Humour and stories are part of the Get your hands on these tools now process. Adult students want to learn, and if we can also at advisor.ca entertain our students by using humour and telling relevant stories, that’s a bonus. According to studies conducted by the University of Michigan and other prominent educators, each person has a preferred learning style. People can be categorized as: Why Learners; What Learners; How Learners; and What-If Learners. Most people, in fact, use all four of these learning styles but tend to prefer one over the others. The Why Learner wants to know “Why is it important to learn the material?” In our seminars we provide an answer by saying, “The reason we are here today is to help you learn the material in the course so you can pass your exam.” Obvi- ous, perhaps, but it works for this group. Also, throughout the session we continually discuss the signifi cance of the material and why it’s important to know all the facts. PARTNERS The What Learner wants to learn content. Information and data are important to these people. So, for example, we Continued on page 30

www.advisor.ca ADVISOR’S EDGE | SEPTEMBER 2007 29

AE09_027,029,030.indd 29 08/17/2007 10:15:16 AM Continued from page 29 dents. We use our knowledge of learn- Point, and whiteboard illustrations. tell them, “This is a four-day seminar. ing styles to introduce and facilitate a Also key is to repeat information ver- On the fi rst day we will cover the fi - seminar. When we begin, our normal bally to reinforce the data. nancial services industry and the Ca- introduction is: “The reason you are Storytelling appeals to the kin- nadian economy. From 8:30 a.m. until probably here today is to get assis- esthetic part of our senses, which 10:00 a.m., we will cover the role of tance to pass your exam (Why). Over includes our feelings. Other senses, the chartered banks and the CDIC the next four days we will be covering such as taste and smell, can also be protection fund and then we will take fi ve major topic areas and 10 differ- invoked in a great story. Recall your a 15-minute break.” You get the idea. ent subject areas. More specifi cally, best vacation. For me, it was the maj- To address the How Learner, we here is what we will cover (What). To esty of mountains and the sight of an talk about our plan to cover the ma- help you with your learning, we will ocean—the sounds of waves splashing terial using a combination of lectures, present a lecture and provide quizzes, up against the rocks on a shore. I recall quizzes and case studies. We will also case studies and sample questions. my family sharing this wonderful ex- have a class participation session and There will be an opportunity for a perience. I can smell and almost taste give feedback to the students on their discussion with feedback, on the last the salty richness of the waters. understanding of the material. day of the seminar (How). Now, some While you might be thinking, Meanwhile, a What-If Learner of you will probably want to know “What does Ron’s vacation have to do searches for other applications of what ‘Where else can I use the information with me passing my exams?” consider is being taught. While the information obtained from the seminar?’ While this: If you truly experience a situa- is useful, these people want to know the information is important for your tion, your recall of that memory will where else they could apply this data. exam, you will fi nd that the investment be highly pronounced. I know it’s a In other words, they’re looking for jus- information, in particular, can help stretch, but when you are learning new tifi cation of the content and usually you with managing your personal fi - information, the more of your senses ask a lot of questions. While it might nances (What If).” that you can use in the learning process, appear at times these students are chal- Besides addressing the four learning the better your retention will be. lenging the instructor about the con- styles, we also stress the importance of tent, they simply want clarifi cation of whole-brain learning. The more senses Ron Foran CFA, CFP, CLU, FCSI is the information. a person uses in the learning process, president of Foran Financial Institute, a Addressing learning styles helps the the better. We’ll present information professional training fi rm in Toronto. www. instructor build rapport with the stu- using visual techniques such as Power [email protected]

30 ADVISOR’S EDGE | SEPTEMBER 2007 www.advisor.ca

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AE09_027,029,030.indd 30 08/17/2007 10:17:31 AM INSURANCE INSIGHTS

WHY SETTLE? A burgeoning insurance scheme may fl y in the face of industry priorities. By David Wm. Brown

I recently returned from Mi- drifting over the border and more doesn’t seem to come out that far ami Beach, Florida, the Mecca of an than a handful of clients have re- ahead fi nancially. There are a lot of emerging insurance offering called cently asked my opinion on the new extra expenses woven into the process life settlements. At almost any given insurance scheme. But what seems a that suggest promoters are taking a hour in Florida there’s an advisor on simple concept should raise alarm large share of the profi t. the radio touting the virtues of these bells among insurance sellers—es- In addition, the return is based on investments—commonly referred to pecially with regards to Canadian tax the projected life expectancy of the as zero-cost life insurance—and of- and insurance laws. insured. Certainly one can rely some- fering the opinion that they represent First, there’s the issue of insurable what on actuarial tables but they’re a risk-free way to print cash. interest. One of the fundamentals of based on a much larger population Life settlements involve the sale of the insurance business is that an in- than the cohort to whom life settle- life insurance policies by people who surance product should be purchased ments are being marketed. Due to the are currently healthy to investors in to protect against a loss that would various layers of expenses, the internal exchange for money that’s wanted or impoverish a family or a business. rate of return can be signifi cantly less needed by the policy holder. (In that This is not necessarily the case with than the investor had anticipated. sense, they differ from viatical set- life settlements, which are entered If a cure for cancer or a new heart tlements, which are sales of policies into and sold as investments. There treatment is developed, the mortality for cash needed by people who is certainly fi nancial gain, but where’s tables will no doubt improve, result- are terminally ill.) There are several the personal loss from which the buy- ing in a lower rate of return for the variations on life settlements, with ers are being protected? purchaser of the investment. transactions exotically called SPIN- If these settlements are investments And then there’s the fear of foul LIFE (speculator-initiated life insur- then how, and by whom, should they play—it can’t be comforting for peo- ance), SOLI (speculator-owned life be regulated? It seems to me they ple to know there are investors who insurance), and STOLI (stranger- should fall under the scrutiny of both will benefi t from their deaths. owned life insurance), which appears securities and insurance regulators. Both parties considering these ar- to be named after a brand of vodka And what about the tax implica- rangements will have to be careful to I favour. tions? Should the tax-free aspects of make sure they get what they con- The basics of the plans are simple. the death benefi t still apply, or is the tracted for. But, perhaps more impor- Take an elderly person who can be mortality gain to the investor now, tantly, our industry needs to decide both fi nancially and medically under- in fact, a capital gain that should be whether these plans refl ect what the written, and then apply for a policy. taxed accordingly? insurance business is all about. Offer to pay the fi rst two years of From the examples I’ve seen, it premiums and then let the life in- doesn’t look as if the fi nancial results David Wm. Brown, CFP, CLU, Ch.F.C., sured either take over payments and of a life settlement are as great for RHU, is a member of the MDRT. He is a maintain the coverage or agree to be the investor as promoted, and they’re partner at Al G. Brown and Associates in bought out of the contract. certainly not guaranteed. In addition, Toronto. “Insurance Insights” appears every Promotion of these products is the insured or owner of the policy other issue.

www.advisor.ca ADVISOR’S EDGE | SEPTEMBER 2007 33

AE09_033.indd 33 08/17/2007 10:20:35 AM b y b e a s l e y h a w k e s closingbell a cautionary tale

doing the right thing at all times, and “Financial advisors are rats!” putting our clients’ best interests first. —Canadian Enquirer magazine, November 2007 But I see constant evidence of advi- sors pushing the limits of ethical be- How would you like to see haviour, at the expense of their clients. a headline like that this fall, Things like churning DSC accounts and using fee-based advisor accounts to sell just as you are about to new issues, while keeping the new issue sit down for a meeting with your largest client? commissions and not crediting them Worse yet, she brings the magazine with her into the meeting and asks you back. That can do wonders for your per- about it. Naturally, the article is riddled with shocking examples of misconduct sonal revenue-on-assets, but they cost and inflammatory tales, illustrated in ways that only art directors can concoct. your clients and will bring disrepute on That’s the surprise that lawyers woke up to this past summer, when Maclean’s de- our profession, when exposed. cided to attack the legal profession by focusing on the misconduct of some small Some advisor thieves get caught and percentage of lawyers. we are generally glad to hear that, even Now, obviously, none of us would find fault with castigating lawyers, or even though it hurts our collective reputation. tarring them all with the same evil brush. After all, why don’t sharks eat a lawyer The larger issue is the advisors who take who has fallen off a boat? advantage of their clients and push just Professional courtesy. to the point of misconduct, but never far What do you have when a lawyer is buried up to his neck in sand? enough to get charged or sued. Not quite enough sand. Just doing a better job also helps. We all know lawyers who haven’t yet had misconduct proven against them have Simple things such as avoiding over- simply not been caught. The mere fact they enter a profession that allows them to concentration in volatile sectors, being earn high incomes by selling people advice proves they are all of suspect character, intelligent about not subjecting clients doesn’t it? And besides, they make more money than the average person in Canada, to undue risk, learning more about the so they are fair game for criticism—accurate or otherwise. science of investing, and generating Hmm ... I’m not sure we advisors would want to be tried, convicted or sentenced cash flow for clients can all go a long based on the same criteria. That’s something I worry about every time I read yet an- way toward avoiding client complaints other news report on Advisor.ca about one more advisor being fined or suspended and bad publicity. for misconduct. It seems to happen at least weekly across the country. Let’s all work together to stay off the The Ontario Securities Commission may be inept on the big cases like Felder- cover of Canadian Enquirer. hof and Rankin, but the various regulators seem very active and adept at imposing sentences in their own domains. Why do we keep giving them the opportunity? Beasley Hawkes is a pseudonym. He is a What can we do? For starters, make sure our own act is cleaned up. practising financial advisor with a firm he’d I’m not talking here about fraud or theft—if you’re inclined in that direction, rather not name. Hawkes can be reached at nothing I can say is going to stop you. What I mean is that most of us think we’re [email protected]

34 advisor’s edge | september 2007 www.advisor.ca

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