My Suggestions to the Ontario Securities Commission on Retail Investor Issues

Last Thursday I noted that the Ontario Securities Commission, the financial securities regulator in Ontario, had established the Joint Standing Committee on Retail Investor Issues and is in the process of collecting public input. Being chronically opinionated, I must take a shot at this.

To the Joint Standing Committee on Retail Investor Issues,

Here are some actions that I believe would benefit retail investors:

1. Increase participation and seek wider input - with only 12 people on the conference call recently, that can hardly be representative; to uncover more suggestions and ideas, reach out to the online world and solicit input from discussion forums like the Financial Webring and Canadian Business and many bloggers from mainstream media folks like Ellen Roseman, Larry MacDonald, Jonathan Chevreau and Rob Carrick, to public-spirited professionals like Preet Banerjee, Norm Rothery, James Hymas, to joe public fanatics like Canadian Capitalist,Four Pillars, Michael James, Barel Carsan, Middle Class Millionaire, Million Dollar Journey, Investing Intelligently. See the links in the sidebar of my blog CanadianFinancialDIY. I am certain you will get well-informed, though perhaps pointed comments.
2. Abolish the OSC and other provincial regulatory bodies and create a single national regulator. This regulator should have greater resources and ability to investigate and enforce laws on the gamut of abuses that harm individual investors. Laws and regulations are of little use unless they are enforced.
3. Give priority to improving the regulation of advisors/ sales reps over the products themselves. Most retail investors do not have the time, inclination or skills to manage their own investing and this is becoming less so as the number and complexity of financial products increase. Investors want and need the convenience that already exists through the selling process of various providers but they also need someone trustworthy. Make the disclosure by advisor / sales person to the client of the compensation fees and payments mandatory in percentage and dollar terms.
   
4. Make the provision of financial advice a profession with regulatory requirements for certification ( a combination of knowledge and experience), licensing registration and ethics standards that are actually enforced. Recognize that investing advice is merely a subset of overall personal financial planning and cannot be isolated from it. For example, sometimes money is better spent on insurance than mutual funds, or invested in one's own human capital or an annuity etc. The investing process must start and end with a person or family's holistic, integrated neds so that investing decisions are made in the proper context. The Investored.ca website, which you at the OSC sponsor, implicitly recognizes this by providing information on such diverse not-strictly investing topics as managing debt, buying a house and insurance.
   
5. Oblige mutual fund companies to improve their disclosure by:

• revealing all the costs associated with a fund, including trading costs borne by the fund, i.e provide total expense ratio not just management expense ratio, since this can be a significant drag on net performance; the new Framework 81-406 Point of Sale Disclosure for Mutual Funds and Segregated Funds is extremely disappointing in excluding trading costs since they are significant and are said to vary considerably amongst funds; total costs are an important predictor of future fund performance. See this article in Fundscope.
  
• providing illustrations of the effects of the charges and fees on fund performance through standardized terms from the investor's perspective so that the investor can compare across funds and companies
• publishing turnover ratios of funds

I would suggest that the OSC examine the UK system of regulating advisors and fact disclosure to investors. Many of the above ideas are already implemented in the UK under the Financial Services Authority, which is the single national regulator for investment and financial advice to retail investors.

Recession to Last 2 to 3 Years? ... or More?

Robert Peston of the BBC blogs that a Bank of England report on the financial crisis tells how a similar banking credit crisis and contraction in Norway, Sweden and Japan lasted two to three years. Is that how long the recession will last? Or Perhaps even longer if there is a lag after lending and business investment and consumer spending start again? Incidentally, there are always lots of comments on his frequent posts and many of those comments add an interesting perspective. London is, or was(?) and major financial center so many insiders seem to want to get the dirt out and they comment away.

Global Financial Crisis: How Long? How Deep? over at Vox EU shows that crises such as the one currently underway have had the following effects on average:

• credit crunch - average two and a half years with about 20% decline in real credit
• housing bust - average four and a half years with 30% decline in real prices
• stock market crash - average two and a half years with 50% real decline in equities

Worse news, recessions associated with the above are much more severe, with economic output declining up to 1% and lasting over four years. As the authors say, "The main take-away of the past episodes is that some tough times are ahead for the global economy before matters get better." Their short article is based on a just-released 80 page study by the International Monetary Fund Systemic Banking Crises: a New Database by Luc Laeven and Fabian Valencia.

GlobeAdvisor reports that the CPPIB is on the prowl to acquire real estate properties at bargain prices in the US and the UK and it apparently anticipates the bargains will be there for about two years, i.e. that's how long they believe the slump could last.

Tell the Ontario Securities Commission What You Want Them To Do

The investing world doesn't seem to know it but the securities regulator in Ontario, the Ontario Securities Commission is collecting public input about retail investor issues. The OSC set up a body at the end of August 2008 called the Joint Standing Committee on Retail Investor Issues. Its terms of reference (only two pages!) are here. The JSC's first initiative was to conduct a survey on product suitability - see the questions on this page.

They need your help because they don't seem too skilled at getting out there and finding the run-of-the-mill retail investor. I had stumbled across their web page in September and sent them my two cents worth. They subsequently organized a teleconference to which I was invited along with, I presume, those other folks who had responded. There was a vast crowd on the call, all of twelve people (!) giving their views. Half or more were insiders or industry professionals. Somewhat sad and inadequate participation for such an important subject, I dare say. No one had really been informed that they were expected to give their views so it was quite off-the-cuff. As a result, there was a lot of rambling in the two hours. Sigh...

Here's a smattering of comments I heard (I make no attempt to be representative or comprehensive):

• products need to have full disclosure of risks and costs before sale
• advisors lack training and need a far higher level of education, practical training and experience
  
• advisors are more motivated by sales commissions and fees than the client's best interests e.g. many advisors won't recommend ETFs
• advisors may mislead by themselves not understanding the products they sell
  
• some advisors put client money into investments that are highly inappropriate, both from the view of risk and client understanding, i.e. they ignore their fiduciary duty
• the ABCP fiasco is an example of the failure of regulatory bodies to prevent the offer of a bad product and subsequent mis-selling by the industry
  
• this OSC committee itself is in danger of bias and influence by part of the very industry it seeks to improve, e.g. through the fact that Mutual Funds Dealers Association is a member

While one can complain about poor regulation and a bad consultative process, just sitting back and bitching under one's breath does not and will not solve problems. It was written almost 400 years ago and is still true today: "If the mountain will not come to Mahomet, Mahomet must go to the mountain". Let them know what you want or think needs to be corrected. Send an email to jsc@osc.gov.on.ca by their deadline of Friday, October 31st.

A good place to start might be the new disclosure requirements for mutual funds, which blogger Michael James finds to be less than perfect. Btw, thanks to Preet Banerjee over at WhereDoesAllMyMoneyGo for bringing this subject to my attention.

I'm preparing my own comments for an email and will post them on this blog.

Why Raising the Guarantee on Bank Deposits in Canada Is NOT a Good Idea Right Now

The CBC report Flaherty Expected to Announce More Help for Banks says he will raise the $100,000 guarantee on bank deposits, an action "aimed at helping Canadian banks weather the storm during the global financial crisis...". It turns out he announced that the federal government will guarantee inter-bank loans not increase deposits according to a more up to date report on CTV called Ottawa Takes Action to Boost Inter-bank Borrowing.

Whew! Thank goodness he did not raise the deposit guarantee. Imagine the consequences if he had.

People would ask themselves, "What exactly is going on that banks or depositors now need such protection? Are the previous assurances that Canadian banks are just fine not true anymore?"

Here's what further effect I think such an announcement would have:

• people conclude that there must be a need for such protection, i.e. that banks are actually much weaker than they had been told, thus creating or exacerbating the very condition that the new guarantee seeks to placate; bank stocks would get hit, weakening the banks in reality
  
• to the extent that people actually trust the guarantee, they have a greater incentive to see cash as the safe haven; they can now safely take more money out of the stock market and put it in a bank! After all, how many Canadians have more than $100,000 in cash that needs protecting? Certainly not ordinary working Canadians, it's people with substantial investment portfolios who are now in a state of severe stress as they watch the markets melting down day by day. The urge to sell out of the market and put it in cash in a bank increases, thus further weakening the market.
  

The time to up the guarantee is when something actually happens. Otherwise it risks becoming a self-fulfilling prophecy. Sometimes doing nothing is better than action.

Why I Have Reduced my Allocation in US Investments

Last Friday October 17th, I made some major changes to my portfolio allocations:

• total US investments reduced from 19% to 4%
• European equities, much of it in fact consisting of the UK, also reduced from 19% to 17%.
• Canada upped from 44% to 55%
• Far East raised from 5% to 6%
• Developing countries raised from 4% to 5%
• Global increased from 9% to 13% through addition of the Vanguard Global Index Fund VEU

The reason in a nutshell - the aftermath of the debt crisis, which raises the risk of US investments, both for market results and for currency.

How so? Starting with the anecdotal but startling nevertheless - the clock tracking the US national debt in New York city has run out of digits the debt has ballooned so much. All the various bailout measures to shore up banks may have stabilized the system but the debt has not gone away and is now on the books of the US government/taxpayer. The negative consequences are likely to be severe and long term.

More substantial evidence:

• Contrary Investor details the US Federal government's rising debt, its dependence on foreign sources of funding in Fun with Funding and shows that they are losing confidence and pulling out in The 'Other' Consumer Confidence Survey.
• Sudden Debt posts on the level of personal debt in the US and how far it has to go to drop to a reasonable level with other posts on how consumer spending is already dropping.
• Cause for Depression has an informative graph of the deteriorating balance sheet of the US Federal reserve as well as a series of posts describing the financial crisis from its origins to the present; the blogger is a a US economics prof
• Market Ticker in Fiscal Cat 5 Hurricane Warning describes how US debt markets could totally collapse unless the government imposes some very harsh medicine
• Market Oracle discusses the impact on US government debt of the Fannie & Freddie bailout.
• Financial Times reports possible weak interest / few buyers for US debt in upcoming auctions.
  

Contrary mainstream views do exist:

• National Bank's Oct.17 Economic Weekly newsletter says the impact of the $700 billion rescue package on US government debt is inconsequential.
  

Of course, there's a song to go with the theme, Crash Dance by Versus (I recommend all their brilliant satirical parody songs). The same group has another great song The Dollar and Its Diving that express my fears that the USD while strong now, may not be so for long.

On the other hand, the increasing allocation to Canada, despite the consequent lessening of diversification, is to reduce the extreme USD currency risk and market risk. In contrast, Canada's debt levels are low enough and stable. No banks are going under. Times may be tough during the worldwide recession but survival is sure and Canada's eventual prosperity I feel confident in.

European countries and the UK in particular, may warrant a further reduction. Generally I have read that debt levels are high in the UK and the government's borrowing is at record levels - see BBC's UK Borrowing Hits a 60-year High - so there is increased risk there too. The big question is whether it has become unsustainable as in the case of the USA, a conclusion I have not reached yet.

Update October 25th ... A GlobeAdvisor article says the USD may suffer a crisis. It's nice to find supporting opinion but am I deluding myself? Need to find contrary views...

UK Bureaucracy Ponders Allowing Me and My Wife to Live Together

A few years ago, when I, a Canadian, married a wonderful Scottish lady I obtained permission to stay in the UK on a two-year leave to remain permit. Applying for permanent residency becomes necessary two years after entering the UK on the temporary residency permit. In order to continue to be allowed to live with her here in the UK, I have thus recently applied for permanent residency, or indefinite leave to remain, using the SET (M) form. What follows is thus based on my personal experience.

The UK's process to obtain permanent residency (described on the UK Home Office Border Agency website) seems designed to trip up applicants, to presume guilt and suspicion of wrong-doing, to impose considerable cost, inconvenience and stress and to punish those who fail to tick all boxes correctly or abide by the tricky rules. Whether it is deliberate or merely inadvertent the process is highly unpleasant.

Problem #1 - Complicated and Changing Process and Forms
First, you must figure out which of the many forms to use. In my case, as a spouse it is SET (M). The form is 17 pages long, the instructions another 7 pages. There is lots of information and documents required -photographs, bank statements, passports, bills with addresses. Almost all of the information requested is exactly the same as was asked for in the original application to enter the UK.

The forms and the requirements have changed several times during 2008. The authorities added a new requirement since I arrived in 2006. Since the beginning of the year, applicants have to pass a test of English language and UK knowledge, called Life in the UK.

The application form itself includes some bizarre questions. Check out this snippet of Form SET(M):

That's right, perpetrators of mass murder, genocide and terrorism are kindly requested to identify themselves and to provide details of their acts in a box on the next page. Terrorists are apparently likely to be found amongst spouses seeking to live happily with their loved one. What prevents the Border Agency from utilising police and security sources of the government to check whatever it wants about individuals by itself? What leads the Border Agency to believe that such nasty individuals will volunteer such information? When I applied for an account, a foreign exchange dealer was able to verify my name and address instantaneously. Why can the government not use its far greater sources to do employment, financial and criminal checks?

Problem #2 - Too-short Time Window in which to Apply and Severe Penalties for Missing It
One may not apply earlier than 28 days before the expiry of the initial residence permit, nor after the expiry. If you are too soon, they refuse the application with no refund of the fee. If you are late, you are in the country illegally. There are harsh sanctions. First, being late means you have no right of appeal if you are refused, e.g. fail to tick a box on that form and you could be on a plane back to where you used to live. Second, you are then not allowed to apply in person, only by post, which takes a lot longer. Third, the time to process becomes indefinite and longer than the announced objectives below. At least the Border Agency won't put you in jail and deport you, while awaiting a decision on a late application - at least that's what they said when I phoned to ask.

Meeting the narrow window is made more difficult by the necessity to take and pass the Life in the UK test. Despite being easy enough, if you already read and write English fluently, some study is required so you must get hold of the book, spend a week or two studying it. The testing is only done in government test centres and time slots for taking the test are only available, in Glasgow at least where I took it, three or more weeks ahead. Fail it and you must start over. The pass certificate must accompany the application. If you do not know English very well, things get even more onerous since you must learn first. Of course, you can apply for other temporary extension visas if you are having trouble passing the test but all this schmozzle increases the chances of people missing the deadline.

Problem #3 - Ridiculously Long Decision Delay
Here is what the Border Agency website says on waiting times:
"Our service standards set out how quickly we aim to decide applications ... we will:

• decide 70% of postal applications within 20 working days;
• decide 90% of postal applications within 70 working days;
• decide 90% of applications made in person at a public enquiry office within 24 hours."

Note that 70 working days is about 3 and a half months. Yikes! We are told that applications that are not "straightforward" take longer. Years perhaps? How is that postal applications take so long while in-person takes 24 hours? Do all the cheats mail them in? Could it have anything to do with the fact that an in-person application costs £200 more, at £950, compared to the postal route at £750, i.e. the Border Agency is forcing applicants to the costlier route? Shades of sleazy marketing indeed!

Also note the masterful bureaucratic language which promises nothing - the Border Agency only "aims to" but does not guarantee, it only will "decide" not necessarily approve, not even with a caveat such as "if you meet all the criteria", and there is the last 10% for which there is not even a target. You could be waiting indefinitely and have no cause for complaint.

Problem #4 - Passports Held Ransom and Travel is Not Permitted
Passports of the applicant and the spouse must be sent in with the application. That means no travel is allowed, potentially for months. Prisoners of the UK you are! Since you have no idea when the application will be decided, let alone approved, you cannot make holiday plans, travel back to see family or friends or whatever.Suppose you are in the 10% taking more than 70 working days, how can you plan ahead at all? I've already been waiting five weeks and had to cancel a trip back to Canada, losing money on that, and now I'm worried about Christmas.

Should we need our passports back to travel for an emergency, the Border Agency will happily do that, though it means the application is considered cancelled and the £750 fee is lost and one must re-apply from scratch. On top of that, if you leave the UK after expiry of the initial permit, you must apply anew from the foreign country, possibly having to stay for months while it is processed. That's not very family friendly, to say the least.

Why exactly does the Border Agency need to hang onto those passports, especially that of the UK citizen?

Problem #5 - Absence of Transparency and Progress Status Information
The only information the Border Agency will supply about your application is a letter of acknowledgement that it has been received. Your application then disappears into a bureaucratic black hole. You will only be allowed to request status information after the 70 working days have past. This final element creates a sword of Damocles over the innocent applicant, with all the attendant stress and anxiety.

Problem #6 - High Cost
The cheaper but deadly slow and opaque postal application route costs the rather pricey £750, on top of which is the £34 for the Life in the UK test and the associated study material £10. Two years ago, the initial temporary permit (you may not apply right away for the permanent permit) cost £395 (postal application) or £595 (in-person). That's in addition to the £515 paid to obtain the visa to get into country initially.

The fast-track in-person application costs a princely £950. Only the well-off can apply it seems.

Suggestions for a Kinder, Gentler (and probably More Effective for the Government) Process:

• get rid of those stupid paper residence permits glued into the passport - all those agents at airport kiosks have computers don't they? So let them have access to the database that shows if I have a permit; that obviates any need to hang onto people's passports for months and months
• put the application form online so that you can fill it in and submit it electronically with scanned copies of the required documents; if such methods are sufficient to control money laundering, why not residency permits?
• with all the information then being electronic in the government's hands, automate the assessment and screening process, just like the tax and customs people do to detect suspicious patterns; it will be much faster to everyone's benefit
• pro-actively send out notifications when requirements, deadlines or anything else changes and especially in advance of a looming expiry date; whether it is by snail mail or email, follow the example of every other business and many government departments; it sure would have helped me
  
• further automate cross-checks with other databases; if in doubt how, check with the credit card companies how to do this
• set up an online web application tracking and status information tool so people can check themselves; consult the zillion online companies who do this routinely as part of customer service to find out how; no doubt all those telephone agents who now have to spend their hours answering phone calls on the existing "info" line from desperate people would be freed up to do real work assessing marginal or suspicious cases.
• shorten the decision turn-around goals to 90% within 24 hours of receipt (the same as the in-person route) with 100% substantive answer within two weeks i.e. if the Border Agency cannot approve within that time, they should state a reason and the need for further investigation

Right now,my wife and I are living on tenterhooks while the UK Border Agency decides whether we will be allowed to continue to live together in the UK. Since we are about as mainstream, ordinary and conforming to the criteria as it is possible to get, I figured my application would be speedily rubber-stamped. Wrong! Five weeks later, here I am still waiting unable to obtain the slightest information about what is or is not happening. And we are unable to travel anywhere or even make travel plans.

Update Nov.28 - Good news at last! The passports have arrived back with residence permit included. The secret to success? We asked for and received the support of our local politicians - councillor Robert Barr, MSP Jackson Carlaw and Member of Parliament Katy Clark who wrote to the Home Office on our behalf. Off went the letter and presto, a week later the permit arrived. Kudos to them as, unlike the bureaucracy, they were very accessible and sympathetic and responded immediately. Total time elapsed from application to receipt in mail - 67 days, more than two months.

Credit Crunch Humour

A little stress relief in the form of humour can help these days. Here are some of my favorites.

BBC video clip of John Bird and John Fortune doing a take-off on bankers and a series of their gems of market volatility and sub-prime loans. The same site has an interview with a Playboy Playmate describing her investing approach.

Here's pro golfer Mike Weir looking very awkward and silly doing a serious commercial for mutual funds. Stick to golf Mike.

And then there are the Monkey waiters in Japan.

Dad explains the financial crisis to son.

RhettandLink sing the Economic Bailout song.

The whole financial history of the last 20 years in a 2 minute song.

More at the Marignal Revolution blog; love that monkey joke!

The Daily Mash satirical joke site has a deadly barb aimed at Local Authorities in the UK who deposited large amounts in Icelandic banks.

Investing Cynically - Alternative Energy as the Next Bubble?

Is it possible? Eric Janszen in a February 2008 Harper's magazine article The Next Bubble: Priming the Markets for Tomorrow's Big Crash, puts forward the idea that Alternative Energy will be the next big bubble since the world's current financial crisis requires a new bubble to bail us out of the now deflating real estate bubble.

Do we hop on the bubble early to make a bundle? And can such a system continue as each successive bubble gets larger?

It is troubling to read this: "Given the current state of our economy, the only thing worse than a new bubble would be its absence." Something is indeed rotten in the state of Denmark. ... Come to think of it, the analogy with the plot of Macbeth, in which ever-more despicable murders become necessary to cover up the effects of the first murder, seems apt. Dare we hope for a similar eventual outcome?

PS: thanks to The Bolt where I found this article linked.

Understanding the Turmoil - Credit Derivatives

Came across this clearly-written explanation by Daniel Amerman about the problem of credit derivatives, whose value is larger than the whole world economy. Very sobering. He includes a bit of his advice about to cope.

A Modest (and Cheap) Proposal for Solving the World Financial Crisis ;-)

The global financial crisis in its current phase apparently boils down to the fact that banks won't lend to each other, to businesses or to individuals as we are told by the BBC, Bloomberg, MarketWatch, the Times, MSN MoneyCentral, etc. Everybody agrees on the problem, even Socialist Worker!

We have seen governments try every inducement - buying off the toxic debt, provide unlimited liquidity, nationalising banks, lowering interest rates. Nothing has worked.

"Nice" is not working. Time for a somewhat harsh solution, but hey, the world's future is at stake and in the past governments have not shied away from being somewhat heavy handed when the occasion called for it (here you can fill in your own favorite example, depending on which country you hate the most).

My solution rests on the fact, at least I believe it to be so, that the banks are run by people. Now, all people have emotions, even bankers, and the one emotion stronger than greed is, you guessed it, fear. Right now, bankers are afraid of lending. So we must replace the fear of lending with a greater fear of not lending.

All the heads of the various governments, being on a first-name basis with all the head honchos at the banks, or so we are constantly told, must therefore have their phone numbers and addresses. Therefore, George (Bush), Gordon (Brown), Stephen (Harper), Angela (Merkel), Nicolas (Sarkozy), Taro (Aso) ... should pick up the phone and "suggest" to bankers that they start lending. I'm sure their people and communication skills will be more than adequate to convey the "accidents" that might happen to them and their families should the bankers fail to change their destructive non-lending policy forthwith. Using certain specialist human resources to back up the suggestion, it would only take one unfortunate uncooperative banker for word to get around and things to change rapidly. Surely that would be a small human sacrifice compared to the untold misery facing millions of citizens who would suffer in the hard recession that is developing as a result of the banking freeze-up.

I don't know the going rates for such specialist resources but it surely is much cheaper than the several trillion dollars already spent by the US alone. And my fee for this suggestion is a standard investment banking rate, discounted by half as my contribution to these difficult times, only $0.001 trillion (and pay that in Canadian dollars please because I suspect the USD will soon be toast).

... later on ... Ha, ha ha! Just found this column by Robert X. Cringely in which he seriously suggests something similar - the heavy he suggests is Jack Welch, famous former CEO of GE.

Four Personal Finance Initiatives to Consider in the Canadian Federal Election

Yesterday I reviewed what the parties in the Canadian federal election campaign are promising to voters that will directly affect personal finances. Below is my list of suggestions for what the parties should address.

Create the iCPP (Individual Canada Pension Plan), a retirement savings plan funded by the individual that will be mandatory for all workers without workplace pensions (including self-employed). This isn't my idea (except for what I think is a better name than the horrible Canada Supplementary Pension Plan) - it comes from pension expert Keith Ambachtscheer as described in this May 30th Wealthy Boomer column (see also the background paper at the CD Howe Institute).

While I generally think people should learn to fend for themselves, the plain fact is that not many Canadians are saving enough to live comfortably in retirement. The paper estimates some 5.5 million households are in that situation. A little benevolent coercion is required. Otherwise, the country will end up with a double whammy: many retirees who won't have enough and, those who did save and are ok will suffer too by being obliged to pay higher taxes to make up part of the others' shortfall. Remember the story of the three little pigs?

Instead of the piecemeal, reactionary, one-off and probably inadequate boosts to GIS such as proposed by the parties in their platforms, let's create a long-term viable fix. The UK is already doing it, planning to launch something called Personal Accounts in 2012. Look at the striking possibility of improved end investment results broken down step by step in this chart from the UK document (kudos for the brilliant graphic presentation).

Canada needs to do something similar too.

Make the Tax Free Savings Account (TFSA) the only voluntary account and phase out RRSPs, LLPs, Home Buyer's Plans and RESPs. Increase the annual (and automatically inflation-indexed) contribution limit on the TFSA to something substantial and easy to remember- $25,000? People take advantage of these existing programs nowhere near what they could, partly because they are so darned complicated. The TFSA is straightforward and is flexible to suit all goals. This will encourage people to save. The new world financial order requires a massive reduction in debt levels and a shift back to saving a good portion of income - Canadians have been gorging on personal debt, perhaps not quite as much as Americans - and they need a simple vehicle to use to save.

Uniform Rules, Regulations and Laws across Canada - since mobility is such a part of life today, make life simpler where it doesn't need to be complicated.

• Abolish Provincial securities regulators and create a single national regulator with better enforcement
• Alignment of laws and regulations for wills, probate, trusts and estates
• Alignment of laws and regulations on marriage and family finances
• Alignment of laws and regulations on income taxes

Regulation and certification of financial advisors - create a true profession with substantial educational requirements, ethics, disclosure and competency. Right now, certain functions like investment advice are regulated but holistic personal finance advice is not. Yet there is a big need. Even as a person who spends a lot of time reading and thinking on personal finance, I find it difficult to keep up with the huge amount of knowledge and information required to manage my own affairs. Most people don't want to or cannot do so but the industry lacks credibility (too many people with a pure sales orientation not in the interest of clients) and competency, with the result that needs are poorly served. Creating a proper personal finance profession should happen on a national and not a provincial level.

Canadian Election Party Platforms: Effects on Personal Finances

The current federal election campaign in Canada has more or less disappeared in the excitement of watching the possible collapse of the world financial system - a real-life "will an asteroid destroy the earth?" scenario. It doesn't help that Stephen Harper's Conservatives are solidly in the lead with little able to budge the numbers; the only question seems to be whether they will form a majority government (a bit less than a 40% chance according to the UBC election market).

However, election campaign there is, so here is a look at what the parties are offering from the viewpoint of an individual finances, i.e. leaving aside indirect future effects from the betterment of society or the environment.

Conservatives - platform, what platform? at last, it finally appeared tonight. Here is what I found:

1. Increase the Senior Age Tax Credit Amount (age 65+)by $1000, saving about $150 / year to those in the lowest tax bracket
2. Lower the inclusion rate for Canadian-resident recipients of US Social Security from 85% to 50%, reversing a nasty surprise implemented in 1996; benefits only about 35-40,000 people (same link as first item)
   
3. Tax Credit of 15% on up to $5000 of eligible closing costs for a first-time house buyer
4. Extend Maternity and Parental Benefits to Self-employed through voluntary opt-in to EI program; but EI premiums will be set to offset the cost ... so where is the advantage?
5. Create Childrens' Arts Tax Credit on up to $500 of eligible fees for music, drama or art classes of children under 16, saving about $210 in lower tax brackets
6. Allow families caring for other family members with disabilities to split income between spouses; if the 1 million people caring for others split the $80 million projected benefit, that would amount to $80 each!
7. Allow the proceeds of a deceased individual's Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) to be rolled over on a tax deferred basis to the Disability Savings Plan of a financially dependent infirm child or grandchild
8. Additional $2,000 completion bonus for apprentices who complete their training in an approved apprenticeship program
   
9. Index the $100/month per child Universal Child Care Benefit to inflation and make it tax free for sole-support single-income parents

Liberals - they have a platform! and in traditional Liberal style, there are little goodies for just about everyone.

1. Increase GIS payments to low-income Seniors by $600 per year and by $800 for couples
2. Replace the tax of 31.5% on income trusts, announced by the Harper government to start in 2011, with a 10% tax that is refundable to Canadian residents; this will increase taxes by $1 billion over four years - presumably it is non-Canadians who would pay; see this Edmonton Journal article where a couple of economists applaud the Liberal proposal.
   
3. Create 200,000 student bursaries of up to $3,500 per year over four years based on financial need and 100,000 bursaries of $4000 to favour higher education access by "under-represented" groups (like males?)
4. Extra $250 tax credit for students who work
5. Cut lowest tax rate from 15% to 13.5% and middle class rates from 22% to 21% ($38-76k taxable income bracket) and from 26% to 25% ($76-123k income); this is supposedly apart from and in addition to the wholesale cuts to income taxes to offset the massive green shift pollution tax increases
6. Add $350 per year to the existing $1,200 child-care allowance
7. Provide $10,000 per household in refundable tax benefits for energy-saving home retrofits.; cost is $600 million

NDP - they have a platform too; as usual for them, there is lots of verbiage directed at controlling nasty corporations, saving the environment and improving health care but a couple of child-related proposals would have a huge impact on family finances

1. Limit interest rates on credit cards to 5% over prime
2. Outlaw automated bank cash dispenser machine fees
3. Provide a $1,000 grant to all undergraduate or equivalent students who qualify for student loans (i.e. meet needs tests)
   
4. Establish an affordable (affordable for whom? the government - cost is estimated at $1.75 billion - or parents?) national child care program with 220,000 spaces
5. Phase in a new Child Benefit modelled on the existing Canada Child Tax Benefit; will expand in phases to $5,000 non-taxable a year per child, costing $4.4 billion annually; combined with the child care proposal, the government undertakes most of the cost of child rearing - wow!
   
6. Forgive the student loans of health professionals who commit to dedicate the first ten years of their careers to family medicine ... but isn't family medicine a specialty like others which doctors choose as a career path? ... which means the NDP would give something like $150,000 (a typical amount of loans accumulated by MDs at the end of their training I hear) to doctors for what they would be doing anyway?; NDP's estimated cost is $200 million
   
7. Establish a Canada-wide free prescription catastrophic drug program to cost $2 billion per year
8. Create a new national holiday in February (to be called Jack Layton Day, National Snow Shovelling Day, Winter Hibernation Day, Groundhog Day, Winter Blues Day? ... how about a national personal holiday on each person's birthday too?
   
9. End the use and circulation of the Canadian penny .. there, that proves it, I knew the platform made no cents ...
   

Green Party - the platform is here; as shown from the items below, most copied and pasted directly from the Green website, some of it seems vague; a definite focus on the poor

1. Return the GST to 6%
2. Exempt children's clothing and books from GST
3. Eliminate income tax for those earning $20,000 or less
4. Forgive half of student loans for students who complete their degree or certificate program
5. Increase taxes on tobacco and alcohol
6. Push government to adopt fair taxation rates on income trusts. Ensure foreign holders of trusts are taxed at a higher rate. In the interim, tax at 10 percent.
7. Enable income splitting, which offers tax benefits particularly to middle income couples where there is a significant differential in the level of income between partners
8. Conversion of the Disability Tax Credit (DTC) to a refundable credit
9. Increase funding for a needs-based Canadian National Student Loan and Bursary Program with low interest rates and reasonable repayment schedules
10. Increase the Guaranteed Income Supplement for seniors by 25%
11. Provide increased tax breaks for Canadians who donate to charitable societies
12. Use of a negative income tax, or Guaranteed Livable Income (GLI) by providing a regular annual payment to every Canadian without regard to a needs-test. The level of the payment will be regionally set at a level above poverty, but at a bare subsistence level to encourage additional income generation
13. Legalize marijuana and tax it like tobacco

Bottom line for personal finances:

• Conservatives and Liberals mostly make marginal adjustments
• NDP and Greens make some dramatic proposals

In my next post I will suggest what I would like the parties to address that is missing from all of the platforms.

Bailouts: First the Banks and Now a Country?

We have got used to seeing major financial institutions rescued but now it appears that a country is next - Iceland. The country joined the financial lending frenzy of the last decade and its three investment banks (i.e. not based on retail depositors) have been hugely successful, at least until the "global financial contagion" struck.

Read about Iceland's predicament:
Robert Peston's BBC blog: Markets call time on Iceland
Financial Times.com: Iceland seeks loan to shore up its currency

The three banks have amassed balance sheets that far outweigh the whole country's GDP. A country with a population of 320,000 - the size of Windsor, Ontario - Iceland cannot afford to take over or guarantee the banks and as a result the country itself is in trouble. Maybe it should have stuck to its fishing.

I don't think Warren Buffett would be interested, and European countries are busy dealing with their own bailout problems, so maybe Canada should put in a bid for Iceland? Sure, Iceland is not as warm as the last takeover target, the Turks and Caicos, but it's a start.

... too late the Russians got there first - cost $5.4 billion.

Joking aside, things for the people of Iceland are becoming difficult: hoarding of food,supermarkets unable to import produce, extremely high inflation from the krona's decline, cutting back on leisure spending, inability to travel due to cost. Here's an analysis on the BBC website of the mistakes that led to Iceland's predicament.

And now some of the follow-on effects are manifesting themselves. 1) A whole lot of local government authorities in the UK have large amounts on deposit with Icelandic banks like Landsbanki, now in government hands with deposits frozen, including a bunch in Scotland. What were they doing depositing their money there? Probably chasing higher interest rates. How would such action best be described - foolish, greedy and too risky, getting the best value for government cash, unlucky? Hindsight is always 20/20. No wonder people now ask, where anywhere is a safe store of value? 2) Canadian seafood companies with loans at the suspended animation Icelandic banks may not be able to get replacement loans elsewhere, especially since people in the US have reduced their eating out so sales are dropping. And a planned buy-back of an income fund has had to be put on hold, causing the unit price to plummet. There are too many threads, linkages and surprise consequences for anyone to figure out how it will all sort itself out.

Oct.27 - Iceland asks for $4 billion more in aid, on top of the $2 billion it has already requested, or about $20,000 for every inhabitant. It took 30 years to pay off Montreal's $1.5 billion Olympic Stadium debt, which imposed a burden of only $500 or so per inhabitant. In 2002, the country had only $3.1 billion in total public debt (see Wikipedia's Iceland article). How long will Icelanders be saddled with the burden and how far will its fall in the rankings of GDP per capita?

Goldman Sachs Employee Opinions

Found some positive signs re my "play money" investment in Goldman Sachs (NYSE: GS):

• Yahoo Finance's Tech Ticker video piece "Did Employees Predict the Financial Crisis?" reports that GS employees are happy and have high praise for the CEO Lloyd Blankfein.
• the Glassdoor.com website, where employees are invited to voice their opinions on their own company, gives the details of the comments on the Goldman Sachs page.

Glassdoor is an interesting idea - one can get what may be useful investing information from the inside about how well it is run. Good also for someone contemplating taking a job there.

A Wiki for Investors - Wikinvest

A not-exactly-new but potentially valuable tool for investors is the Wikinvest, a wiki website modelled on the well-known Wikipedia. Wikinvest describes its ambition in its FAQ as wanting to create the "world’s best source of investment information and investment tools", more specifically "an investment website that explains the deeper story behind a company, giving investors the context they need to understand what they are betting on when they purchase a particular stock or invest in a specific sector". In other words it is a factual complement to blogs and discussion forums and like other wikis, its method is to have everyone help compile information. The sum of many hands can do far far more than any of us individually and unlike industry sources, bias should not be an issue though accuracy is not guaranteed.

The difference in orientation between the regular Wikipedia, which likely also has entries on just about any investing topic is evident in the entry on Goldman Sachs - here at Wikipedia, here at Wikinvest. The former has history and background on the company, while the latter has financial results, info on competitors, influences on its financial results, which is much more useful when contemplating investing. There is also a whole area devoted to investing Concepts, like commodities, transportation and user-defined things like Rising Worldwide Demand for Energy.

Right now, Wikinvest content is almost totally US oriented but it just needs to get going with Canadian, British or other countries input as people see fit. On a personal level, one can think of it as an online repository for your stock research. The added feature is that by sharing with everyone else you may entice others to add useful information.

Bloggers can participate too by registering and adding a widget to their own blog which will automatically add links after a post to related posts on the same subject by other bloggers. This soon-to-be-launched Wikinvest Wire blogwire sounds pretty useful and I have signed up.