Thursday, February 28, 2013

Many Canadians believe they will run out of money 10 years into retirement, poll finds

 Melissa Leong | Financial Post Feb 25, 2013
Half of Canadians aged 50 and older believe they will run out of retirement savings within the first 10 years after leaving work, according to a new study.
If you don't have a defined-benefit pension or no pension at all and will rely on savings in retirement, you need to make a plan to keep income coming in.  
As the March 1 RRSP deadline looms, the poll for the Investor Education Fund revealed that 19% of respondents have no idea how much they have saved for retirement. One quarter, (24%), do not know how much they will need to draw from their savings and investments every year after retirement.
"For a lot of Canadians, taking a holistic view of their finances is something they haven't done properly," said Tom Hamza, president of the Investor Education Fund which offers online financial tools including a RRSP savings calculator
IEFs Home Equity as a Source of Retirement Income study, conducted by The Brondesbury Group in January, surveyed a group of 1,500 current and former homeowners across Canada, half of them already retired. It found that 41% of homeowners were clear that the amount they had saved was less than $100,000, with just 21% having more than $250,000 allocated to their golden years. 
Almost half (48%) have never thought about selling their home to generate income to live off of in retirement. Meanwhile, one quarter (24%) expect to have debt on their homes after they retire.
"To see that so many people haven't even thought about what the equity in their house is going to do for their retirement funding, is really shocking to me because it shows they haven't taken a hard look at how it is they're going to survive into their retirement," Mr. Hamza said.
Last week, an Ipsos Reid poll found that just 27% expect to be fully retired at 66, down from 51% in 2008. An HSBC survey suggested that 47% of Canadians aged 55-64 have never saved at all for retirement.
Also last week, senior Bay Street executives — including the chief executive of Canadian Imperial Bank of Commerce — weighed with solutions for what appears to have become a chronic shortfall in retirement savings.
Gerry McCaughey, the CEO of CIBC, suggested establishing a system for voluntary contributions to Canada's national pension scheme, the Canada Pension Plan.

Your bank mortgage: Is it fair and does it suit your needs?

Robert McLister Special to The Globe and Mail Published Monday, Feb. 11 2013

Banks operate under the scrutiny of government watchdogs. But when it comes to
mortgages, those watchdogs don’t watch everything they could.

“Individual (bank) mortgage reps operate outside of regulatory boundaries which
commonly govern licensed professionals,” says Samantha Gale, a former mortgage
regulator with B.C.’s Financial Institutions Commission and chief executive officer of the
Mortgage Brokers Association of British Columbia. Rules pertaining to mortgage rep
competency, the suitability of mortgage recommendations and compensation disclosure
are largely left to the banks themselves.
That raises certain questions, like the procedure banks use when sending a mortgage
applicant to another lender.
At Royal Bank of Canada (RBC), for example, mortgage reps route applicants that don’t
meet normal guidelines to their Alternate Mortgage Solutions (AMS) team. RBC’s AMS
employees then farm those customers out to other lenders and the bank’s mortgage rep
gets paid when the mortgages close.
Some might easily mistake this practice for “dealing in mortgages,” an activity that
normally requires a brokering license. But, because bank employees are the ones
recommending the alternative lenders, and because banks are federally regulated, they
aren’t bound by tough provincial rules that make it an offence to broker without a licence.

Consumer protections differ in bank and broker circles. In Ontario, for example,
provincial penalties apply whenever a broker:

Suggests an unsuitable lender or mortgage – Ontario requires brokers to “take
reasonable steps” to ensure that any mortgage presented to a borrower is suitable.
Not only must the borrower be properly qualified, but recommendations should
attempt to minimize the borrower’s current and future borrowing costs and
provide the right mortgage flexibility given the customer’s needs. By contrast,
while bank regulations encourage banks to “Know Your Client,” they don’t
contain specific guidelines on ensuring suitability – apart from confirming the
borrower is properly qualified.

Sells a higher mortgage rate to get paid more – Brokers must disclose this
conflict of interest. Federal disclosure rules don’t hold banks to the same standard, even though many bank reps – like many brokers – get paid sales incentives and earn more for selling a higher interest rate.
Policing these things falls in the lap of provincial regulators. Provinces draft specific
broker conduct rules, pro-actively monitor and audit brokers and sanction individual
brokers publicly when they’re caught violating regulations.
With bank mortgage reps, there is no independent government watchdog that directly sets
specific suitability and compensation disclosure rules, audits and monitors individual
reps, and publicizes it when a bank rep breaks the rules. The banks themselves are
responsible for “developing the policies and procedures to be followed” by their
mortgage reps, says Rachel Swiednicki of the Canadian Bankers Association (CBA).

Many assume the Office of the Superintendent of Financial Institutions (OSFI), the
primary bank regulator, supervises bank rep conduct. In fact, OSFI’s main role is to
“monitor and examine institutions for solvency, liquidity, safety and soundness,” says a
spokesperson. “OSFI does not have the authority to intervene in the day-to-day
operations of the institutions it regulates for individual consumer-protection purposes.”
That’s actually the job of the Financial Consumer Agency of Canada (FCAC). It is tasked
with ensuring that bankers comply with federal consumer protection rules.
FCAC is a fantastic mortgage educator and regulator when it comes to high-profile
problems like mortgage penalty disclosure or failure to provide cost of credit disclosure.
But “FCAC appears to regulate systemic institutional compliance problems only,” says
Ms. Gale.
Julie Hauser, FCAC’s spokesperson, explains that “FCAC supervises federally regulated
financial institutions, not individual employees.” Unlike provincial broker regulators,
FCAC generally does not:
· Have its own set of rules, prohibitions and competency requirements to promote
suitable mortgage recommendations (e.g., federal rules don’t deal with specifics about
what constitutes a suitable alternative lender for a declined borrower, or when a secured
line of credit, 1-year term or fully-closed mortgage are appropriate for a borrower)
· Impose specific educational standards and licensing for bank reps
· Pro-actively audit or monitor individual bank mortgage rep conduct
· Post online when a bank rep wrongs a mortgage customer (like this.)

That means it’s up to a bank to set and enforce its own specific competency, suitability
and market conduct policies within general federal guidelines. In many ways, this makes
banks their own overseer.
So, why aren’t the feds watching mortgage rep activity more closely? Apparently it’s a
low priority issue for Ottawa. “We need the political will of regulators to get together and
sort this problem out,” Ms. Gale adds. “There is real risk here for consumers.”

Ms. Gale says that mortgage brokers have a fiduciary-like relationship with customers –
to recommend a suitable lender with suitable terms. But with banks, a similar fiduciary
relationship doesn’t exist because they primarily push their own brand.

“Banks are kind of like a mortgage shop,” she says. “And when they pass you off to
another lender, and you don’t know who you’re dealing with and why, that’s a consumer
risk.” (Banks always get a customer’s consent to work with another lender, but a bank’s
true reasons for choosing another lender are not always disclosed.)
Some banks refer customers that they can’t service to lenders or brokerages that the bank
has a monetary interest with. “They’re not necessarily working for you to get you the best
deal,” Ms. Gale says.

Rodney Mendes, a broker and former TD Canada Trust mortgage specialist of 15 years,
says banks’ internal guidelines are “just as stringent” as provincial broker regulators.’
RBC, for example, states it has a “strict code of conduct,” “comprehensive training” and
“pro-active monitoring and auditing practices for its entire mortgage business.”
That’s all good, but bank mortgage reps “don’t report to any governmental authority
unless there is a complaint,” Mr. Mendes says. “Bank mortgage specialists report to their
own internal compliance department” so it’s often up to management to discipline a
mortgage rep. And, in a small number of cases, it’s possible that management “may not
want to lose volume on their books” by coming down too hard on a big producer.
Banks have a “strong culture of compliance,” counters the CBA’s Maura Drew-Lytle.
Banks make mortgage specialists attest to their compliance obligations and subject them
to annual training and testing. Mortgage reps can also be fired, which is less of a threat
for mortgage brokers. Ms. Drew-Lytle also notes that banks address most consumer
complaints internally, using well-established complaint processes with a third-party
ombudsman as an arbiter.

All of that is true. But when it comes specifically to suitability and compensation
conflicts, the goal should be to fully disclose and avoid them, not address them when
there’s a complaint.

As a side note, not all mortgage brokers have clean hands just because they’re monitored
more directly by provincial regulators. Like the large majority of bankers, most brokers
are honourable professionals who care about their clients. Yet, as a broker, I regularly
witness biases, conflicts and competency issues in our industry. I’ll reveal examples in
my next column.
That said, the takeaway here is that Canadians are forced to rely heavily on banks to
police their own mortgage sales forces. There is no impartial government watchdog proactively
targeting bank reps who make unsuitable mortgage recommendations or fail to
disclose compensation-related conflicts. With more direction and better funding, the
FCAC could assume that role.


Victor Peca
Mortgage Broker
c - 416-888-4934
f - 866-843-8311

Thursday, February 14, 2013

The crazy world of engagement ring financing

By Gerri Detweiler |
Are you willing to go into debt for love? If you are ready to pop the question, but haven't saved for the ring you want to buy, you may be tempted to finance the purchase. But do that, and you may find that already pricey engagement ring costs a lot more than you planned.
The average engagement ring cost $5,200 and about 12% of couples spent more than $8,000 for an engagement ring, according to the XO Group Inc. 2011 Engagement Engagement & Jewelry Survey. The average ring was 1 carat for the center stone, and 1.4 carats total stones.
If you haven't socked that much away, don't worry. All of the major jewelry stores offer financing, with many of them promoting interest-free financing for six to 12 months. (No interest, no payments is no longer allowed thanks to the CARD Act). But there's a catch: miss a payment or fail to pay off the balance and you'll pay a lot more.
For example, here is what some of the major jewelry stores are currently advertising*. With all of these plans, if you make one late payment or fail to pay the balance in full during the promotional period, interest will be charged from the date of purchase — not from the date the promotional period ends.
Jared: 0% interest if paid in full within 12 months; up to 24.99%.
Kay Jewelers: 0% interest if paid in full within 12 months; up to 24.99%.
Shane and Company: 0% interest if paid in full in 6 months; 27.99%
Zales: 0% interest if paid in full in 6 months; 23.73% to 28.99%
While interest-free financing may work out fine if you are able to pay off the balance, it is risky if you aren't able to come up with the cash to pay it off.
One more potential trap: Applying for one of the accounts will create an inquiry on your credit reports. Plus, if you accept the financing, you'll have a new account with a balance listed on your credit reports, and that could potentially have a negative effect on your credit scores. That's something to keep in mind if you hope to buy a home together soon, for example.
Avoiding Engagement Ring Debt
If you don't want to wait much longer, you may want to consider more affordable options:
  • Buy a less expensive ring and start saving for an upgrade on, say, your fifth or tenth wedding anniversary.
  • Use interest-free financing for the initial purchase, then use a low-rate balance transfer to pay off the balance before the 0% store financing ends. I am not recommending this, since you can run into traps here too, but if you pull it off, it's better than paying 25% or more for long-term store financing.
  • Get a part-time job in a jewelry store and save substantially on your purchase. Put all of your earnings toward a ring.
And when you do choose a ring, shop carefully to make sure you are getting the best deal. Jennie Ma, fashion editor, offers these tips:
  • Buy Shy and Save: Shop for diamonds that weigh just under certain weight thresholds. For example, if you want a 1.0 carat diamond, you can buy a .90 carat diamond and save more than $1,000. And buying shy will hardly affect the diamond's outward appearance (the diameter of a 1.0 carat diamond is 6.5 mm, whereas the diameter of a .90 shy carat stone is 6.3 mm — the difference is the thickness of a piece of paper). The price difference between a 1.90 carat diamond and a 2.0 carat diamond can be as much as $5,000!
  • Hit the Internet: There can be some great deals found on the Internet — i.e. BlueNile and Union Diamond allow you to compare the going rate of loose diamonds and ring settings based on their grades and styles.
  • Buy Loose Diamonds: Don't be dazzled by the pretty setting, the fancy box or the clever advertisements. Most jewelry ads are selling you on settings, not diamonds, even though the stone is a whopping 90 percent of a ring's cost. It's important to buy the stone loose, not mounted, so you can inspect the entire stone.
  • Don't be Afraid to Negotiate: There's always room for negotiation, so don't be afraid to go after a deal. Never settle on the sticker price unless you've shopped around and you know it's already a fair price.
Keep one more thing in mind before going into debt for an engagement ring: You've got a much bigger expense coming up soon — a wedding.

Monday, February 11, 2013

BUDGET, DON'T FUDGE IT: Keep track of your spending.

A family budget isn't a set of spending handcuffs, as many people might think. In fact, it's your spending passport: a plan for how to spend your money, guilt-free, every single month. – knowing that you're making your long-term financial health your top priority.
If you do your banking online, you may find that it's relatively easy to get a quick overview of your current spending habits. Where's the money going now? Many people are surprised when they start analyzing their credit card statements and bank records.
Next, map out a spending plan that will ensure you prioritize your debt payments, your fixed costs and an emergency fund – then build a plan for how to manage all of your flexible spending to ensure you get to the end of the month before you get to the end of your money.
If you find yourself losing ground – even a little – each month, then it's time to build a budget that will ensure you get back on the road to a debt-free future. As ever, if you have high-interest debt outside your mortgage, start with a call to us!