AS a large segment of Canada's population moves into retirement, successful financial advisors will be those who tailor their practices to serving the needs of retirees, according to a recent Investor Economics report.
In the past two decades, the baby boomers, those born after the Second World War between 1946 and 1965, became investors and generated a tremendous amount of growth in the wealth management business. "In those years, Canadian boomers moved from being borrowers to investors," Goshka Folda, Investor Economic's Toronto-based senior managing director, noted in an interview discussing the highlights of The 2011 Fee-based Report. "Their assets under management - investments, assets in their chequing and savings accounts, and fixed-term deposits, but excluding real estate - went from $335 billion in 1997 to $1.1 trillion at the end of 2010.
"They were fortunate enough to benefit from the longest-running bull market of the 20th century that continued into the 21st century, with a disruption when the technology bubble burst," she added." And providers of wealth services also benefitted from this trend."
But boomers are now moving uut uf their accumulation phase as they retire from the workforce. Investor Economics' research shows there were 3.4 million Canadian households over the age of 65 at the end of 201O. "We expect that number to reach 4.7 million by 2020," Ms. Folda said. "By then, one out of every three households will bc made up of retired people who will control $4 of every $10 under management."
Challenge for wealth managers
This poses a real challenge for wealth managers, she added. "In 2020, Canadians over the age of 65 will control 40% of all financial wealth under management. And one out of every three advisors' clients will be part of this group."
This is no surprise to Canada's financial services industry. The 2011 Fee-based Report notes that investment product manufacturers have already introduced a range of products designed for people in retirement, including guaranteed withdrawal bcnefit funds, segregated funds, principal-protected notes, reverse mortgages and payout annuities.
"A long scquence of products has emerged and other products have been repositioned to serve retirees," Ms. Folda said. These address a variety
"In 2020, Canadians over the age of 65 will control 40% of all financial wealth under man¬agement. And one out of every three advisors' clients will be part of this group."
- Goshka Folda
of needs such as principal protections, guaranteed income, risk management, tax efficiency and pre-assembled advice, among others.
The product landscape has exploded in terms of solutions, she noted, "but manufacturers realize there is no single product that will satisfy all the needs of a retired household.
While it is fairly easy to determine the risk profile and appetite for investment growth of investors who are in the accumulative phase, this doesn't hold true for retired households. Retirees have a variety of needs that need to be addressed, including risk management, the need for principal protection, income planning, tax planning and estate planning. No one single product will do it."
Expanding expertise
This bodes well for advisors as retired clients will need financial advice on how to combine these products to scrve their individual needs. "The product shelf is already there," Ms. Folda said. "But retirees will need help in putting together baskets of the right products for them."
But advisors may need to expand their areas of expertise in order to serve this market adequately. They'll have to address issues beyond the investment strategy that have a direct bearing on retired clients' financial standing, the report notes, such as housing, health issues, family dynamics, and the needs of spouses and children.
Retirement planning designations
Most advisors realize that the advice they'll give clients in retirement will differ from the advice they gave in the accumulative phase, and the financial services industry has been quick to position its members as retirement planning experts. "We've uncovered a lot of designations," said Guy Armstrong, a senior consultant with Investor Ecunumics. "In the U.S. where there has been a high uptake on retirement planning designations, we found 14 bodies conferring these designations and a total of 24 retirement planning designations. Canada has seen a stcady growth, with seven bodies conferring retirement planning designations and 11 designations, but our regulatory environment has prevented a real explosion."
And giving advice to a retired client base will be complicated by the fact that, in Canada, financial advice has always focused on the delivery of investment or insurance products, Ms. Folda noted. "The way in which firms and advisors generate their revenues is so highly linked to the investment strategy component of financial planning. But the focus has to shift from prod-
ucts to holistic financial planning. The advisor will need to address issues beyond the invcstment strategy."'
The small number of fee-only planners practising in Canada has only a limited reach into the Canadian population. "The main channels now delivering advice are bank and credit union branch advisors, full-service brokers, financial advisors, including MFDA-Iicensed advisors, and insurance advisors. These are not necessarily all commission-based advisors," Ms. Folda said, "but the major focus of their work is executing investment or insurance strategies. The clients of these channels can now say they are being given financial planning services, sometimes at no extra cost." Fee-based planners need to give serious consideration to how thcy position themselves in the market.
Content of retirement plans
In the coming year, Investor Economics will focus on getting a measure of the number and the content of retirement plans that are being delivered in the industry, Mr. Armstrong said.
"With the exception of the fee-based advisors, everyone else is delivering financial plans at no additional charge to clients, but the content of these plans are all over the map."
Another challenge that fee-based advisors face, he noted, is that the channels that are currently delivering advice will do their best to hold onto their clients as they move into retirement. Some firms have already started to help clients move into retirement with programs that focus on understanding retirement lifestyle goals and financial needs. These include RBC Royal Bank's Your Future By Design and Sun Life Financial's My Retirement Cafe.
Fee-based business
But it is possible to run a fee-based business, Mr. Armstrong said. 'The trust business has always offered services for fees, and its clients readily accept this arrangement."
With a growing number of retired clients, advisors will also have to come to terms with the fact that retirement is a payout phase and, in many cases, clients' capital will be depleted as they age. To counter this, Ms. Fold a said advisors will need to develop strategies to engage younger generations. "A proper application of retirement planning is in itself a good way to engage younger family members. Thc fact that mom and dad's needs are being taken care of speaks well for the advisor. And the fact that the parents' estate planning wishes were carried out is another big plus."
The greying of Canada's population should also prompt advisors to take a team approach to their businesses, she added. This will allow the client to benefit from the skills and areas of expertise or different professionals.
ROSEMARY MCCRACKEN
The Insurance and Investment Journal
January 2012
1/21/2012
1/14/2012
UNDERSTANDING WHAT DRIVES US HEALTH CARE SPENDING
US employers, health care providers, and other stakeholders are running hard to prepare for implementation of health care reform under the Affordable Care Act. In a new report, Accounting for the cost of US health care: Pre-reform trends and the impact of the recession, McKinsey’s Center for US Health System Reform examines trends from 2006–09, a period when health care spending reached record levels, and helps frame the forces shaping the health care industry in this period of rapid change.
Read about the findings or download the full report on the center’s Web site.
http://healthreform.mckinsey.com/Home/Insights/Latest_thinking/Accounting_for_the_cost_of_US_health_care.aspx
Read about the findings or download the full report on the center’s Web site.
http://healthreform.mckinsey.com/Home/Insights/Latest_thinking/Accounting_for_the_cost_of_US_health_care.aspx
1/06/2012
TD AGE OF RETIREMENT REPORT - 01 06 2012
Report –
Manitoba and Saskatchewan Fact Sheet
Results for the TD Report on the Age of Retirement were collected through a custom, online survey fielded by Environics
Research Group. A total of 1,006 completed surveys were collected with Canadians aged 25 – 64 who are not retired, including 132 in Manitoba and Saskatchewan. Data was collected between November 22 and December 2, 2011.
Crystal Wong, Senior Regional Manager, TD Waterhouse Financial Planning, based in Calgary, Alberta, is available to discuss the results of the TD Age of Retirement Report and offer advice to residents of Manitoba and Saskatchewan for how to reach retirement in good financial shape.
Age of Retirement in Manitoba and Saskatchewan
The average age people in Manitoba and Saskatchewan think they will retire is 61.
Residents of these provinces are the most likely in the country to say that if given the opportunity, they would retire before age 65 (74% versus 65% nationally).
o More than one quarter (27%) expect they will be older than 65 when they retire.
Residents of Manitoba and Saskatchewan who will keep working past the age of 65, were equally likely to cite a variety of reasons why they’ll stay in the workforce:
o They won’t have enough money saved and will still have debt to repay or kids to support (44%).
o They won’t have enough money to maintain the lifestyle they want (44%).
o Working gives a sense of purpose and they can’t imagine not working in some capacity (44%).
o Another 11% said they love their job and will still have goals to achieve.
Manitoba and Saskatchewan Residents and their Finances
While 61 may be the average expected retirement age in Manitoba and Saskatchewan, some may not be taking into account the amount of savings and investments they’ll need to retire comfortably.
The majority (56%) have less than $100,000 in household financial assets, not including company pensions, life insurance policies and home equity.
o 15% say they have no financial assets whatsoever.
Residents of Manitoba and Saskatchewan on Debt and Retirement
Another major consideration when it comes to retirement is debt. 40% of residents in Manitoba and Saskatchewan expect to have debt when they retire; 15% say it will be a significant amount of debt.
Of those who expect to carry debt into retirement:
o 59% will carry consumer debt into retirement.
o 51% will carry mortgage debt into retirement.
o 6% will carry investment loans into retirement.
o 13% classify their debt as “other”.
What does retirement mean for residents of Manitoba and Saskatchewan?
Residents of Manitoba and Saskatchewan are the most likely in the country (51% versus 47% nationally) to say the see retirement as a gradual slowing down. They’ll likely continue to work part-time or volunteer, but will enjoy
spending more time with family.
36% say retirement is a new beginning and a chance to follow their passions, start new ventures, experience new things and live the life they weren’t able to while working.
Contact Information
For more information or to set up an interview, please contact:
Ali Duncan Martin
TD Bank Group
416-983-4412
Karen Williams / Steve Presant
Paradigm Public Relations
416-203-2223
THE DELUSION - RETIREMENT AT 65
You can't retire early on $100,000
Talk about a gap between hope and reality. It may be no surprise that every generation of Canadians wants to retire before the traditional age of 65, but the fact that most expect to head into the sunset by 61 doesn't even come close to jibing with our level of savings.
Most have rosy dreams of freedom at 61, according to a TD Waterhouse survey released Thursday. And the younger they are, the earlier they think they can retire. Generation X (ages 31 to 46) plan to do so by 60 while Generation Y (ages 25 to 30) would prefer to start their golden years while still in their 50s (by age 59).
But 59% of the 1,006 polled late in 2011 have less than $100,000 in household financial assets. Um, hello?
While that doesn't take into consideration employer pensions, life insurance policies or home equity, there seems to be an egregious disconnect here. Most government pensions don't start till 65 and $100,000 could be counted on to generate only $5,000 a year (assuming optimistically you could get 5% a year from that much capital).
Debt first, then think of golden years
You can take reduced benefits from the Canada Pension Plan as early as 60 but that, plus $5,000 a year from investments, would barely cover property taxes and $100 a week for food.
Ironically, 61 is the year I currently plan to establish my own financial independence, two years from now. I certainly wouldn't contemplate that with only $100,000 in financial assets or, for that matter, 10 times as much. Given current trends in longevity, medicine and fitness, most of us will enjoy three or four more decades of life after 60.
This came home to me when I interviewed 75-year old author Gordon Pape earlier this week in our newsroom. I witnessed a short chat between him and a Post colleague, who also continues to work full-time post-65. It left me thinking I should postpone my own "Findependence Day" - not because of financial necessity but because meaningful work is probably the best way to stay mentally and emotionally healthy over the long haul.
I doubt the two fellows chatting in the newsroom are constrained financially. However, the vast majority of Canadians cited in the TD Age of Retirement report are in a much weaker financial position.
TD finds 16% of Canadians report having "no financial assets whatsoever". Sixty-two per cent of Gen Xers have less than $100.000 as do more than half 53%) of Baby Boomers (aged 47 to 64).
But Boomers are somewhat more realistic about their retirement date: They don't expect to leave the workforce until 64, says Cynthia Caskey, vice-president and portfolio manager at TD Waterhouse Private Investment Advice.
Caskey says early retirement is possible but only if you have a plan and start saving and investing early enough. Every decent financial book I've read urges young people to start saving early in life. Unfortunately, the survey suggests not only do most Canadians fail to do this, many are still mired in debt well into their working lives: 44% expect to carry some debt into retirement, including 13% who expect to retire with a significant amount of debt
In my experience, the only people who can retire in their late 50s are those with employer-provided defined-benefit pensions they joined in their 20s, or those who faithfully socked away 10% to 15% of their earnings in RRSPs since they joined the workforce decades earlier.
There will always be the fortunate few who win lotteries, marry money or strike it rich in business or entertainment, but broadly speaking, younger folk should abandon the pipe dream of retiring at 55 or 60 and resign themselves to working at least five or 10 years longer.
If they don't enjoy their current professions, they should take steps to find something they ean enjoy well into their 70s, even if it won't be financially necessary.
The name of the game is to completely eliminate debt, then build wealth. If you haven't even got out of the hole, you have no business fantasizing about early retirement.
JONATHAN CHEVREAU
Comment
Financial Post
01 06 2012
Jonathan Chevreau is the author of Findependence Day,
Talk about a gap between hope and reality. It may be no surprise that every generation of Canadians wants to retire before the traditional age of 65, but the fact that most expect to head into the sunset by 61 doesn't even come close to jibing with our level of savings.
Most have rosy dreams of freedom at 61, according to a TD Waterhouse survey released Thursday. And the younger they are, the earlier they think they can retire. Generation X (ages 31 to 46) plan to do so by 60 while Generation Y (ages 25 to 30) would prefer to start their golden years while still in their 50s (by age 59).
But 59% of the 1,006 polled late in 2011 have less than $100,000 in household financial assets. Um, hello?
While that doesn't take into consideration employer pensions, life insurance policies or home equity, there seems to be an egregious disconnect here. Most government pensions don't start till 65 and $100,000 could be counted on to generate only $5,000 a year (assuming optimistically you could get 5% a year from that much capital).
Debt first, then think of golden years
You can take reduced benefits from the Canada Pension Plan as early as 60 but that, plus $5,000 a year from investments, would barely cover property taxes and $100 a week for food.
Ironically, 61 is the year I currently plan to establish my own financial independence, two years from now. I certainly wouldn't contemplate that with only $100,000 in financial assets or, for that matter, 10 times as much. Given current trends in longevity, medicine and fitness, most of us will enjoy three or four more decades of life after 60.
This came home to me when I interviewed 75-year old author Gordon Pape earlier this week in our newsroom. I witnessed a short chat between him and a Post colleague, who also continues to work full-time post-65. It left me thinking I should postpone my own "Findependence Day" - not because of financial necessity but because meaningful work is probably the best way to stay mentally and emotionally healthy over the long haul.
I doubt the two fellows chatting in the newsroom are constrained financially. However, the vast majority of Canadians cited in the TD Age of Retirement report are in a much weaker financial position.
TD finds 16% of Canadians report having "no financial assets whatsoever". Sixty-two per cent of Gen Xers have less than $100.000 as do more than half 53%) of Baby Boomers (aged 47 to 64).
But Boomers are somewhat more realistic about their retirement date: They don't expect to leave the workforce until 64, says Cynthia Caskey, vice-president and portfolio manager at TD Waterhouse Private Investment Advice.
Caskey says early retirement is possible but only if you have a plan and start saving and investing early enough. Every decent financial book I've read urges young people to start saving early in life. Unfortunately, the survey suggests not only do most Canadians fail to do this, many are still mired in debt well into their working lives: 44% expect to carry some debt into retirement, including 13% who expect to retire with a significant amount of debt
In my experience, the only people who can retire in their late 50s are those with employer-provided defined-benefit pensions they joined in their 20s, or those who faithfully socked away 10% to 15% of their earnings in RRSPs since they joined the workforce decades earlier.
There will always be the fortunate few who win lotteries, marry money or strike it rich in business or entertainment, but broadly speaking, younger folk should abandon the pipe dream of retiring at 55 or 60 and resign themselves to working at least five or 10 years longer.
If they don't enjoy their current professions, they should take steps to find something they ean enjoy well into their 70s, even if it won't be financially necessary.
The name of the game is to completely eliminate debt, then build wealth. If you haven't even got out of the hole, you have no business fantasizing about early retirement.
JONATHAN CHEVREAU
Comment
Financial Post
01 06 2012
Jonathan Chevreau is the author of Findependence Day,
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