Financial planners from across Canada gathered at the Canadian Institute of Financial Planners’ (CIFPs) annual conference in Vancouver earlier this week to hear experts discuss a variety of subjects, including forecasts of a pending recession; managing money in a low-return environment; retirees’ growing debt levels; empowering female investors; the rise of sustainable investing; building estate plans in the digital age; and professional conduct for advisors.
Here are five takeaways from the event, which was held at the Westin Bayshore from June 2 to June 5, for financial advisors:
1. Prepare for low growth
After a 10-year bull market, advisors should be preparing for “a low-growth, low-inflation, low-interest rate environment” for the next five to 10 years, says Frances Donald, Manulife Investment Management’s new chief economist and head of macroeconomic strategy.
The economy is different today compared with a decade ago due to weak growth in productivity , the dramatic rise of e-commerce and, more recently, the rise of populist policies and the push toward deglobalization, Ms. Donald says.
“We need to translate how our changing world implies a changing asset allocation,” she added in an interview following her presentation.
For example, low interest rates mean guaranteed investment certificates and bonds won’t be as reliable to provide a steady return for retirees in the coming years.
“Global bond rates will be lower and, in some cases, much lower than what we’ve become accustomed to over the past 20 years,” Ms. Donald says.
Amol Sodhi, vice-president, director and portfolio manager with TD Asset Management Inc., says the investment industry needs to rethink the traditional bond-heavy asset mix for retirees given the expected low returns down the road.
Advisors also need to make portfolios last longer because of increased life expectancies. As such, he promotes a diversification strategy based on “risk-factor exposures” instead of just asset classes.
2. Mind the sequence
For retirees living off their investments and the income that their assets generate, when they pull money out of their portfolios can have just as significant as impact as how much they withdraw.
The returns during the first few years of retirement can be particularly critical. For those who retire in a bull market, their savings will last longer. On the flip side, for those who retire in a down market, the losses can be difficult to recover from – especially if investors panic and sell more during this period. This sequence risk, also known as sequence-of-returns risk, is an issue as talk of a recession in the not-too-distant future has picked up.
“The sequence-of-return risk comes up because as drawdowns are made at the wrong time, the assets are never given a chance to make that money back,” Mr. Sodhi says. “That’s a behavioural risk for clients who have a lot of assets in retirement and limited sources of income."
3. Debt is ‘the new reality’ in retirement
A growing number of investors are retiring with debt and taking on more of it during this stage of their lives, according to a Fidelity Investments Canada ULC survey released at the conference.
Specifically, 42 per cent of survey participants had long-term debt when they began retirement, including mortgage and credit card debt, and 80 per cent of them still had that debt today. Furthermore, 31 per cent of survey participants incurred additional debts after they went into retirement.
“Debt is the new reality … that has to be factored into retirement planning,” said Peter Bowen, vice president, tax and retirement research at Fidelity, in an interview.
The survey of 1,926 Canadians with a median age of 57, which was conducted in April and May, also revealed that investors who work with an advisor were less likely to take on extra debt: 22 per cent of investors with advisors increased their debt levels in retirement versus 35 per cent of those without an advisor.
Mr. Bowen recommends advisors check in with clients about their debt levels. “We focus on the assets, maybe we aren’t paying enough attention to the debt side,” he said.
4. Empower women to ask the right questions
Women are less likely to admit when they don’t understand investment terms such as “benchmark” and “asset allocation” – and it’s up to advisors to educate and empower them, says Tuula Jalasjaa, chair and co-chief executive officer at TF Global Inc.
Some women are afraid to ask “stupid questions,” when meeting with their advisors, she points out. “If you’re not in this business it [can seem] extremely complex and complicated. ... Boil it down for them. Make it simple. Help them feel confident they know what you’re talking about. Don’t assume they do because they’re quiet and nodding their heads.”
Ms. Jalasjaa’s advice to advisors: “Tell them what questions they should be asking you.” It will add value to the client-investor relationship.
5. Build a case for ‘just in case’
Although focusing on the investment side of retirement is important, advisors should also ensure their clients have a comprehensive estate plan.
This is not just about drawing up a will and power of attorney documents, but taking stock of assets that an executor might be challenged to find “is a small step we can all take to ease their job,” says Karen Tzupa, a financial planning specialist in Saskatoon. Examples include eBay and PayPal accounts, social media accounts and loyalty reward programs. Advisors need to encourage clients to compile this information and make it available, “just in case.”
Ms. Tzupa also cites “The R.I.P. Bucket List,” from motivational speaker and author Sue Jacques as a guide to ensure a client’s estate plan is robust. The “R” stands for resolving personal preferences, such as how clients want to be buried and if they’re willing to donate their organs after the die. The “I” is to inform others of their preferences and the “P” is for putting it in writing, which makes it real and accessible to those charged with carrying out clients’ wishes once they pass away.