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Recessions do not always lead to negative stock returns. Historical data shows that in Canada, out of seven economic recessions since 1957, three had negative stock market returns during the recession, while four had positive returns. Even in cases of stock market declines during recessions, the market often rebounded quickly, with three and five-year returns following economic peaks being significantly positive.
Ontario introduced title protection for financial advisors and financial planners to ensure minimum standards and accountability. While the distinction is made between the two titles, there can be variation in the qualifications required by different credentialing bodies. It is important for consumers to ask questions about advisors' qualifications, experience, licenses, and adherence to a code of conduct. Additionally, FICRA plans to launch a public registry where consumers can verify advisors' credentials and check for any disciplinary sanctions.
FICRA uncovered issues with multi-level marketing recruiting models in the life insurance industry that led to misleading training materials and unsuitable product recommendations. Some agents were selling complex products without sufficient evidence of client need or conducting proper client discovery. FICRA has taken enforcement action against certain intermediaries in response to these issues and plans to review suitability for licensing to further protect consumers. They also encourage whistleblowers to report any potential misconduct anonymously.
While commission-based compensation is common in the financial services industry, FICRA aims to improve transparency and protect consumers from conflicts of interest. They have introduced bans on certain sales charges and deferred sales charges for investment funds, reducing the potential harm to investors. Although FICRA is primarily focusing on investment funds, they are considering expanding their efforts to other areas, such as permanent life insurance policies.
One of the main ideas discussed in the podcast is the importance of having conviction in the market and understanding that market returns are generally reliable. The podcast emphasizes that the market does a good job of incorporating information into prices and states that it can be difficult for most investors to consistently beat the market. By accepting this and developing conviction in market returns, investors can make more rational decisions and avoid chasing returns based on recent performance.
The podcast explores a topic called the passive investment grind, specifically applicable to Canadian small business owners. The passive investment grind refers to changes in tax legislation that discourage companies from holding too much investment income within their corporation. The podcast explains how exceeding certain investment income thresholds can result in a reduction in the small business limit, leading to higher tax rates on corporate income. It highlights strategies that small business owners can employ to minimize the impact of the passive investment grind, such as adjusting salary, managing investment income, and utilizing tax-efficient products like permanent insurance or individual pension plans.
The podcast features an introduction and discussion about the book 'Smarter Investing' by Tim Hale. This book provides investors with a framework for making better investment decisions. It emphasizes the importance of evidence-based investing and offers practical guidance on topics such as asset allocation, diversification, and minimizing costs. The podcast highlights the universal applicability of the book's principles and its usefulness for readers outside of the UK. The book encourages readers to embrace the market's ability to incorporate information into prices and make investment choices accordingly, providing them with conviction to stay the course during challenging market conditions.
In this episode, we start by learning about the complex relationship between recessions and stock returns before welcoming Huston Loke and Jordan Solway from the Financial Services Regulatory Authority (FSRA) to discuss protecting consumers in the financial investment space. Huston is the Executive Vice President of Market Conduct, and Jordan is the Executive Vice President of Legal and Enforcement at FSRA. The FSRA supervises insurance companies, mortgage brokers, credit unions, pensions and other non-securities areas of the financial services sector. We discuss the objectives of the FSRA, their approach to protecting consumers, enforcement strategies, upcoming regulations, and more. Then, we welcome back Mark McGrath to learn about the Passive Investment Grind (PIG) concept for this week's Mark to Market segment, and we take a look back at a previous episode with Ted Seides of Capital Allocators. Finally, we are joined by author Tim Hale to discuss the new edition of his book Smarter Investing before closing off with our usual after-show roundup. Tune in now!
Key Points From This Episode:
(0:03:22) The relationship between recessions and stock returns, the definition of a technical recession, and the role of media in shaping perceptions.
(0:09:33) Why bad economic conditions don't necessarily warrant changes to investment strategies and why attempts to time the market based on recession news should be avoided.
(0:13:42) Introducing Huston Loke and Jordan Solway and background about the Financial Services Regulatory Authority of Ontario (FSRA).
(0:15:34) Objectives of the FSRA and the principle of putting the client’s interest first.
(0:18:55) What aspects of financial advisory services FSRA regard as the most important.
(0:20:30) Unpacking the “Take-All-Comers” rule in Ontario and how it protects consumers.
(0:25:32) How successful the title protection rule has been in Ontario and how it differentiates between the title of financial advisor and financial planner.
(0:29:21) Concerns about the rollout of the title protection rule and the disparity across various designations.
(0:33:26) Advice for identifying a suitable financial advisor or planner and how the FSRA is helping cross-check credentials.
(0:37:19) FSRA's findings in a review of tiered recruitment model life insurance MGAs and the enforcement action taken.
(0:44:47) Insights into commission-based compensation structures for financial products and upcoming commission disclosure rules.
(0:49:09) Additional steps consumers can take to avoid bad financial advice and services.
(0:50:49) Recommendations for budding financial planners or advisors to ensure they get the correct training.
(0:53:23) Discover the infinite banking concept and what future initiatives Huston and Jordan are most excited about.
(0:59:35) Mark explains the passive investment grind concept in our Mark to Market segment.
(1:09:21) Recapping essential takeaways from a previous episode with Ted Seides.
(1:12:02) Tim Hale discusses his book Smarter Investing, his motivation for writing it, his intended audience, and its main takeaways.
(1:20:09) How the financial landscape has changed since the first edition of his book and his shift toward systematic investing.
(1:25:25) Tim shares what he thinks are the biggest mistakes investors make and behavioural biases that influence investors’ decisions.
(1:27:58) Final words of wisdom Tim has for listeners and how his approach applies to markets outside of the UK.
(1:29:45) Aftershow roundup, listener reviews, book recommendations, and more!
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Links From Today’s Episode:
Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://twitter.com/RationalRemind
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/
Benjamin on X — https://twitter.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/
Cameron on X — https://twitter.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/
Paying It Forward to Yourself (Webinar) — https://us06web.zoom.us/webinar/register/4416996396442/WN_35_OSP3XT9Gabu6KjIT4Tg
Investing 101 (Webinar) — https://us06web.zoom.us/webinar/register/2317000628845/WN_snfu-ZhzQKeB6CZSw1yHuA#/registration
‘Should my investment strategy change during a recession?’ — https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-investing-strategy-during-a-recession/
C.D. Howe Institute Business Cycle Council — https://www.cdhowe.org/council/business-cycle-council
Episode 171: Prof. Campbell R. Harvey — https://rationalreminder.ca/podcast/171
‘Conditional Skewness in Asset Pricing Tests’ — https://www.jstor.org/stable/222452
‘… and the Cross-Section of Expected Returns’ — https://faculty.fuqua.duke.edu/~charvey/Research/Published_Papers/P118_and_the_cross.PDF
Huston Loke — https://www.fsrao.ca/about-fsra/leadership/huston-loke
Huston Loke on LinkedIn — https://www.linkedin.com/in/hloke/
Jordan Solway — https://www.fsrao.ca/about-fsra/leadership/jordan-solway
Jordan Solway on LinkedIn — https://www.linkedin.com/in/jordan-solway-4a261314/
Financial Services Regulatory Authority of Ontario (FSRA) — https://www.fsrao.ca/
Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/
Mark McGrath on X — https://twitter.com/MarkMcGrathCFP Mark McGrath on Calendly — https://calendly.com/mark_mcgrath/Episode 61: Ted Seides — https://rationalreminder.ca/podcast/61
Ted Seides on LinkedIn — https://www.linkedin.com/in/tedseides
Ted Seides on Twitter — https://twitter.com/tseides
Capital Allocators — https://www.capitalallocators.com/
Tim Hale on LinkedIn — https://www.linkedin.com/in/tim-hale-4b67ba24/
Life on Our Planet — https://www.imdb.com/title/tt23181388/
The Behavioral Divide Podcast — https://podcasts.apple.com/us/podcast/the-behavioral-divide-with-hal-hershfield/id1713168854
Episode 278: Juhani Linnainmaa — https://rationalreminder.ca/podcast/278
Books From Today’s Episode:
Smarter Investing — https://www.amazon.com/Smarter-Investing-Simpler-Decisions-Results/dp/0273722077
Albion Strategic Consulting — https://albionstrategic.com/
Winning the Loser's Game – https://www.amazon.com/Winning-Losers-Game-Seventh-Strategies/dp/1259838048
Tightwads and Spendthrifts — https://www.amazon.com/Tightwads-Spendthrifts-Navigating-Minefield-Relationships/dp/1250280079
Clear Thinking — https://www.amazon.com/Clear-Thinking-Turning-Ordinary-Extraordinary/dp/0593086112
Strangers in Paradise — https://www.amazon.com/Strangers-Paradise-Families-Wealth-Generations/dp/0615894356/
Wealth 3.0 — https://www.amazon.com/Wealth-3-0-Future-Family-Advising/dp/B0C9SHFSGM Same as Ever — https://www.amazon.com/Same-Ever-Guide-Never-Changes/dp/0593332709/
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