One of the benefits for the advisor is that if they are running a large book of business, lets say they run $100 million in equities and $100 million in fixed income, then instead of having to call 200 of their clients to tell them about a trade idea they can just make one large transaction and then divide the number of shares amongst their accounts later. Discretionary clients have already established with the advisor the general parameters of how they want their accounts managed, and either don’t have the time to discuss every transaction with their advisor or don’t want to bother pretending they know what their advisor is saying.

Account minimums for discretionary accounts vary, but are in the $250,000+ range normally. Fee charged by the advisors (potentially tax-deductible for non-registered accounts) vary tremendously. Most people don’t know that you can negotiate fees with these types of advisors. Fees are almost always tiered (reduce as assets in the account increase).

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Question

My question is specific to my situation obviously, but could apply to anyone in their 30s who’s changed jobs a few times and now has multiple RRSPs.

The first RRSP is a mutual fund group plan left over from my previous employer, that I still contribute to monthly, and that I borrowed 20,000 from to buy a house with 2 years ago.  It’s managed by a private investing firm here in Ottawa.  The second RRSP is a mutual fund group plan with my current employer that I also contribute to monthly (it also has a Deferred Profit Sharing Plan portion that also has a matching employer contribution).  This one is managed by Manulife but I can make changes to it online if I want.

For a few years, I was transferring all the money from my current employer RRSP to my previous employer RRSP because I thought it was better to keep one larger account growing steadily rather than having 2 separate RRSPs each of lower value.  This way I also had access to an advisor whenever I called them up, but I didn’t trust their advice since it would likely have me put all my investments with them anyway.

I hope that’s clear as mud!  What’s your take on something like this?

Answer

First a clarification – this could apply to pretty much anyone, not just people in their 30’s.

Many people will contribute to their current Group RRSP to enjoy the free company matching benefit, and once the employer contributions have vested (usually a two year period, but it can be longer or shorter) they will transfer the assets out annually to a different financial advisor/firm to enjoy greater investment options or cheaper investment options in some cases.

The rationale provided by the reader is actually a little different though – he postulated it was better to have one larger account as opposed to two. Mathematically, there won’t be any difference – all things being equal. Again, the main reason someone would annually transfer out vested contributions is to take advantage of lower costs and/or greater investment options. You will also want to keep an eye on annual account fees – not all firms have RRSP annual account fees, but some can be more than $100/year. If you have multiple accounts, each with annual fees – it can really add up.

The last statement is a bit confusing though as the reader indicates that by doing it this way he would have access to an advisor, but didn’t trust him anyways. Group RRSPs *can* offer less personalized advice, sometimes only a call centre with an occasional on-site workshop, but sometimes they are administered by “regular” advisors just like any other account. But the bigger question is the lack of trust in the advisor. Perhaps he should consider finding a more transparent advisor, or a fee-for-service advisor who works by the hour – their compensation would not be derived from product recommendations.

Hope that helps. I know there are some knowledgeable readers on this site – feel free to chime in with other suggestions or experiences.

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The deductible is essentially the amount that you pay out of pocket if you need to make a claim. For example, if you have a $500 deductible and get into an accident that caused $1000 damage to your car, you would pay the first $500 and the insurance company would cover the rest. If the damage was $501, you would still pay $500 and then the insurance company would cover the $1 remaining – of course you may not want to file the claim in that case for a measly dollar, but you get the point.

If you raise the deductible, from say $500 to $1000, then your premium goes down because the insurance company has less on the line. There would be more minor accidents that wouldn’t even be worth claiming in this case since the threshold for payment is now $1000.

A few years ago, I realized that I had been driving for 12 years and not once had an accident. I figured I could save a few bucks by raising my deductible from $500 to $1000. I forget the exact number but it dropped my premium by about $100/year. I figured that as long as I could avoid having an accident more than once in every 5 years I would come out ahead. If I had an accident, I would have to pay $500 more than before, but I would save $500 every 5 years (not factoring the possible increase in premiums due to multiple accidents though).

A week later I was talking to a co-worker about my new camera phone – all the rage back then – and one great use was for insurance claims. If you got hit in a car accident you could take photos of the accident scene to corroborate your story if need be. Well wouldn’t you know it, but the VERY next day I get plowed into (t-boned) by an 18 year old in a parking lot who had his license a whole 6 months. He absolutely gunned it right into my driver’s side rear wheel.

Really? This just had to happen right after I raised my deductible?

I remember thinking to myself, as I was taking pictures with my new camera-phone of the “crime scene”, that as long as I don’t get into another one in the next 5 years, I’m okay… lol

As luck would have it though, since the accident was so clearly the fault of the other driver who admitted fault right away, HIS insurance actually covered everything and there was no claim filed on my policy at all. So I didn’t have to pay a penny and I have been saving that $100/year ever since. So far, that has been the only accident I’ve had.

Hopefully by writing about it, fate won’t pull the old camera-phone lesson on me again though, and I won’t get into an accident tomorrow.  Good lord, what have I done…

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One of the contributing authors is Dr. Mark Wolfinger, and you may want to read the interview I had with him on this blog by clicking here. I consider him to be a real straight shooter and so when he approached me to help promote his site there was absolutely no hesitation on my end. However, he did indicate that he was offering affiliate commissions for referrals to the site who end up subscribing, so in the interests of disclosure let me make it clear: I receive monetary consideration for people who sign up for the Expiring Monthly website (price is $99/year).

I realize that over the weekend I had posted an affiliate link for Questrade, but rest assured the back-to-back affiliate offers are simply a matter of coincidence. I don’t actively look for affiliate opportunities, and it will probably be months and months before you see another, and it will always be disclosed. The flip-side is that I’m planning on giving away an iPad on the blog in the near future (as soon as they are available for pre-order in Canada which should be in a few weeks).

I’ll let the guys behind Expiring Monthly provide their own commercial and simply cut and paste their introduction page below, but the amount of knowledge Dr. Wolfinger gives away on his blog for free is testament to the value he can provide. Now multiply that by 5 authors.

I normally don’t endorse anything on this blog, but if you have ever considered signing up for one of those ridiculous option trading system seminars which you pay $1000 for a three day workshop near you and promise you that you can quit your job and sustain yourself trading options, save yourself. In this case, I would say you should really consider Expiring Monthly as you will learn practical, no nonsense information.

So, like I said – if you have an interest in options trading check it out. If not, then stick around anyways because I’ll be announcing an iPad giveaway in the near future for having to put up with the back to back affiliate posts!

One final note – they are holding a raffle for all people who sign up for their website and prizes will be a number of books and an private mentoring session with an options trading pro.

Now to Expiring Monthly’s description:

*****

Expiring Monthly is the brainchild of five of the top options bloggers on the Internet:

• Adam Warner of the Daily Option Report

• Bill Luby of VIX and More

• Jared Woodard of Condor Options

• Mark Wolfinger of Options for Rookies

• Mark Sebastian of Option 911.

Our goal is to provide a monthly magazine in digital format that’s informative to new option traders, yet interesting to the most experienced traders.

If you trade options, Expiring Monthly is your magazine.  We never want you to outgrow this publication

Every issue of Expiring Monthly contains a Feature Interview and an Extended Feature Article.  Our Follow The Trade feature tracks at least one trade per month from entry to exit, with appropriate commentary.

We have a few humorous trading anecdotes, along with all the insight, analysis,  market commentary, and trading tips you expect from our writers.

More features are planned, including Book Reviews.  If you suggest a feature, we’ll give it serious consideration.

*****

Click here for more information: Expiring Monthly Website.

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If you do just a bit of searching on the web you’ll find lots of useful reviews on the various discount brokerages available to Canadians. You’ll find no such thing here, but only because I haven’t used them all (or even visited their sites to really check them out).

I can tell you that I personally use Questrade for my discount brokerage accounts and my decision was based purely on the fee schedule. There are no account fees, and equity trades are as little as $4.95 and no more than $9.95. If you buy US listed securities in your RRSP there are no forced currency conversions (and corresponding forex drag) and so on and so forth. For me, the price was right. I had read some of the blogs which reviewed Questrade and noticed a few complaints here and there – enough that I opened my account with my eyes open and on the lookout. I haven’t had any issues so far with Questrade.

However, to recognize that others have had some issues in the past, when Questrade contacted me to see if I wanted to participate in their affiliate program I told them that I would consider it only if they provided me with the contact details of a senior client support person that I could contact if any of my readers signed up and had problems they couldn’t reasonably have sorted out when contacting the regular client service personnel at Questrade.

So if you have recently been thinking about switching discount brokers, or are looking to open your first discount brokerage account, you might want to look into Questrade. They are offering $50 in free trades for new accounts through this offer.

Click here if you are interested in signing up.

For a bit of a primer on Questrade’s services you can visit this page.

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Click here for the link (there will be a 15 second commercial that plays before the video starts, then you can just drag the slider to fast forward.)

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Couple of things to mention this week:

1. I’m tentatively booked on the Lang and O’Leary exchange tomorrow. They’ve moved to an hour format, and the show is now on at 7pm.
2. I was in Ottawa on Tuesday night and had dinner again with the Canadian Capitalist, who runs such a good blog that MoneySense magazine has partnered with him and his site. A few commenters are worried about any relinquishment of editorial control and believe me, if you meet Ram in person you’ll quickly discover you have nothing to worry about.

From Around The Blogosphere

Refinancing your mortgage is getting tempting with the banks in a competitive mood as of late as Rob Carrick explains. He also warns to make sure to check on the penalties for breaking your existing mortgage first.

Jonathan Chevreau’s debit card was compromised recently, ironically right after he had written about various types of financial fraud. Maybe he should write about what happens when you win the lottery!

L_Mac (Larry MacDonald’s street name) writes about outperforming investment managers versus high performers in other endeavours.

Four Pillars reviews Michael Moore’s latest flick, Capitalism: A Love Story. For those that missed it, I interviewed Michael Moore about the film last week.

Million Dollar Journey shares six signs it might be time to quit your job.

Michael James on Money reviews William Bernstein’s new book, The Investor’s Manifesto.

Canadian Capitalist discusses Active Share as it pertains to managed investment funds. I also discussed it a while ago for more colour if you really want your jaw to drop.

Big Cajun Man looks back at the last twenty years of his financial life.

This Week’s Racing Video

Pulling out an oldie, but goodie. In tribute to the F1 season starting up this weekend, here is a short video of an F1 engine being tested. You won’t be able to see where the exhaust headers are until they get hot, because they start to glow white-hot after only a few seconds. F1 cars don’t have rad fans, the cars can only cool themselves by moving at high speed to force air through the rads. That’s one of the reasons you see so many cars stalling or overheating at the start of a race as they sit to take the green flag. They are super hot after the warm up lap, but aren’t being cooled. Enjoy!

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Rebuilding after Bankruptcy

In the first part of this series we talked about the things that can lead to bankruptcy and then we looked at all the alternatives to bankruptcy and then we defined bankruptcy. After everything is said and done you do get a discharge. I can’t wait for that day. The next day the challenge then becomes: What are you going to do with that second chance? The job of rebuilding must begin.

So how does one rebuild after bankruptcy? First you have to remember that the bankruptcy will stay on your credit report for 6 years. So remember rebuilding will be a slow process but it can be done.

Now with work you can rebuild. What will you and I need to do?

First keep your budget and pay all your bills on time. Even at the bank make sure there are no NSF fees (insufficient funds).

Then the easiest way to rebuild is to start with a secured credit card. With a secured card you have to make a deposit sometimes equal to your credit line. Here in Canada you can apply for a Mastercard with Capital One or a Visa with Home Trust. Once you get those cards you will want to make sure you use them and pay them on time. There are usually annual fees with these cards so be prepared for them.

Creditors also look for stability: the longer you are at one job and at one residence the better from the perspective of the lenders. Try for stability.

Now if you are having trouble re-establishing things you might try a car loan or a store credit card but watch for the interest rates. If you do get a store card please do yourself a favor and use it minimally.

Whatever you do you must make it habit to pay your bills on time. If you can’t pay a bill in full make at least the minimum payment.

This is how I plan on rebuilding: paying thing on time and I will apply for a secured card while also preparing for the future with an emergency fund and a savings plan.

This concludes Hollie’s four part series on her story of going bankrupt and how she plans on rebuilding credit going forward. It certainly sounds like she is on the right track and I wish her the best of luck! Thanks Hollie.

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Bankruptcy Defined

In Part 1 we looked at what can lead you down the road to bankruptcy and in Part 2 we looked at the ways you might want to try to avoid Bankruptcy by consolidating or by using other means. Today we are going to talk about the actual bankruptcy.

As defined by Wikipedia:

“Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a debtor in an effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the debtor that is filed by the insolvent individual or organization.”

To go bankrupt in Canada you have to owe at least $1,000 and not be able to pay your debt. I owed just over $40,000

I filed bankruptcy just a few days ago. When I went to my first appointment at my local trustee’s office I was nervous and well to be honest filled with dread.

I first met with a credit counselor and we went over my debt load, my income and my options. In this case there was only one path that was viable and that was bankruptcy.

My monthly budget was looked at. Because of me being a single parent of one child earning less then $2,300 a month I do not have to make monthly payments. How much you will be required to pay will be determined by a number of factors: income, family size and ability to pay. Your assets are also looked at.

You are allowed to keep:

• your primary residence (if you are a home owner, you will want to seek out separate representation because if your home has equity you may be required to sell the home, as well rules vary province to province so do ask. In most cases though with representation and a plan the residence can be kept.)
• tools of your trade
• sometimes a vehicle
• pensions
• food
• household furniture

For more information on your own personal situation I recommend Bankruptcy Canada. Remember every situation is unique and you will want to ask lots of questions about the process  and what you get to keep and what exactly applies in yours.

Basically if you have funds available after there set thresholds then you will have to make regular payments.If you have items of value you may be required to liquidate them depending on value. Again ask questions.

You will have  to go back to sign the papers and make your first payment. For me this was $250. At this meeting you will actually meet the trustee who will  ask you some basic questions to make sure you understand what you are doing

If your creditors request a meeting you have to attend that. Most of the time time these are not requested.

Basically from then till the time you are discharged the trustee is responsible for making sure you follow the rules.

The rules for me for the next 9 months:

1. File a monthly budget; basically I have to account for income and how I am spending it.
2. Attend 2 money management sessions
3. Take on no new debt
4. Allow the trustee to file tax returns on my behalf
5. Make my monthly payments on time.
6. Surrender all credit cards

If I do all of this then for me I will be discharged (how long you will be bankrupt depend on certain factors relevant to your case) and I will have that 2nd chance in a mere 9 months. Once those 9 months are done then it will be time to rebuild. Next week we will conclude the series with how to rebuild your credit.

Thanks again Hollie for sharing your story so far. We look forward to the last installment tomorrow…

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Click here for Part I.

Consolidation and Other Alternatives to Bankruptcy

Yesterday I shared what lead me to declare bankruptcy very recently. The road was long and when I finally made the choice that I wanted a second chance at real financial health I had to look at the options. The bankruptcy laws here in Canada are there to give people a second chance and I am thankful for mine but before I decided on declaring bankruptcy I did look at the other options.

There are several other options before bankruptcy:

First you can contact your creditors and see if they are willing to work out a better payment plan for you at perhaps a lower interest rate. This one I recommend if you are a little behind and have had a decent history of paying your bills.

If you live in Alberta, Saskatchewan, Manitoba, Nova Scotia or Prince Edward Island you could think of a consolidation order. A Consolidation Order sets out the amount and the times when payments are due. You pay the court and they pay your creditors. This part of the Bankruptcy and Insolvency Act. You have only 3 years to work with this method though but it does get rid of any garnishees.

If you live in Quebec, the voluntary deposit scheme is similar to a Consolidation Order. You must make a  payment based on your income and number of dependents to the court. This service is usually available at the local courthouse.

There are two types of proposals an individual can file:

Now if none of these are working for you or you feel like I did, totally weighed down by huge debt, it may be time to think about bankruptcy and get that fresh start that the bankruptcy act wants us to have. There will be more about what is bankruptcy and what to expect when meeting with a trustee next post.

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