Author Segal LLP

College and then a Job at a Coffee House? Not Necessarily

080416_Thinkstock_468195645_lores_KKAre you worried that after years of college or university, your kids will wind up as a barista?

That idea has been challenged by recent research showing that those who graduate from post-secondary education tend to land jobs with good salaries that continue to grow significantly over time.

Researchers at the Education Policy Research Initiative at the University of Ottawa looked at income data linked to tax records for 620,000 Canadian college (diploma) and university (bachelor’s) graduates from four provinces. The data studied covered the years 2005 through 2013.

The goal: Gauge the affect of higher education on future employment income. According to the researchers, spending years in post-secondary education is a valuable effort in terms of earning bigger bucks, almost regardless what you study.

“Very few graduates had truly barista-level earnings even to start, and they increasingly moved even further from that level as they gained labour market experience,” the report said. In fact the study, called Barista or Better? New Evidence on the Earnings of Post-Secondary Education Graduates shows that:

  • College diploma graduates who finished their studies in 2005 had mean annual earnings of $33,900 (in 2014 dollars) in the first year following graduation, growing by 59% to $54,000 eight years after graduation.
  • Engineering, Mathematics & Computer Science, and Business graduates generally had higher incomes and greater earnings growth than others, but graduates of almost all other fields of study, including the often-maligned Humanities and Social Sciences bachelor’s graduates, also performed well.
  • Graduates in later years generally had similar earnings patterns and the ranking of fields of study remained consistent as well, although some fields of study did have greater differences in earnings across cohorts than others.

Income Potential

“This study provides much-needed data on graduates’ income potential, and demonstrates the significant value of post-secondary education – including liberal arts degrees – with respect to long-term earnings and career success,” said Paul Davidson, President of Universities Canada, a group that represents the interests of 97 Canadian public and private not-for-profit universities.

Students who graduated from university in 2005 earned $45,200 in inflation-adjusted terms – on average – in their first year after school. Every subsequent year, the figure rose for a total of 66% to $74,900 in 2013, the final year studied.

Students who graduated from college earned a bit lower in the first years, starting at $33,900 in inflation-adjusted terms in 2005, but by 2013, the amount had grown 59% to $54,000.

The study speculates that the reason for this discrepancy could be that Canadian colleges are generally mandated with developing occupation-specific, practical job skills in their students, often catering to local labour market needs. This means that the graduates of some institutions may do considerably better or worse than the graduates of others, depending on local labour market conditions for their graduates in different fields of study.

(Colleges of applied arts and technology have full-time and part-time diploma and certificate programs. Many also offer bachelor degrees in applied areas of study. Universities are institutions that can grant degrees. All universities have undergraduate (bachelor’s) degrees, and many have graduate (Master’s and doctoral) programs. Many universities also offer professional programs, such as medicine, dentistry and law. In some cases, you can begin these programs after 2 or 3 years of undergraduate study.)

Ranking of Earnings

The earnings for different courses of study were ranked in this order:

  • Engineering and Health graduates (excluding doctors, dentists, and pharmacists), consistently had the highest average earnings to start, generally in the $60,000 range.
  • Math & Computer Science and Business Graduates (in that order) started between the low $40,000s and as high as $52,700 for the 2007 graduates.
  • Science & Agriculture, the Social Sciences, and the Humanities came in third, earning between the low $30,000s and $40,000 in their first year.
  • Fine Arts came in last, with earnings ranging from around $25,000 to just under $32,000 in their best year (the 2007 graduates, as for most fields of study).

Attaching specific numbers to these patterns, earnings in the first year after leaving school for the 2005 cohort were:

  • Health: $58,800,
  • Engineering: $56,400,
  • Math & Computer Science: $48,500,
  • Business: $43,700,
  • Science & Agriculture: $38,500,
  • Social Sciences: $36,300,
  • Humanities: $32,800, and
  • Fine Arts: $28,800.

Graduates from bachelor’s programs saw their salaries grow by about $4,200 a year, and each new wave of graduates earned about $2,400 more than the grads the year before.

Trends were similar across community colleges, where engineering and health graduates started off making about $40,000 a year and rose as high as $72,000 for engineer grads after eight years.

Gender Gap

The numbers also show a wage gap between the genders that widens over time. The average male university graduate in 2005 earned $46,800 in the first year, while female classmates made $44,000. Eight years later, the gap spread widely. The typical male university student was earning $89,800 in 2013, a 91% surge. His female counterpart, on the other hand, saw earnings rise 42% to $62,500.

So the gender wage gap spread over those eight years from about 6% to almost 30%.

The results were similar for college grads: first-year male grads earned $36,700 on average in 2005 and $65,600 by 2013, while female grads earned $31,200 and $42,000 respectively.

Lead researcher Ross Finnie, in an interview with CBC, said: “To some extent these gaps are because men and women study different things,” noting that, for example, there are few women in engineering. He also suggested that women’s salaries often are reduced over time because they take time off to raise families. The study didn’t go into the discrepancies.

Financial Crisis

A post-secondary education even served as a buffer to the financial crisis of 2008. The popular story has been that regardless of how life was going before 2008, post-secondary education graduates’ employment rates and earnings levels dropped sharply in that year and haven’t recovered.

The data tells a different story. Immediately following 2008, first year earnings of all graduates dipped, after having risen the two preceding years. But earnings stabilized in 2010.

While those who finished their studies in 2005 earned an average $45,200 in their first full year after graduating, earnings rose somewhat for the next two sets of graduates, to $47,100 and $47,600 in 2006 and 2007, respectively.

Earnings turned down for the 2008 through 2010 graduates, to a low of $43,800 for the latter. But this cohort’s earnings were only $1,400 (or about 3%) below the level of the 2005 cohort, while those who finished in 2012 enjoyed a small uptick.

A fair conclusion, the study says, might be that although earnings did decline after 2008, the change was relatively moderate, especially if a longer-run perspective across all cohorts is taken rather than comparing the later cohorts to the peak earnings enjoyed by the 2007 graduates.

Ultimately, the study says, the skills “individuals develop play a pivotal role in determining their labour-market opportunities and life chances in general, and are of vital importance to a country’s economic performance and many social outcomes. Post-secondary education is a primary means by which Canadians obtain the skills that they need.

Informed Decisions

It’s essential to have accurate information so that students, institutions and the general public can make informed decisions. This is especially relevant, the study asserts, when “we are often confronted with the now familiar barista trope – the suggestion (even assumption) that going to university, or college, particularly in a non-STEM (Science, Technology, Engineering, Mathematics) field of study, is a waste of time and will leave graduates stuck in a job with low earnings and little opportunity for career advancement.”


TFSA or RRSP? Your Financial Goals Will Decide

lores_TFSA_canadian_flagWhile you consider how much you will contribute to your Registered Retirement Savings Plan each year, also think about how you could split your savings between your RRSP and a Tax Free Savings Account (TFSA).

You will want to consult with your accountant on the best way to apportion your money, but meantime here is a refresher on how both accounts can work to your advantage.

Every Canadian age who reaches the legal age of majority, which depends on the province, and holds a valid Social Insurance Number accumulates TFSA contribution room each year, indexed to inflation. In the year you reach majority you can deposit the full contribution amount for that year regardless of the month of your birthday. The accounts can be opened through banks, credit unions, insurance companies or trust companies.

Canadians living abroad may contribute to a TFSA provided that they still have residential ties in Canada. If your status changes to a non-resident with no residential ties you are still allowed to keep your current TFSA, but no further contribution room will accumulate while you remain a non-resident.


Deciding whether to contribute to an RRSP or a TFSA is a question that you may face every year. The answer depends on the specifics of your financial circumstances.

If you are a lower-income earner such as a student or starting level employee, a TFSA can be a good choice. Your RRSP deduction will not save you as much tax today as it could in the future when you are in a higher marginal tax rate bracket and it will help lower your taxes.

If you are a senior, a TFSA offers you ability to reduce taxable income. You can contribute to an RRSP only until the year you turn 71. Before the end of that year you must convert the plan to a Registered Retirement Income Fund RRIF) or an annuity. A TFSA withdrawal will not impact benefits such as Old Age Security, the Guaranteed Income Supplement, child tax benefits, or GST credits. An RRSP withdrawal could generate a clawback of these benefits.

As a senior, you may not need the funds in the future and you may not want to withdraw the money immediately. This is possible with a TFSA whereas a RRSP requires you to start withdrawals at the end of the year that you turn 71.

Generally, you should contribute to your RRSP during your working years because it provides you with a deduction to income at your highest earning years. It is also a good tool to help you save, as there are the tax consequences if you decide to withdraw the funds.

Other TFSA Advantages

The savings accounts can provide a major boost toward reachingotherfinancial goals without being locked into tax consequences for early withdrawals. Non-retirement financial goals such as saving for a vacation, car, or home are all reasons to contribute to a TFSA.

Among the advantages of TFSAs is that any income, interest, dividends, and/or capital gains in the account are earned tax-free. Unused TFSA contribution room is carried over to the next year. The accounts provide many investment options to choose from, including mutual funds; Guaranteed Investment Certificates (GICs); stocks; certain mortgages and bonds.

Prohibited Investments and Penalties

You may also open a self-directed TFSA that lets you manage your own portfolio. If you opt to take this route, you must be aware of non-qualified or prohibited investments in order to avoid unexpected taxes. A prohibited investment is an investment in debt of the TFSA holder or an investment in which the TFSA holder has a significant interest. In other words you cannot include shares of your own company, a company in which you have a significant interest, or any investment where the TFSA does not deal at arm’s length.

Where a trust that is governed by a TFSA holds a prohibited investment during the calendar year, the holder of the TFSA is liable to pay two taxes:

1. A one-time tax when a prohibited investment is acquired or when a previously acquired property becomes a prohibited investment. The tax is equal to 50 per cent of the fair market value of the property when it was acquired or became prohibited. If the prohibited investment ceases to be a prohibited investment while it is held by the trust, the trust is considered to have disposed of and immediately re-acquired the property at its fair market value.

2. Income (including capital gains) on prohibited investments – 100% tax under the “advantage” rules.

All TFSA withdrawals are tax free and the full amount of withdrawals can be re-deposited in future years. Withdrawing funds from your TFSA increases your contribution room for future years but not for the year of the withdrawal.

If you plan to make a withdrawal, it might be best to do it before December 31. That way you could pay it back into the plan in the next year. providing even more contribution room for next year. If you wait until January or later to make the withdrawal, you must wait a full year before re-depositing the money.

Other Benefits

It is crucial to note that depositing large amounts in the same year that you withdraw from your TFSA may exceed your current year’s contribution limit and subject you to penalties. The penalty is one per cent of the highest amount of over-contribution in the month and will repeat each month you exceed the limit.

Income generated and withdrawals taken from a TFSA do not affect the income requirements to be eligible for benefits of Old Age Security, Child Tax Benefits, relief from medical premiums, and other federal benefits determined by income. This provides an opportunity for seniors and Canadians with low to moderate income to earn investment income while still retaining their benefits.

You may transfer funds to a spouse with no tax consequences if the funds are invested into a TFSA. In case of the death of a TFSA holder, the account generally can be transferred to a spouse or common-law partner who is appointed successor holder without tax consequences or impact on the successor’s existing contribution room. There may be some tax consequences incurred on income earned within a TFSA after the date of death of an account holder.

If you are looking for a way to save money, invest for the short term or long term and not be subject to the high restrictions of an RRSP, a TFSA may be your best choice. Consult with your accountant for guidance on which account best suits your situation.

Latch on to a Major Consumption Trend

MB115_Computer_Keyboard_desvription size_BizActionsCanadian media consumption habits are changing and the shift suggests you might want to review your company’s marketing strategy.

Reasons to Add Internet Marketing

The Canadian arm of the Interactive Advertising Bureau conducted studies with Molson, RBC Insurance, General Motors, Canadian Tire, Unilever Canada and AIM Trimark.

Data from the trade group’s studies point to some key conclusions about adding the Internet to your marketing efforts:

Increased coverage – Your company can more efficiently reach hard-to-get consumers who are increasingly surfing for information and entertainment.

More effective campaigns –Online advertising reinforces traditional media messages and boosts brand awareness.

Online advertising has value and can be cost-effective.

Canadians in the 18-to-34 age bracket who go online.actually spend more time on the Internet than they do watching television. It is not so surprising that young people are so enthusiastic about the Internet. Most of them grew up with computers and find the Internet to be second nature.

So, whether or not you already have an online advertising strategy, it’s a good time to step back and reassess. You may want to start taking or bolstering a cross-media marketing approach that includes the Internet to help capture this group of technologically astute, affluent and trend-conscious consumers.

Many experts see the Internet, at least in combination with traditional media, as the advertising wave of the future. If your company hasn’t yet tapped into the online ad universe, here are five steps to help set up and maintain an Internet presence.

1. Determine what percentage of your target consumers has access to the Internet. You want to reach consumers where they are and the same principles apply to the Internet as to buying a page in a magazine. Where do your company’s profits come from? If more than a third are from people with Net access, you’re likely missing out on a big opportunity without a strong online strategy.

2. Spend a small amount on Internet marketing and compare the results with other media outlets. Then, experiment with the mix. A rule of thumb: Generally, online advertising should take up 10 per cent to 15 per cent of your total ad spending.

3. Integrate the online element. To be most effective, you need a strategy that integrates the online and offline elements of a campaign from the day of its launch.

4. Take sound, accurate metrics. The widely accepted critical measurements of Internet advertising are ad impressions, clicks, visits, unique measurements and page impressions. Be cautious with click-throughs. This percentage of people exposed to an ad that actually click through to your company’s Web site is a key metric, but its importance fades if your company isn’t actually selling anything online. Consumer perceptions may be a more important metric. And even if you do sell online, one in ten may not click through but those other nine may come back later. Studies consistently show that many of those who don’t click through will likely come back to your site to make a purchase.

5. Focus on building brand awareness or perception, not on unique online factors such as interactivity. Online, print and television advertising each has specific elements you can exploit, but they should not be the point of your campaign.

When it comes to buying, today’s consumers think the way they did a decade ago. So offline and online advertising is subject to the same principles. Target consumers by deciding whether an online, newspaper or television ad will do the trick. The major point is to allocate your media mix and spend accordingly.

Penetrate the B2B Media

thmb_arrows_direction_nhIf you really want to attract attention to your business, try getting some exposure in business-to-business publications and other trade media. The coverage can not only attract the attention of current and prospective customers, as well as potential recruits, it can also position your company and its executives as thought leaders and industry experts.

What is an Editorial Calendar?

Newspapers, magazines, newsletters and other publications often plan certain features or themes well in advance. They put together the topics, along with the deadlines, in an editorial calendar.

The list of topics planned for upcoming issues is generally used to attract advertisers. For example, if a publication runs an issue on home values, a kitchen remodeling company may want to advertise in that issue.

A company can take advantage of that same calendar. For that special issue on home values, a Realtor might want to contact the editors about writing an article on how certain improvements can boost the price of a property.

The time to contact an editor or send a press release should be well in advance of the deadline listed in an editorial calendar.

B2B, or trade, publications are hungry for editorial material. These days, reporters and editors are called upon to find worthwhile material for news articles, features, blogs, Web site content, discussions on social media sites, webinars and podcasts.

Trade journals can be national or local — most major cities have them — and the Internet is probably the fastest way to find both. For example, a Google search for “Canadian  Realtor publications” or “Canadian grocer publications” will instantly turn up several entries on the first results page. Change the word “publications” to “newsletters” and you can find other potential publicity vehicles.

Once you get onto a Web site, a click or two will likely get you to the publication’s guidelines for submitting news releases, articles and photos. The publication may also post its editorial calendar or at least provide instructions on how to get it. (See right-hand box for more information about editorial calendars).

Making Your Pitch

B2B publications are interested in a variety of content. One of the most common topics is what’s happening with a company’s personnel. People within an industry are always interested in who’s been promoted, hired, moved to another company, won an award or gave a speech.

Avoid sending ideas with limited interest. For instance, sponsorship of local community events is unlikely to spark much editorial curiosity in a national publication unless it is particularly unusual or innovative, or it has broader appeal as an example that other organizations could follow.

Three general ways to approach B2B, and other, publications are:

1. Sending news releases: These should include the who, what, where, when and why of the topic. Include at least two sentences from a company executive that can be used as comments, and, if appropriate, incorporate customer testimonials. The release should be sent with a news kit that includes a fact sheet on your company, biographies of your managers and highlights of their areas of expertise, complete contact information and professional color photos in both print and electronic formats.

2. Writing bylined articles: These can position your company and its staff as what B2B publications consider “technical experts.” For example, write an article examining how the economy is affecting consumer spending patterns. Or send in an opinion piece on how a legislative proposal is likely to affect your industry. Write tips-oriented articles — they lend themselves to being edited into small pieces and publications are often tight on space or need material to fill small openings on a page. Insist on attribution from your company if the article is turned into a brief item.

If you are writing a consumer piece, you can include, but minimize, how your product or service benefits people. You don’t want to come off as looking for free advertising. If other businesses in your industry are more cost-efficient or have more features, address those issues and clearly define the value your company brings to the marketplace.

3. Starting a blog or developing a presence on social media sites. Once you get it started, start spreading the word. You can send items to B2B publications that are taken directly from the blog. Or let the publication know that your company’s social media page has an interesting discussion on an important industry topic. Position the blog or social media page as one that consumers and businesses seek out when looking for advice, services or products.

Another possible approach is to send news tips and story ideas and offering your services as a source. This helps portray you — and your staff — as informed and helpful.

If you wind up making an unsolicited call to someone at the publication, try to find out the individual’s schedule and deadlines first. If that’s not possible, when the person answers your first question should be, “Are you on a deadline?” or, “Is this a good time?”

If you are being interviewed for an article about your company, be sure you don’t divulge secrets. The finished article will, after all, be seen by your organization’s competitors. If during an interview you become concerned, simply tell the person that what you are saying is off the record so that it won’t be included in the article.

A Powerful Statement

Getting your company’s name into B2B publications generates publicity and public relations that can be far more powerful than marketing or advertising campaigns and generate more business and revenue. This is because editors at a reputable publication are deciding that what you have to say is worth publishing, so your company’s message and image comes across as more objective and stronger. On the other hand, you do lose control over this type of publicity, as placement and the actual content will be determined by the writers and editors.

Persistence is important when working with the B2B media, as it is with any media. Not every news release or notice your company sends will be printed verbatim. But publishing professionals do notice individuals who keep contacting them without becoming a nuisance.

Once you successfully get an item published, make the most of it. Push the coverage to your company’s customers by emailing it to them or putting it on your company’s Web site. Distribute copies of articles at business associations and industry trade shows.

Gaining exposure through B2B publications doesn’t replace advertising or marketing, but it does bolster your organization’s credibility and is a great way to raise your business’s profile and create opportunities. On top of that, it doesn’t cost anything unless you hire a public relations professional to do the job for you.

Mutual Funds to Give Investors Additional Information

071516_Thinkstock_484125614_lores_KKMutual funds are popular among Canadian investors, but how they work, and how much they cost, is confusing for some investors.

That will soon change. As of Friday July 15, 2016, the third and final phase of Client Relationship Model Two (CRM2) went into effect. Phase 3 gives investment firms one year to comply with uniform reporting standards to clarify how mutual funds have performed over time as well as the total costs investors pay as an actual dollar amount. Currently trailer fees, loads, administrative and marketing fees — and other fees — are typically expressed as a percentage.

In addition to showing charges and other compensation, registered dealers will also have to provide an annual investment performance report that covers deposits into, and withdrawals from, the client’s account, the change in value of the account, and the percentage returns for the previous year; and the previous three, five and ten years.

More Transparency

CRM2 has been going on for nearly a decade and came about as a result of complaints that Canadians pay among the highest investment fees in the developed world. Although mutual fund dealers must comply with the new rules by July 2017, in the majority of cases, investors will begin receiving the reports early in 2017. The earlier start is because most firms are choosing to provide the information on a calendar-year basis.

The new regulations cover a lot of ground, but the focus of the July change involves the portion of mutual fund fees that go to the dealer firm and the broker who is making those recommendations. While it may seem like a free service, advisors are generally compensated through loads when funds are bought and sold, and fees relating to administration and marketing.

They’re also compensated through annual trailer fees lumped into the annual mutual fund fee known as the management expense ratio (MER). An average MER is about 2.5%. Trailer fees vary but they are usually around 1% of the total amount invested.

That percentage sounds small, but consider this: an investor with a $40,000 mutual fund portfolio generally may pay around $400 in trailer fees, while a high net worth individual with a $1 million portfolio can pay as much as $10,000.

Add on loads, other fees, and the rest of the MER and that wealthy individual could pay as much as $30,000 in fees on that million-dollar portfolio. And that’s regardless whether the fund generates a return.

Types of Fees

Loads come in two varieties, back-end loads, or fees you’re charged when you redeem a mutual fund, and front-end loads that are charged up front. A no-load fund simply means that you can buy and redeem the mutual fund units/shares at any time without a commission or sales charge. Trailer fees are what a mutual fund pays to a person who sells a fund to you.

You also may be charged fees if you switch funds, start a registered plan, or open or close an account. You could be charged a short-term trading fee if you sell a fund within a certain period. Short-term trading fees are meant to discourage investors from using mutual funds to make a quick profit by “timing” the market. Market timers move in and out of the market or switch between asset classes based on using predictive methods such as technical indicators or economic data.

Some media coverage has contained factual errors about the timing and content of the CRM2 reporting requirements. As a result, the Investment Funds Institute of Canada published a list of myths and facts about what’s happening. The following is an edited, shortened version of that list:

Myth: CRM2 applies mainly to mutual funds.

Fact: It applies to all securities and all dealers and portfolio managers registered with any Canadian securities commission. The securities commissions are encouraging firms to include non-securities products in client reporting, to the extent possible.

Myth: The report on charges and compensation will tell investors the total cost of their investments.

Fact: CRM2 focuses only on the amount paid either directly or indirectly by an investor to the dealer firm. For mutual funds, it doesn’t include the amount paid to the investment manager. For an understanding of the total cost of a mutual fund, investors can review the fund’s (MER).

Myth: The new report on investment performance will provide benchmarks so that investors can evaluate their personal returns based on a benchmark.

Fact: The report on investment performance won’t provide benchmarks. The report focuses on the individual investor’s personal rate of return (ROR) and this can’t be compared to a benchmark. The personal ROR is based on the investors’ specific deposits into and withdrawals out of their accounts, as well as dividends and interest earned within the accounts and changes in the value of the securities held within them. Because each investor has a different combination of deposits and withdrawals, each could have a different ROR.

Under CRM requirements that went into effect in 2014, however, dealers are required to provide clients with a general explanation of benchmarks. Benchmarks may be a helpful measure to understand how a fund has performed over a specific period of time. However, benchmarks aren’t relevant comparisons to an individual investor’s ROR. This is because the benchmark evaluates the performance of a fund over a time period and doesn’t take into account the timing of an individual investor’s day-to-day deposits or withdrawals.

Investors should compare their ROR to their target rates of return to evaluate whether they’re on track to meet their investment goals.

Myth: When investors receive their first reports on charges and compensation, they’ll be surprised to learn how much their dealers are being paid.

Fact: Investors already receive information about dealer compensation, through information presented in percentage terms in the Fund Facts document and in the simplified prospectus. The only change under CRM2 is that these amounts will be provided in dollars and cents and at the account level, rather than just in percentage terms.

If you already, or plan to, invest in mutual funds, consult with your investment adviser for more help understanding the new reports you’ll be receiving.