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Artisan Winter 2012


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Winter 2012 Edition of the Northland Wealth Management Artisan Newsletter

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Artisan Winter 2012

  1. 1. THE ARTISANIssue: Winter 2012 The ArtisanIssue: Winter 2012 Quarterly Newsletter by Northland Wealth Management The Markets: The Great Deleveraging Update & When looking at the economic woes facing the world economy it is Outlook important to understand the basic forces that are at work. The slow- down being experienced in Europe and North America are not theThe Great Deleveraging 1 typical recessions that we have experienced over the last 60 years or…the process of reducing so.consumption and paying down debt Past recessions normally resulted when the corporate sector over-to manageable levels will have to expanded to meet rising individual demand, fueled by easy credittake place… conditions. Inflation would begin to rise and to combat this, Central Banks tightened by raising interest rates. As a result, economic growth not only slowed, but several quarters of economic decline would What’s New: ensue. Central Bank easing and falling interest rates, would encourage Origins & growth and the next up cycle would begin. Understanding The present economic situation, while having the characteristics of a typical recession (high unemployment and slow economic growth), has important and very different elements that present a new set ofWealth Man-age-ment – noun 2 problems for governments and individuals. Simply put, in Europe“a holistic approach to understandingand providing solutions to all of the and North America both individuals and governments have leveragedmajor financial challenges of an their balance sheets far too much to finance immediate consumption.investor’s financial life” In the U.S. the political push to offer everyone a house of their own regardless of their ability to pay, has resulted in a housing bubble. Housing prices rose and an excess supply of housing was created. Brush Strokes: Rising house prices encouraged U.S. individuals to borrow against their homes, particularly since mortgage interest is tax deductible. An Introduction The funds created were usually spent on consumption, creating to Collecting Art unsustainable economic growth. With the onset of the financial meltdown of 2008 the situation changed dramatically. (continued on page 2)... invest in art that moves you and 4could hold or increase its monetaryvalue… Perspectives: “If you don’t have your health; what do you have?” Planning Files: As the old saying goes, it seems that as individuals we tend to focus a Effective Estate lot more on our financial well-being rather than our physical and Planning mental well-being.A plan is better than no plan at all, Beyond our public health-care system, which assists the majority ofhowever a well thought out plan is 5 Canadians with their health care needs, supplementary services such ascertainly more effective. Executive Medical programs, counseling and executive/life coaching services have been available in numerous forms and variations for many years. Originally designed for executives of major corporations, these services have expanded to accommodate the needs of an ever growing High Net Worth community. (Continued on page 5) 1
  2. 2. Issue: Winter 2012 The Artisan (Continued) What the world needs U.S. banks and investors found that a number of mortgages or mortgage products they held were worth now…is to find the right significantly less than face value. Banks became reluctant to lend and the system tightened. Unemployment rose as balance! bankers, builders and all the industries involved in the housing sector found themselves out of work. The slowdown spread through the U.S. economy as individuals who were employed began to save rather than spend. Credit card debt also began to shrink as many individuals began to deleverage and pay back their debts. Government stimulus programs have helped the U.S. economy move back into a slow growth mode. However, the money used to stimulate has come from government borrowing, so the deleveraging of individuals has been offset by the leveraging up of governments through deficits. Eventually these bills will have to be paid, either through higher taxes, or reduction of services and entitlements, or all of these measures. At the present time the U.S. is at a political impasse as to which solution to What’s New: take, which is simply postponing the problem. Origins & In Europe, the same situation also exists, but in a somewhat different form. Within the European Union, Understanding some countries, particularly in Southern Europe, used the Union financial structure and the common currency to The term Wealth Management means different spend in excess of the real economic output of their economies. Politicians in those countries typically things to different people. Wealth management promised benefits of various sorts to become elected, and is, by definition, a holistic approach to paid for those benefits through borrowing. Government understanding and providing solutions to all of employees grew in number as did salaries and pensions the major financial challenges of an investors promised. Government programs of all types for the population multiplied and life was good - unfortunately financial life. From a clients perspective, this built on borrowed money. A newly elected government means having all financial challenges solved. in Greece found the previous government had emptied There are three essential components to true the coffers and left the country basically bankrupt. wealth management: European banks who owned Greek debt, and governments who also had been overspending, became suspect to investors and the crisis began. The crisis 1. A consultative process to gain a detailed continues with some observers predicting the end of the understanding of clients goals and their most European Union and the Euro. It is too early to tell what significant financial wants and needs. the outcome will be as valiant efforts on the part of the solvent members of the Union to save it are ongoing. 2. Customized choices and solutions including Needless to say the process of reducing consumption and investment management, insurance, estate paying down debt to manageable levels will have to take planning and retirement planning. place for their efforts to be successful. The situation in Canada is certainly better. Our banking 3. Delivery in close consultation to identify system is not burdened with sub-prime mortgages as in clients’ specific needs and how those needs the U.S., or questionable government debt as in Europe.3) change over time as well as proactively Our government stimulus programs have been modest design solutions around those needs. and our government deficits manageable. Our recent annual federal deficits are scheduled to end by 2016. (continued on page 3) 2
  3. 3. Issue: Winter 2012 The Artisan(Continued)However we are not immune to the world’s financialproblems. Canadians as individuals are carryingsignificant debt loads. The Province of Ontario is notin great financial shape. While we tend to be pleasedabout our stable but high-priced housing market,young individuals are taking on heavy mortgage loadsthat could be unsustainable if interest rates move upeven moderately.Despite the uncertainties ahead, the future is notwithout its bright spots. Corporations in general are inexcellent shape both here and in the U.S. with strongbalance sheets loaded with cash. In other parts of theworld outside Europe and North America emergingeconomies continue to grow and provide markets forour goods and services. (Continued from page 2)The deleveraging that is going on in North Americaand Europe will take years to complete. Uncertainty In its simplest terms, wealth management can bewill continue to dominate financial markets and summed up using a single, all-encompassingvolatility will be with us for the foreseeable future. formula:Our investment strategy will focus on the preservationof capital and the use of cash flows from high quality Wealth management = investment counselingcorporate dividends and coupons to build portfoliovalues. + advanced planning + relationship management (or WM = IC + AP + RM)David Cockfield, MBA, CFAManaging Director & Portfolio Manager Investment counseling is the core offering and the foundation upon which the client relationship begins. Advanced planning addresses four key areas of financial needs that affluent investors have beyond investments: wealth enhancement, wealth transfer, wealth protection and charitable giving. Relationship management focuses on three areas: fully understanding and meeting clients critical needs over time; assembling and overseeing a network of financial experts to help meet client needs; working effectively with affluent clients other professional advisors, such as their attorneys and accountants. Wealth management breaks the familiar mold in which affluent individuals must contract with a range of professionals, each specializing in a single area: the investment advisor managing portfolios, the insurance agent selling life insurance, theImportant Notice accountant handling taxes and the attorney taking care of estate planning. As high-net-worth The RRSP deadline for the 2011 tax year individuals and families’ finances have grown ever is Wednesday February 29th, 2012. more complex, this compartmentalized approach has become less appealing to those wishing to You can also take full advantage of RESP and TFSA plans by contributing early in the year or setting up a direct deposit plan. streamline their affairs. 3
  4. 4. Issue: Winter 2012 The ArtisanBrush Strokes: The GlobalAn Introduction toCollecting Art Landscape:When you think about it, we all collect some form 2012 will be a lot like 2011.of art. European debt problems willFor most of us, the paintings we own are not remain. The struggle within the USmuseum grade originals by the Group of Seven and housing sector will continue as willtheir Contemporaries. The pictures we mount on US political infighting. Financialour walls are there to match our décor or cover markets will react by being volatileempty walls. -- driven by emotion and fear.Several years ago a young Art Dealer at the time, suggested to me that if you In Europe, recent successfulare going to hang something on your walls at home, why not invest in art that sovereign debt issues and a largemoves you and could hold or increase its monetary value over time. I thought liquidity transfer from the ECB toto myself, what a novel idea - but where do I start? the European Banking system hasChoosing artwork is not as simple as walking into a gallery and picking tempered their financial markets.something to hang on your wall. Selecting appropriate works of art involves 2012 will see the European Uniontime and requires prospective buyers to do their homework. Art is an accessory as a whole in a mild recession andin the home, that should add interest and sophistication to a room without Greece will again emerge as a funding problem.creating unnecessary clutter or distraction.The first rule is to buy a piece of art because it moves you. Make sure the Recent economic data in the US ispainting speaks to you. Since the art market for the most part, consists of quite encouraging. Retail salesilliquid assets, once you have purchased a piece plan on owning and enjoying over the holidays were good andit for some time. Jobless Claims were down as private sector hiring improved. InSecondly, think original! The limited edition print market served a purpose the critical Services Sectorduring the 80s and 90s. However, that market has now diminished. In corporations added 325,000 newcontrast, if you acquire an original work by a mid-tier Canadian artist and it is jobs and the unemployment ratioa superb example of his or her work, not only should the painting hold its hit a three year low. The USvalue, but it should increase in value over time. Spending as little as $1,500 to appears on track for modest$2,000 per painting is a great starting point. There is a significant amount of growth in 2012 but debt problemsvery collectible, historical Canadian art in that price range. However do not remain.expect to make a fast buck when entering this market.Third, do a lot of research regarding your potential purchase online, with China has brought its real estate speculation under control and withbooks and through the assistance of Dealers’ art galleries. Remember that Art food price inflation falling, theDealers have expenses so expect up to a 50% mark-up on the price if you buy door is now open to reducethrough a gallery. Auction houses across the country offer guidance and tightening and begin easingassistance as well. Be careful if you want to try your hand at bidding during a monetary policy. Despitelive or on-line auction. Sometimes bidders can get carried away with the thrill European and US problemsof the moment and spend far more than they anticipated. There are also some China’s trade surplus has remainedadditional fees after the final bid. strong and GDP growth in 2012Provenance is also very important. If the price seems too good to be true, then should be in the 8% range.there could be a problem with the piece. Knowing where your painting camefrom (i.e. a prominent estate/collector/dealer) helps authenticate the piece and Canada will have modest growth of 2.5% - 3.00% in 2012 aided byensure the painting has not been tampered with. Be aware that there are many growth in the US and improvingforgeries, even in the Canadian art market. world commodity markets. StrongIn closing, collecting original Canadian art can provide a lot of pleasure for growth in the energy sector will beyou and your family. Remember that it is an expensive hobby and making as a big positive for Western Canada.few mistakes as possible is the key. Be aware that the price of art does move up Interest rates will continue toand down just like publicly traded stocks. Most importantly do not be remain low until growth rates riseintimidated, and have fun with the experience. in the US and Europe.Paul Mascard, President 4
  5. 5. Issue: Winter 2012 The Artisan(Continued from Page 1)Executive medical programs offer a high-caliber At Northland Wealth Management, we believe inexperience and a level of attention that is typically finding the very best solutions and resources that ensureunavailable through an annual check-up with a our clients can sleep well at night and have peace ofgeneral practitioner. For mental health concerns, mind. By combining the expertise of our team ofmany individuals have access to programs through Wealth Managers, with that of Executive Resolve, wetheir employer. However, many also find it difficult to are able to provide the ultimate holistic solution that willnavigate through the system to find the customization, ensure our client’s financial, physical and emotionalexclusivity or depth that they really need. Finally, wellbeing will always be safeguarded.professional/executive or life coaching has also EXECUTIVE RESOLVE was borne out of anbecome well-entrenched for High Net Worth appreciation and conviction that best-in-class medical,individuals. However, professional coaches function counseling, coaching andcompletely separately from the consulting services must bephysical/mental health system. offered in a seamless, convenient,While each of these services has high touch and integrated fashiontheir own inherent strengths in in order to truly serve ansupporting the various aspects of individual’s needs. Their solutionan individual’s physical or is straightforward: to providepsychological wellbeing, there individuals with immediate accessremains a serious drawback in that to executive level support across aeach service operates independently, wide dimension of personal,and as a result less effectively emotional, medical and workthan they should to optimize an related issues that, if leftindividual’s health and wellbeing. unaddressed, could derailIf the drawback in supporting an individual’s performance, productivity, as well as professional andperformance and wellbeing is that these services don’t personal fulfillment. Beginning with the initial intake bywork together, then the solution is integration. The a highly-trained case manager and seamless triage tobenefits of integration are two-fold: best-in-class physicians, clinicians, coaches and consultants through to continuity and quality in case1. Integration maximizes the value of each management and total client experience, the process hasindependent program and eliminates many of the been designed to offer exclusive care for anshortcomings that occur when they operate in silos. individual’s physical, emotional and behavioural2. Seamless cross-referrals from one program to needs when they need it.another enable clinical efficacy, operational efficiency, To find out more about how the Executive Resolveproactivity, convenience and comprehensive support solution can assist yourself or a loved one, either visitfor the full range of health and performance- their website at or simplycompromising problems individuals may face contact our office and we would be happy to make anthroughout the year and in their lifetime. introduction.Planning Files: “Organizing is whatEffective Estate Planning you do before you doWe all know how important it is to have all of our legal documents inplace and up to date. This should include Wills, Power of Attorneys, something, so thatTrusts, etc…. But have we really done all we can do to ensure we havetaken all the steps possible to enable a smooth transition of our Estate? when you do it, it isApproximately 50% of Canadians who have completed these legal not all mixed up.”documents have failed to advise the individual(s) (alternates after a typicalspousal appointment) that has been named as Executor, Trustee or A. A. MilnePower of Attorney, that he/she has indeed been named. Individuals (Continued on page 6) 5
  6. 6. Issue: Winter 2012 The Artisannamed to these duties have the legal right to rescind theappointment and effectively defer to the next individual Documents To Be Included In Yournamed. If there is no individual named, then the Estate Planning Fileappointment defers to either The Office of the Public  Copy of Will and location of originalGuardian & Trustee (the government) or your family will  Letter of Instructionhave to go through the process necessary to be appointed  Trust documentsby the courts. Neither situation is optimal. When  Power of Attorney for Propertynaming an individual, it is important to consider not only  Contact information for key individualstheir ability and mortality, but most importantly their  Housing, land and cemetery deedswillingness to fulfill the role you are asking them to take  Proof of loans made and debts owedon.  Vehicle titles  Stock certificates, savings bonds andA plan is better than no plan at all, however a well investment accountsthought out plan is certainly more effective. Taking extra  Partnership and Corporate operatingsteps in your Estate planning process will not only agreementsprovide you peace of mind, but also make things much  Tax returnseasier on those who must deal with your affairs after you  List of bank accountsare gone. The previous example is quite logical. So now  List of all user names and passwordsplace yourself in the shoes of that individual. You are  List of safety deposit boxesnow faced with a fairly significant task. What steps  Personal and Family medical history  Power of Attorney for Carecould be taken to reduce the burden on him/her. By  Authorization to release health-caresimply organizing your records and storing them in an informationaccessible location known by the individual, you  Living Willimmediately eliminate frustration, increase efficiency and  Do-not-resuscitate orderavoid conflict.  Life Insurance policies  Individual retirement accountsSettling an estate is like putting together a puzzle.  Pension documentsHowever, it is much easier when you have all the pieces  Annuity contractsin front of you. Make sure you are not setting up your  Marriage licenseheirs for frustration and financial pain. As part of the  Divorce/Separation agreementsNorthland Wealth Plan we provide a thorough review of  Pre-planned funeral/burial arrangementsyour legal documents to ensure that it is not only  Appraisals for items such as jewelry,effective but also efficient. For more information please artwork, collectables and our office.  Video account of your wishes (as per your Will) in regard to the distribution of your estate.Jeff Sproul, PFP, BBA  Any other documents that would be helpfulVice President, Wealth Management Atlas Shrugged by Ayn Rand As poignant today as when it was first published in 1957. This is a must read book for anyone wishing to understand as Rand described it, “the role of man’s mind in existence.” Family Wealth – The Compact Among Generations by James E. Hughes Sound advice addressing not only what to do but how to think about the complex issues of family governance, growth, and stability and the ongoing challenge of nurturing the happiness of each family member. Civilization: The West and the Rest by Niall Ferguson A chronicle of how the West came to dominate the rest of the world, and whether its 500- year reign is ending. 175 Bloor Street East, Suite 807, South Tower Toronto, Ontario M4W 3R8 (416) 360-3423 6