This document summarizes a presentation given by John Nicola, Chairman and CEO of NWM, a wealth management firm. Some key points: - NWM manages $4.7 billion in assets for families, foundations, and trusts. They provide integrated financial advice. - The presentation discusses tax planning strategies, such as income splitting and the most tax efficient ways to build investment capital. - It also covers estate planning techniques like alter ego trusts and estate freezes to minimize taxes and probate fees. - The document outlines NWM's investment philosophy of focusing on after-tax returns and managing risk through diversification across asset classes.

1. PDC-2017 Wealth Management
John Nicola
Chairman & CEO,
NWM

2. Planning first Asset Allocation / Cash Flow
The Big Picture Results in any environment

3. Associates & Staff
• Licensed as IC (BC, Alberta, Ont.)
• Manage $4.7-Billion
• Focus – Private Wealth
Management of Families,
Foundations and Trusts
• Integrated Financial advice for
professionals, executives and
business owners
• 5 Portfolio Managers with CFAs
• 23 Advisors with CFPs
• 140 total staff

4. Second Step Third Step
First Step
• What rate of return have you earned after fees for the last 1,3
5 and 10 years?
• Is your compensation the most tax effective it could be?
• What tax rates are you paying on non registered assets?
• What is the tax liability in your estate?
• What income is being generated annually by your current
portfolio? What percentage is that of your retirement income
needs?
• What is the most tax efficient way to build investment capital?
What We Do

5. What’s on Your Bucket List?
Family Legacy
Recreational Property Travel
Avocations
Philanthropy

6. How Much Can I Spend?
Assumptions:
• $5 Million investable assets after practice sale
• 15% average tax rate on retirement income
• Returns between 2% and 5% after inflation and fees
• Preserve capital after inflation

7. Impact of Returns on Spending
$0
$50,000
$100,000
$150,000
$200,000
$250,000
After Tax income
$110,000
$153,000
$200,000
$240,000
2%
3%
4%
3% more return =125% more
spendable income

8. Capital Required to Earn $200,000
After-tax Income
$0
$5,000,000
$10,000,000
$15,000,000
$10,300,000
$7,000,000
$5,300,000
$4,300,000
2
%
3% more return = $6M less capital
required (58%)
Assumptions
• $200,000/year after tax
• 15% average Tax rate
• Preserve capital after
inflation

9. Achieve these outcomes and there is
more capital for the Bucket List
Achieve Your Bucket List

10. The Ideal Tax Haven
Low Tax rates
Good health Care
Great weather
Good food and wine
Low Tax rates
Good health Care
Grim weather
Timbits and Icewine

11. $0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
Non Taxable
Taxable
100%
10%
64%
70%
50% % Taxable
Paying Less Tax On Cash Flow

12. Income Split
$22,000
$128,000
Tax
Spendable
Individual Tax Position
15% Tax
$185,000
$115,000
Taxable
Non Taxable
How Much For The Taxman?

13. Tax Free Cash Flow or Credits
1. Prescribed annuities vs. Bonds
2. Dividends taxed at about 64% of
interest
3. Rental income partial tax deferment
4. Income split equally (trusts, RRIFs and
Hold Cos)
Nice tax haven
…eh?!
Why and How Does This Work?
15% Tax

14. What else makes a difference ?
Taxes on investment
Income
Size of the estate you
Want to create
How much do you want
To give away?
Gifts to Children
and Grandkids
Now, later or
never???
Create a plan
before selling or
investing

15. Federal Budget March 22nd
Issues and Questions
• Size and Length of Deficits
• Response to Border Taxes
• Changes to capital gains
tax?
• Impact of SBD on
incorporated professionals

16. $0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
2015
13%
on $500K
26%
above $500K
Corporate Tax Rates: Business Income
Tax saved with RRSP/IPP deposit
Not worth it if income <$500K/yr

17. Holdco
Invests
Opco
Earns <$500K
Salaries
Dividends
Or both?
Taxes and CPPTaxes and CPP
Passive Income
Tax Rate up to
49.7%
Active Income
Tax Rate 13%
After expenses
Tax Free
Dividends
Salary Compensation

18. Salary vs. GRIP dividends at RRSP Max = $141,000
$141,000 $141,000
$34,200
$42,500
$81,400 $81,400
$25,400
$17,000
Salary GRIP Dividend
Pre- Tax Income Corporate/Personal Tax
Spendable Income RRSP/ Corp savings
24% less tax
20% more spendable
Income at retirement

19. Options
Compensation at RRSP / IPP Maximum
• Salary better than GRIP dividend
• LRIP dividend better than salary
• RRSP/IPP make little sense at a 13%
marginal tax rate

20. Investco
Interest
Dividends
Capital Gains
49.8%
38.3%
24.9%
50.2%
61.7%
75.1%
Average Tax Rate if 1/3 each = 37.7%
Taxation of Corporate Investments 2016

21. Taxable Dividend
RDTOH: Air Miles from CRA
Investco 30.7% of interest
38.3% of dividends
15.3% of cap. Gains

22. Average Tax Rate if 1/3 each = 9.5%
Investco
Could be 6% if
interest income in
registered
plans/insurance
RDTOH: Air Miles from CRA
Interest
Dividends
Capital Gains
19%
0%
9.5%
81%
100%
90%

23. $33,000 taxable dividend
Beneficiary of Trust 18 or over
Family Trust Tax = $0
RDTOH: Pay for School
Investco RDTOH = $12,600

24. $200,000 Dividend
$15,000 if GRIP
RDTOH: As Compensation
Investco $76,600
RDTOH
$31,000 Tax

25. TaxesTaxes
Passive Income
Tax Rate drops
To 0%-19%
Active Income
Tax Rate 13%
After expenses
Dividends to
Family Trust
Dividend Compensation
Holdco
Invests
Opco
Earns <$500K
Tax Free
Dividends
Pay Equal Dividends

26. Holdco
Invests
Compensation (> $500,000/yr, Guidelines)
Opco
Earns $1,000,000
Tax Free
Dividends
$150,000/yr
Investment
Salaries to Maximize IPP/RRSP
Do Not Bonus down to $500K
Dividends to get back CDA and RDTOH
Watch reasonableness of spouse salaries
TaxesTaxes

27. Legacies to the Next Generation Transition Planning
Tax Planning
No (or Poor) Will
Infrequent Reviews
5 Big Estate Planning Mistakes

28. Estate planning
Home ,
$2,000,000
Insurance ,
$1,000,000
Holdco,
$3,000,000
Registered ,
$750,000
Practice ,
$700,000
Income Tax
Probate
=$1,300,000
$600,000
• Alter Ego Trust( age 65)
• Estate Freeze( after
retirement )
• Donor Advised Fund for
registered assets
• Use of Insurance

29. Where is America ?????

30. Three themes
Demographics Shale Oil US Isolationism

34. Build Bridges vs Fences?????

35. n
25% swing in 100 years

36. Populism

37. Demographics are destiny?

38. By the numbers

39. Demographics
IIt’s
windy
today
NoIit’s
Thursday
So Am I
let’s
get a
beer

40. Senior Moments

42. More
Saving
Less
Spending
Is this deflationary?
Peak
Spending
Age 50
Median age
% over 60

44. +60% gas production
-65% oil imports

45. Supply and Demand
How long before balance ?
Almost 1.5 Million
barrels per day
surplus

46. Who’s The Swing Producer Now?

47. $45

49. Life After Oil?

50. Growing Fast but still small
China will
triple by
2020 80%

51. Here comes the Sun
100%+

52. Observations
• Demographics matters and in this
case the US wins
• Shale oil is a game changer
• Globalization is under pressure
• The US is more independent then
perhaps any other single country
• Russia is aging and in decline
• The Euro shows how hard it is to
have a monetary union without a
fiscal one

53. A Genius Bromance
Daniel Kahneman
• Introvert
• Holocaust Survivor
• Psychologist
• Taught at UBC
• Nobel Prize 2002
in Economics
Amos Tversky
• Extrovert
• Israeli Sabra
• Psychologist
• Taught at Stanford
• Died before Nobel
prize

54. Loss avoidance
Win
85%
Lose
15%Guaranteed Win
Majority
Guaranteed Loss
Win
15%
Lose
85%
Majority

55. Seven Habits of Highly
Ineffective Investors

56. Prospect Theory
$1 Loss $1 Gain
Twice The Pain Half the Joy

57. We’re in
the Gifted
Program
Over-Optimism
80% Think they are in the top 50%

58. Cognitive Dissonance
Don’t confuse me with facts
Boy, this
towel is
heavy!!
Tendency to discount evidence that
contradicts our existing position.
e.g.:
•“Mortgage rates won’t affect the value
of my home because I am not selling”
•“I am sure they are just doing some estate
planning” (insiders on selling stock while
you hold on).
•“If you ignore taxes, depreciation, and
interest -- they are quite profitable”
(regarding the use of pro-forma statements

59. Gambling with House
Money
Can we up the
minimum bet?
Investors increase their
aggressiveness when they
win first

60. Gambling with House Money
Can we up
the minimum
bet?
Increase risk when
market rises
Reduce risk when
market drops

61. The Impact of Emotion in Investing
4-5% annual loss of return

62. Emotional Investing
0.0%
2.0%
4.0%
6.0%
Fund Investor
5.8%
1.8%
Vanguard Value Fund
10 year return 01/2017
Name Fund Investor
Vanguard
Growth Stock
8.1% 5.3%
Small cap
Value Index
7.5% 4.2%
Small cap
Growth index
8.1% 7.2%

63. What are the odds?
Higher PE = lower future
returns

64. Managing Assets More Efficiently
Canadian Equities, 16.7%
High Yield Bonds, 7.3%
Preferred Shares, 4.5%
Alternative Strategies,
15.0%
Real Estate, 20.0%
Mortgages, 11.0%
Bonds, 9.0%
Foreign Bonds, 5.4%
Cash, 4.0%
Foreign Equities, 12.1%
11.4%
Re-Balance
-7.5%
7.48%
Blended
2015

65. Catch a Falling Knife?
$11.70
$10.34
$9.30 $9.17
$7.81
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Preferred Share Price

66. Catch a Falling Knife?
4.00%
4.60%
5.00% 5.10%
6.10%
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Preferred Share Yield

67. Why Did This Happen?
Lower rates
impact on
rate resets
Need for banks to
increase
Tier One Capital

68. • Prices were down 35%
• Yields were up more than 50%
• Taxes on income 20% less than interest (equal to bonds
paying 8%)
• Good chance of capital recovery over five years
Why Did This Happen?

69. A Tale of two shares
6.1%
after fees
4.5% before
fees$100,000
acquired at
depressed prices

70. Homo Irrationalatus

71. The Vulcan Investor

72. Behaviour and Diversification
• Good Investor Behaviour is difficult
• 90% of Investors do not earn the benchmarks
• Volatility can bring on bad behaviour
• Diversification is both safe and effective
• Picking quality assets takes time and patience

73. What Now?
• Bubbles exist, but Markets are irrational
• Remember: cash flow first
• Tax efficiency matters
• Small return difference – Big Savings impact

74. Investment real estate would be close but more total
return from cash low
Paper money wins???

75. Is this the right model?
Was it the right model?
Annual returns since January 2000 after inflation
2.3% 1.8%
2.1%
Asset Allocation

76. Many Happy Returns?
Can a 4% real rate of return be achieved without
significant increase in risk?

77. Past and the Future Returns
Weighted return <2% after inflation
In Grantham’s view,
no asset class is
currently priced to
deliver a 5% real
return.

78. Drivers
• Aging populations
• Reduced productivity growth
• Rising interest rates
• Lower profit margins
• Higher Taxes

79. The Second Opinion
The rich are
different than
you or I Ernest
Yes, Scott, they
have more
money

80. The real 1%

81. World Wealth Report 2015
14.5M
Families
Less than

82. Asset Allocation for HNW Investors Globally

83. Tiger 21 Asset Allocation
 Retired Business Owners
 $10M+ investable assets
 Want independent advice
48%

84. 14% 16%
8%
38%
Real estate Private equity Infrastructure Total
10.2%
Since
1990
48%
200% more
assets over
41 years
16-44% Public
13-23% Private
16-33% Real Assets

85. Most investors close to
100%

86. Interest &
Dividends
Dividends
& Options
Rents
Asset Allocation: Process
Cash flow from portfolio = 4% to 5% of capital
Real
Estate
18%
Equity
35%
Fixed Income
40%
Alternative 7%

87. 3.9%
6.6%
-9.5%
4.9%
13.9%
-22.3%
7.2%
4.3%
-6.0%
Jan2000-March 2016 Volatility Worst Quarter
Balanced 60/40 TSX NWM
The right asset allocation, well managed,
can reduce risk and increase returns
Reduced volatility =
better Investor behaviour

88. Just because
I am paranoid
does not mean
the market is not
out to get me.
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
12/1/1970
7/1/1972
2/1/1974
9/1/1975
4/1/1977
11/1/1978
6/1/1980
1/1/1982
8/1/1983
3/1/1985
10/1/1986
5/1/1988
12/1/1989
7/1/1991
2/1/1993
9/1/1994
4/1/1996
11/1/1997
6/1/1999
1/1/2001
8/1/2002
3/1/2004
10/1/2005
5/1/2007
12/1/2008
7/1/2010
2/1/2012
9/1/2013
80 months (15% of the time) 12 month return <-10%
120 months (23% of the time ) <0%

89. $3,700
$7,300
$13,800
$19,500
$26,500
$46,000
1970 1980 1990 2000 2010 2016
Price Dividends
Volatility 4.4% 1.1%
Trailing 12 80 14
Month <-10%
Annual Dividend Income on $100,000
Invested in S&P 500 in 1970

90. The S&P 500 ® Dividend
Aristocrats ® Index, constructed
and maintained by S&P Dow
Jones Indices LLC, targets
companies that are currently
members of the S&P 500 ® ,
have increased dividend
payments each year for at least
25 years, and meet certain
market capitalization and
liquidity requirements.
2.3%/yr.
75% more -
24years

91. Standard Deviation of Dividends vs. Prices
5.34%
16.29%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
1950 to 2001
Volatility of
Dividends
Volatility of
Prices
Standard Deviation
1/3rd the risk

92. 2%/yr.

93. 9.0%
8.1%
10-year Annual Returns to 2016
Better returns with less than half the volatility
17.2%
-2.0%
50.0%
-42.0%
Best year Worst year
Actual real estate transactions
Per IPD data 2005-2016
TSX REIT index less fees
2005-2016

94. Cash Flow is King
Capital Growth
-12% to +12%
Income return 5% to 8.5%
2/3rds of total
Return is incom
( Rents)

95. Emotional real estate pricing
Each Gain has to be bigger
than the loss to break even
( a 100% gain is eliminated
with a 50% loss )

96. o 60 Professionals
o Over $6-Billion invested
o Started 1969
Who Manages Private Equity

97. 16.6%
18.8%
7.8%
9.8%
13.9%
17.1%
14.2%
21.3%
3 years 5 years 10 years 20 years
S&P500 Northleaf PE Global PE Program
Bull Market
Long-Term Difference
Northleaf PE Returns vs. S&P 500
Returns to June 30, 2014. Northleaf returns gross of Northleaf fees.

98. Rising Interest Rates
The impact on returns

99. 2.7%
2.47%2.57%
1.69%1.74%
0.34%
0.91%
-0.14%
0.62%
0.07%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Then 12/13 Now Then 12/13 Now
GERMANY
Then 12/13 Now
SWITZERLAND
Then 12/13 Now
JAPAN
Then 12/13 Now
CANADA
When are they going to rise?
10-Year Bond Yields
10 years
from
now
98SF

100. The future of interest
$6 Trillion negative rates

101. Active vs.Passive Investing

102. Passive vs. Active“ . . . the most active stock pickers have been able to
add value to their investors, beating the
benchmark indices by about 1.26% per year after all
fees and expenses . . . . Closet indexers
have essentially just matched their benchmark index
performance before fees, which has
produced consistent underperformance after fees.
Economically, this means that there are some
inefficiencies in the market that can be exploited by
active stock selection.”
Shrinking

103. Active vs. Passive Investing
Can you find
this?

104. Active vs. Passive Investing
What is an Active Manager?
• 2007 Yale Study Cremers and
Petajisto
• Focused positions ( example
Oakmark Select with 20
positions )
• Not always within the benchmark
• Different trading strategies and
not market weighted

106. IMPACT ON DEMAND???

107. 15% Tax?

108. Chill out

109. f
41 years
16 years
5 years
Same

110. Price vs. Rents
• Canada the most
expensive
• Higher than Hong
Kong
• US near it’s long term
averages
• Cash flow on Cdn.
housing is poor

111. 8.7%/y
r.
6.7%/
yr.
5.7%/y
r.
30%

112. Depression Investing
“…they (investors) should try to be fearful when others are greedy and greedy when
others are fearful.” – Warren Buffet
(Buffet had just invested $10-Billion in GE Capital and Goldman Sachs with a 10%
preferred return and a significant win if shares rose in the next five years.)

113. Depression Investing

114. Depression Investing
The Reality of the Dirty Thirties
• S&P500 drops 83% from 1929 to 1933
• Dividends on stocks drop by more than 50%
• Permanent recovery 1955 (26 years)
• Unemployment hits 25%
• Thousands of banks fail
• No deposit insurance
• No social security or CPP
• No unemployment insurance
• Prices drop 25%
• GDP drops 33%

115. Jonathan and Martha Kent (circa 1929)

116. Literary License
24 years before a
price increase
1st
Edition
1938

117. Asset Allocation: 1930’s style
Globalfinancialdata.comThe People History
Stocks
Fixed
Income
Real
Estate

118. $100,000 Portfolio in $1929
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000 -21%
1949
-11.5%
1932
8%
1956

119. $0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
Annual Income from $100,000 Portfolio in $1929
Between $4300 and $5300/year in $1929 (4-5% cash flow)

120. Reinvest Income from $100,000 Portfolio in $1929
$-
$100,000
$200,000
$300,000
$400,000
$500,000
1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955
5.3%/year after inflation rate of return

121. $0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000 1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
5.4%/year after inflation rate of return
Reinvest Income from $100,000 Portfolio in $1929
1956 to 2015

122. Planning first Asset Allocation / Cash Flow
The Big Picture Results in any environment