For Advisor Use Only

The Renaissance

QUARTERLY FUND PROFILES / PRACTICE MANAGEMENT / OUTLOOK / OPINION Q4 – DEC. 31, 2013

ALSO INSIDE:

Grant Shorten Q&A: Impact Themes for 2014

How to Use Floating-Rate Loans in Portfolios

The Keys to Success in 2014Jamie Golombekon Hitting theRight Tax Noteswith clients

If you’re spending all your time sifting throughinformation, how do you expect to focus on whatmatters to your business? We chip away the complexity from tax and estate issues to uncover clear and practical insights – so you can spend more time defi ning your success.

TAX & ESTATE INSIGHT

Renaissance can help you complete a clear tax picture for your clients. Download your toolkit today at:

renaissanceinvestments.ca

A CLEAR VISION ISN’T CREATED BY THOSE WHO

STOP HALFWAY.

®Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc.

2013-2014 Tax Toolkit Now Available

Thanks to Our Supporters 3Providing a Steady Hand

Economic Outlook 4Canada: Better But No Home Run

Back of the Napkin 6Impact Themes for 2014

Jamie Golombek – Hitting the Right Tax Notes with Clients 8

Solution Highlight 12How to Use Floating- Rate Loans

Give and You Shall Receive 14

Brain Calisthenics 17

In this issue

8

14

6

PAGE

NOW AVAILABLE2014 market forecast Perspectives from CIBC Asset ManagementREAD NOW

Renaissance Investments

Letter from the National Sales Manager

Welcome to the winter edition of The Renaissance Advisor. My hope is that your RRSP season is a successful one and lays the groundwork forbusiness building throughout the spring.

This issue of our magazine is purposely focused on ideas for your business that are not only product related. Of course, partly due to timing, we are focusing on tax and there is plenty of information from our tax expert, Jamie Golombek. Additionally, our resident practice management guru, Grant Shorten, shares some insight on issues that will impact all advisors’ businesses. We hope that these two topics offer a brief glimpse of other valuable advice your partners at Renaissance can provide to you and your clients. Ben Tal’s contribution to this quarter’s magazine rounds out Renaissance Investments’ third area of expertise that will assist you in discussions with loyal customers and prospects.

Our efforts at Renaissance Investments are not unlike yours as an advisor. We are both building relationships to become the trusted advisor to our clients. Part of this process involves making solid investment recommendations that will provide peace-of-mind for the long term. However, it extends beyond performance that ensures the financial well-being of the people that rely on us. It is foolhardy to believe that our portfolios orrecommendations will be the top-performing vehicles at all times. There will always be a better-performing solution at any moment in time. All you need for confirmation is to read the newspaper or browse the Internet (as our clients do) to find a “better performer.”

So while we trust our product solutions will perform admirably over time, we want to compete on more than just returns. That is where our threeareas of expertise – tax information, practice management and economics – can assist you in securing the relationship with your clients in all market scenarios, and maintain your status as their trusted advisor.

The moral of the story is let’s make knowledgeable investment recommendations that perform well and secure our clients for life, based on valuedadvice. It will better serve our clients and ourselves over the long term.

I would appreciate your comments and feedback on these or any other topics. Renaissance Investments will always commit to earning your trustand support and as always, I want to thank you for your business.

Sincerely,

Dave WahlNational Sales ManagerRenaissance Investments416-943-6959

Beyond Products –Delivering Ideas for Your Business

Renaissance Investments 3

www.renaissanceinvestments.ca/en/jamie_golombek/www.renaissanceinvestments.ca/en/jamie_golombek/

Providing a Steady Hand

THANKS TO OUR SUPPORTERS

Without the support of advisors like you, Renaissance Investments would not enjoy the privilege of helping so many Canadians realize their investment goals. Here is one of the outstanding professionals we are so very proud to work with.

What do you love about the business?

I really enjoy the sense of satisfaction that I get seeing clients move from theirworking years to their retirement years. Helping clients successfully navigatethis transition gives me a sense of accomplishment. It is a very uncertain timein people’s lives, and they are looking for a steady hand.

What is your strategy to strengthen client relationships in 2014?

I will continue to focus in on existing clients and getting to know them betterand deepen my relationships. I want to be my clients’ “Trusted Financial Advisor.” I want to ensure I am top of mind for clients when it comes to any financial matter or life event.

Are there areas or themes of financial or investment planning that you plan to focus more on this year?

I will continue to rebalance portfolios as the returns from asset classes lastyear were quite divergent. I will also continue to rely on my partners (estateplanning, insurance, private wealth) to be sure I am letting clients know aboutall of our offerings.

What are the most common client concerns you hear currently, and how do you address them?

People are unsure about how much they need to save for retirement. I makesure every client has a financial plan, and I stick to conservative projections. I remind clients to focus on their long-term objectives and to block out the day-to-day “noise.”

Best tips for gaining new clients:

Service your existing clients; remind them from time to time what you do for them;and be straightforward in your dealings.

Favourite hobbies:

Watching my kids play hockey, travelling and good food.

One item I can’t be without:

My team.

Firm: CIBC Wood Gundy

Location: Oakville, ON

Years in Business: 19

No. of Team Members: 1

LauraCameron

4 Renaissance Investments

Canada: Better But No Home Run

ECONOMIC OUTLOOK

For Canada, 2013 was a year of déjà vu. In line with our forecast, it was the second year in a row that the economytracked a cool 1.7% pace. It was also the second year the Bank of Canada had been warning of potential rate hikes, only to finish the year without making good on that threat. A delayed acceleration in global growth and weak commodityprices hit both exports and business capital investment. Looking to 2014, there likely won’t be enough economic momentum to pull the Bank off the sidelines, but with firmerglobal growth and an uptick in commodity prices, there should be enough help from abroad to get the economy to expand by 2.3%.

Improved Global Conditions Will Ignite Exports and Business Investment

A key ingredient in our Canadian forecast is the expectation that globalgrowth will improve in 2014 and non-energy commodity prices will recouprecent losses. As a result, exports and business capital spending will leadthe pack.

Exports have been the sore point in Canada’s economy recently. While shipments to the U.S. increased in the past year, largely due to rising production of crude oil, languid eurozone demand and weaker growth inemerging markets saw shipments to the rest of the world fall yet again.Looking ahead, with Canadian petroleum producers eyeing a 7% increase in production and with U.S. growth set to accelerate, we see exports to the U.S. gaining speed. While factory line closures are limiting the upside to auto exports, shipments of other categories including machinery, lumberand metals should improve. Rising growth in the rest of the world, particularlyin the eurozone and emerging markets, should see exports to those regionsgain for the first time in three years. After stripping out price movements,exports could be up by roughly 5% next year – hardly a boom, but enough to help nudge growth forward.

As for capital investment, an improvement there will not be a direct functionof extra cash on the balance sheet, which is now a more permanent featureof the capital market. Rather, increased spending will be driven by a revivalof profitability. There is an unmistakable correlation between Canada's National Accounts operating profits and the Bank of Canada’s commodityprice index. When commodity prices fell by 6% in 2012, corporate profits declined proportionately. In 2013, flattening commodity prices coincided witha muted profit trajectory. Given that commodity producers account for only30% of operating profits among non-financial corporations, it is clear thatthis correlation is largely due to the fact that commodity prices act as a goodproxy for the cyclical forces impacting the Canadian economy. Accordingly,and based on our latest commodity forecast, we expect corporate profits torise by 8% and 11% in 2014 and 2015 respectively.

If history is any guide, this improvement in profits should lead to a 5% to 10%increase in annual capital spending in the coming two years. Already, wehave seen a spate of announcements that have given a green light to earlier-delayed projects in the oil patch.

While greater capital spending will leak into higher imports, overall, we don’tsee import growth as a significant impediment to progress in net exports. On average a 1% acceleration in business investment in machinery andequipment (M&E) leads to an estimated 1.2% acceleration in the volume ofM&E imports. That increase in imports will be partly offset, however, by our

Year-Over-Year Export Growth

Source: Bloomberg, CIBC

-6%

-4%

-2%

0%

2%

4%

6%

8%

2012 2013 2014F

To Rest of World

To United States

Renaissance Investments 5

www.renaissanceinvestments.ca/en/economy/www.renaissanceinvestments.ca/en/economy/

Benjamin Tal is Deputy Chief Economist for CIBC. Described as one of Canada’s leading experts onthe real estate market by the International Monetary Fund, he is responsible for analyzing economic developments and their implications for North American fixed income, equity, foreign exchange and commodities markets.

www.advisor.ca/togoPodcast > Prepare Clientsfor Interest Rate Hikes

expectation that consumer-related imports, which account for close to 30%of total goods imports, will soften somewhat in the coming year. In additionto a generally soft pace for consumer spending, the recent acceleration inimport prices (well beyond what the Canadian dollar can explain) could helphold back import growth in 2014.

Don’t Count on the Consumer and Governments

And just as net exports and business investment are set to accelerate nextyear, consumer spending could head down a less promising path. Subduedinflation has helped Canadians stretch their earnings power in spite of relatively weak wage growth. On net, that has seen consumer spending actually accelerate in 2013. But that lift to spending may not last for verylong. Ex-autos real consumption growth has been roughly unchanged in thepast two years, and it’s been volatile auto demand that has accelerated,pushing up the overall pace of household spending. But there’s a risk thatconsumption growth could cool in 2014 as auto demand softens after an outsized pick-up in 2013. Note that a key factor driving the acceleration inauto demand has been rising credit, despite the broader trend of subduedeconomy-wide consumer credit.

Another factor that might soften consumer spending is our expectation that the savings rate will rise during the course of 2014, largely due to thediminishing impact of the real estate wealth effect on consumer spending.We estimate that over the past year the real estate wealth effect single-handedly cut a full percentage point from the savings rate, with consumersbuilding de facto net wealth positions via higher house prices rather than

outright savings. With real estate prices likely to track no better than flat,this important dis-saving mechanism will diminish.

And don’t look for the public sector to compensate for that weakness. UnlikeCanada’s neighbour to the south that has taken an active approach to cuttingpublic spending, Canada has been more gentle in pruning its fiscal largesse.Real government spending has grown over the past year, but at a sub-1%pace that has tracked well below the tempo of the last decade, seeing thepublic sector continue to gradually shrink as a share of the overall economy.Budget releases in the spring should provide a clearer picture of the trajectoryof Canada’s austerity-lite approach. But with some provinces acknowledgingchallenges in reaching budget targets in light of weaker-than-expectedgrowth and tax revenues, a continued modest approach to fiscal restraint is in the cards for next year. That could see government spending growthtracking roughly in line with the past year’s moderate pace.

Add it all up, and Canada’s economy is yet again waiting for a helping handfrom abroad to push growth forward in 2014. Business spending and exportsshould accelerate, but with consumer spending, homebuilding and governmentoutlays all set to underwhelm, growth of 2.3% in 2014 will trail the U.S.pace. Fortunately, for investors, the Toronto index is heavily tilted towardsstocks levered to global growth. The improved pace abroad could still seeCanadian equity markets playing catch-up to those south of the border.

Real Consumption

Source: Bloomberg, CIBC

-5%

0%

5%

10%

Q3-2

010

Q4-2

010

Q1-2

011

Q2-2

011

Q3-2

011

Q4-2

011

Q1-2

012

Q2-2

012

Q3-2

012

Q4-2

012

Q1-2

013

Q2-2

013

Q3-2

013

Ex-autos Autos y/y growth

6 Renaissance Investments

Impact Themes for 2014Q&A with Grant Shorten on key themes for advisors this year and beyond

BACK OF THE NAPKIN

As we enter 2014, what industry trends, or emerging themes, should advisors be thinking about?

In my opinion, there are three core themes that will not only impact 2014, butwill in fact carry serious implications for many years to come.

In no particular order, those three themes are:

1. The Black Hole of Wealth Transfer2. The Fee Transparency Revolution3. The Rise of the Affluent

I think it would serve advisors extremely well to keep these top-of-mind whendeveloping their business plans and marketing strategies.

The first theme sounds ominous! What do you mean by “The Black Hole of Wealth Transfer”?

I’m referring to the tidal wave of money-in-motion which is headed our way as we speak.

Briefly stated, a whopping $895 billion will be changing hands over the nextfew years, and it’s going to affect everyone engaged in the business of managing money for aging clients.

To give you a better sense of the scope of the move, this nearly $1 trillion isexpected to transfer in the form of a staggering 1.3 million individual transferevents – with the vast majority of those events coming from households aged75 years and older. The average transfer package from this group is likely toreach a record level of nearly $700,000 per transfer.

Naturally, most of the beneficiaries of this broad-based shift of wealth will bethe adult children (and other family members) of the deceased.

So, how will advisors be affected by this surge in inter-generational wealth transfers?

Well, we have a small problem on our hands…

A recent study by PricewaterhouseCoopers confirmed a harsh reality thatmany of us already suspected based on personal experience…

And the reason we have this problem is because we, as an industry, havefailed to “own” the family matrix. In other words, we will often have a workingrelationship with the patriarch or matriarch of the family, but we chronicallyhave little or no relationship with their adult children or their grandchildren.So, the advisor of today faces the very real challenge of trying to secure thoseassets-at-risk…before they disappear.

The solution will require advisors to find a way to set up an introduction to thebeneficiaries of this money-in-motion, make an emotional connection, and turnthose beneficiaries into trusted clients. This past year, I developed the “FamilyMatrix Strategy” to help advisors accomplish just that, by implementing a simple six-step process.

� Contact your Renaissance Representative for your copy of the strategy.

The second theme you highlight is “The Fee Transparency Revolution.”Can you talk about this in the context of mutual fund trailers?

Sure. As we are so often reminded by the financial press, our Canadian regulators are moving rapidly toward legislating the unbundling of investmentfees, which will render them completely visible to our clients. And, since mostadvisors generate at least some of their revenue from mutual fund trailer fees,we will see a growing number of clients objecting to these charges as they are laid out in plain view.

How should advisors respond to these objections?

I don’t think the majority of clients will aggressively complain about their fees,but they will certainly start asking more questions. And when confronted witha client’s challenge to a visible fee, an advisor will essentially face two options.Either they can react by discounting their fee, or they can proactively increasetheir client’s awareness of their value.

Q

Q

Q

QQ

“Only 2% of adult children keep their inheritancemoney with their parents’advisor.”1

1 PriceWaterhouseCoopers Global Private Banking / Wealth Management Survey 2011.

Renaissance Investments 7

www.renaissanceinvestments.ca/en/practicemanagement/

Grant Shorten is Director of Strategic Insights at Renaissance Investments. He offers insights and approaches that will work with your clients and have an immediate impact on your practice.

www.advisor.ca/togoPodcast > Tackle Cross-Generational Planning

Which approach do you recommend?

Each situation is unique, but elite advisors will often agree that the discountingof fees can be fraught with disaster. A knee-jerk reduction of a client’s fee canset a “bargain hunting” precedent in a relationship, and quickly begin to under-mine an advisor’s “worth” in the eyes of a client. And, when it comes to trailerfees (which are normally set by the mutual fund companies) a discountingmechanism may not even be available in the first place.

In most cases, a more resourceful strategy for an advisor is to mindfully increase the perception of their value, so that their fees are openly received as fair and justified. Most reasonable investors understand that “cost is onlyan issue in the absence of value,” but it will be the advisor’s responsibility to clearly articulate that value.

In order to increase their perceived value, the advisor will need to educatetheir clients in three simple ways:

1. Explain why there is a fee in the first place2. Explain what they are getting for that fee3. Explain the benefits of a percentage fee on assets

I cover these elements in more detail in my article entitled; “Fee Transparencyand You.”

� Contact your Renaissance Representative for a copy of the article.

Your third important theme for 2014 is “The Rise of the Affluent.”This sounds like a tagline from a Terminator movie!

(laughing) That’s right. We are in the midst of an affluent invasion.

According to industry researcher, Investor Economics, the number of high-net-worth households in Canada is set to nearly double by the year 2022. By thatsame year, a mind-blowing 80% of all the personal wealth in Canada will becontrolled by the upscale and affluent segments of the marketplace!

The truth is, the wealthy are coming, and they bring with them a tremendousopportunity for those engaged in the business of delivering sound advice. At the same time, the competition for these assets will continue to heat up,and the landscape will begin to resemble a battleground, with clear winners and losers.

So, what can advisors do to position themselves to compete in the HNW space?

In order to capture the attention of the affluent investor, and to differentiatethemselves from the masses, an advisor will need to have more than just sophisticated product solutions at their disposal. They will first need to gain a deeper understanding of the psycho-emotional makeup and the subtleties of the high-net-worth mind.

Unfortunately, there is still a measurable disconnect between what the advisorycommunity assumes to be true…and what the wealthy are actually experiencingon a day-to-day basis.

What are the most important “mind” elements for the advisor to focus on?

There are four that stand out above the rest. In fact, I would go as far as tosay that the advisor who understands and addresses these four things, willquickly and easily place themselves in a position to dominate.

The four critical aspects of the HNW mind are these:

1. Their primary fears2. Their financial priorities3. Their expectations (and demands)4. Their deal-breakers (relationship killers)

As the affluent wave continues to gain momentum and the competition intensifies, there will be a select group of advisors who will separate themselves from the crowd. And those who understand the emotional needsof the wealthy, will be able to capture more business and deliver a more robust service model.

� Contact your Renaissance Representative for Grant’s articles on “The Secret Fears of the Wealthy” and “The Demands of the Affluent.”

www.renaissanceinvestments.ca/en/practicemanagement/

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8 Renaissance Investments

Jamie GolombekPersonal tax guru with a passion for music

Renaissance Investments 9

From an early age, Jamie Golombek has been a wiz with numbers. After graduating high school with near perfect marks in all three math subjects, adefining moment occurred while working at a high-end Toronto grocery storebefore heading off to McGill University to obtain a Commerce degree, and afterwards, his CA designation.

In his cashier role, Jamie was keenly aware of the products’ prices and any irregularities. When the grocery chain’s COO toured the store one day, Jamieseized an opportunity and recommended that he hike the price of chocolatemilk to align with the store’s premium pricing.

This brazen move paid off. Three days later, Jamie received a promotion to assistant store manager. Jamie reflects on this scene and says, “It was at anearly age that I recognized opportunities and how important it is to speak up.You have to be your own biggest advocate in terms of your strengths.”

Fast forward to 2014 and Jamie’s strength continues to be numbers – in particular,tax and integrated financial planning. After carving out a unique niche as a personal tax guru, Jamie came on board at CIBC about six years ago. Today he continues to spread indispensible tax advice to CIBC clients, financial advisors and the media.

Advisors Can Set Themselves Apart with Sound Tax Knowledge“I always emphasize that advisors don’t need to be tax experts,” says Jamie, acknowledging they should rely on accountants and lawyers for tax advice. However, he advocates that advisors develop a good general knowledge of basictax considerations, as they affect investments. “Depending on the province thatyou live in, tax can take away half your returns. The ability to maximize the tax-savings opportunities and minimize the actual tax brings tremendous realvalue to the client relationship,” he adds.

Today, Canadians have more financial products to choose from than ever, andJamie suggests that having tax knowledge offers a real opportunity to differentiateyour practice. “Beyond having a good understanding of all available registeredplans, advisors should understand strategies that can be used throughout the entire year to reduce their taxes, whether it’s income splitting, appropriate use of debt in a tax-effective manner or small business tax strategies. There are lots of ways to add value and boost your client relationships.”

How Advisors Can Stay Up-to-Date on TaxKeeping abreast of tax changes is a full-time job, but there are some shortcutsthat Jamie recommends for advisors. Jamie spends hours per week siftingthrough tax cases and changes, and shares pertinent insight via Twitter to almost2,500 followers (@JamieGolombek). As well, he produces regular reports for advisors on many topics such as the federal budget, year-end tax planning andsmall business issues – all found on Renaissanceinvestments.ca and atJamieGolombek.com. Jamie also suggests that advisors register for daily e-newsletters from sites like advisor.ca and investmentexecutive.com that often include pertinent tax insight.

Importance of Tax in Portfolio ConstructionAs Jamie tells his MBA students at the Schulich School of Business at York University, where he has been teaching an MBA course on personal financial planning for the past 13 years, the first step is to understand your clients’ financialgoals and consequent timelines. Once that’s achieved, you can build an investmentportfolio and look at various tax considerations. For example, if bonds are held in the portfolio, it may be advantageous to hold them inside of a tax-sheltered environment. Or if equities are part of the plan, holding them outside of registeredplans may provide benefit from favourable capital gains tax treatment. As well,Canadian equities can likely benefit from the Canadian dividend tax credit available outside of registered plans.

Hitting the Right Tax Notes with ClientsJamie Golombek, Canada’s personal tax guru, says advisors don’tneed to be tax experts, but they can use holistic tax thinking to elevatetheir client relationships. Discover Jamie’s Top Three Tax Strategiesfor 2014, the best sources to stay up-to-date on tax developments, andon a personal note, learn about Jamie’s lifelong passion for music.

+ –x –

10 Renaissance Investments

Biggest Tax Planning MisconceptionJamie believes that tax planning is not just for the wealthy. It’s for everyone – no matter what their income level. To prove his point he uses the example of a 20-year-old who has just started his first job and wants to invest in an RRSP. “We generally suggest that a low-income earner prioritize contributing to TFSAs. For someonemaking under $40,000 a year in Ontario, the tax rate is about 20%, so why put money into an RRSP to likely latertake it out at a higher rate? When this individual takes out the money in the future, he will probably be in a 30 or40% tax bracket. Why not put that money in a TFSA, pay the 20% tax up front, and pay no tax when withdrawalsare made later in life?”

Talk Tax Year Round“I’ve always said that tax planning should be a year-round effort,” advises Jamie. At the beginning of the year, tax advisors should sit down with their clients and look at the entire tax planning year ahead to maximize future taxefficiency. “Unfortunately there is very little you can do in March or April to save tax on the previous year’s tax return. When you file the return, some small things can be done, like combining spouses’ donations together orpension income splitting, but it’s too late at that point to do much about the previous year’s taxes.”

Jamie’s Top Tax Update Sources• Public releases by the Canada Revenue Agency (CRA), bulletins, conference statements

• CRA technical interpretation letters totaxpayers (database of 20,000+ letters)

• Department of Finance updates for new and proposed legislation

• Summaries of relevant personal tax cases

Maximize all Registered Plans

“It’s predicted that within the next generation, 90%of Canadians will have all of their money in tax sheltered plans, whether it’s the RRSP for retirement,the RESP for children’s post secondary education, theTFSA for anything at all, and the RDSP for someonewith a severe and permanent disability. An enormousamount of room is being built up across all theseplans. The cumulative TFSA limit already is at$31,000 for 2014 for a Canadian resident who’s beenat least 18 years of age since 2009 and has nevercontributed to a TFSA. There’s really no excuse fornon-registered money sitting around when clientshave not maximized their registered plans. Similarlywith RESPs –we find that many clients are just puttingin the bare minimum each year to get the 20% matchingCanada Education Savings Grant. Why not contributeexcess funds? You can put in up to $50,000 per child.It’s a great tax shelter and the contributions can bewithdrawn tax free. In addition, most of the incomeand grants may effectively come out tax free throughthe use of the child’s various tax credits.”

Invest Tax Efficiently

“Look at where investments are located. Try to minimize the amount of tax on investment incomeusing strategies like dividend investing – Canadiandividend funds have a lower effective tax rate thaninterest-bearing investments and capital gains are effectively taxed at half the normal rate. And it maybe preferable to hold fixed-income investments insideregistered plans, like RRSPs and TFSAs.”

Look at the Total Family Picture

“The clients’ entire family situation should be analyzedto minimize tax. For example, it may be beneficial to use income-splitting techniques that could allowinvestment income to be taxed in the hands of familymembers (such as a spouse, common-law partner orchildren) who are in a lower tax bracket. On January1,2014, the CRA’s prescribed rate for income-splittingloans just dropped back down to 1%, which is the lowest rate possible. The nice thing about locking in a loan like this is that the rate never needs to be adjusted – no matter what happens to future prescribed rates. It’s a big opportunity. You can alsouse this strategy to help fund a child’s education. Forexample, money loaned to a trust for a child could beinvested in a Canadian dividend fund to get tax-freeincome into the child’s hands, assuming the child hasno or minimal other income.”

Jamie’s Top 3 Tax Strategies for 2014

Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC Wealth AdvisoryServices. He works closely with advisors to help them provide integrated financial planningsolutions for their high-net-worth clients. Jamie is frequently quoted in the media as an experton taxation. www.renaissanceinvestments.ca/en/jamie_golombek/

Follow @JamieGolombek

www.advisor.ca/togoPodcast > Don’t just talk tax during RRSP season

1. How Tax Planning can Elevate Your Business2. Top 3 Tax Strategies for 2014

Jamie’s Tax Insight available at:renaissanceinvestments.ca N

EW PLUS Full coverage of what the 2014 Federal Budget means to you and your clients

Renaissance Investments 11

Instilled at a young age, Jamie’s passion has always been music. His grandfatherwould visit him in Toronto when he was a child, and bring a variety of string instruments from his Florida home. Jamie began piano lessons at a very earlyage to reach grade eight in the Royal Conservatory program. He says, “I play byear and sight read. I now have the Steinway baby grand piano that my grand -parents had in their home.” Jamie used to play classical music but now prefersto play popular music, Broadway tunes and jazz.

At age 12, Jamie went to his first rock concert – Hall & Oates. This outingsparked a lifelong habit to see live entertainment. About once a week Jamiegoes to a live music, play or sporting event. “If I’m out of town speaking, I’ll sometimes go see a show after a client event.

“Recently, I have seen P!NK, the Eagles, Drake and the Keith Jarrett Trio at their30th anniversary show at Carnegie Hall in New York City. My favourite group isthe Dave Mathews Band and I spent part of last summer following him around. I also enjoy classic rock. I went to see Yes at Massey Hall last year and also sawRush on their recent Toronto stop. My musical taste is all over the map,” he says.

Jamie has collected and catalogued every ticket stub, now amounting to thousands, for every show he’s seen over the past 30 years. He has about 800 CDs, but in the past decade has now turned to downloading songs oniTunes and owns about 12,000 individual tracks, enough for about two months of non-stop listening.

“My main motto on the personal side is to spend money on experiences ratherthan on physical things,” says Jamie. And he passes on this belief to his familyby taking them to diverse music, theatre, sports and other events. “I think of happiness in terms of putting together a series of fun experiences that arememorable and meaningful. That’s more important to me than anything,” he concludes.

Getting to Know Jamie

music

Jamie’s Favourites

Jazz pianist: Keith Jarrett Group: Dave Matthews BandSports Team: Toronto Maple LeafsBroadway Musical: Next to NormalMovie: Annie HallBook: The Catcher in the RyeVacation Destination: New York City

A PERSONAL PASSION

12 Renaissance Investments

How to Use Floating- Rate Loans

SOLUTION HIGHLIGHT

*Credit Suisse Leveraged Loan Index **Barclays US Aggregate Bond Index: An index of U.S. dollar-denominated,investment-grade U.S. corporate, government and mortgage-backed securities.Source: Morningstar Direct

Proven Rising-Rate ProtectionWith central banks around the globe looking at tightening monetary policy in 2014,most experts agree that this era of record-low interest rates has reached an end.Rates will eventually rise and may impact the returns of your clients’ portfolios.Offer clients the protection they need in a rising-rate environment with floating-rateloan exposure.

When Rates Rise, Floating-Rate Loans Outperform Since 1992, the floating-rate loan asset class has proven its value over longer duration fixed-income assets in the three rising-rate periods experienced.

CASE STUDYA Balanced Approach to Floating-Rate Loans As history suggests, adding exposure to floating-rate loans in client portfolios may enhance returns. So, in a balanced portfolio, what is the optimal allocation to floating-rate loans?

CASE STUDY RESULTSFloating-Rate Loans Can Improve Risk/Return Potential

Access the Floating-Rate Loan Asset Class with RenaissancePure Play: Renaissance Floating Rate Income Fund

Balanced Approach:Renaissance Optimal Income Portfolio

Sample Portfolio Globally Diversified Balanced

Asset Mix1 30% Canadian Equities

30% World Equities

40% Domestic Fixed Income

0% Floating-Rate Loans

FOR ILLUSTRATION PURPOSES ONLY

0%

4%

8%

12%

16%

20%

Dec. 1993 – Apr. 1995(U.S. federal funds rate

rose 309 bps)

Jan. 1999 – Jun. 2000(U.S. federal funds rate

rose 190 bps)

E

Dec. 2003 – Aug. 2006(U.S. federal funds rate

rose 427 bps)

Floating-Rate Loans*

Traditional Bonds**

15.90%

3.97%

7.90%

4.07%

17.52%

10.29%

Outperformance During Rising-Rate Periods – Cumulative Returns (USD)

Renaissance Investments 13

1 Canadian equities represented by the S&P/TSX Composite Total Return Index. World equities represented by the MSCI World Index (CAD). Domestic fixed income represented by the DEXUniverse All Government Bond Index with 10-year+ maturity until 1990, then WG Bigar All Government Bond Index. Floating-rate loans represented by the Credit Suisse Leveraged LoanIndex (CAD). Commissions, trailing commissions and, management fees and expenses all may be associated with mutual fund investments. Pelase read the Reanissance Investments familyof funds simplified prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Canadian investors are unprepared for the impact of rising interest rates

A recent CIBC Asset Management poll reveals that 58% of Canadians with an investment portfolio for retirement are unaware that rising interest rates will cause some holdings to lose value.

> 23% state that they don’t believe rising rates would have any impact, while 35% just don’t know

> 54% of respondents stated they would make no changes to their retirement saving strategy in a rising interest rate environment

> 65% of boomers (between 55-64 years of age) are unaware of the impact of rising rates and 62% ofboomers would make no changes to their investment strategy should rates start rising

Source: Leger survey conducted in December 2013.

Improve Expected Risk and Return with Floating-Rate Loans

We can make it easy to have this conversation with clients Talk to your Renaissance representativeabout the tools available to help you positionthe floating-rate opportunity.

Increasing the portfolio’s exposure to floating-rateloans may also increase returns.

These results may be conservative if rates wereto rise. In that case, floating-rate loan returnswould likely be higher than traditional bonds, increasing the benefit to a portfolio.

According to the example, adding floating-rate loans to the portfolio’s fixed income allocationcould improve the risk-return profile and reduceportfolio volatility.

This graph illustrates the benefits of adding floating-rate loan exposure to the sample portfolio.

Each of the portfolio’s subsequent asset mixes increases its exposure to floating-rate loans. Thegraph shows that a rising allocation to floating-rateloans lowers portfolio risk and increases returns.

Assumptions: Expected equity returns are based on historical data dating back to 1950. Data for bank loans goes back to 1992. Expected fixed income returns are based on current yields. Standard deviation is based on historical data for all asset classes.

Expected Standard Deviation

Allocation: Floating Rate / Traditional Bonds

Increasing Allocationto Floating Rate

Expe

cted

Ret

urn

7.3% 7.9% 7.0% 8.1% 8.2% 8.3% 8.4% 8.5%

7.5%

7.7%

7.9%

15% / 25%

10% / 30%

5% / 35%

0% / 40%

High

er R

etur

n

Lower Risk

renaissanceinvestments.ca1-888-888-FUND (3863)

14 Renaissance Investments

A Guide to Charitable Giving and Tax Credits

Give& you shall receive

Renaissance Investments 15

While charitable giving supports our society, it also makes alot of sense from a financial planning perspective. And it couldbe just the opportunity you need to further establish yourself as yourclients’ top all-around financial resource, including tax planning.

This article summarizes Jamie Golombek's charitable givingtax insights presented in previous reports.

If your clients are not giving to charity and, consequently, missing out on tax credits, they’re not alone. Charitable giving seems to be on the wane inCanada. According to the Fraser Institute’s annual Generosity Index releasedin December 2013, a lower percentage of tax filers donated to charity inCanada (22.9%) than in the United States (26.0%).

Since giving to charities is not top of mind with many Canadians, it’s a goodtime to talk to your clients about how charitable giving can advance their taxplanning strategy.

The BasicsHere are the basic donation credit rules that apply to everyone:

• Donations to a registered charity in Canada are eligible for thedonation tax credit. For the first $200 of donations made by an individual in the year, the federal donation credit is 15%.

• Each province also provides a provincial donation tax credit. For example, the Ontario provincial credit is an additional 5.05%,for a combined total credit of approximately 20%. In otherwords, Ontarians would be entitled to about $40 back from thefirst $200 of annual donations.

• Once at least $200 of donations have been made in any year, thedonation credit jumps to 29% federally, plus between 11% and21% provincially, depending on the donor’s income tax bracketand high-income surtaxes in their province.

• In general, donors can get a credit for all donations to registeredcharities, up to 75% of their net income. In the year of death(and going back one year), the limit is 100% of net income.

First-time Donor’s Super Credit (FDSC)If your clients are among the almost 75% of Canadians that hasn’t givenanything to charity, or hasn’t in some time, they can take advantage of thenew First-Time Donor’s Super Credit (FDSC). A first-time donor is someonewho hasn’t claimed a donation credit after 2007. If they’re married or livingcommon law, neither they nor their spouse qualify if either of them hasmade a donation after 2007.

To encourage “new” donors, the 2013 federal budget introduced the temporary FDSC, which provides an additional 25% non-refundable tax credit for a first-time donor on up to $1,000 of donations. While first-timedonor couples can share the FDSC in a particular year, the total amountclaimed can’t exceed the maximum allowable credit.

As a result, a first-time donor will be entitled to a 40% federal credit for donations of $200 or less and a 54% credit for donations over $200 up to$1,000. Only cash donations will qualify for the FDSC as opposed to donations of property or donations “in-kind.”

The FDSC is available for donations made on or after March 21, 2013 andthe credit can only be claimed once in either 2013, or any year until 2017.

“In-Kind” DonationsAnother option is donating appreciated publicly traded shares or mutualfunds “in-kind” to charity. Not only will donors get a donation receipt for the fair market value of the securities being donated, they won’t have to pay any capital gains tax on the accrued capital gains.

They can also donate any losers to charity and claim the capital loss to beused against either capital gains realized in 2013, or carried back and usedagainst any gains they may have realized in 2010, 2011 or 2012. The capitalloss may also be carried forward indefinitely to future years.

Your clients need not feel bad about unloading those underperformers to charity,as most charitable organizations will simply dispose of the donated securitiesand realize the cash, which they will then use in their charitable activities.

16 Renaissance Investments

Jamie Golombek offers his top tax tips to help clients with charitable giving:

Give Generously for Maximum Tax BenefitsOnce donations exceed $200 in any year, the federal donation credit jumpsfrom 15% to 29% and the provincial donation tax credit rates also increase.

Combine Spousal DonationsSpouses or common-law partners can combine their donations to make iteasier to exceed the $200 threshold, thereby increasing the tax credit that is available.

Claim Unused Donations in a Future YearA donor may forego claiming a tax credit for a donation made in the currentyear and combine the amount with donations for any of the five followingtax years to exceed the $200 threshold.

Take Advantage of First-time Donor’s Super Credit (FDSC)First-time donors may be eligible for an additional 25% federal FDSC on upto $1,000 of total cash donations.

Donate Publicly-Traded Securities to Eliminate Capital Gains TaxThere is no tax on capital gains from publicly- listed securities, mutual funds and segregated funds that are donated to charity. Donors with significant accrued gains and a looming tax bill should consider donating securities “in-kind” to reap the maximum tax benefits.

Donor-Advised FundsIf your clients are high-net-worth, donor-advised funds, or DAFs, can be agood alternative to establishing private foundations.

DAFs essentially piggyback on certain public foundations, such as communityfoundations or foundations established by some of the major financial institutions or investment management firms, by permitting donors to, in effect,create a “mini-foundation” as a subset of the larger, public foundation.

They start by making a donation to their DAF – the minimum required donation is typically at least $10,000 or more. Whether they donate cash or property, they get an immediate tax receipt equal to the fair market value of their gift.

While the donor gets an immediate tax benefit, the funds can grow insidethe DAF tax-free, and each year the donor can “recommend” distributions to be made from their DAF to registered charities of their choice.

The funds inside the DAF are invested by professional money managers or the donor’s investment advisor, who are able to provide a superior investment return at a lower fee than if their assets had been donated to a private foundation and were then invested. These enhanced returns can provide increased donations from the DAF in future years.

Perhaps the biggest advantage, however, is that donors don’t have to worryabout any administrative details or record keeping. The foundation willprocess donation requests and transfer the funds to the charities of thedonor’s choice, as well as track the DAF and provide regular updates on the funds’ performance (for a fee).

Overall, charitable giving has more than solely philanthropic benefits. Thevarious tax credits around donating are your opportunity to start a tax strategyconversation with your clients, no matter what their financial situation.

Renaissance Investments 17

Check your answers at www.renaissanceinvestments.ca/magazine/answers/

brain calisthenics

Spot the difference – Can you spot the five differences between the pictures below?

Sudoku – Complete the Sudoku puzzle so that each and every row, column and 3x3 box contains the numbers one through nine only once.

Word scramble – Unscramble the following letters to spell words from the article on pages 8-11:

Source: 4puz.com

1 8

4 9

2

1

4 2

9 6 14

2

9 3

3 6 4 5

7 9

6

5 1

3 4

6

8

8 3

1. sspiaon

2. shlcotii

3. adtevaco

4. eomdtrnesu

5. srtgeire

6. gapnnnil

7. kabtrce

8. nisodoant

9. onipa

10. rieesdv

FOR ADVISOR USE ONLYRenaissance Investments and the Axiom Portfolios are offered by CIBC Asset Management Inc.This material was prepared for investment professionals only and is not for public distribution. It is for informational purposes only and is not intended to convey investment,legal or tax advice. The material and/or its contents may not be reproduced or distributed without the express written consent of CIBC Asset Management Inc.® Axiom, Axiom Portfolios and Renaissance Investments are registered trademarks of CIBC Asset Management Inc.

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To learn more about how Renaissance Investments can help you and your clients,visit renaissanceinvestments.ca or call 1-888-888-FUND (3863).

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®Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc.Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.

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