Chapter 1 - WM in Canada

Question 1

What is the definition of Wealth Management?

Answer 1

• Widely used by various Canadian FI to describe an approach to managing the affairs of clients holding significant assets.
• The approach consolidates the broad range of FS the FI offer to their HNW clients

Question 2

In an effort to better understand WM, the CSI and investor economist developed a…

Answer 2

“white paper” titled ‘Defining the WM Industry and Practice in Canada’

Question 3

What does the “white paper” do? (3)

Answer 3

1. Provides a picture of the WM client in Canada
2. Describes characteristics of various businesses in the Canadian FS industry that serve these clients
3. Concludes by describing the role of a wealth advisor and the competencies required to successfully serve their HNW clients

Question 4

What is the common measure that defines whether an individual is a HNW client or not?

Answer 4

– is their net worth, usually, defined as a person or family with at least $1 million of investable assets.

Question 5

What are examples of occupations of HNW clients?

Answer 5

entrepreneurs, professional service providers, senior business executives, and media, entertainment, and sports professionals. Included in this segment are wealth inheritors, wealthy immigrants, and wealthy retirees.`

Question 6

WHat are investable assets defined as?

Answer 6

refer to liquid assets only, does not include real estate, equity in a private company, no consideration for short- or long-term liabilities that would offset the client’s assets.

Question 7

WHat are the 3 WM service channels? WHat do these consist of?

Answer 7

a. Private WM
- Integrated PWM consist of: private banking, investment counsel, and personal trust services offered by the banks and other deposit-taking organizations. One of the fastest growing channels.

b. Full-service brokerage
- Dominated by large, bank-owned dealers.

c. Private investment counsel
- Mono-line firms offering only investment management. Some have broadened slightly into financial planning , trusts + estate planning.

Question 8

What are the three WM business models? and which WM service channel is related to it?

Answer 8

1. Full integrated
   - The PWM model
2. Semi-integrated
   - Full-service brokerage
3. Mono line
   - Private investment council

Question 9

What is the fully integrated model include? defined as? what products does it offer?

Answer 9

• Include: the major banks and other large FI that offer comprehensive range of PW services.
• PWM is the only dedicated, fully integrated channel, which offers clients:
• Credit and treasury products
• Discretionary investment management
• Trust and specialized planning services
• Estate administration
• Business succession planning
• Philanthropy strategies
• Concierge services
• No insurance features (however, bank act does allow for the banks to own insurance subsidiaries). Higher focus on discretionary investment management and other fee-based services.

Question 10

What is the semi-integrated model include? Defined as? offer?

Answer 10

• Offer a limited range of HNW services. Includes, FSB firms, financial advisor firms, some foreign banks, and a few PIC firms that provide financial planning and trust services.
• Mainly revolve around investment management and investment planning. Goal is to compete on price and features.

Question 11

What is mono line defined as? Offer?`

Answer 11

• Offer single set of services (like discretionary management). Include: PIC firms, family offices offering advice only, and other foreign banks.
• Most PIC firms only offer investment management (which is why they are ‘mono-line’).
• Primary PIC services offered:
• Most offer discretionary management through segregated accounts or pooled funds
• Seg accounts are offered to clients with assets above a certain threshold, commonly between $1 and $5 million.
• Many financial advisors have been losing market share because their clients prefer more sophisticated services.

Question 12

What are the main trends shaping the future of WM?

Answer 12

demographic changes and technological trends

Question 13

What are the four main generations current advisors will deal with?

Answer 13

1. Born b/w 1925 + 1945 (the “silent generation”)
2. Born b/w 1946 + 1965 (“baby boomers”)
3. Born b/w 1966 + 1980 (“generation x”)
4. Born b/w 1981 + 2000 (“millennials”)

Question 14

WHat are the five main technological changes?

Answer 14

Robo-advisors

cryptocurrencies

AI

information availability

Technical literacy

Question 15

Who regulates them.

The banks.

Answer 15

The bank act is the fed gov’t regulation of the banking sector in Canada.

Some activities, such as, activities carried out by bank subsidiaries are provincially regulated.

Question 16

Who regulates them.

credit unions.

Answer 16

Are regulated by provincial gov’t.

Question 17

Who regulates them and what do they regulate.

insurance companies.

Answer 17

GoC regulates life and health insurance sector under the insurance companies act. Prov.

Has the power to ensure the fed. Incorporated insurance companies conduct business in their respective jurisdictions are financially sound.

Question 18

Who regulates them and what do they regulate.

trust and loan companies

Answer 18

Regulated by both provincial And federal Gov’t. Market conduct is regulated at provincial Level BUT the GOC regulates federally incorporated companies under the trust and loan companies act.

Question 19

Who regulates them and what do they regulate.

MF companies.

Answer 19

The MFDA is the SRO that regulates all sales of MF in Canada (except Quebec). It regulates the operations, standards of practice, and business conduct of its members and their representatives.

The MFs themselves are regulated by prov.

In Quebec, the AMF (Autorite des marches financiers) regulate its MFs.

Question 20

Who regulates them, who brings them all together, who regulates the industry, and what do they regulate.

Securities dealers.

Answer 20

• Governed by prov. Legislation regulating the underwriting, distribution, and sale of securities, with a major emphasis in the provincial acts on full disclosure.

The CSA brings all provs. And terr. Together in a harmonized approach to regulation of securities.

• Industry regulation is governed by IIROC.

Question 21

What are the 8 key regulatory initiatives over the years?

Answer 21

Foreign account tax compliance act

Canada-US intergovernmental agreement

client privacy

Client relationship model 1

CRM 2

Client focused reforms

MF p-o-s disclosure

Future regulatory initiatives

Question 22

What is the Foreign Account Tax Compliance Act? (FATCA) What is its main objective?

Answer 22

• FATCA, was enacted in 2010 by the US in its efforts to reduce tax evasion by US taxpayers holding financial accounts outside the country.

The main objective is to have all income earned by US taxpayers reported to the IRS so that the appropriate federal taxes may be collected. Affects ALL FFI globally

Question 23

What occurred in 2014, when the Canada-US intergovernmental agreement was signed? What was the main objective? What problem did this solve for FI?

Answer 23

• In 2014, the gov’ts of Canada and the US signed an agreement that provides an alternative way of meeting US objectives to increase tax compliance under their domestic legislation.

Objective, Instead of each FFI providing the info on a US taxpayer directly to the IRS, all FFI will send it to the CRA who will then share this information to the IRS.

This approach also alleviates privacy concerns the Canadian FI have regarding the info. of their clients.

Question 24

What did the Client relationship model 1 (CRM 1) do for the advisor-client relationship?

Answer 24

• In March 2012, IIROC released its CRM1 guidelines, developed by CSA, to provide greater transparency regarding the relationship b/w the advisors and their clients and b/w the advisors and their clients’ dealers. Involves, communication in plain language, disclosing COI, and taking greater care to assess suitability b/f making or accepting portfolio recommendations.

Question 25

What did the Client relationship model 2 (CRM 2) do for the advisor-client relationship? WHat was the biggest change from the previous CRM?

Answer 25

• In 2017, IIROC implemented CRM2, which raised transparency standards and required additional info to be disclosed about all fees and charges associated with the purchase or sale of a security b/f the transaction takes place. Most significant change

– the requirement to provide two new reports relating to the client accounts: a fee statement and a performance report. MUST be provided once a year.

Question 26

What are client focused reforms? WHat do they provide for clients? WHat four areas did they make changes in?

Answer 26

• In 2019, the CSA released its final amendments to NI 31-103 “registration requirements, exemptions and ongoing registrants obligations.” CFR was proposed to change the requirements for registrants conduct to better align the interests of securities registrants with the interest of their clients.

The changes were made in these four categories: KYC, suitability, KYP, and COI.

Question 27

What are the 5 technical competencies of a successful wealth advisor? and what are they defined as? (there are 9 total competencies, technical + professional practice)

Answer 27

1. Assist clients in growing, protecting, and monetizing a closely held business.
   - Lending, treasury management, pros + cons of diff. business structures, insurance, and taxation + corporate finance services.
2. Establish and facilitate tax-efficient wealth accumulation and management strategies that may include sophisticated and complex approaches to achieve life goals.
   - Asset allocation, investment analysis, portfolio construction, use of leverage, international investing, PE + attribution + rebalancing, and managing portfolio risk.
3. Use advanced risk management techniques to create an optimal personalized and integrated wealth preservation plan.
   - Insurance, use of trusts, tax minimizing (pertaining to executive compensation) and international taxation principles and strategies).
4. Collaborate with clients to optimize the conversion of assets into income that will meet lifelong lifestyle expectations.
   - Pre-retirement planning, tax-efficient executive retirement plans, features + benefits of diff conversion strategies, and managing longevity.
5. Develop and implement a wealth transfer plan that reflects the wishes of the client and the needs of the family
   - Tax-efficient options for transferring wealth b/f death, charitable strategies, and multi-generational estate planning.

Question 28

What are the four professional practice competencies? what are they defined as? (there are 9 total competencies, technical + professional practice)

Answer 28

6. Build and manage client relationships that result in successful partnerships
7. Evaluate client needs, goals, and behavioural biases and link them to recommendations, leading to the creation and implementation of an optimal comprehensive wealth management plan.
8. Coordinate and engage a trusted and respected team of experts to provide a fully integrated, well-rounded wealth management service.
9. Use custom business marketing techniques to build a WM practice.

Question 29

What are the 12 traditional attributes of a successful advisor?

Answer 29

1. Client trust
2. honesty, integrity, and ethical behaviour
3. good communication skills
4. knowledge, education, and intelligence
5. Commitment and empathy
6. entrepreneurial nature
7. consistency and conservatism
   8.capacity for hard work
8. problem solving skills
9. good organizational skills
10. motivation, enthusiasm, and love for the business

Question 30

What are the three emerging attributes of wealth advisors?

Answer 30

Staying relevant as demographics change

coaching clients to achieve self-fulfillment

organizing and managing a team of specialists

Question 31

emerging attributes.

a. Staying relevant as demographics change, how do advisors take advantage of this?

Answer 31

• Advisors enhance practice by becoming transition specialists. In this role, you can help your clients by understanding the major issues they will face in their later years and link money discussions to these issues.
• Important to consider children and grandchildren.

Question 32

emerging attributes.

b. Coaching clients to achieve self-fulfillment ????

Answer 32

• The personal coaching profession is growing rapidly in response to demands by aging baby boomers for someone to help them reach self-fulfillment. If, you have the skills and inclination, you can enhance the services you provide to clients by coaching them directly.

Question 33

emerging attributes.

c. Organizing and managing a team of specialists

Answer 33

• Clients financial lives are becoming increasingly complex, and no one advisor can be expected to have all of the answers. When a higher level of expertise is called upon, you should be able to identify and manage the proper resources. Building and managing a team of experts may be as challenging as putting together an overall financial plan, and it is equally important.

Question 34

What are the four wealth management processes?

Answer 34

1. Understanding the client
2. Formulating the plan (integrating financial planning and investment management)
3. Formalizing and implementing the plan
4. Reporting, reviewing, and rebalancing

Question 35

What areas might having a specialist be beneficial?

Answer 35

tax planning and preparation, money management, alternative investments, risk management, trust preparation, legal issues, real estate, charitable giving, estate planning, retirement planning, deferred compensation, business succession planning, financial plan delivery, will preparation, and business valuation.

Question 36

What will in-house teams of PWM and FSB usually have?

Answer 36

Most in-house expert teams are made up of accredited financial planners, accountants, and legal professionals.

They typically provide the following types of services:
* Comprehensive financial plan preparation and delivery
* Will and estate reviews
* Business succession planning
* Tax and legal advisory services

Question 37

What types of in-house product sales teams are there?

Answer 37

• Insurance-based solutions
• Charitable giving solutions
• Trust services and solutions

Question 38

Not all specialists can be found internally, what are outside specialists called?

Answer 38

• For this reason, you may need to create strategic alliances with professionals outside the firm. In the industry, these outside professionals are often referred to as centres of influence (COIs). Alliances with COIs may begin as potential reciprocal sources of referrals. Eventually, they can grow into more integrated business relationships. It often takes time to develop COI relationships.