In depth financial wellness

On behalf of Sun Life, welcome to our "Where there's a will, there's a way" session. This recording is for residents of Quebec. Today we'll review the key considerations and questions to address when creating a Will. This is an overview only. To address your personal situation, we recommend engaging the expertise of a notary.

Your will tells people how to distribute your assets after your death. You decide who receives your property, personal possessions, and family possessions. You choose who acts as liquidator to ensure your wishes are followed. And, if applicable, you can select who will be the guardian of minor children. Thanks to your will: -You can ensure your assets are handled as you wish after your death. -You make known your wishes regarding the guardianship of your children. -You appoint a person of your choice to manage your estate. -You specify who will inherit what and how. If you die without a will, your assets are disposed of according to the Civil Code of Québec. This might be very different from what you had in mind. It might not meet the needs of your family. And it might not be favourable from a taxation perspective. The cost of having your will drafted by a notary or a lawyer is money well spent. There are three types of wills: Notarized, holograph and before witnesses. The notary keeps the original will in their registry for a notarized will. The testator writes and signs holograph wills by hand. With a "before witnesses" will, the testator or a third party writes the will, and the testator and two witnesses sign the document. At the time of death, the local superior court, or a notary, must verify a holograph will or a will made before witnesses. Legally, only a signed original document is valid. In most cases, the notary keeps the original document if they have notarized it. You keep a copy of the document. If you have a holograph will, or a will before witnesses, keep it in a safe place. It's best not to put it in a bank safe, because it might be difficult for others to access. You may also wish to give a copy to people you trust.

In Quebec, the executor is called the "liquidator". The liquidator acts on the instructions in your will. They deal with the taxes, debts, investments, legal issues, etc., surrounding your estate. It's an important responsibility. They can receive compensation if you specify that in your will. If the liquidator is also an heir, they usually have their costs and expenses reimbursed, instead of receiving compensation. Choose someone who is trustworthy, has good business sense and is able to manage your estate when you die. If you don't have a will, the liquidator will be your heirs. They can appoint someone to serve as a liquidator based on a majority decision. A few tips on naming a liquidator: If you're leaving everything to your spouse, it may make sense for your spouse to be the liquidator. If there will be a lot to do to handle your investments, good practise is to choose someone with business experience. You can have more than one liquidator. If you do, you'll need to explain how they'll make decisions. It's important to make sure that the liquidator is willing to take on the responsibility. You may wish to also appoint an alternate who can take over if the liquidator is unwilling, or unable, to perform the role. Avoid choosing someone who would have a conflict of interest. In your will, authorize the liquidator to seek professional advice on taxes, investment options, borrowing and legal matters.

In Quebec, your will has no effect while you are alive, even if you have a disability. There are two main types of instruments that allow another person to act for you. It's important to know the difference between them. They are: -A protection mandate, and -A general, or limited, power of attorney. Both instruments can be part of the same document. If they aren't, having one of the two won't help if the other situation arises. A protection mandate provides planning for financial and personal decision-making in case of lost ability. If you are deemed unable to make decisions, as determined by a medical and mental health review process and court judgment, it allows your preferences to be followed rather than a public guardian being assigned by default. If you don't have a protection mandate, the public curator will arrange for a tutorship. The mandate may designate one or more people. For example, the document might specify one mandatary to the person. And another mendatary to the property. If you're in the hospital, the mandatary to the person would make sure you get the care you need. The mandatary to the property would oversee payment of your bills, property maintenance, and ensure that you retain ownership of your assets. When you die, your mandatary no longer has authority. A general power of attorney comes into force as soon as it's signed. For that reason, it must be drafted very carefully. The power of attorney provides protection between the time when you are suspected of being unfit and when you are declared unfit by the court. You can also choose to give a power of attorney to someone if you can't take care of one or more matters yourself. This might be due to distance, a scheduling conflict, physical disability, aging, etc. To give a power of attorney to someone, you must be fit to do so. In other words, you must be above the age of majority and have the mental capacity to understand the scope of the power of attorney. You must appoint one or more legal agents to act on your behalf. A power of attorney can also limit the authority granted to your legal agent. For example, it can be limited to a specific time or event. When you die, your mandatary and/or legal agent no longer has authority. On November 1, 2022, several changes were introduced to protect people in vulnerable situations. Mandataries must conduct an asset inventory and submit an annual report of their administration activities to a third party. If you already have a mandate and you make changes, you will be subject to the new rules. The 2022 changes do not apply in the following cases: -If your mandate was drafted and approved prior to November 1, 2022. - If your mandate was drafted before November 1, but approved after that date. In this case, the mandatary would have to do the inventory, but not the reporting.

It's a good idea to review your estate plan every three to five years, or when there's a big change in your life. Some life changes that should result in a review of your will are: - You move to another province. - Your appointed executor moves out of province or country, and so can no longer easily execute your wishes. - Your executors no longer get along. - You start a new business. - There's a change in your marital status. - The death of your spouse. - The birth of children, or - Changes in tax laws. Minor changes are usually made by a codicil. A codicil is a legal document that dictates modifications or amendments to your last Will and Testament. It doesn't require changing the will itself; rather it attaches a statement that adds to or amends the will. If the change is significant, you would typically have to redraft the will. You can revoke a will in a subsequent will. If you have a holograph will, or a will before witnesses, you can also revoke it by destroying it. A divorce automatically eliminates the bequests made in favour of an ex-spouse and their appointment as a liquidator. It does not cancel the will in its entirety. If you own assets abroad, local laws in that jurisdiction apply. To avoid translation costs, we recommend having a will in the local language. That document can apply only to that specific asset. Be very careful that you don't revoke the will made in Quebec.

Naming a beneficiary, or several beneficiaries, helps makes sure the institutions you deal with will pay the proceeds to the right people. There are 3 different types of beneficiaries: -Revocable beneficiaries are beneficiaries that you can change at any time. -With an irrevocable beneficiary, the person you designate must consent to changing the designation. -A contingent beneficiary would receive the death benefit if the first beneficiary predeceases you. In Quebec, your married or civil union spouse is automatically an irrevocable beneficiary, unless you specify otherwise. It's important to appoint the beneficiaries for both individual and group products. For example, Registered Retirement Savings Plans, or RRSPs, and life insurance. If the plan is contracted with a trust company, as opposed to an insurance company, the beneficiaries can't be named with the trust company and instead, must be named in a will (under provincial Trustee Acts.) When it comes to pension plans, or products derived from a pension plan, pension legislation may affect the beneficiary designation and/or how the benefits are paid upon your death. Examples of impacted plans include Life Income Funds (LIFs), and Locked-in retirement accounts (LIRAs). You may wish to seek legal counsel for guidance in naming a beneficiary in the case of marriage, separation, or divorce.

As you plan for the future, you'll want to think about what your family would need if you should die.
<On the slide:> Financial protection <End slide>

Long-term survivor funding needs can be addressed in a number of ways. Employee pension plans often provide a death benefit, and some provide a survivor pension option for the spouse. The Quebec Pension Plan (QPP) provides a lump sum death benefit amount of $2500 to those who qualify. A monthly survivor benefit may also be available. The surviving spouse's income and investments, or other assets that can be sold, all help address long-term household needs. It's important to plan for the immediate cash needs your survivors may have upon your death, which can include: Funeral costs that can range from $10,000 - $20,000, or more. Household debt, An emergency fund to provide 3 to 6 months of income, Post-secondary tuition, and Other household needs. To work out the specifics of your own situation, complete a financial needs analysis. This will give you a picture of what your survivors need when you die. The analysis looks at assets, debts, and your family's continuing need for income. Ensuring that your survivors are debt-free when you die would result in providing some security during a difficult time.

<On the slide:> A formula which could show a deficit or a surplus

Cash for immediate needs + Future revenue needs - Funds available

<End slide>

Life insurance can be an excellent way to provide for your survivors. The two basic types of life insurance are Term and Permanent insurance. Term insurance is like renting. It's for a set period of time, such as 1, 5 or 10 years. At the end of your term, you can renew for another term, usually at a higher cost. Permanent insurance is like buying. It's for life, and in time it can build equity in the form of cash value. Consider term insurance for meeting temporary needs. Consider permanent insurance to cover ongoing needs. Life insurance is not available as part of your Group Retirement Savings plan, but a Sun Life advisor can assist.

<On the slide:> There are 3 sections

#1: Financial protection – Life insurance

• Term – protection for short-term needs
• Permanent – protection for long-term needs

#2: Financial protection – Health insurance

• Long-term care
• Critical illness
• Disability
• Health & dental
• Accidental death & dismemberment

#3: Financial protection – Other

• Property insurance (house, condo, apartment)
• Vehicle insurance
• Emergency account
• CPP/QPP disability benefit
• Workplace coverage

<End slide>

Structuring your Will properly will ensure the protection of your loved ones, as well as the distribution of your estate according to your wishes.

<On the slide:>

Speak to your notary

• We recommend speaking to your notary to have a will or mandate drafted.

Financial protection

• Review your short-term and long-term needs.
• Make sure you have enough coverage.

Plan for change

• Review your will every 3 to 5 years.
• Keep your beneficiaries up to date.

<End slide>

Thanks for listening to the information provided. We hope you've found it helpful.

<On the slide:> Thank you! The information provided is of a general nature and can not be construed as personal financial or legal advice. Neither Sun Life or its affiliates guarantees the accuracy or completeness of any such information. This information should not be acted on without obtaining counsel from your professional advisors, including a lawyer, notary, tax professional, or financial advisor (registered as Financial Security Advisors in Quebec) as may be applicable to your individual situation.

Group Retirement Services are provided by Sun Life Assurance Company of Canada, a member of the Sun Life group of companies. <End slide>

On behalf of Sun Life, welcome to our session on Behavioural Finance.

Let's start off with exploring what Behavioural Finance is.

Economists like to think we make financial decisions by getting the best returns and outcomes. But the reality is that a number of factors influence our decisions. Behavioural finance is the study of the influence of psychology on the behavior of investors or financial analysts. It also includes the subsequent effects on the markets. It focuses on the fact that investors are: not always rational, have limits to their self-control, and are influenced by their own biases. Understanding these biases can help us overcome them and make better financial decisions.
Behavioral finance researchers have discovered that there are many mental shortcuts we use when we're making complex decisions. These shortcuts are known as heuristics. Think of them like guidelines, or general rules. They are used to speed up analysis and investment decisions. They're usually good enough most of the time, but they can result in errors. When a systematic error results from the use of a heuristics, it's called a cognitive bias.

Cognitive bias in our judgments can lead to making missteps with our money. And this isn't the only bias we need to be aware of. Behavioral biases – those unconscious beliefs that influence our decisions – can affect your money, too. Behavioral biases may be grouped as either cognitive errors or emotional biases. Cognitive errors stem from basic statistical, information-processing, or memory errors. In other words, cognitive errors typically result from faulty reasoning about facts. Emotional biases stem from impulse or intuition and tend to result from reasoning influenced by feelings. Cognitive errors are more easily corrected for because they stem from faulty reasoning rather than emotion. Emotional biases are harder to correct for because they are based on feelings, which can be difficult to change.

Let's look at five common cognitive biases that can influence your relationship with money.

Charlie is 37 and single. He recently purchased a condo in Saskatoon. He has a budget, including categories for: Regular expenses: $3,500 per month, including mortgage Car payment: $250 per month Vacations: $300 per month Retirement: $300 per month. Lately pretty much everything has increased in price. He's still saving for retirement and into his vacation fund. But he's also finding himself using his credit more and more. He can't quite seem to pay it off in full at the end of the month. Charlie is using Mental Accounting to manage his money.

<On the slide:>

Budget includes:
• Regular expenses: $3,500 per month, including mortgage
• Car payment: $250 per month
• Vacations: $300 per month
• Retirement: $300 per month

Assets include:
• $400,000 condo
• $3500 TFSA (vacation account), earns 1.5%
• $2,000 chequing account, earns 0%

Liabilities:
• $320,000 mortgage, 3.45% interest
• $10,000 car loan, 0% interest
• $1800 credit card balance, 18% interest

<End slide>

Mental accounting occurs when people treat money differently depending on where it came from, and what they think it should be used for. This can sometimes hurt the bottom line. For example, keeping money in a TFSA account for a future vacation instead of paying off credit card debt because the money is already "accounted" for. In this example, Charlie gets stuck paying high interest on his credit card bills due to carrying a balance each month. If he'd chosen to pay off his credit card instead, he could use the money that would have otherwise gone to interest to rebuild his vacation fund, and perhaps eventually use it to invest and build long-term wealth. Ways to overcome this bias include creating a budget, or reassess an existing one, to guide your financial decisions. Prioritize spending. Pay for the highest priority items first. In Charlie's case, it's good to plan to pay off the credit card balance with some money from his vacation fund. He should also adjust his budget. One option is to reduce the amount of money he's saving for vacation. Currently he can't afford to save $300 per month for a vacation due to the increased cost of his day-to-day expenses. While this is not specific to Charlie's situation, this bias can also be managed, in part, by creating a plan for how to spend windfall gains. Examples are an inheritance or a work bonus.

Rachel is 28 and graduated from university a few years ago. She counts herself as very lucky. She was hired right out of school by a great firm. It pays well and offers both group benefits and a retirement savings plan. The company even matches a portion of her savings. Rachel's taking full advantage each year of the available employer match. She chose a money market fund to invest in. It was the closest option to the Canada Savings Bonds her Grandma used to buy her. Rachel learned the value of a dollar from an early age and likes knowing her money is safe. But she's realized that her money isn't growing as fast as some of her peers. In fact, sometimes she's even losing money after investment fees come out of her account. She knows she's not even keeping up with inflation and her wealth is going backwards. She's so scared of losing money in the stock market though! She doesn't know what to do or how to change things. Rachel's retirement account is being impacted by Loss Aversion.

Loss aversion is a bias toward avoiding losses over seeking gains. Experts argue that loss aversion can cost us money. They say that the biggest financial mistake people make is taking too little risk, not too much. Loss aversion helps explain why: Losses hurt more than gains are savored. Loss aversion causes us to avoid small risks even when they're probably worth it. It's why people save rather than invest, even though inflation will erode the value of their savings. Someone with a longer time horizon likely shouldn't have much exposure to low-risk, low-reward investments. Yet many investors do because they fear the volatility of the stock and bond markets. But many stock and bond investments, when held for long enough, will ultimately provide a positive return and growth that is greater than inflation. Ways to overcome this bias include not leaving it up to emotion. It's important to create an investing strategy and stick to it. Keep your investment time horizon in mind. And make a mental effort to adopt some risk by adding some equities to your portfolio. Because Rachel's young and has her whole career to save for retirement, she can likely take bigger investment risks. She'd benefit from learning about the importance of portfolio diversification. By diversifying she'll lower the risk in her portfolio. That's because the positive performance of some investments can help make up for negative performance of others. Rachel would learn more by completing the Asset Allocation questionnaire on mysunlife.ca. She may want to consider adding some equity investments to her portfolio.

Kevin is 45, married and the Father of two school aged children. He's been investing for a few years now and rates his investment knowledge as high. He has a brokerage account and trades frequently. He used to spend a lot of time researching and analyzing different companies before investing in them. He doesn't have to do that so much anymore. The last few years have proven he's got a real "knack" for picking good stocks. Kevin recently invested half of his portfolio in an investment that was a "sure thing." He was really surprised when it lost a lot of money. Kevin's decision making, and portfolio balance, has been impacted by Overconfidence bias.

Overconfidence bias is the tendency to see ourselves as better than we are. And it's common in investing. The problem with the overconfidence bias is that it can make an investor overestimate their abilities and knowledge. This can lead to rash or poor decisions. For example, overconfidence in investing skills can lead someone to believe they can accurately time the market. And they generally do not manage and control risk properly. Ways to overcome this bias include consulting a professional to get a gut check on your investing strategy. You can also consider a passive investment approach, rather than trying to time the markets. Historically, active traders have tended to do worse than those who buy and hold. Kevin could benefit from working with an advisor. It's also a good idea for him to examine his past investment decisions and how they worked out. He can limit large future losses by understanding how his overconfidence led to making an oversized bet, and how his losses could have been controlled had he taken a more realistic approach.

Akari is a 32-year-old professional. She and her partner are getting serious. They have started talking about saving for their first home which they hope to buy together in 4 or 5 years. Akari has always been good with money. She pays her credit card off monthly. She leases a Hybrid car that's well within her budget. She regularly pays down the $9,000 balance left on her student loan. Akari received a $50,000 inheritance a few years ago, before she and her partner were together. She used it to pay the deposit on her leased car, reduce a portion of her student loan, and she put $40,000 into her Registered Retirement Savings Plan (RRSP). She did her research and invested in 4 stock funds. She was OK investing 100% in stocks, because she planned to use the RRSP for her retirement. Most of the stocks have performed well, but one of them has lost ½ of its value, bringing the overall portfolio value down to $36,000. Now that Akari is thinking about buying a home, she's looked into the First-time Home Buyer plan. She's learned that she can withdraw from her RRSP to help with the home down payment when the time comes. Unfortunately, since Akari's original $40,000 RRSP investment has dropped to $36,000 she's not sure about using it. She doesn't know where the money will come from for her ½ of the down payment if she doesn't withdraw it from her RRSP. But she doesn't want to sell and lock in her losses. Akari's home purchasing plans are being impacted by Anchoring Bias.

Anchoring bias is when a person values an initial piece of information too much to make subsequent judgments. In investing, this can influence decision-making regarding a security, such as when to sell or buy an investment. Since many investment decisions require multiple complex judgments, they're vulnerable to anchoring bias. For example, a person may hold on to an investment longer than they should because they've "anchored" on the higher price that they bought it at. The buying price biases their judgments about the stock's true value. Ways to overcome this bias include taking time to do research and make decisions. A comprehensive assessment of an asset's price helps reduce anchoring bias. Be open to new information, even if it doesn't necessarily align with what you've initially learned. Selling an investment doesn't mean that you made a mistake when you bought it. It means that things have changed. Akari could benefit from thinking about the change in the goals she's had for the RRSP. Instead of using it for retirement, she now wants to use it to purchase a home. This has changed the time horizon for her investments. The stock that fell in value by 50% also needs to be reviewed. The stock is no longer worth what Akari paid for it. Its value is now ½ of that amount. If the outlook for the stock is such that it won't grow by 100% - the amount it needs to grow at to reach the original deposit - Akari should consider cutting her losses and invest in a different investment more suited to her new goal and time horizon.

Darren is 59, works in the oil fields of Alberta, and is planning to retire in 6 years, at age 65. He lives in Moncton and flies back and forth for work every two weeks. He's mortgage-free and has been a good saver. He takes full advantage of his employer sponsored retirement plans. He even adds extra money from each pay cheque and bonus. He doesn't follow the markets or anything like that. But his employers' plan has an easy fund called a Target Date, and it seems to have worked out fine for him. His monthly expenses are $4,200. This will drop to around $3,500 when he's no longer flying back and forth for work. Since he's getting close to 60, he's started the application process for the Canada Pension Plan. All the guys at work talk about how great it is to get the extra money from the government. It's like a bonus cheque every month. And he's paid into for so long. Might as well start getting the money back out as soon as he can. Darren doesn't know a lot about how Canada Pension Plan works. In fact, thinking about all this retirement and investing stuff makes him feel pretty uncomfortable. He doesn't say much in these conversations. But his friends seem pretty happy with the extra cash, so applying now seems like the right thing to do. Darren's decision-making has been impacted by Herd behaviour.

Herd behavior happens when investors follow others rather than making their own decisions based on financial data. For example, if all your friends are investing in cryptocurrency, and you start to as well, even though it's riskier than what's suitable for your investment personality. In times of uncertainty, people are afraid. And when we're afraid we rely on the herd to guide us. People follow the herd because it feels safer. There's also the "fear of missing out." If your colleagues are making money investing in a particular investment, it feels uncomfortable to sit on the sidelines. Herd behavior can backfire. It can create massive bubbles like the Dot-Com bubble or the Covid-19 real estate bubble in Canada. Unfortunately, bubbles burst, and investors can lose money. Ways to overcome this bias include stepping back and look at investments and financial planning decisions carefully. Be skeptical of hot tips promoted by non-professionals, or on internet forums. Work with an advisor. Or, do your own research if you truly know how to delve into an investments' fundamentals. The key here is that someone has to actually be able to determine if it's a solid investment. Darren could benefit from working with a Financial Planner. They could look at multiple retirement scenarios, with different ages for when to start taking the CPP benefit. He could also consider his personal financial situation and his health situation. This includes family longevity and tax impacts. He needs to do all this before making such a critical decision.

Let's look at some ways to manage bias.

Understanding and detecting biases is the first step. By understanding them, you may be able to moderate or adapt to them. Ultimately, this may improve your economic outcomes.

<On the slide:> Biases are not all bad. They can be used to your advantage. <End slide>

To adapt to a bias is to recognize and accept the bias. It means you adjust for it, rather than trying to moderate it. To moderate a bias means to recognize the bias and to try to reduce or remove it.

The way to manage the 5 biases we've discussed today is with a combination of moderation and adaptation. There are many tools at Sun Life to assist you. We encourage you to explore them. This is also a good time to reach out to your advisor if you have one, or to find one if you don't. A financial advisor can help by: answering your specific questions, helping you build a plan to meet your short-term and long-term goals, and to identify any gaps that may prevent you from reaching them.

<On the slide:> A table

<End slide>

It's clear that our decisions are influenced by a number of factors, including emotions and cognitive biases. Having a financial plan to guide you is an important step to making sound investment decisions. A plan is more than saving money and buying insurance. It's about what you desire to do or achieve in your lifetime. It will help you figure out: where you are today, where you're going, and how best to get you there.

Thank you for your attention today. We hope that you have found this information helpful. Please reach out to us for assistance with any questions.

<On the slide:> The information provided is of a general nature and can not be construed as personal financial or legal advice. Neither Sun Life or its affiliates guarantees the accuracy or completeness of any such information. This information should not be acted on without obtaining counsel from your professional advisors, including a lawyer, notary, tax professional, or financial advisor (registered as Financial Security Advisors in Quebec) as may be applicable to your individual situation.

Group Retirement Services are provided by Sun Life Assurance Company of Canada, a member of the Sun Life group of companies. <End slide>