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Canadians are shifting their money away from regular saving and chequing accounts to guaranteed investment certificates (GICs), taking advantage of higher interest rates and avoiding market volatility amid ongoing fears of recession, a new report notes.

Savings and chequing accounts, known as “demand” deposits, accounted for 59.4 per cent of total household deposits in 2022, down from 62.7 per cent in 2021, according to the report from Toronto-based Investor Economics, an ISS Market Intelligence business.

Meanwhile, the report says GICs, or fixed-term products, rose to 40.6 per cent of total household deposits in 2022, up from 37.3 per cent in 2021.

“That’s a fairly large shift into fixed-term for household deposits,” says Will Stevenson, a senior associate at ISS Market Intelligence and lead author of the report.

The spring 2023 edition of Investor Economics’ Deposit Report covers the vast majority of Canada’s $2-trillion household deposit market, including $1.2-trillion of demand products and about $800-million of fixed-term products.

He notes that demand deposits declined by $75.2-billion through the second half of 2022 “as investors preferred higher-yielding term deposits over savings and chequing accounts, where much of the deposit growth through the first two years of the pandemic was gained.”

Mr. Stevenson expects GIC growth to continue into 2023, but likely at a slower pace than last year.

“We may not have hit the peak yet, but growth will be tempered,” he says.

Mr. Stevenson expects to see many GIC renewals in the coming months.

“We’re looking at term extension coming in the near future, which is when GICs will start to come up for renewal against fixed income as a substitute income product for advisors,” he says. “The rates are still attractive, and a lot of investors are still booking the one-year products, which is indicative of a wait-and-see environment.”

Mr. Stevenson suggests advisors pay attention to household deposit trends to understand how to invest their clients’ short-term funds. His report contains a detailed breakdown of advisor GIC holdings, including account sizes, time-to-maturity, interest rates and competitive performance, which advisors can use to compare their books of business to other advisors with similar clients using similar products.

“For advisors, I would take a look at how much demand deposits are going down and how much you’ve already allocated to GICs, and determine if you need more,” he says, while also noting the percentage of GIC assets held by independent advisors is relatively low compared to those at large, integrated firms.

“As demand deposits go down, there may not be a ton of savings their clients have to add the book,” he adds. “So, advisors may wish to use GICs where they can.”

- Brenda Bouw, Globe Advisor reporter

Must-reads from Globe Advisor this week

How young top women advisors take a multigenerational approach to connect with clients

The youngest advisors on Canada’s Top Women Wealth Advisors ranking say their age has never been a deterrent to gaining new clients. Quite the contrary, they use their age to their advantage with their younger and aging clients. Rosemary Horwood, a 34-year-old portfolio manager and investment advisor with Rosemary Horwood Wealth at Richardson Wealth Ltd. in Toronto, has found younger clients relate better to someone who isn’t that far off their age. She says older clients value having an advisor who won’t outlive them or up and retire, leaving them to adjust to a successor. They also like that the younger advisor will be around to advise heirs during the wealth transfer process. Read more from Deanne Gage on how younger advisors manage their practices.

Why this money manager thinks Canada is the best place to invest over the U.S. right now

While many investors look around the world for the best places to invest, money manager Robert Gill believes some of the best bets are at home in Canada, especially now. Mr. Gill, senior vice president and Canadian portfolio manager at Goodreid Investment Counsel Corp. in Toronto, says Canada is cheap with more room for growth. Brenda Bouw speaks with him about what he’s buying and selling.

Generating tax-free income in TFSAs with covered-call ETFs gains popularity

Tax-free, high-yield income is likely to grab the attention of many retirees and their advisors, and that’s exactly what an increasingly popular strategy entails, utilizing the tax-free savings account (TFSA) and covered-call exchange-traded funds (ETFs). Given that retirees now have potentially $88,000 in TFSA contribution room, many could devote a sizable sum of capital to these increasingly popular ETFs that generate monthly distributions, with annual yields that can exceed 10 per cent. Joel Schlesinger explains why the strategy of combining these ETFs with a TFSA has gained popularity among do-it-yourself investors.

How top women advisors use emotional intelligence to give them an edge

The aptitudes that make Canada’s Top Women Wealth Advisors successful are similar to their male counterparts, such as work ethic, financial acumen and building client relationships, but with a few modifications. While all advisors must build relationships, statistically more women score higher than men on emotional intelligence (EQ), which may ultimately help women advisors bond better with clients. Deanne Gage gives the lowdown on how EQ works.

Also see:

How this 68-year-old retiree is replacing some of the ‘excitement and learning’ he used to get from work

New ETF platform aims at institutions and hedge funds

Focus on social issues becomes a big factor in investment performance

How much the cost of living rose in this week’s Advisor Lookahead

Why Vancouver dominates Canada’s Top Women Wealth Advisors ranking

With a liquidity crisis looming, investors must switch their thinking

What you and your clients need to know

OSC suspends registration of Emerge ETFs, saying it’s in breach of its capital requirements

The Ontario Securities Commission announced Thursday it has suspended exchange-traded funds provider Emerge Canada Inc. from being an investment fund manager, a portfolio manager and an exempt-market dealer after finding the company is essentially insolvent. The OSC says Emerge Canada’s U.S. parent owes its Canadian subsidiary millions of dollars that the Canadian subsidiary has failed to collect. The OSC says Emerge Canada can’t count that money owed as part of its working capital. In turn, Emerge Canada owes more than $5-million to its own ETFs – a number far higher than disclosed on its most recent financial statements. Clare O’Hara and David Milstead explain how Emerge Canada got to this point and what it means for clients.

Little-known CRA practices make it hard to qualify for government debt relief

The Canada Revenue Agency frequently tells Canadians who are struggling with government debt that they can ask for financial relief, but the agency applies such stringent and little-known criteria to evaluate who qualifies to pay less or repay over a longer period of time that many taxpayers find they are unable to access help. The tax agency recently restarted withholding or reducing benefit payments to offset a taxpayer’s debt, a longstanding practice it paused during the pandemic to reduce financial stress on households. At the same time, it has encouraged Canadians struggling to repay their debt to reach out for help. Erica Alini explains how the CRA deals with this issue.

The remote work revolution that never took off

There was a time, in the thick of the pandemic, when major companies were scrambling to build fully remote workforces. New job titles cropped up for the people who were supposed to lead the transition – chief remote officer, head of remote, head of team anywhere – and there was talk of a revolution in the nature of work. The death of the office seemed near. And yet, just under three years later, this sea change has failed to materialize on a large scale. Most countries emerged from pandemic lockdowns more than a year ago, and a rapid normalization ensued, especially in the realm of white-collar work. Vanmala Subramaniam reports on the surge in the number of people who do hybrid work.

Investors’ route to post-COVID China is via Europe

Investors are getting more bang for their buck this year by buying European companies with a focus on China than buying Chinese companies themselves, a sign of the unevenness of China’s pandemic recovery and geopolitical concerns. Late last year, China dismantled its strict zero-COVID policy, helping its economy rebound by a faster-than-expected 4.5 per cent in the first quarter of 2023. The recovery has been patchy, however. Pent-up consumer demand has boosted the services sector, but manufacturing has lagged. Property and tech have been bruised by regulatory crackdowns, indebted local governments have little spare cash to spend, and youth unemployment is well above the national average. Alun John and Ankur Banerjee explain the rationale for Europe.

– Globe Advisor Staff