Our regular columnist, Mom2KG, checks in this month with a slightly wet edition of her blog.

You know that moment in horror movies when the main character realizes something is wrong, horribly wrong? And then there’s a few moments of suspense, while the character has to find out what’s up? Let me tell you, those nail-biting cinematic moments are nothing compared to how you feel when you realize something is wrong, horribly wrong, in your own house, where your children are sleeping, and you have to find out what it is.

About two weeks ago, we were settling into bed and simultaneously smelled something burning. We ran through the house in our pajamas, until we found the cause of the smell. It was not, thankfully, a fire. The burning smell was because the sewer had emptied itself into our basement and shorted out some electrical (what exactly, we’re still not sure). (When I say thankfully, I really mean it. I’m going to tell you about our flood, but a fire would have been devastatingly worse.)

The flood water was actually knee-deep. We have lost our entire, recently-finished basement. Kids’ toys: gone. Furniture: gone. Furnace: damaged. Water heater: completely broken. Appliances: gone. Carpet: bye-bye. Oddly large luggage collection: bon voyage. Fantastic sound system: trash. And more.

Things we learned, and that you can learn from us:

Be safe

Neither of us stepped into the water, realizing it might be charged. No matter how important stuff is to you, or how much it cost, it’s not worth electrocution (or smoke inhalation, in the case of a fire, or whatever). We called in some experts.

Be insured

We got word a day or two after the flood that our particular disaster was indeed covered. Everything (save a $1000 deductible) will be covered (and often, directly by the insurance company, rather than us having to pay and then submit a claim). This would end up costing, at a conservative guess, at least $10,000 – and it’s not coming out of our pockets. So buy insurance for your stuff and pay the premiums.

Know where your important documents are

In this case, the most important document was our insurance policy. My super-organized husband had it in his hands within moments of discovering the flood. Within 10 minutes I had called the 1-800 number and registered a claim. This put us first in line for calls back from our agent the next morning. It was one thing out of the way, and the claim centre was able to provide some helpful advice at the time. Other documents you may want to keep safe from flood and fire (don’t keep things on the basement floor, take it from me) are passports, SIN cards, health documents, birth certificates, and any other “official” documents issued by your bank, the government, and insurance company.

Know what you can’t do

Let me be clear – this was not a wet basement floor. It took professional flood-recovery experts three hours to pump that water out. We called, they came. But first, we asked the insurance company if they had a preferred contractor for us to use. Last thing we wanted was to rack up a huge bill to a contractor that was not going to be reimbursed. We thought to ask – and you should too (some vehicle insurance policies require you to use their preferred towing service, for example).

Take pictures and video

Document everything. We have pictures of how far the water reached (including a time-lapse showing the water rising in the space of minutes), as well as tear-jerker ones like a teddy bear floating on scum-laden sewer water.

Take time to go through everything

Again, document. Get friends and family to come help you sort through everything. You lost it, you insured it – you can claim it! Put together an Excel spreadsheet and don’t throw anything out until you’re done. Details matter – names of books, suggested prices, model and serial numbers.

Claim everything

Don’t toss aside some bedraggled knick-knack and forgo claiming its value. We lost about 20 gift bags, but at a minimum of $2-$7 each, claiming them is well worth it. Insurance is meant to make you whole from a disaster; don’t leave money on the table.

Keep records

Again, we were lucky this was a flood and not a fire. I have no idea how families are supposed to remember everything they had in order to make a claim for fire coverage. Once we get this claim settled, we’re going to make, and keep safe, detailed records of everything, from furniture to jewellery to DVDs. Visit it on a twice-yearly basis at least.

Someone once asked me why I went to law school and my response was “I was 22 and had no idea what to do with my life so I went to law school to prolong the decision by three years.” Some people who go to law school don’t major in the law; some, like me, major in life postponement.

Setting aside self-reflection though, are graduate studies worth it? It is a difficult question to answer since “graduate studies” encompasses such a huge variety of different disciplines from second-entry professional oriented degrees (medicine and law) to general masters/doctorate programs to MBA’s.

But, on a general basis, the statistics are consistent. People who hold graduate studies tend to make more than people who only one degree. A 2003 survey by Salary.com found that master’s level degree holders tend to make on average $10,000 more than their counterparts with one degree with an average salary of $53,000 (USD).  A similar survey conducted by QS International Recruiters in 2007 found that, across the board, master degree holders make more than employees with one degree.

But what is the opportunity cost of pursuing graduate studies? In 2003, according to  Salary.com article, an average cost of graduate studies was $26,000- a figure that most certainly has gone up since then. This does not include the opportunity costs of giving up salary during your studies (assuming you attend on a full-time basis). Thus, your salary may increase $10,000 but it cost you upwards of $25,000 to achieve it.

However, this is a bit of a short-sighted approach to take. There are a wide variety of intangible factors to consider. I once asked the most successful lawyer I know of my vintage how he made partner, got big clients etc. and his answer was very straightforward- he kept in touch with everyone he went to law school with and they kept sending him referrals.

Many of my best friends, business associates and trusted professional colleagues I met in law school or through contacts in law school. It is true that you get ahead by who you know and being surrounded by driven and smart people has a way of pulling up your boot straps and getting contacts into circles you may not otherwise have opportunity to meet. Those types of things are priceless so doing the mental arithmetic of (salary increase) – (cost of school) is not exactly helpful (and completely ignores the obvious of the joys of learning). So what should you consider?

• The more technical the sector, the greater the effect the positive effect of education on salary: The QS survey found that in highly technical fields of work, like aerospace and high tech, employees with a masters degree were better compensated than an employee with one degree and 4 years of work experience.
• But leaving too early may hurt you in particular fields. Here’s the flip-side of the argument. The same survey found that someone with 4 years of experience in consulting or professional services with one degree made more than someone with a masters (I am presuming a MBA). It is only one survey but there is a certain recognition in some circles that experience is worth more than schooling especially when people are doing their MBA’s with too little work experience (I am strong believer in that you have to have some real life and work experience before you do your MBA).
• Part-time studies can be a good way of controlling costs but… Studying while you work can be a practical approach to earning income while you improve yourself but how much of the intangible qualities of schooling are you missing? The part-time law studies were always outside the social circles but I can remember who I studied with and who I may give referrals to. As a tip, if you do part-time studies while you are working, try to get your employer to recognize this through either more flexible hours or a guarantee put in writing of a promotion and/or raise after you graduate.

…in certain larger organizations, employees can take educational leaves. Depending on the terms and conditions, you could continue to be paid benefits during your leave and they have to hold your position for you when you return. Thus, taking an education leave may be a good way to avoid lay-offs.

There isn’t a right answer to whether you should go back to school or not. Just things to consider but I would caution anyone to study a topic because it is recession proof or the job prospects are good. Most of us who majored in law/life postponement did not last long practicing as lawyer. Our hearts weren’t into what we studied and it became a burden and not a passion. Just remember to study what you love and, despite this post, don’t make a purely financial calculation.

If you want to know what life is like as a MBA student, I recommend the Financial Blogger’s posts on this topic.

I have always been a follower of dividend payout ratio (the percentage of earnings paid out as dividends) as a yardstick of present and future performance in a dividend stock over dividend yield (annual dividends paid per share/price per share). Why? Fundamentally, my worst case scenario is that I am paid the same dividend no matter how the stock does and a company that manages its cash well long-term, by protecting or raising the dividend, will, over time, be rewarded by the market. As evidence, The Dividend Guy cited a study that found the higher the dividend payout ratio, the better earnings growth the company experienced.

I admit that my fundamental assumption that a stock may go sideways for years, as long as the dividend is protected, is a morbid way of looking at the stock market but dividend investing is cash flow investing. Dividend yields, since it relies in part on stock price- a variable related to future expectations set by third parties, is dependent partially on appreciation estimates by “expert” traders. Dividend payout ratios are a function of managing cash flows and, in my mind, more closely aligned with fundamental dividend investing. You can’t fake cash but you can massage earnings (as GE candidly admitted when it first disclosed that it was not going to meet expectations).

Certainly, the two ratios are intertwined. The nervousness over GE’s  current dividend focuses both on an extraordinary high dividend yield (over 10%) and dividend payout ratio (70%) and both payout ratios and yields generally rise and fall in lock-step. After all, if earnings are falling, payout ratios go up (assuming the dividend is not slashed) as well as yields as future performance is compromised by more cash being used to pay dividends rather than expanding the business.

In economic down-times, I tend to concentrate a lot more on dividend payout ratios with the expectation that a healthy payout ratio for its sector will mean that my cash flow will be protected short term and, as the economy picks up, well-managed companies will be growth leaders (I emphasis sector analysis in dividend analysis; a safe payout ratio for a tobacco company is different than a bank).

This logically leads to what exactly is a “safe” dividend payout ratio? The Dividend Guy has cited in the past 60% (assume normal market conditions). This seems to be backed up by Jeremy Siegel’s analysis on historical dividend payout ratios (scroll down to see the chart). My rule tends to be the more mature the industry, the higher a tolerable payout ratio can be. For example, Rothman’s, a tobacco company, before it went private had a dividend payout ratio of approximately 80% at times but, given that manufacturing and processing tobacco has not substantially changed for many years, it was a safe payout ratio.

I do not dismiss dividend yield as an indicator of dividend safety and I do not want to give you the impression that I downplay it at all. However, the question in my mind is not “is the dividend yield sustainable?” but “is the dividend payout ratio sustainable?” I always ask the payout ratio question before the yield question. Both questions need to be asked but I focus on the cash consideration first.

CBC recently ran a story on hidden charges on credit cards and highlighted a new insurance product on the market called credit balance insurance. As the story indicates, part of the issue with this insurance is the dubious sales techniques engaged by the credit card companies; specifically, credit card holders are being charged for this insurance without their consent worldwide. Assuming you actually have a choice on purchasing this insurance, what is it and is it for you?

For brevity, I only highlight some main points. Here is an example of an informational pieces on credit balance insurance circulated by one of its carriers (I am not supporting or not supporting this institution; they just happened to have thorough sales literature on the topic).

Credit balance insurance is a type of insurance that covers the insured’s outstanding balance on their credit cards in the event death, disability, critical illness and involuntary loss of employment. The CBC article is incomplete in addressing what happens in one of these occurrences.

It is correct in stating that in the event of involuntary job loss the insurance ONLY covers the minimum payments and not the balance outstanding. In other words, the insurance only pays enough to keep your credit cards in good standing. Like any other insurance, there is a maximum monthly benefit and a maximum payout benefit (the link I cited indicated $750 maximum monthly benefit and $25,000 total benefit in the event of job loss; I noticed other policies only had maximum payout benefits as low as $15,000).

In events of death and critical illness, it will pay the balance on the credit credit UP TO the maximum benefit and NOT necessarily the balance on your credit card. In other words, if your credit card balance is quite high and you either pass away or have a critical illness, the insurance may not cover the entire balance.

In looking at any insurance policy, you look at what it does not cover more than what it covers and here are some of the weaknesses of most credit balance insurance policies:

• If you already have sufficient life insurance, disability insurance or critical illness insurance coverage, credit balance insurance is most likely redundant given those policies may cover what credit balance insurance covers and more;
• There is no coverage if you are not in good standing with your credit card (i.e. you did not make your minimum payments), if you have a pre-existing medical condition, you resign from your job or you were an employee with a fixed term contract;
• In some policies, coverage ends for involuntary job loss when you return to school or enter retraining; and
• I could not find a return of premium rider anywhere so you are not getting your money back if you never claim on the policy.

For those subject to involuntary job loss, the more practical solution may be to use a line of credit to wipe out the balance than to rely on credit balance insurance. Remember that in these instances, the insurance only pays the minimum balance so interest continues to accrue at very high interest rates. You may be better financing your debt by applying the line of credit, with lower interest rates, to credit card debt and carrying the line of credit with more favorable terms.

What about costs of the policy? The formula is based on how much your outstanding balance is every month. For example, one carrier had a formula of 94 cents for every $100 of outstanding credit card balance.

This product seems ideal if you have no insurance coverage and carry very little balance month to month. Otherwise its coverage seems limited. But, as usual, it pays to read the terms and conditions before you buy since each insurance provider has slightly different terms.

Equally important, please make sure to check your credit card statement to see if this premium is being charged against your will.

One of the competing tensions being played out in this downturn is the media’s reporting versus bloggers/main stream perception of what is happening. I have noticed lately that usually mild-mannered bloggers have begun to criticize explicitly a certain irresponsibility in media report. Witness the Financial Blogger questioning whether reporters are reporting facts or giving us an interesting show on the economy? Canadian Dream questioning the logic of financial headlines. Canadian Capitalist ran an unscientific poll about how is the recession affecting people and, of the 35 non-linked posts, I counted 8 clearly negatively affected comments. Most people were coping and adjusting.

Clearly, the poll was such a small sample size as that you cannot say that the minority of stories is the majority but that is what the media does- it takes a small sample size and attempts to argue that this is the norm.

I have spoken to several reporters in my life  and some of the things you glean are: (i) they are generally nice people doing their jobs; (ii) their expertise is writing and prose and not finance or government policy or municipal politics (sports writers are slightly different but half of them just stand on their soapbox and spout garbage- looking right at you Stephen A. Smith); and (iii) most of them would rather report the true story than the one they write but they know the game.  So you play the game and you help them by feeding them a story.

And in this Internet, twitter, pop-up headline world where “traditional” media is up against instant micro-blogging and bloggers (equivalent to bringing a bicycle to a motorcycle race…), the only real story that has legs is to find something gruesome and emotional and beat it to death- even if it may not reflect the reality around you. After all, reporters are (a) usually not experts (columnist are, in theory, experts; reporters are generally not); and (b) told to find something that bleeds or it won’t lead.

Think about the amount of  investigative journalism it took to undercover Watergate. The 1998 equivalent of a Watergate reporter was sent to report on how blue Gap dresses absorbs presidential fluids and the 2009 equivalent is reporting on what Michelle Obama is wearing.

Here is one of the more interesting pieces on the decline of newspaper journalism I ever read (well, admittedly, I have read one story on this topic…). It is from the creator of the TV the HBO show The Wire. It probably pines too much for a past that never existed but in commenting on the impact of multinationals acquiring newspapers and the challenge of the internet to newspapers, Simon [the author] writes:

“…the newsroom culture will instead emphasis impact…Impact means prizes. Now you pick a target and, to the exclusion of all complexity, you hammer on that target, story after story. Most especially, you write additional accounts highlighting the “impact” that The Sun’s coverage has achieved — covering your own coverage — the better to show that the newspaper has effected change….”

So, if you believe Simon (which I do partially), you have a dying industry trying to save itself by blowing up THE STORY big time which is creating a difference between media hype and reality (don’t get me wrong, its bad but its not the end of the economic world). I think the focus should be looking at our own personal context and deciding accordingly rather than believing what someone in a glass tower who is fed stories for dramatic impact writes (I am actually quite sympathetic to reporters; they are caught between their jobs and their morality at times).

But, as a final thought, here’s the real curious thing  I often wonder- does the media ever think through the implications of its doomsday stories? If you make things worse than they seem (take a small sample size and argue it is the norm), do you not scare people into not consuming? Less consumption means their advertisers have to cut back on advertisements which means the media outlets suffer. Before the web, people may still buy papers to be informed but, with such an easy substitute, is the traditional media not just sowing the seeds of their own demise by screaming at the top of its lungs the end is near?

I usually pre-write my posts Sunday morning. Thus, in a completely unplanned companion post to Canadian Capitalist’s comments on this article about the investment industry not being empathic to a retired investor, I look at whether financial advisors are truly the enemy or whether we have seen the enemy and it is us.  Canadian Capitalist looks at this situation from the perspective of poor asset allocation. I address the larger point of whether we are pushovers to our financial advisors.

Most readers know that I use to be a lawyer (cue the jokes now…). If there is one professional that is more disrespected and despised right now than the lawyers, it is the financial/investment advisor (IA)- although its a close race. Good, bad or indifferent, the IA is being blamed for many of the ills of people’s portfolios. But, ultimately, having answered a lot of questions from friends on how to deal with their lawyers, your professional is yours to instruct. Even if you give crazy instructions (assume your instructions are for a legal act), the professional either has to carry it out or resign due to a fundamental disagreement with your strategy.

In other words, professionals work for you and not the other way around. The tail should not be wagging the dog. But some of us let our professionals, especially IA’s, get away with so much, holding their use of jargon and fast-talking circle-speak as signs of expertise.

Then we complain when we do poorly and blame it on the IA. But who’s really at fault? The person carrying out the instructions or the instruction giver?

Are we, in fact, pushovers with our IA’s?

Here are 5 signs that you may be a pushover:

1. You let the IA act without instructions. “You do what you think is best” gives your IA carte blanche to do anything they want which may include putting you in unsuitable products. Alternatively, the IA trades on your account without seeking instructions- a huge no-no- but you don’t say anything (whether you made money or not on an unauthorized trade is not the point; it would be like praising your 10 year old son for taking the car and driving it down the street without hitting anyone).
2. You never meet with your IA regularly. Yes, we are all busy but out of sight is out of mind and out of mind means they are inattentive to your account so they do not call you when the market or your life circumstances dictates some correction in your financial strategy.  Make yourself heard so you know you should be treated as an important client no matter how big or small your account is.
3. You never question their rationale for their advice. Little kids would make wonderful clients- they ask “why”, “what else is there to look at” and “why” (again and again) a lot. They make you justify their decision. If an IA says buy “ABC” don’t automatically assume that is the best product. Ask them how it fits into an overall strategy, whether there is an XYZ equivalent to ABC, how much they are making off the sale etc. Make them walk through their thought process so you know how they arrived at product (product is product; its the strategy that is important).
4. You do not want to be seen as pushy. Polite but poor is a better alternative. I use to chuckle when clients referred to me as “Mr.” especially when I knew they were much more successful in life than me. You are paying for your IA’s time, directly or indirectly, be assertive (but not abusive) if you must to get a point across.
5. You don’t call them on the fact they made a mistake. My IA has on occasion missed something which he catches or I catch (looking at your statements monthly in detail helps as a safeguard against unauthorized transactions or signs that your IA is indifferent to your account). It is usually something minor like he didn’t put my contribution into a money market fund when I asked him to. In every occasion, he corrects the error even if he pays out of it out of his own pocket (he gives me the interest lost). My IA and I have a good friend in common so there is more than just a professional relationship for him to keep. But the point remains, I do see the error and ask him to correct it. If you don’t, you are implicitly telling your IA that he/she can get away with larger errors (the whole slippery slope argument which lawyers are so famous for…).

There are good IA’s and bad IA’s (or really salespeople). But even the good ones can treat you poorly if you don’t stick up for yourself. The barrier to entry to become an IA is relatively low so don’t hold a large degree of deference to them (or any professional) and don’t let the size of your portfolio determine your importance to your IA. You are only negotiating against yourself if you think that way. Be proactive with your finances. It is your money after all.

If you were to drive through downtown Toronto on any given day, you will notice a lot of construction cranes. Call it the last gasp of the real estate boom. Many of these cranes are for condo projects launched 18-24 months ago which are finally being finished now. In cities like Toronto, where a lot of condo developers rushed in to fill market demand, a staggering number of units are entering into the market in the short term. In fact, the Globe and Mail estimated there will be approximately 23,000 condo units closing in 2009 in the Greater Toronto Area.

With such a large supply of units being completed or, in economically battered areas, a large number of vacancies occurring, are we entering into a renters’ market?

On the basis of supply and demand, one would think yes. After all, as the market is flooded with new units or people simply abandon their units in hard-hit regions, supply increases which forces rents downwards as renters can pick and chose and name their price.  People are either moving from apartments to condos, old condos to new condo, down-sizing to smaller units or simply moving back with their parents. Regardless of the reason why, a lot of supply is coming on-line.

In areas hard hit by the downturn, there appears to be an inverse correlation between the unemployment rate and the rental rate. For example, Business Week reported in the New York Metro area (which includes Manhattan), the unemployment rate went up 1.4% from Q4 2007 to Q4 2008 but the rental rate dropped 3.7%.

However, the flip side of the argument is that in some areas all developers did was build condos, many of which were purchased as investment properties. The carrying costs of these units can be quite high, especially in a tight credit market and the higher costs of financing are simply passed on to renters. While supply may be increasing, the owners cannot afford to give renters too great of a break or else they are simply renting at a loss which cannot be sustained over a long period of time.

We have to differentiate between an apartment landlord/owner who has economies of scale to work with and an individual landlord who is much more price sensitive and may not be about to offer as many concessions.

Which is it? It all depends on local effects and the type of rental unit you are looking for. As the Business Week article noted, in areas hard hit by the slowing economy, many renters are downsizing. If you actually have job security, it may be a good time to move up to a better rental unit (assuming you believe housing prices will continue to fall and you are willing to wait until the housing market to recover to buy if you are so inclined). The upper end of the market is certainly collapsing but the lower end may be stable if this is a flight to the bottom for many renters.

Locally, in the land of the condos, what I have noticed is that apartment style housing stock is certainly coming down in pricing and older condos have attractive price points; I manage our family’s condo which we rent out (its almost 20 years old now) and it was certainly harder to rent out as recently as last year than two years ago and we had to keep the rent the same. We plan to keep rent the same to entice our tenant to continue to occupy the unit.

But the more expensive condo market (the 2 bedrooms, 800 sq. ft. and up) appears to be holding up given that the landlord has to recover its carrying costs and many of the recent condos built locally are entry level 650 sq. ft. or smaller units. Thus, the supply is not concentrated on the mid to high end and buyers may actually be moving into their larger units and not renting them out.

But, locally anyways, if a price decrease is coming, it may not happen until the summer when a whole slew of condo projects finish at the same time as university students give notice on their rental units and the unemployment rate creeps up (we are always about a year behind the U.S. so we can use that as a guide). In other words, patience maybe key.

As previously reported by Michael James and Canadian Capitalist, QuickTax is offering this year “Audit Defence Services” for $39.99. The company is part of a growing trend in the tax, book-keeping and accounting fields to offer this option to traditonal tax prepartion and filing services.  What exactly is the nature of this service and is it for you? As a precusor to my post, here is a quick review of what happens when you are audited (again with a Canadian perspective) and here is the full Audit Defence Membership Agreement provided by QuickTax (albeit under a separate legal entity known as “Canada TaxResources, Inc.” which is a subsidiary of an American company which appears to be providing the same audit defence plans).

What is Audit Defence Service?

As the name implies, a representative of the entity that sold you the service will designate a representative to assist you in an income tax audit in the tax years that you bought the service for. In other words, if you bought the service for the 2008 tax year only, the service does not apply to an audit for the 2007 tax year. As my previous post indicated, an audit may simply be triggered by some clerical error on your part (for example,you forgot to include a T5 slip)- which would most likely not get you out of the reassessment phase- or it could mean a full blown review of particular tax years. But, in a non-criminal audit, the service is triggered no matter how serious the scope of the audit subject to the exclusions below.

It usually takes 2-3 years for the government to inform you an audit has began unless a reassessment is due to errors of a clerical nature. Thus, the service may not be used for some years.

What do I get?

QuickTax/Canada TaxResources Inc.’s services include “…defend[ing] you through the completion of any income tax audit for the tax year return identified on the membership certificate…” which includes correspondence with CRA, negotiations up to Tax Court, settlement discussions and collection assistance if additional taxes are due.

Please note that this service is not a substitute for a lawyer at Tax Court. In fact, this is an exclusion of the service.

In the member’s obligation section, there’s an interesting term that you are asked to comply with the audit procedure and strategy recommended by the service provider. If you are unable to make this commitment, the service provider can terminate its service. In other words, if you get a 2nd opinion on the matter and it is contradictory to the strategy being executed and you end up disagreeing with QuickTax/Canada TaxResources Inc., you can be fired. Thus, you better trust that your service provider knows what they are doing.

What don’t I get?

The service is not for corporate, partnership, trust or estate tax returns. Essentailly, it is a product only for individuals. It also will not assist you in book-keeping, amending your return or instances where civil or criminal fraud is alleged. It will also not assist you if you filed your taxes late, are a tax protestor or under investigation of the Criminal Investigations Program of CRA. The service will not apply to GST and payroll audits. In other words, it is a service to assist in issues arising out of the simpliest of tax returns.

One other important exclusion- the plan does not provide assistance for collection where the plan did not defend the audit. In other words, you filed taxes and you owe money but you did not pay it. In this case, the Audit Defence Plan will not help you cut a deal on payment terms. The issue arises not from claiming the wrong deduction but non-payment.

Given that many taxpayers may be in this situation in the upcoming year, this is an important exclusion to note. Audit Defence plans are not debt consolidation services. They will not help you negotiate a better deal to pay if you have past tax debt that CRA is beginning to turn their mind to collecting.

What else should I know?

If you have serious tax issues (non payment for many years, overly aggressive deductions, complicated individual tax planning), an Audit Defence Service is not for you. You simply have too complicated of a file to fall under a $40.00 service.

The service is also not provided by a lawyer or law firm which means your information is NOT subject to legal privilege and confidentaility. Again, if your matter is of a serious nature, you should hire a lawyer so that the information can be afforded proper legal protection.

One practical consideration to note- $40.00 is not a lot of money. It is a helpful service but how extensive will the services be for $40.00? Will the negotiations be quick and dirty to minimize any additional expenses incurred by the service provider? You get what you pay for in life. If you think you may be a little off-side on some tax issues then it is a good piece of mind service. But how do you really know if you are a little or a lot off-side?

Also remember that the service does not help you review your book-keeping, organize your records or other clerical tasks. You still have to do some heavy lifting and this may include hiring an accountant to review your returns if you filed them yourself.

Is it for me?

If your first language is not English or French, you are a plain vanilla taxpayer (basically, you have employment income and some investment income and nothing fancy in the way of inclusions or deductions) and your tax issues are relatively minor, it is a pretty decent program for its cost. But anything past Audit review 101 would most likely take it out of its sweet spot and one most likely should hire a professional to assist.

As a value play, the question becomes what provides greater piece of mind: (a) buying QuickTax and the Audit Defence Plan; or (b) using that money towards hiring an accounting to help file your taxes (I understand that option (b) would likely cost you more)?

As a marketing point, the audit defence service would probably gain a lot of traction if they had service representatives that spoke a wide variety of languages and it was advertised as such (not sure if they do or not; the feature is not advertised heavily). Taxpayers who’s language is not English/French could probably benefit merely from having someone explain what is happening in a dialect they understand.

Million Dollar Journey had a great summary on international dividend etf’s earlier this week. What struck me more than anything else was the fee creep in certain ETF’s. Three of the ETF’s he listed had MER’s equal to or greater than 0.60%. I also noticed that one of Claymore’s newest ETF’s- the NYSEArca Airline ETF (…to paraphrase Buffet, if you want to be a millionaire start as a billionaire and invest in an airline…) has an expense cap of 0.65%. Didn’t ETF’s use to have MER’s of 0.50% and under?

Leave it to the financial industry to take something simple and overly complicate it and layer it with fees. EFT’s are only great products if: (i) fees are low; and (ii) they have low turnover in their portfolio for tax efficiency. But there appears to be creeping mutual fund-itis in the ETF industry mainly characterized by higher fees, complicated and, arguably, unnecessary product lines (an ETF that tracks airline stocks? What was the product development department smoking that day and can I get some of that?) and active management of ETF’s.

One of the most egregious of these offenders appears to be an actively traded ETF with a 0.70% MER and a 0.20% potential bonus to the manager. As Canadian Capitalist reported, this ETF appears to be a mutual fund in ETF’s clothing.

Will this trend get worse? Of course it will. Given that ETF’s are taking market share away from mutual funds, the financial industry is jumping in and shifting mutual fund executives to the ETF industry. The playbook then is increasingly becoming the same as the mutual fund industry- spend vast amounts of money on marketing and sales (read: higher MER’s), create new and “innovative” products (read: hard for the average investor to understand beyond the hype) and begin to actively manage what was supposed to be a passive product (and we know how well the financial industry handles complicated financial instruments don’t we?). In the industries defense, there are new ETF’s who continue to issue low MER products but there’s an increasing number of ETF’s with mutual fund-itis.

As investors, we have to adhere to the KISS principal.  Ignore the noise and look for ETF’s that maxmimze the advantages of this product: low fees and broad based converage of equities/fixed income markets. Chasing product outside this criteria undercuts the fundmental advantages of investing in an ETF.

Today is the 2nd part of a post on severance pay. Yesterday’s post on severance pay is found here. The usual disclaimers apply: this is a non-exhaustive informational post and not to be considered advice of any kind whatsoever. As usual, please consult a qualified legal expert if you have any severance related questions.

What happens if I am paid commission? How is severance calculated?

Again, I confine this information to Canada only. In Ontario, if you are an employee who does not have a “regular work week” (you do not work the same hours every week or not paidon a basis other than time which captures most employees paid on commission or mixed salary and commission), the “regular wage” used to calculate severance is the average wage earned in the 12 months preceding the date termination notice was given.

For example, assume you are a commissioned salesperson who made an average commission of $300/week in the 12 weeks prior to termination and you have worked at the company for 2 years. In Ontario, your minimal severance is 2 weeks notice or payment in lieu of notice. Therefore, your minimal statutory severance is 2 weeks of pay at $300/week. British Columbia works on the same system but the average is taken from the last 8 weeks of employment. Alberta uses the same period of time to calculate regular wages as Ontario.

The obvious issue with this system is that if a commissioned employee performs poorly, it is not only vulnerable to being terminated but the amount of severance paid could be quite low.

You indicate the statute is the minimal requirement. Can I get more?

Common law, or law made by the judicial, has given severance to litigants which exceed the statutory minimums. Over time, patterns of appropriate severance periods have developed which are guidelines on what employers generally give certain class of employees in order to avoid litigation.

On a very general basis, and barring special circumstances, upper middle management, professionals and employees with a fair amount of senoirity or older employees who have little chances of being rehired have been given by the courts severance of approximately 4 weeks of renumeration (pay and benefits) for every year of service up to a year (it is rare to get more than 1 year’s severance). Employers with large human resource departments or legal departments tend to give employees in these classes this range of severance since they know it will generally withstand judicial scrutiny.

The 4 weeks for every year of service tends to be on the upper end. Those in middle management and below tend to receive severvance somewhere between the statutory minimal and 4 weeks. If you are employed in an at-will jursidiction in the United States, and you are not a part of an exception to at-will employment regime, you may have to hire a lawyer to get you severance (again, this may be a factor in why the American downturn has been harsher thus far; employment laws are employer friendly and many employees are being left to fend for themselves).

In special cases, one may get more. Special cases would include human rights issues (you are targetted for termination due to race, gender, sexual orientation etc.), you were induced to leave your previous employer and are terminated not soon after you start your new position, the termination was made in bad faith or done really poorly etc.

I feel I should get more severance. What should I do?

Most sophisicated employers will ask an employee to sign a release when they are terminated. Only sign it after seeing a lawyer to discuss (a) is this in the range of severance someone in my situation should receive? and (b) do I have any special circumstances that would indicate I should receive more severance (see above for some examples).

A good lawyer can probably get you more severance if your situation warrants it by a series of correspondence. Remember, the employer does not want to incur large legal fees and potential litigation and would rather than your hr file is “closed” as painlessly as possible.

If you have been part of a mass termination, you could band together and hire a lawyer for a discount of their regular billable rate given they are receiving volume in exchange. Many law schools do have legal aid centres that can provide legal advice for a low fee. Finally, many of Ministry of Labour departments have help lines as resources.

The key is to analyize  contextually whether you are being treated better or worse off than someone in a similar situation as you. This does involve talking about a very uncomfortable life situation but it could be worth it in the short-term to get you back on your feet.

Best of luck.