More often than not these days, when you go to the bank or mortgage broker to secure a mortgage or a personal line of credit, you will be asked if you want to insure the outstanding loan balance.  This insurance will often include life and disability insurance and will involve a short series of medical questions to be answered in order to qualify.

In these scenarios, the financial agent asking you if you want the life insurance is acting on behalf of the lender and will be compensated or bonused for signing you up.  More importantly, there is no fiduciary duty owed to you as an insurance client by the agent.  This means they are not required to shop around and find you the best deal, nor are they required to ensure that the policy is suitable for your financial situation in life.

Just sell the policy and collect the bonus. 

This lack of fiduciary duty can very often lead to the life insurance policies being of lesser quality and more expensive to purchase.

For example, most mortgage and personal line of credit insurance only covers you for what you owe on the balance of the debt.  In many cases, your insurance premiums each month stay the same while the amount of insurance coverage falls as you pay down your balance.  Insurance companies love this!

In almost all cases, the insurance you have purchased is not underwritten at the time of purchase.  This means that if you need to make a claim, the insurance company reserves the right to look for ways out of the policy due to pre-existing conditions not disclosed by getting your complete medical history and background.  This is fair.  After all, you and the insurance company agreed not to undergo a full medical examination at the time of purchase.  You only answered a brief set of medical questions and you didn't undergo a full medical interview with a trained professional.

The insurance company doesn't really don't know much about you and they will charge you more for your coverage as a result.

If you currently own mortgage insurance or personal line of credit insurance and are wondering about your coverage, call us today.  Chances are you will find higher quality coverage and end up paying less for it.

 Private RESP plans (also known as group RESPs) are those set up at companies that are not major financial institutions such as banks, insurance companies or mutual fund companies.  These private or group RESPs can be very costly and very restrictive when compared to individual or family RESP plans set up at financial institutions.

The reason for the extra cost and restrictions is that the companies that set up private or group RESPs make up their own rules for their subscribers on top of the regular rules set out by the federal government concerning RESPs.  These extra rules lead to complex requirements that must be met during withdrawal periods, penalties for stopping contributions, and onerous fees that you would not normally find at major financial institutions.  Major financial institutions generally just follow the RESP guidelines set out by the federal government and are much more flexible when it comes to adding or withdrawing money from the plans.

It is our opinion that private or group RESP plans should be avoided at all costs.  We have encountered far too many parents that have greatly disappointed by fees and complicated rules in regards to how they add money and withdrawal money from those plans.

Avoiding these plans can be tricky however as private or group RESP providers are known to scan the birth announcements of newspapers and approach parents soon after their children are born.

Mutual funds come in all shapes and sizes these days and so do their fee structures.

Many investors don’t realize that there are generally three ways to buy a mutual fund: front-end, low-load, or back-end.  Regardless of which version is purchased, Investment Advisors are supposed to disclose to the purchasers how they get paid.  Since this hasn’t happened very well over the past several years, the regulators will make it mandatory that firms disclose this information starting next year.

In the meantime, here is rundown on how advisors get paid and why it seems silly for investors to buy back-ended funds when they have a choice:

Front-end funds – When an investor buys a front-end fund, the selling advisor has the right to charge a fee ‘up front’ for their time.  This fee can generally range from 0-2%, although most advisors are now using 0%.  The advisor also collects a trailing fee from the fund company to compensate them for their time setting up the account, financial planning with the client, review meetings and other services throughout the year.  This trailing fee generally ranges from 0.25% to 1.0%.

Low-load funds – When an investor buys a low-load fund, the selling advisor is paid by the mutual fund company a commission that generally ranges from 2-3%.  As a result, the investor is locked into the fund for generally 2-3 years or they have to pay a penalty that declines over time.  Low-load funds often pay less of a trailer fee over the initial lock-up period and then become the same as front-end funds.

Back-end funds - When an investor buys a back-end fund, the selling advisor is paid by the mutual fund company a commission that is generally 5%.  As a result, the investor is locked into the fund for generally 5-7 years or they have to pay a penalty that declines over time.  Back-end funds often pay less of a trailer fee over the initial lock-up period and then become the same as front-end funds.

Now we may be crazy on this, but our office has never understood how financial advisors could explain all three options of buying funds to their clients, and still insist that it is in the client’s best interest to use a back-ended fund.  It is pretty simple to see that by using a back-ended fund, the advisor is paid more at the time of sale and the client is locked into the fund for a longer time period than a low-load fund or front-end fund.

These back-end arrangements are more beneficial to the fund companies and the financial advisors than the clients.  Since financial advisors are supposed to act with a fiduciary responsibility to act in the client’s best interest, we don’t see how back-end funds fit in today’s financial portfolios.

Article coming soon!

Families in British Columbia have been encouraged to save for their children’s future post secondary education through the BC Training & Educational Saving Program (BCTESP).

For those who qualify, the BCTESP provides a grant of $1,200 that is paid into the Registered Educational Savings Plan (RESP) of children who are between ages of 6 and 9.

To qualify you must meet the following criteria:

• You must have an RESP set up for your child before they apply for the BCTESP grant,
• The parent and the child must be a resident of BC when they receive the BCTESP, and your child was born in 2007 or later.

Buying life insurance isn’t for everyone, but once you start a family or start accumulating debt you should at least consider having some coverage.  Not to mention if you pass away there will be costs to bury or cremate your body, have a funeral or wake, and to deal with your affairs.

The great news for young people. however, is the earlier you start coverage, the cheaper life insurance costs.  You can also renew, extend and increase coverage on many policies as your need for insurance increases.

Consider a 28 year old male, non-smoker who applies for $100,000 of life insurance for the next 10 years.  If his health profile comes in as regular, he could purchase the insurance for as little as $105 per year or $8.75 per month (based on July 17th, 2015 rates). A non-smoking, regular health rated 28 year old female who applies for the same insurance sees her costs fall to $82 per year or just $6.83 (based on July 17th, 2015 rates).

Are you thinking of buying your first home and are looking for ways to come up with a down payment? If you have an RRSP, you may have an extra option.

The Government of Canada has a program called the “Home Buyer’s Plan” to help qualifying first time homeowners purchase a home, which allows a one-time tax-free withdrawal from their RRSP account of up to $25,000. If you and your spouse are both purchasing the property and you both have RRSP’s, you are both eligible to withdrawal up to $25,000, for a total of up to $50,000. Under regular circumstances, RRSP withdrawals are taxed at your personal income tax rate (on average, 29.7%), so you can see how this makes a big difference.

To qualify for the program, you must be a Canadian resident, must be planning on living in the home you are purchasing or building, be helping a related person with a disability buy their own home, or be buying a home for a related person with a disability. As well, you or your spouse cannot have owned a home in the last four years. There are also some careful considerations, such as how long funds need to be in your RRSP before you can withdrawal them and the requirement to withdrawal the funds no more than 30 days after buying or building, so it is important to have a plan going into your home buying process.

First time home buyer's under the plan are required to pay the amount back into their RRSPs, however, the schedule is quite relaxed. Payments are required back into your RRSP the second year after the withdrawal and you must pay back at least 1/15 of your total withdrawal per year, for up to 15 years. However, you are allowed to pay back the amount you withdrew faster if you would like.