Week in review: January 12-16, 2009

Even without a calendar handy or any other time markers that would suggest January is well underway, the economic predictions, market prognostications and pre-RRSP season flurry of product-related announcements would probably give things away.

In economic news, Jeff Rubin of CIBC World Markets, Thomas Caldwell of Caldwell Securities, the Conference Board of Canada, Mercer and Royal LePage all weighed in this week with their predictions for 2009.

Rubin says the worst might be over and stocks seem to be priced accordingly, but that Canada is in the middle of a "fairly deep" recession. Three others — Nick Barisheff, president of Bullion Management Group, and Ross Healy, chairman and CEO of Strategic Analysis Corporation, along with Caldwell, gave their opinion at the Empire Club of Canada’s 15th Annual Investment Outlook. Caldwell was upbeat about long-term portfolio prospects, Barisheff said investors should increase their exposure to gold bullion and precious metals and Healy warned that the U.S. government is following the same "perilous" path the Japanese took to get out of their financial crisis.

The Conference Board of Canada announced that the Canadian economy will follow that of the U.S. into recession. Their winter outlook is calling for three consecutive quarters of economic contraction, resulting in a 0.5% decline in real GDP for 2009; pension consultant group Mercer is also calling for a soft year in its annual Fearless Forecast, but adds that some positive investment opportunities exist – the group says equities are expected to experience a modest recovery in 2009, making them the most attractive asset class. Bonds, corporate bonds in particular, are also expected to produce moderate returns. Royal LePage says Canada’s resale real estate market should see only modest price and unit sales corrections throughout 2009.

In a separate release that is more closely related to consumer sentiment, Mercer’s latest estimates suggest that performance and volatility in the world’s financial markets had a serious impact on pension plan funding and will continue to negatively impact corporate earnings in 2009. The largest U.S. companies have seen a decline in funded status – estimated losses climbed to US$469 billion over 2008, causing 2007’s surpluses to be replaced by an estimated aggregate deficit of $409 billion at the end of 2008. Pension expense is expected to increase from $10 billion in 2008 to an estimated $70 billion in 2009.

In actual news, Nortel Networks finally filed for bankruptcy, a wake-up call and reminder to investors about the reality of credit risk, and BMO Capital Markets announced it is expanding its mergers and acquisitions practice, saying the group anticipates increased activity in the corporate restructuring marketplace going forward.

Industry news

Along with the capital markets announcement, BMO Financial Group also announced this week that it has acquired AIG Life of Canada and plans to expand into the advisor and managing general agency channel; Scotia Capital is creating a new global infrastructure finance group to consolidate the company’s infrastructure advisory, capital markets and lending groups into a single business unit, and the Royal Bank of Canada appears to be moving in on Scotia’s territory in other parts of the world. The bank announced it will open a new investment advisory office in Sao Paulo, Brazil, offering domestic investment advisory services.

Investors holding frozen asset-backed commercial paper may have access to their money within days after Superior Court of Ontario Justice Colin Campbell approved the ABCP restructuring plan. Large ABCP investors will be given bonds, which they can sell or hold to maturity in nine years, while retail investors — those with under $1 million of the paper — will receive cash. The first interest payment to noteholders is expected to be made within three business days of the plan closing date.

Finally, the Financial Planners Standards Council has put out the call for nominations for the 2009 Donald J. Johnston Award for Outstanding Contribution to the Profession of Financial Planning in Canada. The award evaluation criteria are available to read here.

Investors, your clients

If you’ve noticed your clients paying down debt more aggressively, you’re not alone. New research from Manulife Financial found 35% plan to pay down debt. Despite markets and the softening economy, 51% said they felt financially better off than they were five years ago. A separate study from VentureLink Funds found that Ontario investors might be wary about making RRSP contributions this year.

If they’re thinking instead about using the money to make personal loans to friends or family members, an objective opinion might be needed. A recent poll commissioned by Investors Group found that 64% have loaned or borrowed more than $500 from friends or family, and of that percentage, 26% report that the loans were not fully repaid. Loans are also no doubt on the CRA radar after the final verdict on the Lipson case last week.

Leveraged insurance programs offered by a handful of carriers, known as 10/8 strategies, might also be on Canada Revenue’s radar this year. The strategy has been around for years, but as was the case with the Singleton Shuffle, it can take time for the CRA to decide whether to rule on complex tax shelters. The CRA would not confirm what it was specifically looking at in 10/8 strategies, but comments made in December at the Canadian Tax Foundation’s Annual Conference suggest the CRA will be conducting audit initiatives this year to review tax reporting for insurance companies, which industry members say could be a move to lay the groundwork for a larger audit initiative in the future.

Single regulator

The federally commissioned Expert Panel on Securities Regulation, headed by former cabinet minister Tom Hockin, proposed the creation of a national securities regulator this week, which would allow Canadian companies to file a single set of documents directly with the federal body, without getting entangled with provincial regulators. Not surprisingly, opinions on the matter are split, but Ottawa needs only five or six of Canada’s 13 jurisdictions, those overseeing two-thirds of the market’s value, to have the critical mass to go ahead with the plan. More details are expected to be included in the 2009 budget on January 27.

People, products

George Morgan is back on the scene. After retiring from the Franklin Templeton scene in Nassau two years ago, the portfolio manager has resurfaced as vice-president and manager of the Mackenzie Cundill Investment Management subsidiary.

In product news, Franklin Templeton Investments has launched two new funds, and Acuity Funds announced it will close three mutual funds and two corporate class mandates. The company is also seeking approval to complete several fund mergers at a unitholder meeting in March.

RBC Asset Management, meanwhile, has cut the management expense ratio (MER) for the RBC Target 2010 Education Fund by 55 basis points, to 1.00%; AGF Funds is offering a new dollar cost averaging fund; and Hartford Investments Canada is cutting its minimum investment in the Hartford DCA Advantage Program in half and launching two new series of DCA units. Connor, Clark & Lunn launched a new money market product (the company also named Vic Raye managing consultant of advisor relationships to lead sales and service for CC&L Managed Portfolios in B.C. and Alberta); Gencap Funds announced it plans to launch a new global income fund; and Counsel Wealth Management added Sionna Investment Managers, Picton Mahoney Investment Management and Montrusco Bolton Investments to its lineup of sub-advisors and unveiled a new lineup of portfolio funds.

Finally, discount online brokerage Questrade announced it will rebate trailing commissions to mutual fund investors, pointing out that DIY investors shouldn’t have to pay for advice they are not receiving.

News from Quebec

In Quebec the provincial employment minister tabled a bill that will allow the government to take over and manage insolvent pension plans if and when private companies declare bankruptcy. Roughly 950 private company pension plans in the province manage assets worth about $100-billion. Interest groups, other parties and business leaders welcomed the initiative that will give employees and pensioners at least five or 10 years to make alternative arrangements.

For more on this story and more news from our sister publication, click here/cliquez ici, to subscribe to Conseiller.ca or sign up for our French-language e-mail service.

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Quick links: Advisor.ca news, January 12-16, 2009.

Worst may be over for Canadian stocks: Rubin Pension deficits hit record high Real estate faces correction, not crash A bull among the bears Recession to last three quarters American consumers expect better: RBC Mercer predicts opportunities in 2009 Nortel, CanWest remind investors of credit risk BMO expands New York M&A office BMO picks up AIG Life business Scotia builds infrastructure finance group RBC opens up shop in Brazil Judge approves ABCP plan FPSC calls for award nominees

Canadians focus on debt reduction Problem abound with personal lending RRSP contributions may dip: poll Expert panel recommends single securities regulator Opinions split over single regulator recommendation CLC calls for jobs-oriented budget 10/8 Strategies on CRA radar Mackenzie signs up George Morgan Franklin Templeton launches two new funds Acuity closing five fund RBC cuts MER on education fund AGF offers dollar cost averaging fund Hartford lowers DCA minimum CC&L offer premium money market fund Gencap offers O’Leary Global Income fund Questrade to rebate trailers Acuity seeks consent to merge funds Counsel offers Portfolio Component Funds December punctuates terrible 2008: IFIC

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New columns and features this week:

Shawn O’Brien: The purpose of marketing to clients and prospects is to get their immediate attention. So many financial advisors, though, keep telling me how difficult it is to market these days. Why is that? I suggest that most are benchmarking their current results against the result of marketing efforts they made back in the early- to mid-1990s. Read more.

Chris Paterson: An unfortunate reality today is that some clients are finding themselves without work. During such a stressful and emotional time, the advice you give and any thoughtful approach you take can make a huge impact on how they approach their new reality. Read more.

Features:

Tax changes and free money (A client template letter): It’s that time of year again. Even if you’ve talked about tax savings strategies with your clients throughout the year, send them this letter to review the rules and opportunities they can take advantage of when they file their return this spring. Full story.

Dear clients, buy low (A template RRSP marketing letter): In the aftermath of 2008 market returns, your clients might be a bit shell-shocked, and not at all aware that an excellent buying opportunity exists right now — just in time to open a TFSA or make their year-end RRSP contributions. Full Story.

Tax school intensive (A survivor’s report): It may sound morbid but, from a tax planning point of view, early 2008 was a particularly unfortunate time to die for those with equity portfolio holdings. There are ways, though, to wait out the taxman and defer payment on that deemed disposition (and the need to sell those equities at a loss to make payment) until a later date when the market and portfolio values recover. Full story.

(01/16/09)