Monuments and Heirlooms


Many people have assets that are treasured by the family. These can include a farm handed down through many generations, a business carefully created, a cottage, painting, a piece of jewelry, an antique or art. Some of these assets are liabilities.

In simple terms, a monument or heirloom is a nominally valuable asset with an emotional inclination to keep it.

The “Monument – Heirloom” designation creates problems.

  1. If the asset appreciates in nominal value, income taxes are due every time it changes hands.
  2. The asset is not a “good asset” for the eventual owner because a sale or using it as security for a loan is not a realistic option.
  3. The other heirs or their families often look at the asset’s value as if it were going to be sold. That misrepresents things and can cause hard feelings.

Consider this extreme case.

You have one sibling. Your parents have two assets. A diamond worth $1,000,000 that has been in the family for 250 years. Great misfortune will befall, with certainty, anyone who sells it. The other asset is a bank account with $10,000 in it. As your share of the estate, you may choose which of the two you want.

If you take the $10,000 asset, you may do with it as you choose. If you take the $1,000,000 asset, you will be faced with insurance and security costs each year and must set aside money to meet the eventual tax liability when you transfer it to your heirs. These costs will come out of your other income or assets.

The diamond is not an asset within any meaningful definition of the word. It consumes rather than builds cash flow or useful value. By any view, it is a liability.

Except as an exercise of filial duty, no one would choose to own it under these conditions.

The difference between this example and a family farm or cottage is only one of detail.

When transferring assets that have emotional strings attached, value them at a price that is representative of their value in use rather than their value in exchange. Be sure everyone with an interest knows the rules.

And don’t forget to provide funding for the taxes that will become due. Also from your other assets.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Reversability Is A Dimension Of Risk


No action is risky if you can reverse it for little or no cost.

People often confuse complexity and the size of the transaction with risk. At the same time, they believe that simplicity and ease of performance will reduce risk. The world does not work that way.

Many expensive and complex transactions can be undone. Many simple ones cannot.

For example, many people spend a great deal of time and trouble buying a house. How much risk is there if they are wrong? Probably not much. Put it back on the market and likely you will lose little more than some time and some sales and closing costs. If those costs are affordable, the deal is not risky.

In the same vein, a decision to sell your home is typically not easy to reverse. It is counter intuitive, but selling your home is actually riskier than buying it. If you sell and you don’t like the result, could you get it back? Probably not.

This is an important consideration if you are counseling people who have lost their spouse. That is one of the reasons that there needs to be a time span to adapt to a new life.

What about the decision to have your first child?

Very high risk! Your whole life will be changed and you can’t send the child back if you don’t like the change. Subsequent children are not without risk, but they are much lower risk. The first child changed your life. On the risk side, later ones just increase the noise.

Some financial actions can be reversed, while others cannot. Pay attention. Read the fine print or get assurances that you can change your mind.

A wise planner examines the ability to reverse any material transaction. If an action cannot be reversed (life annuity) or would be very costly to reverse, use great care.

Typically, there are no do-overs with a will or an estate distribution plan. A good lawyer will tell you to take the care you would if you knew it was your last opportunity to express your wishes. One of them will be your last opportunity.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Go Ahead! Take The Cover Off.


In the spring of 1954, there was great tragedy in the home of my grandparents, just up the street from where we lived. A wonder of the mechanical world of that time had stopped working. Their brand new, pop-up toaster, would not pop-up.

My grandfather worked in a factory fixing machinery. He was a very practical guy. He liked to tinker. The toaster had moved to the bench in his workshop and I was curious to see how he would fix it.

He told me to take the cover off. I was 6 or so, and of course was not about to touch anything. After all it was nearly new and a marvelous thing.

What he told me next has stayed with me my entire life so far. It gave me permission to expand, to try things previously untried, to experiment, to discover.

He said, “When you take the cover off, if the machinery is well made you will be able to see what they are trying to do with it and you will be able to see what made it fail. That is when you decide what to do next. You cannot know what to do with the cover still on. If it is not well made, you won’t learn much by taking the cover off, but if it is poorly made and already broken, how can you make it worse?”

Since then, I have been able to take the cover off broken things.  (There are some that would argue obsessed to do so.)  Many are well made, a few not so much. Some are more complicated than I anticipated. A 35mm camera comes to mind. That did not end well.

Some manufacturing techniques have made things close to unrepairable, at least by me. Children’s battery-powered toys fit that category. More generally, with almost everything electronic, if there is power to the board and it still does not work, I am done here.

Financial planning and tax planning and computer programs are a bit like this, too.

When you take the cover off you find that many were not exactly created, they evolved. They may have had a place to go in the beginning, but over the years convenient patches and well intentioned tinkering have rendered them both inefficient and, because of no useful documentation, beyond understanding.

I had a client who used to scour the computer scrap yards for machines that had been disposed of by others. He had a 20-year-old computer system, from a defunct manufacturer, running self-developed software that his business used every hour of every day. As you can imagine, you could not get the pieces at Best-Buy. The cost to rewrite the programs was material and easily postponed as long as he could keep finding old machines to cannibalize. Expansion was a problem but one that was easy to postpone one more day.

You eventually have to pay the price, you might as well enjoy the simplicity and efficiency in the meantime.

Your life will be better if, every once in a while, you remove the cover on your financial plans.

Look at them objectively. What do they purport to do? What resources do they do it with? What is that part for!!!?? What is the timeline? How do they interact?

Try to pay as little attention as you can to what brought the plan to this point.

Learn from it, but don’t use how you got here to rationalize the current reality. As you examine the current reality, be a Martian who knows nothing of history. Pure objectivity.

You aim is to answer a simple question. “If this plan and its implementation did not exist today, would I create this exact structure to achieve my known goals?”

If you can say “Yes!”, then replace the cover.

If you cannot say that, try to conceive of a plan that will be both efficient and exactly representative of your best way to resolve your problems and exploit your opportunities. If your world is complicated enough, maybe a factory-trained technician is required. Seek help if you need it. If nothing else, get someone skilled to look over your ideas and make recommendations.

Be brave.  You can learn quite a bit by removing the cover.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Can You Be A Sales Manager?


Back in the early ’90’s a friend lost his job as plant manager when the parent company moved the operation to China. Rather than move, he applied to the town for the job of “Arena Manager.”

“You have no experience with arenas.” was the principal objection.

His reply, “Do you want to hire someone who knows about arenas, or do you want to hire someone who is a manager?”

His view was that a manager did not need to know how to fix a compressor, all he needed to know was that it is broken and that there is an 800 number for the company that fixes them. His real contribution would be to be a leader, to delegate projects and tasks, to anticipate problems, to husband resources and to understand the reality of what arenas contribute to a community.

Management is a subtle skill. Its principle component is the ability to achieve results through properly using others.

That requirement automatically deletes skilled salespeople from consideration. Almost all of them are successful because they can manage themselves and require control over the process. They get impatient when the others do it differently. In a counter-intuitive way, it is more likely that the weak salespeople will make the better managers.

In homage to the “Peter Principle” many a fine salesperson has become an unhappy and unproductive sales manager. If you have fallen into that trap, you have choices.

  • Change who you are
  • Change what you do

There is a Turkish proverb that says, “If you find yourself on the wrong road, turn back”

Changing what you do is easier than changing who you are.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Planning Fails When …..


Planning fails when the the client and the planner perceive a large goal and attempt to reach it in several small steps.  The rule is, “You cannot cross a wide canyon with several small jumps.”  And yet, to try to implement one big leap is just as failure prone.

It is a self contradicting idea that presents a deeper truth.   Like “You must do it alone, but you cannot do it by yourself.”

Our contradiction is, “You cannot solve a big problem with several, preplanned small steps and you cannot solve the same problem with one big preplanned step.”

What are the deeper thoughts?

  • If the problem is big, you cannot see the solution from the starting point, so one big leap won’t work very often.  If you can see the solution from the beginning, it is not a big problem.  Perhaps more correctly, problems to which you know the answer are not, by definition, problems.
  • Big problems can be broken down into smaller pieces, but you won’t know what the pieces look like until you get involved with implementing.

The solution to a big problem is to iterate the answer.  Use the results of each step to condition or redefine the next step.  Begin with the end target in reasonably clear focus.  Outline a candidate series of steps.  Implement a likely first step.  Use what you have learned from that step and decide if the original target is still clearly and properly defined.  Modify the outline.  Decide to proceed or not.  Take the next likely step.  Revisit the target and see if modifications are needed, either to the target, the projection, or to the steps taken so far.  Take another step.  Repeat as necessary.

Sometimes you will need to return to the beginning because your original target has been found to be a flawed description, or the process elected so far can now be seen to be no solution.  The ability to restart is an important design element.

Consider whether it is even possible to get where you want to go.  If not, invoke Max Ma’s wisdom, “That is not a problem; that is impossible.”

The danger for most people is two-fold.  They do not clearly know the endpoint and they are careless in the choice of the next step.  They often invoke the Greedy Algorithm.  Even if they reach a good conclusion using that process, (which is no certainty) they will have learned nothing.

When you purposefully reach the iteratively amended target, you will find several useful things have happened.

  1. You will understand the target (even if you did not need to revise it) and you will understand how the process attaches to it.
  2. You will have a maintainable process.  You could apply it again to similar situations with appropriate amendments or you can amend it successfully if things change.
  3. You will be able to define new goals in which this target is one of the steps.

In mathematics and physics and I suppose, business, an elegant solution has three characteristics.  It will be simple, it will clarify the problem and it will give a hint at why the solution works.

Big questions need good answers.  Good answers are ones you learn from.  They are elegant.

Be careful.  It is never a solution to implement an action and then bend the problem to validate the process.  That is like doing the budget at the end of the year.  Surprising how often you get that right.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Planning Succeeds When …….


Financial advisers have a difficult job to do and most do it well.  BUT, it is harder if the client doesn’t know enough and it is harder if the adviser does not find out enough.  Where to begin?

Clients need to know about:

  • Investments and their relative merits
  • Insurance and probabilities
  • How spending changes over time
  • How to set priorities when the resources available cannot solve every problem
  • How to set policies.  Things like the welfare of my children is first, then …
  • How to acquire and use advice
  • How much security is enough
  • How the future self and the present self are connected.
  • How to deal with risk
  • How to make decisions

The adviser needs to learn softer things.  My experience is that there are three that should be reviewed specifically.  It is surprising what comes up.

What are your:

  • Hopes
  • Fears
  • Expectations

The purpose of this is for the adviser is to find ways to minimize the fear inducing events and bring hopes and expectations as close together as possible.

When the adviser approaches from this starting point, it is easier for the client to learn what they need to know.  Because it has context.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

How Financial Planning Works


This is immensely simplified, but probably as good as any other explanation you will find.

Why Financial planning works

Happy Monday!

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

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