I’ve been writing this newsletter now for the better part of a decade, and it amazes me that month after month we can still come up with all the great stories that we’ve shared. Still, it can be quite a challenge to make things fresh! Welcome to our first ever reader-question session. Our thanks to all of you who took the time to write in with your questions.

How do we manage our portfolios to be environmentally friendly?

This is a great question. Unlike a decade or so ago, there’s no end to your options to be more environmentally friendly in your portfolio. The main challenge, in my opinion, is that many investment firms are “greenwashing” their options, as environmental-oriented investment practices are being demanded by investors.

Almost any investment manager will tell you they are environmentally friendly, because they have signed on to the United Nations Sustainable Development Goals. What they aren’t telling you is that, to my knowledge, that every major investment firm in Canada has signed these goals – that’s the most basic standard there is. Likewise, negatively screening out bad actors with a history of bad environmental impact is a basic minimum – for everyone.

Truly environmentally friendly managers will have investment options which do the following:
A) Have strict limits and parameters on fossil fuels and carbon emissions by companies they invest in.
B) Use collective shareholder power to advocate for positive environmental change.
C) Have a dedicated team of analysts on staff with an environmental background.

Many investment firms have one or two options that might meet these criteria. Few have a broad-based suite that covers all their options. Still, in the last five years, it feels like a major turning point has been reached, so I think it’s inevitable to see environmental investing becoming more and more predominant.

We’re concerned about lower investment returns in the last few years as we age and draw down on our retirement folios. What can we do?

One of the most important psychological hurdles in planning is throwing the mental switch at retirement to become comfortable with your assets reducing, rather than growing. If you’ve read my book Driven By Purpose, you’ll likely remember my tale of Francois, whose brain wouldn’t let him retire unless he could save $1000/month. It took him a while to realize that once he was retired, “Saving” just involved shuffling money from one hand to the other.

If you are concerned about running out of funds during retirement, there are a few things that can help:
A) Get a financial plan drawn up that projects your net worth and values under different investment scenarios. Acid test just how much money you can afford to lose. One client I worked with recently on a plan discovered that there was zero need for market-based investments, since at 0% interest they would never run out of money. That took a huge load of stress off as you can imagine.
B) Annuitize some of your savings. In my 23 years as a planner, Annuity rates have almost never been as high as they are now. Buying an annuity is basically buying a pension plan – guaranteed lifetime income that can never run out. Care has to be taken to structure them for your situation (Spouses should always have surivior income!), but overall, nothing handles longevity risk like annuities. It doesn’t hurt right now that annuities are priced as best as they have been in a generation.

We are a charity, and we’ve recently accepted a gift of an insurance policy. The insurer is asking for personal information from the charity’s signing officers (Driver’s License, SIN numbers). Is this legal?

Canada has a robust Anti Money Laundering / Anti-Terrorist Financing legislation package. We even have a national organization called FINTRAC, which all financial institutions must report certain transactions to. One of the most basic requirements is that when an account is set up, valid individual ID must be recorded to prove that the people you are dealing with are, in fact, whom you think you are dealing with. In the case of a corporation or trust (which encompasses virtually all charities), financial institutions are obligated by law to obtain identity verification of certain persons.

Here’s the catch though – sometimes the requirements aren’t clear, so financial companies ask for lots of info that may not be needed.  We’ve recently been given a copy of an email from FINTRAC to a charity that says that, there’s no need for signing officers to provide that kind of ID.  In this case, the email allowed the charity to go back and challenge the insurer, who backed down.  That organization has been kind enough to provide us with a copy of the email from FINTRAC, so feel free to reach out if you run into this and we might be able to help.

Regardless, some of the documentation is a pain – but its definitely the law for companies to verify your organization legally exists, and they need to be able to prove that they did their due diligence…its just that sometimes they can be overly diligent.  Incidentally, these rules apply equally to for-profit corporations as well, so it’s not just charities. That said, charities are flagged as a “higher than normal” risk of being abused by Money Launders than other entities, since they aren’t subject to the same annual taxation reporting as for-profits, and the board control changes more frequently.

What is the difference between a Private Foundation vs. going with a DAF at a public charity?

A private foundation is a charity controlled by a closely related set of people. Because of this, CRA has more restrictive conditions in place on receipting gifts than a public charity, controlled by unrelated parties. If you set up a private foundation, you usually retain more personal control on when/where and to which charities funds flow to. If you have entered into a DAF agreement with a public charity you are “advising” them on where to flow the funds – technically, you have zero ability to enforce that they do so, since you are a legal “advisor”. You gave up your right to demand when you got your tax receipt, as the relinquishment of control is a requirement.

Because of this, you can’t ever send DAF funds to a Private Foundation, but you can send Private Foundation funds to a DAF. Basically, the Private Foundation means you do more work, but keep more control, and probably have more expenses. A DAF is cheaper, but less enforceable.

Many community foundations are uncomfortable when I describe this difference in these terms, as the community foundations will, realistically, do everything in their power to honour the wishes of the donor. Still, there are many valid reasons why they might not choose to do so. Imagine for a moment that a community foundation had DAFs, but then in future years a board made a bylaw change that precluded granting to a particular charitable area that you had wanted to support? Or, if the charity was in a conflict-of-interest situation, where flowing funds to your preferred org might cause issues. As a hypothetical scenario, what if you want to support the build of a local hospice, but another charity was attempting to buy the same land for another purpose – the foundation would probably be in an uncomfortable situation providing funds to both sides. It’s going to be exceptionally rare for this kind of denial of a transfer, but it can happen, and it’s one of the very few downsides of a DAF over a private foundation. Otherwise, my advice for most people is to use a DAF and avoid a private foundation unless you have lots of money, and the ability to hire staff.

What are the models that families use to build and continue their wealth successfully through the generations?

There are so many options here, this could be a whole year of newsletters. Here’s the things I see successful multi-generational families do:

A) Raise your kids in a way that they don’t see the family money as their entitlement. Keep them humble and human. The best stewards understand that money is a tool and has no intrinsic value on its own.

B) Teach your kids that giving back is fantastically important. This just reinforces (A)

C) Get good estate planning work and take advantage of tax-efficient tools like life insurance. Life insurance helps you transfer funds tax-free between generations, and it can rarely be beaten for sheer efficiency and its unique ability to provide liquidity to an estate exactly when needed.

D) Talk. Talk a lot. Anyone who’s worked with me has seen some of the tools that I use in our planning work that are developed by a non-profit called 21/64. (2164.net). Talk about values, talk about plans, talk openly about money. That kind of transparency between one generation and the next leads to smart, wise decisions that grow wealth rather than squander it.

Thanks for all your questions.

This was a great series of questions, and we hope to do one of these each year.  If you think of any questions you want answered, please email us at info@quietlegacy.com and we’ll be sure to include them in next year’s Ask Ryan newsletter.

Have a great fall!