Get Paid to Wait

The headlines continue to report bad news. Corporate bailouts, high unemployment figures and ballooning government deficits, not to mention swine flu, make the average Canadian wonder why they should invest in equities at all. But what are the alternatives? Interest rates are at historic lows. After taxes and inflation you are spinning your wheels and going backwards by saving in guaranteed investments.

Given the volatility and negative news we have witnessed over the past year, there are many who wonder if investing in equities is really worth it. Here’s a strategy that can prove to you that patience can really pay, with dividends.

Yes, equity prices did fall and hit bottom last March. However, the sky did not fall and we appear to be recovering nicely from the lows of last spring. Meanwhile, many mutual funds invest in businesses that have continued to pay dividends. Yes, some businesses have cut dividends while others have actually increased their dividend payout to shareholders.

But, let’s first explain what a dividend is and how we can use this information to our advantage. The cash flow or revenue of a company comes from the sale of goods and services. From this income the company pays expenses such as salaries, materials, rent and other operating expenses. The remainder is the amount that the company has to claim as income. The government takes a share in tax, and the leftover sum is either used by the company to re-invest in more modern equipment or buy supplies etc. The money that is left over after expenses, taxes and re-investment is what the company has to reward its shareholders by way of a dividend.

If you think about it, it’s very similar to the concept of cash flow management at a personal level. You earn income from employment. You pay your living expenses and taxes, and then you can either save or spend the remainder. The amount you save is your investment in your future. The amount you spend is your personal dividend to yourself. The problem is that over the past decade or so, people have been spending more than they could afford and not re-investing in their future.

Now let’s get back to our discussion on dividends. Equity prices have fallen on an abundance of good quality businesses with superior products and services that continue to pay dividends. These businesses are well managed and stand to benefit greatly as the economic recovery takes hold. Many dividend rates on these companies are currently in the 3-5% range, and in some cases higher. Have you looked at guaranteed investment rates lately? It’s not easy to find a guaranteed rate in the 3-5% range.

Our investment strategy is simple. Always keep your short-term savings in a safe and liquid investment. Have faith that there will be an economic recovery; there always has been. Only invest in equities with your long-term savings. This allows you to have patience and even invest more during market declines. Consult with a trusted advisor who can coach you through troubled times. And get paid to wait.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

Financial Advisor Scam

The financial services advisory profession was shaken by a scam announced early in July 2009. Although the facts are still being gathered by the authorities, it appears that a Montreal resident, posing as a financial advisor for many years, has run-off with approximately $50 million in client funds.

It has been reported that Bertram Earl Jones was not registered with any securities regulator, not affiliated with any securities dealer or insurance distributor and has no professional designation. Yet for years he befriended Montreal residents and convinced them to entrust their savings to him and his company. For some, it was their life savings. Now his personal and corporate bank accounts are empty and Jones is nowhere to be found.

The problem only came to light when his clients started to receive cheques that were not honoured by his bank and no one was answering his phones. His phone message indicated that his company was not in a position to return funds.

Since Jones was not licensed there was no authority looking over his shoulder. This could make it difficult for clients, as there is no regulatory protection to get their money back from industry sources such as the Canadian Investor Protection Fund.

Let’s hope that Jones is in jail by the time you read this, however there are some lessons here for consumers dealing with financial advisors. Do your homework before placing your trust, and hard earned cash, with any individual or corporation. For your protection you should be dealing with a licensed person. That person is often sponsored by a larger organization who oversees compliance and industry regulations. Better yet, the person should also be affiliated with professional organizations.

The regulator and licensing body in Ontario is the Ontario Securities Commission (OSC). Mutual fund distributors are also required to be members of the Mutual Fund Dealers Association (MFDA). These regulatory bodies enforce the regulations and code of professional conduct that are designed to protect the consumer from scoundrels like Jones.

Professional organizations include: the Institute of Advanced Financial Planners (IAFP) who is responsible for the R.F.P. designation. The Financial Planners Standards Council (FPSC) is responsible for the Certified Financial Planner (CFP) designation. The Chartered Life Underwriters Institute issue and monitor the Certified Life Underwriter (CLU) designation. These are just a few of the professional organizations with which financial planners can be affiliated. Credentials in a professional organization assure consumers that there is another layer of credibility. Each of these bodies has minimum education standards and requires annual certification.

Here are a few additional tips for your protection. Never issue investment cheques that are payable to the individual planner. All cheques should be written payable to a trust account and you should receive confirmation of your investment shortly after your cheque is cashed. It sounds like the Jones clients weren't getting anything except letters from Jones himself. The Jones crime will probably come down as a case of a rogue individual posing as a legitimate financial planner who was nothing more than a common criminal.

Do your own due diligence to ensure your advisor is legitimate and that there are safeguards in place for your protection. As it stands today, anyone can hang out a shingle and call themselves a financial planner. No licence is required until financial products are sold. And there is no requirement in Ontario to be a member of a professional organization.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.