Darcie Doell and Laurianne Osmak

Take action against fraud: How to recognize scams and protect your financial assets

October 19, 2020 by Darcie Doell and Laurianne Osmak

In 2019 in Canada, there were 19,285 victims of fraud and $98 million lost to fraud, not including unreported cases. Scams affecting individuals come in so many different forms that the Canada Anti-Fraud Centre has compiled an alphabetical list.

One challenge is that those who perpetrate fraud are constantly trying out new strategies that don’t yet appear on a list. As COVID-19 spread around the world, for example, private companies started trying to sell “faster” tests, people showed up on doorsteps offering “decontamination” services and fraudsters posing as workers for charitable organizations offering free medical products (for example, masks) for a donation.

That’s why it’s so important to be alert to red flags and to keep a watchful eye out for signs a loved one may be a victim of fraud. Keep in mind that when advisors have the name of a “trusted contact person” [link to article], they can play a more active role in protecting their clients from fraud.

Scams to look out for

Investment fraud specifically targets investors with a deceptive offer. Examples of investment fraud include the following.

Pyramid schemes

These scams recruit people to buy merchandise or invest in a business and then in turn to recruit more people to do the same thing. Each layer of people collects money from the layers below, but it doesn’t take many layers to reach a point where it becomes necessary to recruit more people than there are living on the entire planet. This is why pyramid schemes are unsustainable. When they collapse the people in the lower layers can lose a lot of money.

Ponzi schemes

A Ponzi scheme often promises high returns with low risk, but it pays those returns from the money other investors contribute. There may be no underlying investment; when new investors stop coming, the returns dry up and the promoter may disappear with whatever investor contributions are left.

Boiler room scams

These scams offer shares for sale just before a promising company lists on the stock exchange. The trouble is that the promising company doesn’t actually exist. It’s just a group of people making calls from a temporary office (or “boiler room”), and they vanish once investors hand over their money.

Pump and dump scams

The promoters of the scheme aggressively hype a specific stock that they are heavily invested in. As investors buy the stock, they drive the stock’s price up – then the promoters sell, the price sinks and the shares become virtually worthless.

RRSP scams

This scam promises a way to take money out of a Registered Retirement Savings Plan (RRSP) tax-free by withdrawing and then buying shares of an “RRSP-eligible company.” But the company collapses once it has the money, and the taxes are still due.

Forex scams

These advertise foreign exchange (forex) investment opportunities that either don’t exist (fraudsters simply take the money and run) or that are much more risky than advertised. Either way, money evaporates.

Be proactive to protect your investments

Even if you hear about an opportunity through a trusted source, such as a friend or family member, don’t skip steps. Research the organization and see if the securities regulator has taken any action against it. Talk to your advisor about it as well – they can be your partner in sidestepping fraud.

In general, fraudsters tend to prey on fear and greed, so be suspicious if someone’s tone is threatening or an offer seems too good to be true. It’s good practice to deal only with registered advisors (check the list on the Canadian Securities Administrators website at www.aretheyregistered.ca), to write cheques only to registered firms (not to individual advisors) and to invest only in products that have filed a prospectus with the securities regulator.

Request documentation on any investment you’re considering, and never sign a blank form or a form that you do not completely understand. Remember that reputable advisors are happy to take the time to fully explain products and answer all your questions.

Overall, greater awareness may be the best defence. Learning about fraud, educating friends and family, and discussing it with your advisor can help you better protect your assets from its financial and emotional consequences.

Who falls for investment fraud? Anyone can fall for investment fraud, but the most likely victims share certain characteristics.

Investors who have these tendencies should be especially careful when evaluating new investment opportunities – but everyone should be on the lookout for warning signs such as the promise of high returns with no risk, pressure to make quick decisions or a demand to keep an opportunity secret.

School days: The ABCs of using RESP funds

October 5, 2020 by Darcie Doell and Laurianne Osmak

Your wee babes have grown into young adults ready to take on the world – or at least head to, post-secondary education. Knowing that college and university come with a hefty price tag, you have faithfully made contributions over the years into a Registered Education Savings Plan (RESP). Now that it’s time to use these funds to help your kids or grandkids with tuition, the next steps may feel somewhat overwhelming. Consider this your primer on how to use these savings – including the “what now” scenario if a post-secondary dream falls flat.

RESP refresher

Anyone can open an RESP for a child, whether a parent, grandparent, other relative or friend. There are different types of RESPs. An individual plan has one beneficiary. A family plan can have many beneficiaries, which is ideal for families with more than one child. Group plans have multiple beneficiaries and multiple contributors, and are generally managed as scholarship funds.

You can contribute any amount up to a lifetime limit of $50,000 per child. The federal government adds 20 cents on every dollar contributed up to a maximum of $500 annually and a lifetime maximum of $7,200 per child. This federal contribution is known as a Canada Education Savings Grant (CESG). For lower-income families, the federal government makes higher matching grants so that the $7,200 maximum can be reached with lower contributions.

Learning grants

In addition to the CESG, additional education funding assistance is available.

The Canada Learning Bond is a federal grant available to children who are Canadian residents born in 2005 or later, with a net annual family income of $47,630 or less. Qualified applications receive an initial deposit of $500 into a child’s RESP. Additional deposits of $100 are automatically made to the RESP each year to age 15 or to a maximum of $2,000.

The British Columbia Training and Education Savings Grant (BCTESG), offers parents in British Columbia a one-time RESP grant of $1,200 available for children aged six to nine.

The Quebec Education Savings Incentive (QESI) offers a refundable tax credit paid directly to the RESP for 10 per cent of net annual RESP contributions up to $250 per year. Up to an additional $250 from previous years can be paid to an annual combined maximum of $500. Also, low- to middle-income families can receive up to $50 above the basic $250 credit amount. There is a lifetime maximum of $3,600 per child.

Time for school

Great news! Your child has been accepted to the qualified post-secondary institution of their choice. After many years of contributing into an RESP, it’s now time to make a withdrawal. There are a few things to know in advance:

Funds can be withdrawn only by the person who set up the RESP.
The RESP provider will require proof of enrolment, such as a program offer letter, course confirmation documentation or other school documentation that shows a student number for the beneficiary.
The government grant and investment earnings portion of an RESP withdrawal must be claimed by the student when they file their taxes. The student will receive a T4A slip indicating the grant and earnings portion received, which is known as an Educational Assistance Payment or EAP.
The EAP has a withdrawal limit. During the first 13 weeks of schooling, you can withdraw only $5,000, or $2,500 for part-time studies. There is no further EAP limit following this initial 13-week time period as long as the student remains enrolled.
The contribution portion of a withdrawal, known as the Post-Secondary Education or PSE amount, is paid tax-free. The EAP withdrawal limit does not apply.

Delays and cancellations

Despite careful planning, post-secondary education isn’t always in the cards for a young adult. What happens to an RESP in this scenario? Luckily there’s a long timeline when it comes to RESPs, which can be helpful if a student is reluctant to jump into a post-secondary institution right after high school. From the time it’s opened, a plan can stay active for 35 years. Here are a few scenarios:

Keep the RESP open – sometimes a student just needs a break from schooling and will decide to resume their education later.
If a child firmly decides not to continue education, contributions can be withdrawn without penalty or taxation. However, any accumulated income on the investments held will be taxed according to the contributor’s income level, plus another 20 per cent. Alternatively, these amounts can be contributed to the RRSP of the person who opened the RESP, as long as they have enough contribution room.
RESP contributions can be transferred to to a sibling of the original beneficiary who is under 21 years of age. The government grant portion of an RESP (CESG) can also be transferred to a sibling as long as there is sufficient grant room available. When applicable, RESP funds can be transferred to a Registered Disability Savings Plan (RDSP).
Unused portions of any grant money must be returned to the respective provincial and federal governments.

Switch gears from saving to withdrawing

While richly rewarding, post-secondary education can be expensive. But thanks to starting early with an RESP, you have helped soften the blow of covering the bills for tuition, books and other costs. If plans change, multiple withdrawal options still remain. As with any financial decision, your advisor can help you fully understand the withdrawal options that are best suited for funding education success.

Taking the team approach: The value of advice in planning your financial strategy

September 21, 2020 by Darcie Doell and Laurianne Osmak

The experience of the coronavirus pandemic clearly confirmed that Canadians are much better prepared to face challenges and make informed decisions when they can trust and rely on the advice of experts. Thankfully, we can only speculate how the situation could have unfolded without the commitment of leading authorities to guide us through such unprecedented circumstances.

The lesson learned through this time of uncertainty can easily be applied to personal financial matters, given that the two are so closely linked. When a crisis occurs and the markets react, it’s natural for investors to wonder how it will affect their personal finances. During such times, the value of advice can especially prove its worth, in finance, as well as other areas.

WATCH: The Value of Advice, a video about the benefits of getting professional advice.

Where would we be without the aid of good advice?

Few people would diagnose their own medical issues, prepare their own legal proceedings or perhaps fix their own car without the aid of good advice. Managing your finances isn’t so different. Since economies can sprint, stumble, stop and restart at any time, having a qualified partner who can help you assess market fluctuations and how to consider responding to them can be a valuable asset.

After all, a sudden change in a person’s financial situation, like the loss of a job or an economic downturn, can cause great stress and anxiety. Advisors know this and will talk through the situation with options that can help you move forward with confidence as opposed to second-guessing, acting on emotional impulses or, worse still, abandoning the markets altogether.

A 2019 study from the CIRANO Institute showed that investors who received professional advice accumulated almost four times more assets after 15 years than comparable investors without advisors.

More than numbers

The typical image of an advisor who crunches numbers while watching insurance rates and stock markets rise and fall applies only loosely to the current reality of the profession. These days, advisors reflect how much the financial and insurance industries have changed in recent years, and with them, client expectations. Basic service delivery is no longer enough to fulfill a successful client/advisor relationship. Advisors monitor the market data and investment trends that many people would admit to having neither the time nor the passion to follow too intensively. In today’s swiftly moving global economy, clients can rely on advisors for leadership, clarity, understanding and motivation, especially in challenging times.

“Working with an advisor is all about communicating and collaborating as a team,” says Bernard Letendre, Head of Wealth and Asset Management, Manulife Canada. “The conversation has moved beyond one-sided recommendations of a particular product versus another, and now focuses on building a holistic relationship that looks at the bigger picture. Clients should feel more confident driving the conversation towards their financial concerns, whether it’s retirement savings, affording their children’s education, looking after insurance or estate-planning needs or rebalancing a portfolio. Advisors can present the facts and respond with clear insights and advice that can help clients through any economic scenario.”

Stay current and connected

Becoming more comfortable with and informed about investments and insurance can feel intimidating, but now might be a great time to challenge yourself to learn more about your own finances, how investing works or the various ways that insurance can assist with estate planning. Think about going to the doctor for a check-up, even when you’re healthy. Between those appointments, it’s generally up to you to monitor and maintain your own good health. When it comes time to visit the doctor again, the conversation can instantly move up to a new level of understanding, which enables you to gain more value from the discussion.

The same applies in a client/advisor relationship. You’ve made a commitment to save and invest your money with goals in mind – and if you prepare yourself to make educated decisions about the strategies that will help you achieve them, it will be more than worth the effort. An abundance of online sources is available to enhance your knowledge of the terminology, laws, trends and events in the markets, as well as the diverse landscape of insurance plans. An advisor can also point you towards helpful resources that can deepen your understanding of any specific topics that are of interest to you.

At the same time, advisors continually expand their own knowledge and skill sets to respond more effectively to individual client requests. This year, there’s been a sharp upswing in adopting digital programs to maintain client communication and service standards without the need for face-to-face contact.

“The digital programs and platforms we’ve been using for convenience have suddenly become essential for conducting business in a post-pandemic world,” says Rob Hollingsworth, Vice President and Head of Insurance Sales, Retail Markets at Manulife Canada. “With the aid of video conferencing, digital signatures and document-sharing technology, it’s easier than ever for an advisor to keep up with any personal needs and life events through the current circumstances and reliably into the future.”

Advice as a wise investment

Advice can be instrumental in helping you stay focused on your long-term and short-term goals, with strategies that react positively to market volatility, such as portfolio diversification, dollar-cost averaging and maintaining a balanced portfolio.

While there’s no crystal ball of market performance guarantees, seeking the advice of an expert is itself a wise investment. Consider scheduling regular touchpoints with your advisor that coincide with the changing seasons – spring, summer, fall and winter – to review, plan and discuss opportunities that can help you can feel confident and assured. And if you don’t have an advisor, a great place to start is by reaching out to friends and colleagues for their recommendations on advisors they know and trust. There’s no better time than today.

The value of advice...An advisor can help you focus on your goals and filter out the noise. 96% of mutual fund investors trust the advice their advisor provides. Investors who received professional advice accumulated almost four times more assets after 15 years than comparable investors without advisors.

Watch a few short videos to learn how advisors can help

Millennials and mortgages: A guide to buying your first home

August 24, 2020 by Darcie Doell and Laurianne Osmak

Millennials in Canada are facing a very different home‑buying environment than their parents. Soaring real estate prices, high levels of student debt and precarious employment are making it difficult for young people to get into the housing market.

WATCH: Property ladder, a video about the challenges of buying a new home.

Despite these challenges, a recent survey found that 80 per cent of Canadian millennials want to own their own home. What’s more, 27 per cent already do.[1] If purchasing a home is a goal for you, here are some tips to guide you through the process.

See what it will cost

Look at home prices in and around your desired location and be realistic about what you can afford. Perhaps moving to the outskirts or setting your sights on a smaller property can bring costs down. You might also need to think outside the box a little – like bringing in a tenant to help lower the carrying cost of your new home. Keep in mind the purchase price is only one part of the equation – closing costs such as real estate commissions, legal fees and land transfer tax can add an additional four per cent to the purchase price. You’ll also want to factor in ongoing expenses like property taxes, mortgage insurance, utilities and maintenance.

Save for your down payment

If you aren’t already saving, start now. If you can put down 20 per cent of the purchase price, you’ll avoid needing to purchase mortgage insurance (which can add thousands of dollars over the course of the mortgage). If not, at least five per cent is required for first-time buyers. Consider setting up a dedicated home-buying fund and putting aside money from every paycheque. Pad your savings with tax refunds and any bonuses or gifts you receive. You may also be able to negotiate a personal loan from parents or a family member to put towards your down payment.

Learn about government perks

Home Buyers’ Plan (HBP). You can withdraw up to $35,000 tax-free from your Registered Retirement Savings Plan (RRSP) through the HBP to put towards your new home. This amount will be repayable in instalments back into your RRSP over 15 years.

First-Time Home Buyer Incentive. This federal program was introduced in September 2019 to help first-time homebuyers reduce their mortgage payments and the total interest paid over the life of the loan. It’s available to households with an income of $120,000 or less and offers a loan of five to 10 per cent of a home’s purchase price to put towards the down payment. The incentive is repayable when the property is sold or after 25 years, whichever comes first. A potential drawback of this program is that repayment is based on the fair market value of your home at the time– if it increases in value, you’ll pay back more than you borrowed.

First-Time Home Buyers’ Tax Credit. New homeowners can claim a non-refundable tax credit of up to $750 to cover closing costs.

GST/HST New Housing Rebate. If your home is a new build and cost less than $450,000, you may be able to recover a portion of the GST and HST that you paid. Your province may also offer rebates on the provincial portion of the GST or HST.

Land transfer tax rebates. Some provinces and municipalities (for example, Ontario, British Columbia, Prince Edward Island and the City of Toronto) offer rebates on the land transfer tax for qualifying buyers.

Explore your mortgage options

When shopping for a mortgage, there’s more to consider than the rate. That’s why it’s so important to seek help from a professional. For example, a flexible mortgage that allows you to make prepayments can help you pay off your mortgage sooner and save on interest in the long run. Think about your personal situation – if the possibility of rising interest rates makes you nervous, you might be more comfortable with a fixed rate. If you’re expecting changes to your financial situation, an open mortgage may be ideal. You can also customize your mortgage by splitting between a fixed and variable rate and an open and closed mortgage.

Get pre-approved

Before applying for a mortgage pre-approval, it’s a good idea to review your credit rating and report any errors. You can request a copy of your credit report once a year for free from Equifax Canada (www.equifax.ca) or TransUnion Canada (www.transunion.ca).

With a mortgage pre-approval, your lender will let you know how much it is willing to loan and the estimated size of your payments. The current interest rate will also be locked in, so you’re protected in case rates increase before you purchase your home. The lender will also apply the mortgage stress test to ensure you can make your payments if interest rates rise.

It’s important to note, a mortgage pre-approval is not a guarantee that the lender will grant you the mortgage. When it comes time to make an offer on a home, it’s a good idea to insist on the condition of financing – it protects you in the event your financing falls through. If you waive it, you could lose your deposit and risk being sued by the seller.

Don’t shop alone

Buying a first home can be an exciting and challenging task, but knowing what to expect can make it easier. A team of experts including an advisor, mortgage professional, real estate agent and home inspector can help you figure out your options and ensure you’re making the best purchase decision possible.

Mortgage basics

Principal is the amount of money you borrow to buy your home. With every mortgage payment, some of the money will go to paying down the principal and some will go to interest.

Fixed interest rates will not change during the term and your payments will stay the same.

Variable interest rates are usually lower than fixed rates but are subject to fluctuations.

Mortgage term is the length of time you’re committed to your lender, the rate and any conditions – five-year terms are most common, but you can choose anywhere between one and 10 years.

Open term mortgages allow you to pay back what you borrow at any time, without penalty. Because of this flexibility, interest rates are generally higher.

Closed term mortgages do not allow you to pay back the entire balance without penalty, but many offer some prepayment options to help you pay down your mortgage sooner.

Amortization period is the length of time before you pay off your mortgage, up to 30 years. The longer the amortization, the lower your mortgage payment, but you will pay more interest over the life of your mortgage.

Mortgage insurance is needed if you have less than 20 per cent for your down payment. This insurance protects the lender in case you can’t pay your mortgage.

[1] https://abacusdata.ca/rented-dreams-the-truth-behind-millennial-home-ownership

First job, first paycheque: Help your teen navigate the basics of earning, banking and saving

August 4, 2020 by Darcie Doell and Laurianne Osmak

Although it’s still an uncertain time when it comes to employment, eventually your child will be ready to get their first job, and this will be an exciting new phase. As they move towards increased independence, they can still benefit from some gentle guidance to help their earnings last. Here are some tips to help them manage their new financial freedom and responsibilities.

Banking 101

Now that your teen is earning a wage, they’ll need a place to deposit their pay. Help them open a low- or no-fee bank account if they don’t have one already. You will likely have access to and control of the account if your child is under 18. This can be beneficial as they get used to managing their money. What may seem straightforward to you – setting up direct deposit, using a debit card responsibly, avoiding bank machine and other service charges – might be a complete mystery to your teen. It’s also a good idea to open a separate high interest savings account for longer-term goals.

Saving vs. spending

This is the perfect opportunity to talk about expenses, budgets and responsibilities. Discuss what you will continue to provide for your child and what they may now be expected to pay for – such as a phone, clothing or entertainment. Encourage your child to create a simple budget to help track and manage their spending. Have your teen think about things they want to save for, such as a car or post-secondary education, and how much of their earnings will go towards these goals. A good strategy is to set up automatic transfers to a savings account when they get paid, before they have a chance to spend their earnings.

Take advantage of tech

Your teen is probably never far from their phone, so suggest they set up online banking so they can view their balance, deposit cheques electronically or transfer money. Some mobile banking platforms may also offer a visual breakdown of spending. Just remind them to protect their password and avoid public Wi-Fi.

Managing income is one of the most important life skills for teenagers to learn. By teaching good habits now, you can help set them up for a healthy financial future.

UNDERSTANDING A PAYCHEQUE

Help your young worker understand the line items on their pay stub. Standard deductions include income tax, Employment Insurance and Canada/Quebec Pension Plan contributions. Part-time employees may receive vacation pay on each paycheque (about four to six per cent of their wage).[1]

DID YOU KNOW?

There’s no minimum age to open a Registered Retirement Savings Account (RRSP), as long as the child has earned income and files a tax return.
A child must reach the legal age of majority and have a valid social insurance number (SIN) to open a Tax-Free Savings Account (TFSA).
Assuming their annual income is quite low, a teen may benefit more from using a TFSA than an RRSP. Filing a tax return and reporting income creates RRSP contribution room that can be used later in life, when their income is higher and the tax deduction is more valuable.

[1] www.canada.ca/en/financial-consumer-agency/services/financial-toolkit/income-expenses-budget/income-expenses-budget-2/2.html