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Have them set up separate accounts in their names giving you trading and Attorney rights for those accounts. Merging their money with yours IS a potential recipe for disaster.

Added: Also ask them to give you in writing what their general intentions are for those accounts so that you have a record from which you are exercising your good judgement. In a formal sense, those would be called Letters of Direction (as one would give a bank or a brokerage) but they probably don't need to be quite that formal.
 

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Discussion Starter #22
Have them set up separate accounts giving you trading and Attorney rights.
Interesting. Is it really that simple? So then they are the owners (or perhaps joint owners, the two sisters). And I'd have trading rights.

Does this insulate them from the situation where I get sued and someone takes all my money?
 

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Interesting. Is it really that simple? So then they are the owners (or perhaps joint owners, the two sisters). And I'd have trading rights.

Does this insulate them from the situation where I get sued and someone takes all my money?
Yes, it is that simple, but I should have been more clear. You have to have Attorney rights to remove funds from accounts. Trading rights only give you the right to buy/sell within the account.

With them as owners of the accounts (not including you as a joint owner), these are protected from creditor actions against you and your assets...simply because you have no ownership!
 

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Further to the above, I help both my parents and my in-laws manage their savings.
They each have multiple accounts -- RIF, TFSA, cash, etc. The accounts are held in their name at the same online brokerage I use.
I have trading authority on the accounts. So I can change allocations, reinvest, etc. I do not have a PoA (although that may soon change), so I cannot make withdrawals.
These accounts are connected to my umbrella ID at Investorline. So I can manage them as simply as my own accounts.

I concur with the above in that you definitely want to separate the funds from yours -- keep them invested in the aunt's name(s).
 

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I find myself in an interesting situation as the "family banker" which is another reason I'm thinking about all of this. Here's the situation:

We have a close knit family and a range of people at different levels of wealth. I'm good with record keeping and money. A couple family members (who aren't so great at all this) have some sums of money "on deposit" with me, which I record as liabilities on my personal balance sheet. The "deposits" they've given me of course get rolled into my overall money management, asset allocation, etc.

I am increasingly finding myself in the position of turning lump sums of money into regular payouts. This is all informally done, which I don't particularly like. Good example: my aunt comes to me and says "I've got this 100K in USD but I don't know how to convert currencies. Can you convert it and pay it out to my sister in multiple payments?"

So then I go and do the gambits, which you've undoubtedly seen the traces of on this board, and help pay it out later.


i'm surprised that you would ever have co-mingled anybody else's funds with your own. It might be OK in your personal books but what are you going to do if the CRA audits you?

unrelated people occasionally ask me to gambit currencies for them. Of course i say no. I offer to teach them but usually they don't have discount broker accounts. Only once it worked, her son had a DIY account. He learned.

jas4 a few years ago you elaborately described your parents' search for a financial advisor. You told us in detail how the 'rents ended up with an advisor of whom you approved. Is this advisor still on board? could he not be recruited to look after the aunts as well?
 

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I find myself in an interesting situation as the "family banker" which is another reason I'm thinking about all of this. Here's the situation:

We have a close knit family and a range of people at different levels of wealth. I'm good with record keeping and money. A couple family members (who aren't so great at all this) have some sums of money "on deposit" with me, which I record as liabilities on my personal balance sheet. The "deposits" they've given me of course get rolled into my overall money management, asset allocation, etc.

I am increasingly finding myself in the position of turning lump sums of money into regular payouts. This is all informally done, which I don't particularly like. Good example: my aunt comes to me and says "I've got this 100K in USD but I don't know how to convert currencies. Can you convert it and pay it out to my sister in multiple payments?"

So then I go and do the gambits, which you've undoubtedly seen the traces of on this board, and help pay it out later.

No problem and I like helping, except I am worried about things like having a common law partner / spouse (who could say the family money is hers?). My other big fear is personal liability, such as I am sued, and the family's money gets paid out as it's seen as part of my net worth.

I am searching for ways to clean up these kinds of informal arrangements. These family members, especially the aunts, are all very casual. They don't do well with paperwork and they don't manage money well. They do have some money, and if it's redirected to the right places (their sisters) in annuitized form -- NOT lump sum form -- it can do a lot of good. Their current approach of giving me 100K and letting me deal with the conversions is extremely easy for them.

They are not able to do the lump sum --> regular payment conversion themselves. They know the money should be invested but all of this is just too complex. I think something automatic is required here. Which is why I kind of like ZMI.

The question is, how can I clean up that situation and remove myself from the position as banker/insurer? What kind of structure or arrangement can make that happen? I would like to help set up the structures they need, and I'm happy to do the work of transactions, but don't want to mix their money into my own net worth.
Interesting dilemma. The time frame would be extremely important here. If the distributions are clustered in a one to five year time period, then even ZMI would be risky, given all the equity and corporate bond exposure it has, unless the beneficiaries are okay with that risk.

The best way to replicate an annuity would be a ladder of strip bonds. So if the 100k is to be distributed in 5 years, the funds are invested in zero coupon bonds that mature from Y1 to Y5. If you buy face value of 20k for each rung, you will have a bit of change left because you are buying at a discount. A 5 year GIC ladder will also work fine. In this scenario equities and PS would be risky in my opinion.

I second the above suggestions to keep the funds separate and preferably in the name of the beneficiaries, particularly if they are in a lower tax bracket.
 

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Discussion Starter #27 (Edited)
Thanks for all the useful info above. The arrangement AltaRed and fireseeker describe sounds like what I need to do. And humble_pie that's a good idea about the advisor. I will look into whether he does things along these lines, but the last time I talked to him he started trying to sell some mutual funds (which I didn't like).

I'll describe to these relatives that I am happy to keep helping them with their needs (the mechanics, trades) and will do the money management at no cost, but that we must keep it in accounts owned by them.

The problem until now has been that they are not proficient with things like discount brokerages and computers. If I added the Attorney rights, I presume this would let me do all the operations needed to deal with the discount brokerage (including phoning into the agents) and transferring $ to external beneficiary-owned chequing accounts. Does this sound right? I need to make sure the older family members are not stuck having to do any "management" of the discount brokerage. We tried it in the past and they couldn't do it; it's too foreign to them.

For example, let's say in this account which is owned by them (where I have trading & attorney rights), can I still phone into an agent to do a gambit, or journal shares, or verbally request an EFT to external?

I second the above suggestions to keep the funds separate and preferably in the name of the beneficiaries, particularly if they are in a lower tax bracket.
Thanks. I will start discussing this the next time I see them. The main beneficiary (the one who really needs the cashflow) would not be paying any taxes at all.
 

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Thanks for all the useful info above. The arrangement AltaRed and fireseeker describe sounds like what I need to do ...

I'll describe to these relatives that I am happy to keep helping them with their needs (the mechanics, trades) and will do the money management at no cost, but that we must keep it in accounts owned by them.

what a fine relative you are, willing to go the limit to help out in a challenging situation without any fee for yourself (although hopefully you might be an heir eventually.)

the case is typical of the vast majority of elderly or dependent canadians who can't afford the astronomically high fees which a formal trust setup would cost (last i heard it takes a few million $$ for a trust to break even after professional trustee fees, which usually have a minimum dollar amount)

my takeaway is that your case is complicated by the fact that one of the beneficiiaries is low-income while the other one is helping the low-income one financially with gifts from time to time.

tentatively, my takeaway is that things could also get worse, possibly much worse. I don't mean financially, i mean the capability of the aging beneficiaries to cooperate, let alone be grateful (meanwhile you will be carrying out the work of a hero!)

i wish i had an excellent low-cost solution. Alas i don't believe there is such a solution.

enter the annuity for the low-income relative. It's true that annuities have high hidden fees. However, one extraordinary advantage is that the annuity recipient can never outlive her income.

every other plan involves drawing down savings/investment account income & possibly invading the capital as well. Only an annuity will guarantee equal distributions for a recipient's lifetime, even if such recipient lives past 100 years of age.

perhaps a partial or 50/50 solution at present? half the capital pool belonging to the low-income relative to be used now to buy an annuity, the remainder to be managed by jas4 until things become more difficult healthwise.

meanwhile the entire capital pool of the higher-income relative could continue with jas4 as attorney of record & de facto manager; again with the proviso that health circumstances could change considerably & the arrangement should be re-confirmed at least annually.




The problem until now has been that they are not proficient with things like discount brokerages and computers. If I added the Attorney rights, I presume this would let me do all the operations needed to deal with the discount brokerage (including phoning into the agents) and transferring $ to external beneficiary-owned chequing accounts. Does this sound right? I need to make sure the older family members are not stuck having to do any "management" of the discount brokerage. We tried it in the past and they couldn't do it; it's too foreign to them.

For example, let's say in this account which is owned by them (where I have trading & attorney rights), can I still phone into an agent to do a gambit, or journal shares, or verbally request an EFT to external?

you should have all those powers ^^ if you have a P/A drawn by a lawyer. Mine for my mother did have full powers. Beware though. The POA i held for my mother also included "my" liability for "her" debts, heh. Check with the lawyer; if his boilerplate includes such an article you could ask if it can be deleted.

i also feel you should go over all or at least many of the details of the proposed attorney arrangement with the broker who will be involved. Not just any old licensed rep who answers the phone. By now you should have a sense of who has seniority & who speaks with authority. Have a "meeting" with this person even if it's only by phone, in order to go over all your questions (if you will have a lawyer-drawn power of attorney, this senior rep would need to see a copy first.)

the brokerage itself will have a trading authority form & they may have a boilerplate power of attorney form. The lawyer-drafted version will likely confer much broader powers. At least here in quebec it does.

best wishes with all of this. You are a brave & generous soul.

.
 

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I've been following this thread with some interest, as I am looking to move manage some funds myself - 2 trust accounts. I have a question about ZMI.
Some background: Earlier this year we moved these assets from an advisor who was charging a hefty fee (1.5%), along with some additional hidden fees (Manulife funds). She made us some money, but also did well herself. The funds have been moved to MD Mgmt, and MD Mgmt was recently sold to Scotiabank. MD Mgmt has a few options available which I am currently weighing. I have not re-invested as I am still of the opinion that markets tend to drop in election years - 2020 being an election year.

I have been wondering whether to go:
1. the Robo-advisor route - the fee seems to settle in the 1% range. MD Precison Portfolios, very similar to MAW104, would be the choice.
2. Another choice is to go MAWER or similar funds - fees typically settle in the 1% range
3. Go Vangard VBAL or VCNS with ZMI. This would be most efficient, but also the "buyer beware" route. MER would be in the 0.2-0.3% range.

I'm not in a rush, but I plan to get to get this $ moved into one of these 3 by earlier 2020.

I am wondering about ZMI and income funds in general. Where does the distribution (currently in the $0.06 per unit) ceom from, and what happens if/when markets go down? Does the ETF take the distribution from cash held in the account to make up for any loss of income experienced in a down market?

Any input warmly rec'd
 

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I have been wondering whether to go:
1. the Robo-advisor route - the fee seems to settle in the 1% range. MD Precison Portfolios, very similar to MAW104, would be the choice.
2. Another choice is to go MAWER or similar funds - fees typically settle in the 1% range
3. Go Vangard VBAL or VCNS with ZMI. This would be most efficient, but also the "buyer beware" route. MER would be in the 0.2-0.3% range.
In my opinion choice 3 is better than choice 2 which is better than choice 1. The reasons are 2 fold: better diversification and lower fees. In the long term, both those attributes are winners for investors.

I am wondering about ZMI and income funds in general. Where does the distribution (currently in the $0.06 per unit) ceom from, and what happens if/when markets go down? Does the ETF take the distribution from cash held in the account to make up for any loss of income experienced in a down market?
Any input warmly rec'd
The distributions come from dividends (dividend stocks and preferred shares), premium selling (covered calls and puts), and interest (mostly corporate bonds). These are generally good sources of income, but capital appreciation is less than owning equities. There is substantial downside risk, but not as much as equities.

If you are in the accumulation phase, it would be beneficial to decrease the taxes you owe currently and defer them into the future when you would likely be in a lower tax bracket. Owning broadly-diversified stock index funds (and gold) are good ways to accomplish this. You need a buffer to dampen the volatility of your portfolio too and high quality bonds can perform that function. This gets us to asset allocation ETFs such as VCNS, ZBAL, or XGRO, depending on your stock/bond allocation, which itself depends on factors such as your age, time to retirement, and time in retirement.
 

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Discussion Starter #31 (Edited)
humble_pie: thanks for the kind words. All good ideas, but I'm going to have to first go and learn more about what the family members want. So far, they have not articulated it very clearly.

dubmac: do you require an arrangement where cash is paid out (extracted) from these accounts? Or are you talking about holding capital so that it can grow over time? The only reason to consider ZMI is if you want cash payouts to happen.

Are there any particular services or assistance that you got from that advisor which you will need going forward? While I'm not a fan of advisors and their high fees, I've seen cases where they do provide a service that is a benefit to an investor. It might be worth thinking about this before rushing into a totally do-it-yourself scenario.
 

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I don't pay taxes on these accounts - taxes are paid by the individuals in which the trusts are held. These are my sons 22 and 24 yrs.
I want a portion of these funds to provide a source of capital for their future - perhaps a home/condo to get started. I also would like a portion to generate the income - not necessarily a large amount - to help pay for some of their rent, phone bills etc as they gradually find their way. Both have the bulk of their education done - but one may look to go to get a grad degree - in which case - another 1.5-2 yrs.
Bottom line: Capital preservation and income are preferred for these accounts.

MD Mgmt provides advice and an excellent advisor. No pushing of any products etc. I'm very happy with the relationship - it works. I just need to decide. Currently, I am considering an 80% VCNS and 20% ZMI, or, 100% VBAL if I go ETF route.

I have always held MAWER - and I'm a believer. But I think that MD charges an additional 0.4 on the MER for these out-of-house funds which drive up the costs.
 

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Discussion Starter #33
dubmac one thing that's important to keep in mind (but this really throws people off) is that capital and income can't really be separated as distinct things. There is no clear delineation. A diversified portfolio can be viewed as something that generally goes up over time, the total return concept. If you have to put labels on the pieces, it's
Total Return = Capital Growth + Distributions

VBAL and ZMI have the same total return, but provide different breakdowns on the right hand side. That breakdown is somewhat arbitrary. The more you get as distributions (or income) the less capital growth you get.

Generally to maximize the chances of preserving capital (not going lower than the initial $ value) you would want smaller distributions. That's what MAW104, VBAL, VCNS do.

ZMI is somewhat at the other extreme. Much of the Total Return goes towards the distributions, meaning very little capital growth. With ZMI, it's more likely you would see capital drop below your initial investment amount.
 

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For any liabilities that are short term (in the next 5 years) and fixed, it is best to keep the funds in a super-safe instrument such as GICs or short term bonds.

In the case of more distant, less-defined liabilities, more risky assets could be used. The difference between VBAL and ZMI is not very substantial in this instance. ZMI would pay you about 4% per year in distributions; VBAL would pay less in dividends but will likely have better capital appreciation so you could sell shares here and there to the same effect. It is hard to know which one would have a better total return in the long run, but VBAL is more likely to outperform given its lower fees and simplicity.

If in doubt, you could always split the difference.
 

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Currently, I am considering an 80% VCNS and 20% ZMI, or, 100% VBAL if I go ETF route.
Those two are not equivalent though. VCNS is 20%stocks/80%bonds, ZMI is 60/40 with special features, and VBAL is 60/40.

First and foremost you have to decide on the asset allocation that is appropriate for you. That would largely depend on your time frame. The more time you have, the more equity risk you can take.
 

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Discussion Starter #36
First and foremost you have to decide on the asset allocation that is appropriate for you. That would largely depend on your time frame.
This is a good place to start. Figure out your desired asset allocation, based on how much risk (potential loss) you are willing to tolerate and the time horizon of the investment. Once you've figured that out, there are enough "tools" out there (these various ETFs) to make it happen.

If a chunk of money is needed in the short term such as 2 - 5 years out, then this amount should be placed in GICs or short term bonds such as XSH.
 

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yes I suppose I need to sort out asset allocation, risk tolerance etc.
but at the same time, VCNS is mostly bonds, and tho it might bounce around in response to interest rate fluctuations, I suspect it will chug along and deliver 2.1-2.3% yield in the future. Not much else - similar to GIC's.
If I go the MAWER (MAW104) route, and a 2008-9 event happens, I'd expect a 20-25% drop and then a recovery a year later - that is an assumption that the next one is like the last big one. Of course, no one has a crystal ball.
For now, I'll keep what I have liquid. GIC's don;t give much - rates are a pittance. I'll see what early 2020 looks like.
 

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ZMI is a derivative dogpatch. Look at its real investment holdings, not the advertising top 10 or top 20 holdings which, unfortunately, regulators still allow financial product vendors to publish in order to misinform their consumers.

ZMI holds nothing but other ETFs. ZMI does not directly hold a single stock or a single bond in outright ownership. Please find below a link to its official list of holdings on page 6 of the PDF "Management Discussion of ZMI Fund Performance 31 december 2018."

notice that 29.2% of ZMI's 3rd party ETF holdings are option funds. In all of the other ETFs named in the holdings list, representational & derivative positions would also be found, ranging from low to substantial. In the aggregate, derivatives could boost ZMI's proportion of synthetic holdings north of 50%.

all this without even attempting to inform the consumer, who alas still does not bother to read the audited official literature but contents himself with hearsay & marketing claims that are not truthful.

i for one do not think that engineered products such as this ETF are suitable for vulnerable low-to-medium income retirees who do not understand - not even remotely - what is the nature of the "investments" they have purchased. One of the ETFs that ZMI holds is a US dollar naked put write fund. Selling something like a naked put fund to vulnerable retirees who cannot even begin to understand it, is an absolute scandal, imho.

parties in this thread recommending these kinds of engineered derivative products to vulnerable retirees are advancing the scandal, imho.


https://www.bmo.com/assets/pdfs/gam/etf/a-mrfp/en/A_MRFP_ZMI_E.pdf
 

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Discussion Starter #39
notice that 29.2% of ZMI's 3rd party ETF holdings are option funds.
OK, that's a good point and I did not realize earlier the holdings were so heavily in derivative approaches.

I agree with your numbers and see 30% in option related funds. Yes, that's probably too high... it's too exotic.
 

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Discussion Starter #40
Thanks humble_pie for bringing me back to reality here. I got a bit too wrapped up in the idea of the convenience of this wrapped up, all in one ETF product.

No problem with ETFs holding other ETFs, but this one does contain far too much in derivatives. Even though they achieve a higher income stream, this just isn't worth it.

Looking at it again, I think an investor is far better off (and safer) using a more "traditional" balanced fund, something like VBAL, VCNS, Mawer Balanced, or another well established traditional balanced mutual fund.

And then selling $ amounts out of it as Topo described to generate the required cashflow.

That's the right way, and the safe way. If I started helping out my aunts to produce cashflow from capital, this is how I'd suggest doing it. The BMO managers have so far done a good job managing their options strategies but we don't know how this will go during a severe bear market or crazy market volatility.
 
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