Briefly:

(March 31, 2006) A Quebec man who operated an income tax filing service has been slapped with a 12-month prison sentence and a $533,251 fine after pleading guilty to tax evasion charges.

A CRA investigation revealed that between 1997 and 2002, Christian Avard, operating under the business name Le Pro de l’impot, encouraged many of his clients to evade tax by sharing in illegally obtained tax refunds.

Without the knowledge of clients, Avard also claimed bloated tax refunds to which the taxpayers were not entitled, and had the refunds mailed to him. In addition, Avard failed to declare $307,008 of income from his business.

The amount of the fine represents 100% of the tax evaded, the CRA said. “The vast majority of Canadians pay their taxes in full and on time. The Canada Revenue Agency has strong and effective programs to identify those who try to avoid paying what they owe,” said CRA commissioner Michel Dorais.

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No change to old age security pensions

(March 31, 2006) Canadians receiving Old Age Security benefits won’t be receiving an increase April 1, Ottawa announced on Friday.

The Department of Human Resources and Social Development bases OAS rates on quarterly changes to the consumer price index.

For this coming quarter, any changes would be based on the difference between the CPI for November 2005 to January 2006 and August to October 2005. There was no change in the inflation rate when those quarters were compared, Ottawa said.

The basic OAS pension, paid to people 65 years of age and over, will remain at $484.63 per month.

The maximum Guaranteed Income Supplement and Allowance payments, which are based on the recipient’s family income during the previous year, are also unchanged, at $593.97 per month.

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B.C. government signs on to passport system

(March 31, 2006) The B.C. government has announced proposed changes to its securities legislation, including the introduction of the passport system.

Under the passport model, each market participant can access markets in other participating provinces or territories based on regulations in their home jurisdiction.

“The changes introduced today will allow us to push further in developing the regulatory passport system with other provinces,” said B.C. Attorney General Wally Oppal. “These amendments will also increase the level of protection for British Columbia’s investors.”

The first phase of the passport system was adopted in September 2005, when securities regulators in all provinces and territories, except Ontario, adopted the principal regulator system rule and related policy and procedural changes.

The proposed B.C. legislation will also raise the maximum court fines for offences and the maximum administrative penalty that the British Columbia Securities Commission can impose, broaden insider trading and front running prohibitions, and expand civil liability for anyone who engages in illegal trading. In addition, it will authorize a provincial court to order the disgorgement of illegal profits.

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Final prospectus filed for new Alberta income fund

(March 31, 2006) Middlefield Capital announced Friday that is has filed a final prospectus for the initial public offering of the Alberta Focused Income & Growth Fund. The minimum amount of the offering is $30 million and the maximum is $125 million, with closing scheduled for April 17.

The fund is designed to provide investors with stable monthly distributions as well as the potential for capital appreciation by investing in a diversified portfolio predominantly comprised of the securities of income trust and common stock issuers operating primarily in or focused on the province of Alberta, Middlefield said in a release.

Middlefield, which will manage the fund, says it expects continued growth in the Alberta economy, mainly in the province’s oil sand assets and sustained strength in energy prices. In addition, the province is debt-free and offers an “attractive investment climate.”

The initial yield is expected to be 6% per year based on an original issue price of $10 per unit.

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Novinsoft signs deal with CoVirt

(March 31, 2006) CoVirt and Novinsoft have reached a deal under which CoVirt will freely offer to its brokerage and MGA customers the ability for advisors to link from the client screen in the VirtGate site to the Novinsoft portal.

The Novinsoft portal service offered through VirtGate includes such features as online carrier illustration systems, leveraged retirement sales concepts, personal needs analysis and calculators, as well as carrier forms and marketing materials.

“We are delivering a solution to one of the top three problems faced by advisors today,” said CoVirt president Tim Fitzpatrick in a release. “Carrier illustration software has long been a source of frustration for advisors. By sending the client data directly to the Novinsoft web-based illustration portal, we eliminate both the hassles of locally installed software and the wasteful keying of data, and provide a single interface for actual carrier endorsed illustrations.”

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Fidelity to offer life cycle wrap program

(March 30, 2006) Fidelity Investments has launched a life cycle wrap program, following its recent introduction of life cycle mutual funds.

Fidelity’s ClearPlan Custom Fund Portfolios enable investors and advisors to build completely personalized fund portfolios, Fidelity said in a release.

“What sets ClearPlan apart is the combination of Fidelity’s unique asset allocation roll down capabilities and unlimited options to customize the portfolio, including automatic rebalancing of the assets to help keep an investor on track. No other investment in Canada offers all of this flexibility in a single solution.”

Fidelity senior vice president Michael Bennett calls the new offering “the next evolution of wrap solutions. They are suited for the investor who likes the convenience of a wrap product, but wants a tailored approach to planning for their future, including determining how and when the mix of assets in their portfolio will change over time. For the cost of a mutual fund, ClearPlan offers investors a flexible portfolio solution with the ability to set up asset allocations that change with time.”

Fidelity’s life cycle fund program, introduced in November 2005, has already attracted more than $200 million in assets, the company says.

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Institutional investors more comfortable with hedge funds

(March 30, 2006) The vast majority of the world’s large institutional investors have become more comfortable investing in hedge funds over the past year, according to a study. State Street surveyed corporate and government pension plans, as well as endowments and foundations, with more than $1 trillion US in assets.

Nearly half of respondents had at least 5% of their portfolios invested in hedge funds. Only 35% had the same amount invested in hedge funds when the question was asked in 2004.

“All signs indicate that what began as a niche category catering mainly to high-net worth individuals and U.S. endowments and foundations has become a permanent fixture within a broader set of institutional portfolios,” said Gary Enos, executive vice president and head of State Street’s alternative investment servicing business. “Our study reveals hedge funds are meeting institutional investors’ expectations with an astounding 100% rate in achieving portfolio diversification as well as high marks for lowering portfolio volatility and increasing absolute return.”

Institutional investors participating in the study also said they had plans to hire new alternative investment managers in the coming year, including hedge fund and private equity managers.

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Sentry Select adds five new corporate class funds

(March 30, 2006) Sentry Select Capital is beefing up its family of corporate class funds with the addition of five new offerings. Sentry Select Balanced Class, Sentry Select Canadian Energy Growth Class, Sentry Select Canadian Income Class, Sentry Select Money Market Class and Sentry Select Mining Opportunities Class are all now available, along with Sentry Select Canadian Resource Class.

The corporate class structure allows investors to convert shares of one corporate class fund into another without triggering immediate tax consequences, Sentry explained in a release. The structure will also offer tax-deferred investment choices to former NCE Flow-Through Limited Partnership unitholders who have become shareholders of Sentry Select Canadian Resource Class through rollover transactions.

Most of the new funds invest in underlying Sentry Select mutual funds. The Mining Opportunities Class Fund which will invest primarily in companies involved in the exploration, development, production, marketing and distribution of commodities, excluding oil & gas, and companies that supply goods and services to them. The fund is managed by Kevin MacLean, portfolio manager of Sentry Select Precious Metals Growth Fund.

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Ernst & Young launches fraud investigation division

(March 30, 2006) In response to the growing complexity of business fraud, accounting firm Ernst & Young has introduced a global fraud investigation and dispute practice.

The new practice will focus on helping firms navigate through the intricacies of corporate investigations and the complexities that may arise out of today’s regulatory environment, the company said in a release, focusing on fraud investigation, dispute services and forensic legal technology support.

“Fraud is a growing concern for companies around the world because it is one of the only business risks that is deliberately disguised,” said Ernst & Young vice chair Christian Mouillon. “Some estimates claim 5 to 6% of business revenue is being lost. Companies are looking for specialist help in this area on a truly global basis”.

The new practice will be jointly led by David L. Stulb, former head of business and investigation services for Arthur Andersen LLP; and Steven Kuzma, who has been with Ernst & Young since 1987 and is the practice’s managing partner for the Americas.

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Perimeter Financial to acquire Moneyware

(March 30, 2006) Toronto-based Perimeter Financial says it has signed a letter of intent to purchase MoneyWare, which provides investment program design, portfolio construction and performance evaluation services for institutional and ultra high-net-worth clients.

Financial details of the buyout, expected to close in May pending regulatory approval, were not released.

“We work with MoneyWare on a number of common clients so this acquisition is a natural and complementary fit,” says Perimeter executive vice president Chris Jackson. “We also recognize a significant opportunity to leverage our joint expertise to develop a number of new offerings to a broader range of institutions.”

Perimeter develops technology for the financial services sector, including institutional investors, investment dealers and reporting issuers. It operates two online markets, BlockBook, for the Canadian equity block market, and CBID, for fixed income and futures markets.

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Scotiabank announces executive appointment

(March 30, 2006) Scotiabank has named Alberta Cefis as the new head of its Globe Transaction Banking division, effective April 30. Cefis replaces Albert Wahbe, who is retiring after 26 years with the bank.

Cefis, who has been with Scotia since 1999, currently holds two executive roles: vice-president of Domestic Personal Lending and Insurance, and president and CEO of Scotia Mortgage Corporation.

“In her new role, Alberta’s extensive experience and wide ranging expertise will be tremendously valuable in achieving the strategic objectives of the bank on a global level,” said Scotiabank president Rick Waugh. “As Canada’s most international bank, we have a unique global footprint, and our Global Transaction Banking division is very important in meeting the needs of our clients and our growth objectives.”

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Tory tax plan weighted toward rich, critics say

(March 29, 2006) The tax plan promised by the Conservatives during the election will disproportionately benefit high-income households, according to critics at the Canadian Centre for Policy Alternatives.

In a report released on Wednesday, the CCPA says families with a household income over $150,000 a year, roughly 5.4% of households, will receive 27.9% of the benefits promised by the new government. Families earning less than $40,000, which account for 48.6% of households, will receive 20.3% of the benefits promised.

In absolute terms, the CCPA says the average low-income household will see a benefit of $163, while the high-income household will receive $2,010 in tax cuts. On one tax promise alone — cutting the GST by 1% — low-income Canadian will save about $129, while the more affluent will save over $900.

“Expensive tax cuts like these set the stage for more pressure for spending cuts,” says CCPA senior research economist Ellen Russell. “Low-income Canadians benefit relatively little from these tax cuts, yet they may be hurt a great deal when child care and other programs are cut to pay for tax cuts that largely benefit high-income families.”

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Revitalize the IMF: David Dodge

(March 29, 2006) Bank of Canada governor David Dodge says the International Monetary Fund needs to be more representative of the global economy and given more clout to discipline countries that fall out of line.

“[The IMF] could and should be the umpire for the world economic order, unafraid to call out countries that aren’t playing by the rules,” Dodge said in a speech he delivered to the New York Association for Business Economics on Wednesday.

This is just one of the reforms Dodge says is needed to ensure the global economy is able to absorb shocks and to address the problem of global current account balances that continue to grow. Under perfect conditions he says there would be no reason to worry, but inflexible labour markets, inappropriate fiscal policies, barriers to open trade and dysfunctional capital markets prevent market-equilibrating mechanisms to function as they should.

More flexible currency regimes, more open international trade, and better fiscal and structural policies are needed to resolve these global imbalances, he says.

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Home-ownership more expensive

(March 29, 2006) Canadian housing became “mildly” less affordable as wage growth slowed in the fourth quarter of 2005, according to the latest real estate report from RBC Economics.

“The erosion in Canada’s housing affordability was largely attributed to slower growth in household income compared to the rest of the year,” said Derek Holt, assistant chief economist, RBC. “This was unable to offset increases in mortgage rates, house prices and utilities costs.”

The RBC Affordability Index measures the proportion of pre-tax household income needed to service the costs of owning a home. Nationwide, the standard condominium is the most affordable, eating up just 25.7% of income on average. Townhouses and bungalows take up 30.1% and 37% respectively, while standard two-storey home costs the average owner 43% of their gross pay.

“The mild deterioration in housing affordability is likely to lead to a moderately slower pace of demand for new and existing homes in 2006 and 2007,” Holt says. “But it will be a controlled slowdown in the housing markets as both new supply and demand are expected to cool simultaneously.”

Booming economies in B.C. and Alberta drove affordability lower, as real estate prices surged. Saskatchewan and Manitoba also saw affordability deteriorate, but at a slower rate. In Ontario and Quebec, home prices contributed less to a decrease in affordability, but rising mortgage and utility costs more than compensated.

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New Brunswick delivers tax cuts

(March 29, 2006) The government of New Brunswick has tabled its budget, promising “record amounts of money for education, health and seniors, lower taxes for New Brunswickers (and) a balanced budget.”

Total personal income tax cuts amount to $17 million for 2006, and will increase the province’s version of the basic amount deduction in 2007. In that year, families earning less than $22,000 and individuals earning less than $13,750 will pay no provincial income tax.

“The objective is to have the lowest tax burden east of Alberta, and the biggest decrease in the unemployment rate in Canada,” said finance minister Jeannot Volpé. “The personal and corporate income tax reductions introduced by the government since 1999 have contributed significantly to investment, job creation, economic growth and prosperity, and with today’s budget we are committed to go even further.”

Effective July 1, 2006 the small business tax rate will be cut to 1.5%, falling to 1% in 2007, making it the lowest rate in the country. The general corporate income tax, will be lowered from 13% to 12% effective Jan. 1, 2007.

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Fed raises rates to 4.75%

(March 28, 2006) The U.S. Federal Reserve has bumped up its key overnight lending rate another 25 basis points, to 4.75%, the 15th increase in a row.

And there could be further rate hikes to come. “Some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance,” the Fed said, repeating language from its last statement in January.

The Fed noted that an economic slowdown in the fourth quarter of 2005 appears to have been temporary, since growth has rebounded strongly in the current quarter.

And while the rise in energy prices had only had a modest impact on core inflation, inflationary pressures still exist, the U.S. central bank said.

The Fed rate is now at its highest level in five years; a full percentage point above the Bank of Canada’s overnight rate.

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New retirement calculator released

(March 28, 2006) Otar & Associates has announced the launch of the 2006 edition of the Otar Retirement Calculator, which uses the past 106 years of market history to predict how long retirement savings might last.

The spreadsheet-based calculator includes an asset mix optimizer, scenario analyzer and an annuity ladder builder. It allows investors to answer questions such as “When can I retire?” and “How much do I need to save?” with a single mouse click.

Developed by Jim Otar, CFP, the calculator helps users produce realistic outcomes that are not available in similar offerings, which typically require an assumed average portfolio growth rate, average inflation or a Monte Carlo simulation.

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Banks need to focus on risk

(March 28, 2006) Canada’s big banks will need to shrug off their traditional conservatism and embrace change to meet the challenges of the coming year, according to PricewaterhouseCoopers’ Canadian Banks 2006, an annual report on the industry.

“2005 was a banner year for Canadian banks. The economy provided a solid foundation for generating strong profits and the banks responded, delivering another year of outstanding results,” says Diana Chant, partner and leader of PwC’s financial services practice in Canada. “But behind this performance are governance, risk and compliance projects impacting the operations of all banks.”

The report points to the impact that legal settlements had on earnings in 2005. While the big six banks earned more than $12 billion last year, they paid out about $4 billion in litigation losses.

“The year likely holds continued margin pressure, slower growth in lending volumes and increases in credit provisions.” says Chant. “It will be a challenge for banks to continue the record-breaking profits of the past few years.”

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Ottawa could delay elimination of capital gains tax

(March 28, 2006) Federal Finance Minister Jim Flaherty has hinted the Conservatives’ plan to eliminate the capital gains tax for individuals on the sale of assets providing the proceeds are reinvested within six months may not be included in an expected spring budget.

“With respect to this particular initiative, we will be taking some time to consult Canadians before moving forward,” Flaherty said in a speech Monday in Surrey, B.C.

That admission comes as no surprise to TD chief economist Don Drummond, who says that any change to the capital gains tax system will be complicated. “Will you still allow deductibility of losses against gains if you are deferring the tax on the gains; do you allow interest deductibility of borrowing cost if you are not paying the capital gains tax right away?” Drummond pointed out in a recent interview. “You start mucking around with those provisions and you are changing a lot of stuff in the Income Tax Act.”

Flaherty said Ottawa would be moving quickly to implement a one percentage point reduction on the GST. “Unlike other options, a GST cut is a tax cut for everyone, whether you earn enough to pay personal income taxes or not. “And, unlike other tax measures, no future government will be able to take this tax cut away from you by stealth.”

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Assumption Life launches three-in-one insurance product

(March 28, 2006) Assumption Life has introduced a new insurance offering — called FlexTerm 15-20-25 — which combines life insurance, critical illness and disability income insurance.

“Demand was coming from all sides to create temporary insurance of this type with leveled premiums over a long period,” says Larry Boudreau, the company’s vice president of sales and marketing. “However, very few companies offer a term 3-in-1 product with 15, 20 and even 25 year-terms.”

Brokers and advisors can fill out an application for the new product online and the policy could be in effect as quickly as 48 hours later, Assumption says.

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IDA CE accreditation shifts to CSI

(March 27, 2006) The IDA has announced changes to its CE accreditation process, with CSI Global Education taking over as course evaluator from Harrington Lane.

Harrington Lane had won the original contract for the Continuing Education Course Accreditation Program in 2004, but withdrew from the role after being taken over by Dundee Wealth Management in February 2006.

“The IDA would like to thank Harrington Lane Inc. for the creativity and diligence with which it designed and operated the CECAP process and looks forward to a productive relationship with the CSI in continuing the program,” said Larry Boyce, IDA vice president, sales compliance.

The IDA used to own CSI, but sold it in Janaury to private-equity fund manager ONCAP, a affiliate of Onex and members of the CSI’s senior management.

The handover to CSI should not affect the accreditation process, the IDA says, including the web-based application, tracking and course listings. There will be no change in the prices as they were revised at the beginning of 2006 except that the per hour fee for re-accreditation of Cycle 2 Courses for Cycle 3 has been lowered from $200 to $100.

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S&P bond index expands

(March 27, 2006) Standard & Poor’s has announced the addition of bond pricing data from five of the country’s largest banks and fixed-income dealers in the calculation of its S&P/TSX Canadian Bond Index, starting April 3.

The new participating firms include BMO Nesbitt Burns, Casgrain & Company, Laurentian Bank Securities, Merrill Lynch Canada, and TD Securities. These firms join S&P’s existing data providers, CIBC World Markets and RBC Capital Markets.

“The participation of the new price providers, coupled with the independence and objectivity of the S&P/TSX Canadian Bond Index, gives asset managers and other financial professionals a more valuable performance benchmark for the Canadian fixed-income market,” said Steve Rive, vice president of Canadian Index Services at Standard & Poor’s.

Dealer pricing will be combined into a single blended price, which will be calculated at end of day, for each index bond. These blended prices will be used to calculate the S&P/TSX Canadian Bond Index levels.

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CPP looks to enhance analysis

(March 27, 2006) The CPP Investment Board has joined the Enhanced Analytics Initiative, becoming the first Canadian member. The international collaboration of asset owners and fund managers aims to encourage investment research that considers the impact of non-financial issues on long-term company performance.

“The Enhanced Analytics Initiative creates a powerful incentive to spur the creation of new research tools and methodologies designed to help investors evaluate the impact on corporate financial performance in areas that have traditionally not been explored,” said Don Raymond, vice president, public market investments, CPP Investment Board. “Our membership provides us increased access to data on the material impact of environmental, social and governance factors which will ultimately help us to maximize investment returns and minimize investment risk over the long-term.”

The combined assets under management of the EAI exceeds $1 trillion, making the group something of a powerhouse in terms of potential investor activism. The group includes several large European pension funds, as well as the asset management division of BNP Paribas, one of the world’s biggest banks.

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Avian flu not worrying Canadians firms, survey suggests

(March 27, 2006) A recent survey conducted by Watson Wyatt suggests that Canadian firms are not too concerned about the prospect of an avian flu outbreak.

Just 38% of Canadian firms said that they were either greatly or moderately concerned about a pandemic. By comparison, 74% of Asia-Pacific firms said they were concerned about an outbreak.

And just 10% of Canadian firms said they had a plan in place in case of an outbreak, compared to 32% of Asia-Pacific firms.

While focusing on Asia is a logical response to news of flu cases there, employers need to make sure they are considering the possible impact the avian flu could have on all regions, warns Robert Wesselkamper, director of international consulting at Watson Wyatt. “It pays to be proactive when dealing with a virus that could have such a big impact on the workforce.”

(Joel Kranc, Benefits Canada)

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