Monthly Archives: November 2015

Mutual funds: protect yourself with segregated funds

Segregated funds were initially developed by the insurance industry to compete against mutual funds. Today, many mutual fund companies are in partnership with insurance companies to offer segregated funds to investors. Segregated funds offer some unique benefits not available to mutual fund investors.

Segregated funds offer the following major benefits that are not offered by the traditional mutual fund.

1. Segregated funds offer a guarantee of principal upon maturity of the fund or upon the death of the investor. Thus, there is a 100 percent guarantee on the investment at maturity or death (this may differ for some funds), minus any withdrawals and management fees – even if the market value of the investment has declined. Most segregated funds have a maturity of 10 years after you initial investment.

2. Segregated funds offer creditor protection. If you go bankrupt, creditors cannot access your segregated fund.

3. Segregated funds avoid estate probate fees upon the death of the investor.

4. Segregated funds have a “freeze option” allowing investors to lock in investment gains and thereby increase their investment guarantee. This can be powerful strategy during volatile capital markets.

Segregated funds also offer the following less important benefits:

1. Segregated funds issue a T3 tax slip each year-end, which reports all gains or losses from purchases and redemptions that were made by the investor. This makes calculating your taxes very easy.

2. Segregated funds can serve as an “in trust account,” which is useful if you wish to give money to minor children, but with some strings attached.

3. Segregated funds allocate their annual distributions on the basis of how long an investor has invested in the fund during the year, not on the basis of the number of units outstanding. With mutual funds, an investor can invest in November and immediately incur a large tax bill when a capital gain distribution is declared at year-end.

There has been a lot of marketing and publicity surrounding segregated funds and how much value should be placed on their guarantee of principle protection. In the entire mutual fund universe, there have been only three very aggressive and specialized funds that lost money during any 10-year period since 1980. Thus, the odds of losing money after ten years are extremely low. If you decide you need a guarantee, it can cost as much as 1/2 percent per year in additional fees.

However, with further market volatility these guarantees could be very worthwhile. In addition, most major mutual fund companies also offer segregated funds.

Business Finance Problems – Here;s Some Canadian Capital Financing Solutions

Business Finance Problems – Here;s Some Canadian Capital Financing Solutions

If there is one benefit of meeting and speaking to numerous companies with business finance problems its that one quickly gets a sense of what financing solutions are needed… and when!

In fact a lot of what we could call early warning signs in business challenges emerge pretty clearly – even though those same signs are often ignored or misinterpreted by the Canadian business owner and financial manager. Let’s look at some of these business warning signals and how you can nip them… in the bud as they say!

Experienced business owners know that access to capital tends to come and go… its those good times, bad times and boom and bust that makes the journey somewhat… exciting.

Most owners / managers are simply happy to ensure they have access to the right financial solutions for their company. Even more important is ensuring those solutions come with terms, rates and structure that suit those present situations.

Your ability to have access to up to date information at any time is critical to both managing your business and having access to solutions. So when we meet a client that can’t produce regular monthly balance sheets and income statements that has always been a warning sign of bad things to come.

Mismanagement of current assets is the real killer in working capital and cash flow problems. If there is any good news in that it’s that there are some great finance vehicles to help you both manage those current assets and address the cash flow challenges that come with any business that’s both surviving, and growing.

Let’s take a look at some of those current asset warning signals. Key in that category is the double whammy of growth and slowdown in accounts receivable. Not knowing your day’s sales outstanding and the ongoing relationship of sales and receivables is a business killer. Financing receivables in Canada can come in a number of different ways – they include”

Receivable financing / factoring

Comprehensive asset based credit lines that margin A/R at 90%

Bank credit facilities

All of the above solutions come with different rates and structures – some will work for your firms overall credit quality, some might not. What these solutions do provide though is an immediate increase to your ‘ cash on hand ‘… and that’s a good thing.

Inventory deterioration, or even inventory build up are also key warning signals to a business finance problem. It’s important to know your inventory turns, and, similar to receivables monitor those inventories so they arent continually representing more and more a percentage of your total assets.

We’ve been talking ‘ current assets’ but at the same time fixed asset concentrations can be a killer also. Here is where proper use of term debt and lease financing are critical.

In summary, knowing what financing you need, and when it critical to the fix for some of those early warning signals we’ve talked about.

Speak to a trusted, credible and experienced Canadian business financing advisor on ‘ realistic ‘ financing vehicles for your firms operations, challenges, and growth.