September 5, 2017

Plan to succeed but prepare to fail! When investing talk to your financial advisor about creditor proofing investments.

Canadians are amongst the most in debt people in the world today.  We carry more consumer debt per capita than probably anyone else and we are not terribly money savvy.  Few have a viable financial plan and not too many Canadians budget on a regular basis, even fewer stick with their budget.

Interestingly people still blindly follow the advice of the very people whose business it is to separate them from their money, bankers.  Now I do say that in a somewhat tongue in cheek manner but there is probably a lot more truth to that statement than meets the eye.

Think about it for a moment, bank fees, interest charges, fund transfer fees, cash management fees, investment fees, mortgage interest and so on, banks are in the business of generating fees – for themselves, not fees for you the client.  It is not wrong that they engage in the businesses of lending and money management but what is wrong is the public’s perception of banks (bankers) as something other than profit making business entities.

Bank tellers are front line sales people, in addition to receipting your deposits and providing basic banking services they are also actively engaged in salesmanship and are rewarded for encouraging people to obtain mortgages, credit cards, loans and lines of credit or overdraft protection in addition to opening (sometimes unnecessary) additional bank accounts.

So when your banker suggests particular investments they often tie them into some form of security for their own lending, a mortgage is the most obvious case but there are also home equity loans, RSP loans (secured by your RSP) or simply additional accounts that charge monthly fees.

Banks may have a right of set-off or off-set written right into their banking agreement so when you have any investments with them they may have a right to set-off against them in case(s) of a default.  They cannot set-off against money held in another institution.  And some investments are beyond the reach of your creditors should your financial world fall apart. 

For example RSPs are exempt from seizure, except contributions made during the preceding twelve months which may be clawed back.  TFSAs are not exempt from seizure so your money may actually be safer in an RSP than a TFSA.  Moneys held in segregated funds may be exempt from seizure, subject to some limiting conditions, as are the cash surrender values of whole-life insurance policies.

Your best investment strategy, to protect your assets, is to pay a fee for service to an independent financial advisor, one who is not selling you any investment products, and ask them about what investments you can utilize that will preserve your assets in the event of financial misfortune and particularly a bankruptcy.

Now we are not suggesting that you should plan to go bankrupt but no one ever said you would plan to have a vehicle accident either nonetheless you do carry insurance.