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Investing, industry news, products, RRSP reminders and news from Quebec.
Quick links, stories this week.
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Client relationships
Your clients are worried. Would-be clients are worried. More are starting to complain to the authorities and though it might be tempting to try and ignore things until it all blows over or goes away, a more sensible approach would be to examine the facts and take advantage of the opportunities that turmoil brings.
According to TD Waterhouse, the market downturn in 2008 and the threat of more losses down the road have shaken investor confidence. This might mean more hand-holding in the future, but there also appears to be a good opportunity here to add more clients to your roster – the latest survey found 24% of investors have lost confidence in their ability to manage their own investments, compared to 9% in last year’s survey.
Fifty-three percent of Canadian seniors, meanwhile, feel less secure about their financial future now than they did one year ago, according to a recent Angus Reid Strategies study. The study also found that 37% of participants who are not yet retired have been forced to delay retirement plans due to the current economic situation, while 44% of Canadians over 60 are worried about their homes decreasing in value.
While considering that educational opportunity, consider this as well: The latest RRSP poll, this time the 19th annual RBC RRSP Poll, found that many Canadians don’t plan for their first years of retirement – 76% of retirees had no idea how much money they spent in their first year after retirement. Among the 24% who did, 46% said they spent more than they expected, while 12% said they spent less.
In tax planning news, a poll conducted for H&R Block found new tax cuts and credits might improve a government’s approval rating but nearly 75% of survey respondents say they did not take advantage of any new credits on their 2007 taxes.
| News for Ontario divorce planning A decision by the Ontario Court of Appeal on Wednesday adds a new wrinkle to divorce proceedings. Generally speaking, Ontario courts will impose equalization payments in a divorce case to split the net worth of two spouses acquired while they were married, so that each spouse leaves the marriage with a relatively equal share of that net worth. Traditionally, an individual’s net worth is determined at a specified valuation date, usually at or near the date of separation. A problem occurs if the value of assets declines dramatically between the valuation date and final court proceedings. This is what happened to Harold and Barbara Serra. The decision appears to have opened the door for adjustments to be made to divorce settlements based on market conditions. Given current market conditions, there could be a lot of divorces that see a big disparity between values at separation and trial date. Read more. |
Foreign equity funds started 2009 in an unenviable position. In fact, gold seemed to be the only bright spot amidst the market carnage that continued into the first quarter of 2009.
According to preliminary performance data released by Morningstar Canada, the year started on an especially bleak note for investment funds that target non-Canadian equities, as the Morningstar Canada Fund Indices that track these funds posted heavy losses in January.
U.S. pension funds, meanwhile, are slashing their projected investment returns from major asset classes through 2013. A Greenwich Associates’ survey of 1,000 U.S. institutions about their expected annual returns for the next five years shows corporate pension funds have reduced investment return expectations to 7.4% in 2008, down from 8.2% in 2007. Public funds cut overall portfolio return expectations to 7.6% from 8.5%.
Jim O’Shaughnessy’s take on things, though, is decidedly more upbeat. The Connecticut-based star fund manager, who manages mandates for several RBC funds, says investors who truly believe that "this time it’s different," need to understand that they are betting against almost 200 years of market performance.
The majority of Canadian chief executives are also "somewhat confident" about the prospects of revenue growth over the foreseeable future. The annual PwC Global CEO survey found that 59% of Canadian CEOs expected growth this year, with 63% expressing the same level of confidence for the next three years.
A separate survey from Standard & Poor’s found 53.2% of actively managed Canadian equity funds outperformed the S&P/TSX Composite Index in the final three months of 2008.
Overseas, the Bank of England cut its trend-setting interest rate this week by 50 basis points, to an even 1.00%. Across the channel, the European Central Bank left its key rate unchanged, at 2.00%. Richard Kelly, senior TD Economics economist says both decisions were anticipated by the market.
In industry news this week, Dutch-based ING Groep announced plans to sell its Canadian insurance assets, saying it expects to raise $1.9 billion from the sale by selling 63% of its stake in its Canadian insurance unit. Almost half of the money will be from the sale of common shares to certain institutional investors in a deal that pegs the share price at $25 per share. The rest of the money will be raised through the market sale of common stock at a price of $26.35 per share.
Two of Canada’s big banks are flaunting their relative strength, meanwhile, by increasing their international footprint: RBC announced it is expanding business banking services in 12 countries in Europe and the Asia/Pacific region. The bank plans to provide cash management services and products in Australia, Austria, Belgium, China, France, Germany, Hong Kong, Italy, New Zealand, Portugal, Spain and Vietnam. At the same time, Scotiabank announced the acquisition of an additional 24% of Thailand’s Thanachart Bank, bringing its stake to 49%, the maximum allowed under Thai banking regulations.
Closer to home, Canaccord Capital was one of the first companies to announce it has completed the Canaccord Relief Program to repurchase, at par value, up to $152 million of restructured third-party asset-backed commercial paper from eligible clients. GMP Private Client launched a new Guided Strategy Program, a research program that develops a focus list of North American equity investments using fundamental, quantitative and technical analyses for the firm’s portfolio advisory committee. The firm says it is also developing a series of model portfolios that will layer an asset-allocation process over its two equity focus lists.
Mackenzie Financial has finally completed its acquisition of Saxon Funds, a deal first announced in October 2008, saying the firm amalgamated the legal entity of Saxon Funds Management into its overall corporate structure, effective January 26.
Guardian Capital Group announced it has named George Mavroudis as president of the company, effective January 30; GrowthWorks, meanwhile, announced that its president and CEO will remain in place at the company because of recent downturns and turbulence. David Levi had announced in August 2008 that he would transition out of the company. Les Lyall, senior vice-president, was slated to replace Levi as chief executive.
Mutual fund sales moved back into positive territory in January. According to preliminary numbers from the Investment Funds Institute of Canada, the industry posted net sales between $600 million and $1.16 billion during the month, thanks to "a significant deceleration" in long-term fund redemptions, coupled with strong money market fund sales.
Manulife Financial was recognized in the annual DALBAR rankings, soundly beating the competition in the category rating best universal life statements. The insurer scored 81.29 on the DALBAR ratings system, compared to an industry average of 68.1, making it the only company to achieve an "excellent" rating. Standard Life and Sun Life were ranked second and third.
In other rankings, Vancity Circadian Monthly Income Fund and Inhance Monthly Income Fund Class A were the top two SRI mutual funds in Canada last year, according to Corporate Knights magazine’s seventh annual survey of the country’s SRI universe.
Ethical Balanced Fund placed third, followed by the Ethical Advantage 2010 Fund and the Ethical Advantage 2030 Fund. Meritas Monthly Dividend and Income Fund ranked sixth, while RBC Jantzi Balanced Fund Series A, Meritas Balanced Portfolio Fund, Ethical Advantage 2015 Fund and Ethical Advantage 2040 Fund rounded out the top ten.
Sun Life Financial announced it is enhancing its critical illness insurance offering, becoming the first provider in Canada to cover acquired brain injury (ABI), damage inflicted by traumatic injury, anoxia, or encephalitis.
The Bank of Montreal is finally the first Canadian bank to officially offer access to the registered disability savings plans introduced in the 2008 federal budget. The bank says it is hiring additional staff to handle the anticipated demand.
Mutual funds might not hold an edge over exchange traded funds for much longer. Responding to increased advisor interest in ETFs, providers are beginning to introduce distribution reinvestment plans (DRIP), pre-authorized cash contribution plans (PACC) and a systematic withdrawal plan (SWP) for ETFs.
If some of your clients still have room for an RRSP contribution, here are a few reminders that you may want to pass along:
- The deadline for contributions to be applied against the 2008 tax year is March 2.
- The maximum RRSP contribution limit for 2008 is $20,000.
- Investors can exceed their personal contribution limit by up to $2,000 without being subject to a penalty tax.
- Clients who reached 71 years of age in 2008 must convert their RRSPs into a retirement income vehicle before the end of 2009 to avoid being taxed at fair market value on their RRSPs.
In addition to complaints registered by the Investment Industry Regulatory Organization of Canada (IIROC) and the Ombudsman for Banking Services and Investments (OBSI), Quebec’s regulator, l’Autorité des marchés financiers (AMF) and our sister publication, Conseiller.ca, reported on the AMF’s 2008 activity this week. The regulator’s list of successes includes an impressive, record number of new indictments (3,317 to be exact) and a 95% success rate when cases do go before the courts.
In Montreal, La Presse reports this week that the Caisse de dépôt et placement du Québec lost 26% of its value in 2008, worth $38 billion, while the average Canadian pension plan lost only 16% during the year.
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Quick links: Advisor.ca news, February 2-6, 2009.
New columns and features this week:
Peter Drake: This year’s federal budget was not obviously aimed directly at financial advisors and their clients. There’s nothing comparable to measures we have seen in recent budgets but nevertheless there are aspects that we should be thinking about. Read more.
April Levitt and Kim Poulin from The Personal Coach: When your clients look at their next portfolio statement, the numbers aren’t going to be pretty. And even though they’ve heard the litany of bad news, when they see it, the reality of the steep declines will hit home. So how should you handle this statement shock? Read more.
Sandy Cardy: If some of your clients have stock options as part of their employment package, they should be aware of how these options are taxed, and the risks associated with this type of compensation. Read more.
Features:
Help for snowbirds (a CSI learning module): Whether they know it or not, Canadian snowbirds have many challenging financial planning issues to deal with as a result of their annual pilgrimage south. While in the U.S., transactions as simple as opening a bank account or as complex as purchasing property can have legal and tax implications in both countries. This article is part of a mini-series of continuing education articles from the Canadian Securities Institute. Read more.
The Y factor: With the average age of Canada’s advisor comunity hovering around the 50 mark, that workforce realistically has about 15 years before it starts to deplete, potentially leaving older clients advisorless. To remedy this, firms are increasingly looking to those under the age of 30 to repopulate the ranks. Read more.
Registered losses deductible to estate: A small change in last week’s budget promises a benefit during declining markets: RRSP and RRIF losses will be treated fairly in estate distributions. Will it have much impact? Read more.
Cancer, the claims process (an insurance case study): Do you sometimes wonder why underwriters make certain decisions? Need insight into the different claims processes or help explaining things to clients? This mini-series from Munich Re will hopefully provide some of the answers. In part two of this series, Munich Re expert, Hélène Michaud discuses the critical illness claims process. Read more.
See also: Part 1, the underwriter’s view.
Hedge Funds: The next generation: Despite headline blowups and depressed returns, not all is bad in the hedge fund world. There’s still growth to be found in the future — by planting a seed. Read more.
(02/06/09)