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BMO Nesbitt Burns
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Sherbrooke, QC
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Benefits of asset consolidation

Recently, I was watching an infomercial on TV. In this half an hour infomercial, they were exposing various ways to improve fitness and lose weight. While watching TV, I began pondering about the concept of this ad, and I thought it was simple and really effective.

The same process can be used to provide our customers with a "winning retirement". Here's what we have to do:
  1. Show our clients where they stand now with their retirement savings
  2. Show them the results they could achieve and quantify the difference they could get if improvements were made to their retirement plan
  3. Once they have seen how the situation can be improved, help them implement the necessary steps and develop an investment strategy that will enable them to reach the desired final result.
The first step to help a client move to a "winning retirement plan" is to show him the benefits he will get in consolidating his assets. The more people approach the retirement age, the more they agree to it. As advisors, we've all experienced a situation where a client, current or potential, would like to get an idea of what their savings will represent when the time comes to retire. Different reasons can iniate this reflection process. 

Client asks, for example: "What is that going to give ultimately?" What they need, basically, is someone who can give them answers specifically adapted to their personal situation and can consolidate all of their assets -benefits and pension plans- in order to generate the income they want for retirement.

If the overall goal of a client is to use its assets in the most efficient way, then the best solution is to consolidate them all under the supervision of one advisor. There are multiple advantages in doing so, and we can't make the most out of those benfits with assets scattered across several institutions and advisors.

Here are the main advantages for a client to consolidate his asset

  • There will be no more confusion between advices coming from other advisors, who are competing to control the assets. It becomes easier to prepare a written plan and follow the progress. Of course, change in goals, priorities and health status may occur in the client's life. It will be easier and faster to adjust the plan accordingly if one advisor takes care of all the client's affairs.
  • By consolidating its assets, the client, with the help of his advisor, has better control over his income withdrawals and sources. Futhermore, it enables the advisor to better distribute the assets between taxable, tax-efficient and other that aren't subject to taxes. This helps create a disposable income in the most tax-efficient way. We become less invasive upon the income-producing assets. This strategy also helps preserve certain tax credits and government benefits that would otherwise be reduced or eliminated.
  • The fact that all of his assets are held at the same location gives the investor an overview likely to allow him to make better decisions. Also, a better appreciation of how the asset aligns with his long-term goal will motivate the client to invest more and thereby achieve his financial goal more quickly.
  • Once the transfer is complete, the customer is likely to find that he must change his overall asset allocation to meet his current needs, level of risk tolerance and long-term goals. Given that asset allocation plays a critical role in investment performance, it is important to comply with this exercise as early as possible in life.
  • Grouping all assets allows for a more effective and balanced portfolio. It also avoids duplication of investment funds and securities, which happens too often when several advisors look after the affairs of a client. By grouping all the assets of a client, we can also make more appropriate investment choices for registered accounts (RRSP/RRIF) and non-registered accounts. Finally, an investment proposal does not have the same meaning -or the same use- when we are dealing with only a part of a client's investments.
  • In general, the client gets lower administrative costs and less paperwork to manage.
  • Clients can also use more efficient and rewarding investment strategies when they have more to invest. Indeed, the advisor and the client can evaluate products with higher investment thresholds that may meet their needs. It will be possible to further explore tax savings and estate planning strategies as well as other opportunities that they have not yet explored, but that will allow the clients to build a comfortable nest egg and leave more to the next generation.
  • One of the subtler, yet important benefit happens following eath, when the surviving spouse has only one phone call to make. The advisor knows exactly where the assets are, what to do and how they will be managed in the future. The surviving spouse receives directions from a single source, rather than having to deal with several people or institutions competing for the management of its business - at a difficult time. Dealing with a single advisor who knows all the financial details of the client and his family also allows for a quick and orderly transfer of assets, at a lower cost and a lower stress level.

Why use the services of an investment advisor?

Financial markets and investment vehicles evolve at a remarkable speed and their complexity is constantly growing. Few investors have the knowledge, experience, perspective and time necessary to sort through the multitude of investment options available today and choose those that best meet their financial goals.

Investment Advisors from BMO Nesbitt Burns are able to synthesize information gleaned through independent studies and can also count on insights from BMO Financial Group analysts and economists as well as esteemed third-party research groups. My team is well-equipped to anticipate and respond to market developments in a manner that is consistent with the goals set out in your Investment Policy Statement.

Business Success

In short... (excerpt from the book "The Four Pillars of Investing" by William Bernstein) 

The Theory of Investing

At times of great optimism, future returns are lower; when things look bleakest, future returns are higher. Know that the overall performance of your investment portfolio is more important than any single part. Diversification and indexing are the most reliable mothods to obtain long-term investment success while keeping the risk in check.

The Psychology of Investing

If you held two actions -one up, say, 25%, and another down in the same proportion- which would you be most likely to sell? If you're like most investors, you would probably sell the winning action and would keep the losing one. This is where comes in the psychology of the investor, the third pillar of investing according to William Bernstein.

And even if it is an aberration to get rid of a field day to keep our bad apples, it's still the decision millions of rational investors take. How can we explain it?

The experts who are looking at the investors' behaviour find that they tend to do everything to avois losses and the regrets that follow. More often than not, Bernstein observes, when one of our stock nose-dived, we're ready for anything -even undergo a root canal without anesthesia- to avoid selling it before it has returned to its purchase price. This is, he sais, the investor's psychology.

Bernstein adds that investors also have the bad habit of prematurely getting rid of their shares once they have increased in value. It is as if, as soon as we made a reasonable profit on a title, it started burning in our pockets and we needed to get the benefit as soon as possible.

Foundation for Success

The last important point made by William Bernstein is this; ultimately, there are only two types of financial products: those that give a higher return for a higher risk (equity), and those who pay less but are less risky (asset backed security). Your portfolio's behaviour depends mainly on the balance between the two. It's up to each investor to decide what level of risk he is willing to take. Bernstein recommends even to the most ambicious investors not to book more than 80% of their savings in equity.