Their Situation
Megan and Hasan are clients of ours and Megan’s father just passed away. Megan’s mother is overwhelmed with the different investment statements coming in and trying to keep a handle on all the investments. She worries that she will not have enough money to meet daily cash flow needs and that she might forget about some of the investment accounts and allow the GIC holdings to renew at their current low rates. Meghan and Hasan worry about their Mom getting good, impartial advice and not being convinced to buy investments she doesn’t understand.
She has the following:
• Husband’s RRIF $275 000
• Husband’s TFSA $15 000
• Her TFSA $10 000
• Her RRIF $125 000
Open accounts with TD, BMO, Investor’s Group, Clarica – comprised of retail mutual funds, Canada Savings Bonds, GiCs totaling $550,000.
Net proceeds after downsizing her home: $200 000
Goals
- Simplify her financial life
- One consolidated portfolio
- One point of contact for financial questions, tax questions, statements T-3s, T-5s, etc.
- Reduced advisory fees
- Recieve honest, impartial, expert advice
Our Solution
We started with a detailed plan in which we organized all her different holdings and sources of income and upcoming maturity dates. We then discussed her needs for income.
We consolidated her deceased husband’s spousal TFSA and RRIFs into her plan and arranged to transfer all the non registered holdings into one plan. We carefully projected any capital gains and tried to apply whatever capital losses were available to reduce any tax liability to her. We kept track of upcoming GIC maturities and arranged to send off transfer forms prior to maturing and having them renewed at today’s low rates.
We used a cash wedge strategy where we placed the next 24 months of her RRIF income in a low risk cash account within her RRIF. This allowed her to receive this income without worrying about selling any investments that had potentially dropped in value. This strategy saved our clients thousands of dollars during the last major market downturn in 2008.
We maximized her TFSA contributions and used some of the non registered funds to purchase a prescribed annuity that would ensure a consistent, guaranteed amount of monthly income to her. Based on her age and tax bracket, the after tax return was incredible on this product, over 8% after tax!
We transitioned her to a fee based portfolio where no trading commissions were charged and we simply charged a monthly advisory fee to the account. This resulted in significant potential tax savings.
Lastly we examined her estate planning goals and reorganized some investments to save on probate and executor’s fees.
Benefits
She will get significantly less paper and regular, simplified reports that quickly show how she is doing without going through mountains of paperwork. We will provide a year end tax summary to give to her accountant so she won’t have to worry about remembering to add in all the different T-3s, T-5s and deductions for investment counsel fees. With her permission, we will send duplicate statements to her daughter and son in law.
By moving to a fee based portfolio, she will pay no transaction commissions and will potentially be able to deduct over $8,000 in advisory fees as compared to her previous traditional retail, commission based portfolio.
She feels much more in control of their investments and financial situation after implementing our recommendations. She has much greater piece of mind, knowing that they she will have enough regular income coming in and won’t worry about forgotten investments or missed maturities. Megan and Hasan feel much better too as they know she will be well taken care of and can now direct many of her financial and tax questions to us!
Imran Syed BA, CFP. CFSB is a Certified Financial Planner and the President of Brandenburg Wealth Management Corporation.* For these clients, various assumptions were used and a comprehensive financial plan was prepared and reviewed prior to implementation.
