Week in review: January 26-30, 2009

It’s been an interesting week for new products and spin but the biggest news comes out of Ottawa after Finance Minister Jim Flaherty presented the federal government’s long-anticipated (and rather uniquely projected) Budget 2009.

In the lead-up to Tuesday’s event in Ottawa, leaks to media and unofficial announcements made it known to the general public that the government would be presenting its first fiscal deficit in 12 years. It turns out that the projected $64-million deficit is actually closer to $85 million, once you look at the fine print. Fortunately, the word of the day, used repeatedly by Flaherty in his speech and in the budget documents themselves, was "temporary."

Advisor.ca was in Ottawa to review the documents and bring you the news you can use. Along with our team back in Toronto, we produced a package for you, our readers, that distills the information: If the budget is passed, tax brackets will be changing and seniors will be able to postpone withdrawing some of their registered income fund assets for a year while markets recover. The homebuyer’s plan, flow-through shares and pensioners could all be affected as well under the proposed changes. To read the whole report and download letters you can send to clients, click here to read Federal Budget 2009: An advisor’s summary.

Investing

Investment analysts and economists are generally giving the budget announcement the thumbs up for its potential to provide short-term stimulus until the global economy recovers. Stock picking proponents, meanwhile, say there is plenty of opportunity, even if there is no way to sugarcoat the severity of this downturn.

Even so, those investing with managers who purport to be more hands on might be surprised to know that many Canadian firms are doing little with their proxy voting power to hold management accountable at the companies they invest in. A recent survey by the Shareholder Association for Research and Education (SHARE) found a "significant increase" in the willingness of investment managers to acquiesce to management recommendations on proxy votes. This deference to management on environmental, social and governance issues was not just found among retail investment managers, but among pension fund managers as well. Interestingly, the hedge fund industry is also facing serious challenges, due in no small part to the fact that many funds that marketed themselves as so-called alternative assets have fallen just as fast, and just as hard, as plain vanilla equity funds.

In the research arena, Scotiabank says commodity prices fell again in December for the fifth straight month. CIBC World Markets’ chief economist and chief strategist Jeff Rubin, though, says energy prices and inflation will make a swift return — Rubin is calling for triple-digit gains for oil in the near future, as inflation spikes and supply drops.

Finally, Mark Carney, the governor of the Bank of Canada, is using the word relentless to describe the bank’s resolve to keep inflation under control: "In time, the global financial crisis will end, and the global economy will recover, although the speed with which this will happen is subject to a high degree of uncertainty," the governor says. "The relentless focus of monetary policy on inflation control is essential in this time of financial crisis and global recession."

Your clients

This posturing might be cold comfort to some. A new study from Sun Life Financial has found that nearly half of Canadians think they will work past age 65, partly due to financial losses they suffered in the 2008 market downturn. (Fortunately, many also believe that work is a good way to stay socially active.)

Bankruptcies are also on the rise, according to consumer credit rating agency, Equifax Canada. As of November, the number of bankruptcies increased by 9% year-over-year. Other clients, meanwhile, are re-examining their financial situation and priorities. According to a survey by Desjardins Group, nearly half have already planned the actions needed to reach their goals to rein in spending and shore up debt levels. Just over half (57%) said they planned to consult a financial advisor, with an eye toward improving their investment returns. Paying off debt was a priority for 55%, while 53% said they planned to save for retirement. Women, apparently, are more receptive to talk of cutting back on spending than men. The survey also found they are more willing to work with an advisor to manage the current financial crisis.
Pensions

News of pension plan losses won’t come as a surprise but there is yet more data to prove that 2008 was a bleak year for U.S. institutional investment plan sponsors. According to a Northern Trust report on the performance results from more than 300 large institutional investment plans, median U.S. institutional plans posted a 25% loss for 2008, including a 13.1% loss in the fourth quarter.

In the United Kingdom, pension plans are reacting to regulatory pressure and increasing their life expectancy assumptions. The latest Mercer valuations survey of 196 pension plans finds that the median lifespan assumed for active and deferred members today is 89 years and one month, compared to last year’s valuation numbers that used a life expectancy assumption of 88 years and two months.

Products

Dollar cost averaging (DCA) appears to be the new name of the game for fund companies looking to roll out new products this RRSP season. Manulife Mutual Funds and Invesco Trimark are the first two to introduce DCA offerings this week.

BMO Investments added maturity targets of 2022 and 2026 to its lineup of LifeStage Plus funds; the Fédération des caisses Desjardins du Québec launched the new Desjardins Dividend Growth Fund, to be managed by Jarislowsky Fraser. Desjardins Group also launched a new suite of socially responsible investment portfolios, developed in co-operation with The Ethical Funds Company, which is half-owned by Desjardins. The SocieTerra line of portfolios is available for four different investment profiles.

Other product news includes an announcement from Claymore Investments. The company plans to offer new options on its line of exchange traded funds, including an automatic dividend reinvestment plan for rolling over distributions; AGF Funds, meanwhile, is offering new corporate class shares for four of its Elements portfolios, and Excel Funds Management announced it will waive the management fees on its money market fund.

One interesting bit of spin this week comes from Creststreet Mutual Funds. The company announced that it is closing the Creststreet Alternative Energy Fund to new investors, capping the fund at $75 million in assets — even though the fund currently manages only $24 million in assets.

Finally, some Northern Rivers Innovation Fund investors are bound to be disappointed this week after the fund’s management announced it is suspending redemptions from the fund for up to two years. The fund invests in relatively illiquid small cap stocks and private companies. A wave of redemptions would force the manager to sell off holdings at reduced prices, if able to find a buyer at all. The suspension does not extend to the Northern Rivers Innovation RSP Fund.

Industry news

A new survey from advisor Marc Lamontagne is set to explore the fee-based business model and hopefully provide a clearer picture of how it is used in the Canadian financial advice industry. Advisors are being asked to participate. Click here for more information.

In regulatory news, the Canadian Securities Administrators released its annual report on enforcement activities. Across the country, the assorted securities regulators commenced 215 matters against 416 individuals in 2008.

In education, the CFA Institute released pass rates for the Level I exam undertaken by candidates globally in December. More than 1,200 Canadians passed their CFA Level I exams (only 35% of candidates who sat for the exam passed). In other news, the world’s leading accounting bodies are calling for a global debate on how to simplify financial reporting and hasten a move to principles-based financial reporting standards.

Kevin Dancey, chair of the Global Accounting Alliance (GAA) says "it is clear from our research that a body of principles based on international standards is viewed around the world as the best basis on which to report the economic substance of financial transactions, and that further steps are needed to ensure that principles are embraced more fully."

Finally, the call has gone out for nominations for the Women in Capital Markets Award for Leadership, which honours senior executives who have demonstrated commitment to advancing and supporting women in the capital markets. Both women and men are eligible for the award, which will be handed out at the Vinifera WCM Awards Gala on March 11, 2009, at The Carlu in Toronto.

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Quick links: Advisor.ca news, January 26-30, 2009.

Bankruptcies on the rise Canadians target debts Canadians expect to work past 65 Female clients willing to spend less to fight hard times BoC vows to be ‘relentless’ on inflation stability Downturn highlights value of non-correlation Investment managers defer to management: report Commodity prices down in December Inflation, oil on their way back: Rubin CSA reports on 2008 enforcement Budget spending gives investment outlook a lift U.S. institutional investors hammered in 2008 U.K. pension plans raise longevity assumptions Maybe it’s a "reset" but it’s not a depression Record losses for Canadian pension plans Pooled funds hit hard in Q4 2008 Call goes out for global accounting debate

Claymore offers new ETF options Desjardins offers dividend growth fund Manulife launches DCA fund AGF offers corporate class Elements Invesco Trimark offers DCA program BMO LifeStage Plus offers two new target dates Creststreet caps alternative energy fund Northern Rivers Innovation Fund suspends redemptions Desjardins offers SRI portfolio suite Excel waives money market management fee RBC names new chief admin officer Survey set to explore fee model More than 1,200 Canadians pass CFA Level Women in Capital Markets call for nominations

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New features this week:

Federal Budget 2009: An advisor’s summary: With a recession now started, the Conservative government has turned its back on 14 years of fiscal restraint. There’s a sprinkling of tax cuts for middle-income and retired Canadians and small businesses, an extension of EI benefits and training allowances, but the big-ticket items are infrastructure items, many leveraged up with assumed provincial and municipal dollars. Advisor.ca, along with its sister websites, had a reporting team both in the Ottawa lockup and standing by in our Toronto offices to produce the following special budget report specifically for advisors. Read the full package.

Cancer, the underwriter’s view (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 one of this series, Munich Re expert Hélène Michaud discusses cancer, family histories, their application and their relevance in the underwriting process. Read more.

(01/30/09)