Wealth Professional 4.09

THE NEW FIXED INCOME

Where are advisors headednow that bonds are out of favour?

OIL ON THE REBOUND

WWW.WEALTHPROFESSIONAL.CA ISSUE 4.9 | $12.95

Why now is the time to reinvest in the energy sector

GENERATION NEXT

A chat with one of Bay Street’s youngest CEOs

CANADA’S OUTSTANDING ADVISORY TEAMS Ten of the country’s leading teams reveal the secrets to their success

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. .

ISSUE 4.09

CONNECT WITH US Got a story or suggestion, or just want to find out some more information?

CONTENTS

22 CANADA’S OUTSTANDING ADVISORY TEAMS

37

INDUSTRY ICON

Sentry Investments CEO Sean Driscoll reflects on the firm’s past and outlines its future

18

facebook.com/WealthProfessional Canada

UPFRONT 02 Editorial

How advisors can help turn Canada’s debt problem around Are advisors giving up on fixed income?

06 Statistics FEATURES

ETF PORTFOLIO CONSTRUCTION WORKSHOP Brent Vandermeer builds a diversified portfolio for a small business owner

42

Canadians’ tax bill is growing – at the expense of investments

08 News analysis

An upcoming OPEC decision could spell good news for Canada’s energy sector

10 Intelligence

This month’s big movers, shakers and new products

12 ETF update

The unlikely group behind the growth in ETFs

14 Alternative investment update

Major changes are afoot at the CPPIB

CANADA’S OUTSTANDING ADVISORY TEAMS

PEOPLE

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04 Head to head

COVER STORY

Find out how some of the country’s best teams are making the most of a challenging investment environment

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16 Opinion PEOPLE

PORTFOLIO MANAGER

Empire Life’s Ian Hardacre explains his approach to finding companies with dividend growth potential

44

The unexpected side effect of proposed CSA rules

PEOPLE 40 Advisor profile

Prairie Wealth Management’s Kevin Hegedus explains why he’s increasingly turning to alternatives

45 Career path

David Christianson blazed a trail for fee-based financial advice

46 Other life

Andrea Thompson’s side job is on pointe

FEATURES

THE RETURN ON DOING GOOD

If your clients aren’t donating to charity to minimize their tax burden, it’s time to start

WEALTHPROFESSIONAL.CA CHECK IT OUT ONLINE www.wealthprofessional.ca

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UPFRONT

EDITORIAL

Turning debt to wealth

C

anadian households are accumulating record levels of debt, yet many are reluctant to seek professional help when it comes to managing debt and building wealth. That’s the finding of a recent study commissioned

by AGF Investments, which showed that 54% of respondents find it difficult to save, given their current financial situation.

The primary reason for that is the fact that 81% of Canadians are in some form of debt. But despite many households struggling with their finances, the study found that only 14% had sought the assistance of a financial advisor.

The data confirms what many people knew already – Canada has a problem with personal debt. The country reached an unwanted milestone in the second quarter of this year when debt held by Canadians exceeded GDP for the first time – it’s now 100.5% of GDP.

The data confirms what many people knew already – Canada has a problem with personal debt When analyzing the reasons why more and more households are finding themselves deep in the red, one need not look much further than property prices, particularly in the red-hot markets of Vancouver and Toronto. The federal government moved definitively on this in October, tightening lending rules and closing a tax loophole for foreign buyers. This move will likely slow real estate and overall growth in the months ahead, but the Trudeau administration believes some shortterm pain is far more preferable than a major housing crash down the line.

Many Canadians are clearly living beyond their means, and in the opinion of Julie Goldring, EVP and COO at AGF Investments, professional guidance is key to getting out of debt and generating wealth. “These results remind us that working with a financial advisor is the key to understanding the barriers to saving,” she said in regard to the AGF study.

Further evidence of that point can be found in Cirano’s recent Value of Advice Report, which showed that investors who work with financial advisors accumulate two and a half to three times the wealth of those who do not over a 15-year period. That’s information the wealth management business would do well to publicize again as Canada reconfigures its attitude toward money and spending.

The team at Wealth Professional

wealthprofessional.ca ISSUE 4.09 EDITORIAL

SALES & MARKETING

News Editor David Keelaghan

National Accounts Manager Dane Taylor

Writers Joe Rosengarten Libby Macdonald Leo Almazora

Associate Publisher Trevor Biggs

Executive Editor – Special Features Ryan Smith

Project Coordinator Jessica Duce

Copy Editor Clare Alexander

CONTRIBUTORS Ryan Colwell

ART & PRODUCTION Design Manager Daniel Williams Designers Kat Vargas Randy Pagatpatan Production Manager Alicia Salvati Traffic Manager Kay Valdez

General Manager, Sales John Mackenzie

CORPORATE President & CEO Tim Duce Office/Traffic Manager Marni Parker Events and Conference Manager Chris Davis Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil Global COO George Walmsley Global CEO Mike Shipley

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MAN-R

Simple to explain.

Simple to understand.

Simple to administer.

The Manulife Fee Reduction Program.

Get the clear and simple details at repsource.ca/MFR

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts as well as the prospectus of the mutual funds before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Manulife Funds are managed

by Manulife Investments, a division of Manulife Asset Management Limited. Manulife, Manulife Investments and the Block Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under licence.

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UPFRONT

HEAD TO HEAD

Have you moved away from fixed income this year?

Microscopic returns are the trade-off for security – but in a low-inflation world, is that really a good deal?

Rod Tyler

Chad Larson

Andrew Torres

Senior vice-president and portfolio manager National Bank Financial

Financial advisor The Tyler Group Financial Services

Founding partner and chief investment officer Lawrence Park Asset Management

“I wouldn’t say we have moved away from fixed income, but we have tilted our exposures with respect to geographies and duration. By managing balanced mandates with a pension-style focus, we have the obligation for a certain amount of fixed income.

During this retiree or Baby Boomer dilemma, we have equity valuation multiples at all-time highs and historically low interest rates making yields extremely low. We are underweight in government bonds and focusing on keeping duration low in the US, and we are overweight in nontraditional fixed income and high yield.”

“We are adamant that in the short term, we cannot predict interest rates, the markets or world events. That said, the current historically low interest rates will eventually rise. Our preferred style of investment is value-oriented. Therefore, we prefer the shorter-term fixed-income choices, and we let the fund managers provide the security selection.

Our opinion is that there is simply too much emphasis on the ‘reach for yield’ and that it could end badly for any assets whose prices have been elevated. When the risk exceeds the reward, it is better to look elsewhere for investment success.”

“Fixed-income markets are pretty broken. Investing in a 10-year Govern­ ment of Canada bond yielding 1% doesn’t even cover inflation. Bonds only make sense if central banks continue to push rates down and bond prices up.

But fixed income isn’t a yes/no question. There are still strategies that can benefit your portfolio, such as actively managed corporate bond funds that protect against interest rate hikes. Good-fixed income strategies generate reasonable returns and help reduce losses in bad markets. They are still out there, but you have to know where to look.”

DON’T CALL IT A COMEBACK Morningstar Canada fund indices that measure fixed income performed well in the third quarter of 2016. All showed positive results, albeit with considerable variation, ranging from a healthy 4.6% for the Preferred Share Fixed Income Index to a more modest 0.4% for the Canadian Short Term Fixed Income Fund Index. For those with an eye on the global scene, China makes a tempting target: A recent survey from Deutsche Bank indicated that this year’s loosening of regulations in the Asian giant’s bond market – which, until recently, was closed to most foreigners – has international fixed-income investors set to increase their exposure.

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UPFRONT

STATISTICS

The heavy tax burden

TAX BILLS TREND EVER UPWARD According to the Fraser Institute’s Canadian Consumer Tax Index, the tax bill for the average Canadian family has increased by 1,939% since 1961.

Incomes, meanwhile, only increased by 1,512%, suggesting that Canadians’ tax burden is increasingly eating into their investable income.

Your clients’ investment dollars are, proportionally, an ever-shrinking resource – thanks to the taxman ACCORDING TO the old adage, the only sure things in life are death and taxes, but judging by a recently released study from the Fraser Institute, that might need to be updated to include another certainty: taxes going up relative to income and other expenses.

That certainly has been Canadians’ experience since 1961, and among the effects of this

$5,000

Average income for a Canadian family in 1961

$1,675

Total tax bill for the average family in 1961

persistent trend is the inevitable reduction in the proportion of funds available for investment. The bare facts of the matter over those last 54 years are that, amid massive increases in income (1,512%) and much accompanying inflation, the proportion of income paid in taxes of all kinds by the average family has increased considerably – from 33.5% in 1961 to the 42.4% calculated for last year.

$13,507

What that 1961 family’s tax bill would be in 2015 dollars

152.9%

Inflation-adjusted tax bill increase between 1961 and 2015

Source: Fraser Research Bulletin, Taxes Versus the Necessities of Life: The Canadian Consumer Tax Index, 2016 edition

TAX VERSUS NECESSITIES

TAXES OUTPACE OTHER SPENDING

A breakdown of the average Canadian family’s expenditures as a percentage of cash income in 2015 revealed that taxes were by far the largest single line item.

Between 1961 and 2015, the expenditures of the average Canadian family increased gradually across the board, while the uptick in taxation soared by comparison.

21.3%

11.6%

Shelter

Food

Clothing

30 Taxes

4.6%

Taxes

Thousands of dollars 35

Shelter Food

25

42.4%

Clothing Other*

21.4%

20 15 10 5

Source: Fraser Research Bulletin, Taxes Versus the Necessities of Life: The Canadian Consumer Tax Index, 2016 edition

6

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015

1985

1981

1974 1976

1969

1961

0 *Includes household operations (communications, childcare expenses, pet expenses), transportation, healthcare, recreation, education, tobacco products and alcoholic beverages

Source: Fraser Research Bulletin, Taxes Versus the Necessities of Life: The Canadian Consumer Tax Index, 2016 edition

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2000

CUMULATIVE INCREASE IN TAXES SINCE 1961 1,808% 1,643% 1,654%

1,894%

1,939%

1,686%

1,499%

1500

1,404% 1,356%

1,016% 1000

1,085% 951%

1,120%

996%

786% 582% 500

224% 257% 86% 2015

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1985

1981

1976

1974

1969

0

Source: Fraser Research Bulletin, Taxes Versus the Necessities of Life: The Canadian Consumer Tax Index, 2016 edition

WHERE IS THE TAX GOING?

RELATIVE GROWTH

The average Canadian family’s tax bill of more than $34,000 includes all the taxes paid to federal, provincial and local governments for items such as income tax, vehicle and fuel taxes, and taxes on cigarettes and alcohol.

During the last 54 years, while tax spending ballooned by almost 2,000%, other consumer spending rose by less than half that.

Income taxes Payroll & health taxes Sales taxes Property taxes Profit taxes Liquor, tobacco, amusement, & other excise taxes Auto, fuel, & motor vehicle licence taxes Other taxes Natural resource taxes Import duties

$10,616 $7,160 $4,973 $3,832 $3,631 $1,805 $871 $773 $188 $305

2,000% 1,500%

1,939%

1,000%

Total $34,154

500%

706%

0%

Average consumer price index Source: Fraser Research Bulletin, Taxes Versus the Necessities of Life: The Canadian Consumer Tax Index, 2016 edition

Consumer tax index

Source: Fraser Research Bulletin, Taxes Versus the Necessities of Life: The Canadian Consumer Tax Index, 2016 edition

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UPFRONT

NEWS ANALYSIS

Finding value in Canada’s oil patch Now that OPEC is expected to reach an agreement on oil supply, investors are starting to look at oil & gas again in much greater numbers

NOVEMBER 30 is D-Day for OPEC as its members meet in Vienna to finalize an agreement on limiting oil supply. This has been a long time coming, and as the price of crude creeps back above the $50-a-barrel level, there are some audible sighs of relief emanating from Canada’s oil patch.

That said, many are reluctant to count any chickens just yet, as Russia’s position on the matter is crucial. For its part, the world’s number-two oil producer has indicated that reducing supply to drive up price is the best move for all those concerned.

But as with all things OPEC-related, there will be a lot of political manoeuvring before

there are plenty of advisors who never left, including Chris Ambridge, CEO of Provisus Wealth Management.

“Our approach is always to remain fully invested,” he says. “If you look at the performance of mutual funds and money managers, the industry as a whole has under-performed, and that’s primarily because they were underweight on energy.

That held them in good stead last year, but now that trend has reversed.”

At a time when many companies on the TSX are considered overpriced, money managers and investors are increasingly turning their attention to energy companies

“People looking for oil to go back to the $100 level are delusional. It may creep up $10, $15 dollars over the next two years” Chris Ambridge, Provisus Wealth Management any agreement is set in stone. However, if the markets are any indication, it’s looking increasingly likely that the various sides will find consensus.

Oil’s recovery has meant Canada’s investment community has started to take notice of the oil & gas industry once again. But

8

that have been through the mire and emerged on the other side. The prospect of an OPEC deal and a subsequent oil price hike has attracted the Street, but investors need to temper their expectations, in Ambridge’s view.

“People looking for oil to go back to the

$100 level are delusional,” he says. “It may creep up $10, $15 over the next two years at a very steady pace. I think that’s a good thing. The US and Canada producers have rationalized their cost structure, so these incremental gains will go directly to the bottom line. That’s exactly what you are seeing with energy stock prices now.”

Chris Heakes, VP and portfolio manager with BMO ETFs and Global Structured Investments, agrees that there has been a noticeable shift in how energy stocks are being perceived by his peers.

“There has been a sentiment change,” he says. “While I think the chances of oil going back to $100 are pretty low, the market is favouring oil, and a move to the mid-$50s or $60 early next year is driving interest in the sector.”

After stringent cost-cutting measures over the past two years, producers in

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TOP 10 ENERGY COMPANIES IN CANADA The S&P/TSX Capped Energy Index lists the following Canadian energy companies as its top 10 constituents by market capitalization.

1. Suncor Energy (SU) 2. Canadian Natural Resources (CNQ) 3. Cenovus Energy (CVE) 4. Encana Corporation (ECA) 5. Imperial Oil (IMO) 6. Crescent Point Energy (CPG) 7. ARC Resources (ARX) 8. Tourmaline Oil (TOU) 9. Seven Generations Energy (VII) 10. Peyto Exploration & Development (PEY) Canada and the US have identified $50 a barrel as a level where they can still be profitable. Oil breached that price in October for the first time in almost four months, and that upward movement should continue if

choices,” Heakes says. “They had to decide whether to continue paying dividends, and decide their overall capital spending and expenses, but often these tough choices lead to better businesses. They are well prepared

“Oil companies are well prepared to emerge from a low commodity price environment and become successful” Chris Heakes, BMO ETFs and Global Structured Investments the current entente between producers stays on track.

Having been forced to take pretty some harsh medicine over the past two years, Canada’s energy firms should be primed for growth in the months ahead. “It forced these companies to make some tough

to emerge from a low commodity price environment and become successful as the oil price goes higher.”

Already this is proving the case: The strong performance of Canadian markets this year has been credited to the recovery in the energy space. This has been most

pronounced with smaller operators in oil & gas, as Ambridge outlines.

“Typically, smaller, more risky stocks will move faster on an economic recovery,” he says. “Small-cap stocks, which a lot energy stocks are, are up 38% this year.

The stocks that have the best prospects in our rankings are those with a lower share price and high betas.”

As money managers in the beleaguered mutual fund space continue to search for ways to improve performance, that quest will likely take them to the oil fields of Alberta and Saskatchewan, Ambridge adds.

“Most money managers in Canada are value managers, so they look for stocks that have been beaten up,” he says. “They have missed the boat to a degree on energy, so now a lot are moving into this area. And as they get back into the game, it pushes up those that are already there.”

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UPFRONT

INTELLIGENCE CORPORATE ACQUIRER

TARGET

PRODUCTS COMMENTS

CPPIB, Hudson Pacific Properties

Hill7

This joint-venture acquisition of a Seattle property marks CPPIB’s first office real estate investment in the US

Laurus Investment Counsel

Bluewater Investment Management

With the addition of the new Bluewater team, Laurus will increase its investment depth

Lazard

Verus Partners

Lazard aims to strengthen its North American franchise, offering clients growth opportunities through M&A or other strategic transactions

PARTNER ONE

PARTNER TWO

COMMENTS

CIBC

National Australia Bank and Bank Leumi (Israel)

The banks will enhance client experiences by sharing information and collaborating on innovative products

Bridgehouse Asset Managers

Morningstar Associates

Bridgehouse’s new Morningstar Strategic Canadian Equity Fund is actively managed via Morningstar’s rule-based stock selection process

CI Investments proposes merging six funds CI Investments has proposed merging six of its funds into six other funds with similar mandates. The terminating funds, which include CI Short-Term Advantage Corporate Class, Red Sky Canadian Equity Corporate Class and Signature Select Global Corporate Class, will be incorporated into other funds to help streamline and simplify CI Investments’ fund lineup. The continuing funds will also enjoy larger asset bases, allowing for increased portfolio diversification. Pending regulatory and security-holder approvals, the mergers will take effect around Dec 2.

CIBC enters into international multi-bank partnership

CIBC has joined forces with National Australia Bank and Bank Leumi of Israel in a strategic partnership that the banks say will allow them to improve client experiences. Under the partnership, the three banks can share information, collaboratively develop new products and services, and exchange personnel who are working on innovation within the various firms.

“We have created a culture of collaboration among teams to drive innovation inside our bank and formed important external partnerships with innovation hubs and Fintechs to help us build the bank of the future for our clients,” said Stephen Forbes, EVP and chief commercial officer at CIBC. “This alliance further strengthens our leadership position in innovation and broadens our access to global insights and talent in this fast-moving space.”

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Investors Group axes DSC option, reduces fees Investors Group plans to remove the deferred sales charge purchase option for its mutual funds, effective Jan. 1. The DSC purchase option will still be available for preauthorized contribution plans set up before Jan. 1 until June 30, 2017. It will also still apply to certain reinvestment transactions and switches from existing assets obtained under the DSC option. Investors Group also plans to reduce fees on its no-load mutual funds in 2017. Service fees on balanced and equity funds will be reduced by 4 to 10 basis points, while administration fees on fixed income will go down by 5 bps.

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PEOPLE Big bank opens reward points program to investors RBC Direct Investing has announced an innovation for online investors in Canada: Investors can now pay their online trade commissions with RBC Rewards points. The bank’s Trade with Points program is open for online stock, ETF and options trades placed on Canadian and US exchanges. RBC Rewards points also can now be converted online into cash for deposits or contributions to eligible RBC Direct Investing personal accounts, including RRSPs, TFSAs, RESPs (in CAD), and non-registered cash and margin accounts.

Mackenzie announces shakeup of 10 funds Seeking to streamline its offerings for advisors, Mackenzie Investments has announced 10 fund mergers for its product shelf. The terminating funds include the Mackenzie Global Diversified Balanced Fund, which will merge into the Mackenzie Global Strategic Income Fund; the Mackenzie Global Bond Fund, which will merge into the Mackenzie Global Tactical Bond Fund; and the Mackenzie Global Concentrated Equity Class, which will merge into the Mackenzie Global Concentrated Equity Fund. The mergers will take effect Nov. 25, pending investor approval.

Emerging market funds added to new platform Excel Funds Management has announced the listing of eight of its emerging market fund strategies on TSX NAVex, the TSX’s new mutual fund platform. The platform, which was launched in June, is a centralized system that facilitates purchases and redemptions, allowing efficient investment in a broad range of eligible mutual funds. The new NAVex-listed strategies include the Excel India Fund, Excel High Income Fund, Excel Latin America Fund, Excel Emerging Markets Fund, Excel EM Blue Chip Balanced Fund, Excel China Fund, Excel India Balanced Fund and the Excel New India Leaders Fund.

NAME

LEAVING

JOINING

NEW POSITION

Jay Bhutani

N/A

AGF Investments

Senior vice-president and head of ETF strategy

Emily Chew

MSCI

Manulife Asset Management

Global head of ESG research and integration

Francesco Faiola

N/A

MSCI Canada

Country manager (Canada)

Jeff Kehoe

IIROC

OSC

Enforcement director

Jordan Rosenberg

N/A

MacNicol & Associates Asset Management

Business development manager

Karrie Van Belle

BlackRock Asset Management

AGF Investments

Senior vice-president and head of marketing and communications

Steve Wolff

Nova Scotia Pension Services Corporation

CIBC Mellon

President and CEO

AGF announces new marketing head AGF Investments has appointed Karrie Van Belle as senior vice-president and head of marketing and communications. In that capacity, Van Belle will direct and lead AGF’s marketing and communications for both retail and institutional channels, including digital marketing efforts. She will also bear overall responsibility for the firm’s corporate branding focus.

Van Belle’s experience includes 15 years in the Canadian asset management industry, spanning a range of client segments and product platforms. Her most recent position was a stint as managing director and head of Canada marketing and communications at BlackRock, where she was responsible for delivering brand growth and maintaining the firm’s relevance to its retail and institutional clients.

CIBC Mellon gets new president and CEO Toronto-based investment services firm CIBC Mellon has announced the appointment of Steve Wolff as its new president and CEO. Following his selection by the company’s board of directors, Wolff is set to assume the role on Nov. 14. He replaces Thomas. S. Monahan, under whose leadership CIBC Mellon rose to $1.6 trillion AUM. Most recently, Wolff acted as CEO of the Nova Scotia Pension Services Corporation, which serves as the administrator of pension benefits and investment assets for two of Nova Scotia’s public-sector pension plans. During his time there, Wolff led the organization’s transition from a government entity to a nonprofit corporation, strengthened governance structures and operating platforms, and initiated the plans’ expansion into alternative investment classes.

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UPFRONT

ETF UPDATE NEWS BRIEFS Sphere launches new currencyhedged ETF Sphere Investments has expanded its shelf of sustainable-yield ETFs with the new Sphere FTSE Emerging Markets Sustainable Yield Index ETF (SHZ).

Backed by FTSE Russell and State Street, all Sphere sustainable-yield ETFs come with the same flat fee of 54 bps. “With the emerging markets product, our sustainable-yield methodology now gives investors access to all global markets,” said Lewis Bateman, founder and CEO of Sphere Investments.

First Trust exec says ETF numbers will continue to grow

In a recent interview with BNN, Karl Cheong, head of ETFs for First Trust Portfolios Canada, said that despite the rapid growth of ETFs in Canada, there is still plenty of room for the product to expand. “There’s over 400 ETFs now on the TSX; there’s 1,900 in the US ... do investors need this, or is it too much choice?” he said. “Let me put this into perspective: There’s over 400 ETFs, but there’s about 3,300 stand-alone mutual funds here in Canada. If you add up all the share classes – if you’re talking about the A series, deferred sales charge, low loads – there’s about 17,700 options to buy mutual funds here in Canada.”

Horizons surpasses $3 billion in AUM for active ETFs

Horizons ETFs Management and its affiliate, AlphaPro Management, have reached assets under management exceeding $3 billion for their actively managed ETF business. The company currently has 28 actively managed ETFs on the TSX – the largest number of actively managed ETFs in Canada.

“It’s very gratifying to see that actively managed ETFs have started to gain

12

such widespread acceptance amongst Canadian investors,” said Steve Hawkins, president and co-CEO of Horizons ETFs. “In fact, with more than $14 billion invested in this ETF category, Canada has the highest proportion of actively managed ETF assets in the world.”

RBC expands ETF suite with four new products RBC Global Asset Management has launched four new ETFs that aim to provide steady income for investors: the RBC Canadian Preferred Share ETF (RPF), the RBC Quant Global Infrastructure Leaders ETF (RIG), the RBC Target 2022 Corporate Bond Index ETF (RQJ) and the RBC Target 2023 Corporate Bond Index ETF (RQK).

“Canadian investors continue to seek solutions that manage risks and provide stable income beyond what a typical government bond fund can offer,” said Mark Neill, head of RBC ETFs. “We are pleased to address this need by expanding our offering of ETFs that are designed to take advantage of income opportunities that exist in today’s lowyield environment.”

JP Morgan introduces new hedge-like ETF JP Morgan Asset Management has released its first alternative and actively managed ETF, the JPMorgan Diversified Alternatives ETF. The fund, which was designed and is managed by Yazann Romahi, the firm’s global head of quantitative beta solutions, is being touted as a way for investors to access an “institutional-quality hedge fund strategy in a cost-efficient, tradeable ETF wrapper.” It boasts a bottom-up approach that results in a purer capture of the hedge fund exposure and better diversification than strategies that replicate traditional hedge funds.

ETFs’ biggest fans: Baby Boomers A recent study shows it’s not younger investors who are responsible for the steady growth of ETFs Contrary to popular belief, the rise of ETFs is not being fuelled by millennials – that’s the finding of a recently released study co-authored by Pershing and Beacon Strategies. Instead, the report, which surveyed more than 1,500 advisors around the world, found that it’s investors between the ages of 51 and 70 who are the largest users of ETFs. In fact, millennials use ETFs even less than people from their grandparents’ generation – investors aged 71 and over were the next highest users of the funds. The data is somewhat surprising, given the fact that many industry observers have linked the growth of ETFs to millennials becoming more involved as investors.

“The widespread assumption across the investment management industry is that the continued growth and popularity of ETFs is being driven by younger investors,” says Justin Fay, director of financial solutions for alternative investments and ETFs at Pershing. “However, advisors are telling us that this is not necessarily the case. We found that ETF usage in portfolios is most prominent among the Baby Boomer and Greatest Generation populations, mainly because these investors have become increasingly aware of the cost efficiency and access to a variety of styles that ETFs may provide, which can help them achieve their

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Q&A

financial goals.”

The survey also found that a majority of advisors (64%) use ETFs as a core strategy in their clients’ portfolios. And more than two-thirds of the advisors that already use

“These investors have become increasingly aware of the cost efficiency and access to a variety of styles that ETFs may provide” ETFs plan to increase their use over the next 12 months, while 55% say that more than half of their clients’ portfolios already include ETFs. With regard to ETF research, most advisors identified “underlying costs” as an area that requires more information. But when it comes to ETF selection, performance was tagged as the most important factor (by 43% of advisors) and the provider’s brand recognition as the least important (2%).

The report also indicates that advisors are mostly drawn to ETFs as an investment vehicle because of cost considerations (35%) and investor awareness (21%). It also noted that advisors feel greater scrutiny of investment expenses – such as from CRM2 or new rules imposed by the US Department of Labor – will likely make the low cost of ETFs even more enticing.

Joacim Wiklander Chief business officer AEQUITAS NEO EXCHANGE

Years in the industry 15 Fast Fact The Aequitas NEO Exchange was launched in March 2015 with a policy of prohibiting highfrequency trading in hopes of creating a fairer exchange

A big step forward for the NEO BlackRock deciding to move 12 of its ETFs to your exchange was a big boost for the NEO. When will they launch?

Those ETFs are currently listed on the TSX, so to move there is a delisting process that BlackRock must go through. The timing is really up to them, but I expect them to launch in the fourth quarter, probably toward the end of November.

With the introduction of this suite of ETFs, what will the assets in the NEO Exchange be?

It is five funds with various series and classes under them, so 12 symbols in total. The AUM is just under a billion – it’s the old Claymore suite of products that BlackRock acquired.

These new funds represent a substantial increase for the exchange. What does that mean for the NEO? This is the first time anyone has decided to move off the TSX – they haven’t had any competition in the listings space. So this is a milestone – they are no longer the only game in town. It’s a big boost for us and adds credibility.

I’m sure you had some targets when you launched the exchange. Does this development mean you have exceeded your year-one goals?

After having our first listing this year, we want to break through the ETF category and have additional listings, ideally someone who is migrating. We are not just going to be an ETF exchange, so we are working on adding some corporate listings. We have some good prospects there. It’s not about IPOs; it’s more about companies that are on the TSX but don’t feel they are getting value for money on the listing fee.

Are there certain listings you are targeting to add to the exchange?

BlackRock is not a shareholder of the exchange, so going into next year, we have very aggressive plans in terms of growth for other ETFs. That will come from more migrations of products off the TSX, as well as our fair share of new fund launches.

On the corporate side, we are really focusing on small and mid-cap issuers on the TSX that are not part of any benchmark index. The reason for that is the current agreement between S&P and the TSX precludes a company listed on another exchange to be included in an S&P/TSX index.

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21/10/2016 10:52:07 PM

UPFRONT

ALTERNATIVE INVESTMENT UPDATE

Changes ring out at the CPPIB New leadership comes on board at the CPPIB as the organization prepares for wide-scale reform

Shane Feeney, previously the head of direct private equity for the CPPIB, has replaced Jenkins, while Ryan Selwood will lead the direct private equity division.

This latest leadership change follows on the heels of Mark Machin’s appointment as CEO. Machin met with the government this month to discuss expanding CPP benefits.

The Trudeau administration is pushing ahead with its plan to amend the law governing both

“We see the CPPIB as a respected and effective vehicle for managing Canada’s pension assets”

The Canada Pension Plan Investment Board has decided to consolidate its alternative investment division by bringing its infrastructure, real estate and agriculture investment groups together under the banner of Real Asset Investments. The department, which is separate from its other private investments, will be headed by Graeme Eadie, who was previously the global head of real estate investments.

The move from Canada’s largest pension fund comes as hard asset classes become more attractive to institutional money managers worldwide, driven by low interest rates and

NEWS BRIEFS

increasing volatility in global equity markets.

Aside from bringing infrastructure, real estate and agriculture under the same umbrella, the CPPIB also has made changes in the boardroom. Mark Jenkins has left his position as global head of private investments to join The Carlyle Group. Jenkins joined the CPPIB in 2008 and was instrumental in securing some major deals, including the $5.3 billion privatization of technology company Informatica, as well as last year’s multi-billion-dollar deal for General Electric’s private-equity lending arm, Antares Capital.

Caisse looks to India for opportunity

The Caisse de dépôt et placement du Québec has identified India as the emerging market it will primarily focus on in the years to come. The Caisse opened an office in New Delhi earlier this year, hoping to increase its exposure to India’s businesses and infrastructure. The pension fund’s total investment on the subcontinent now amounts to $3 billion, and the Caisse is preparing to announce more partnerships as it looks to make additional investments in renewable energy, real estate, and transportation and logistics.

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the Canada Pension Plan and the CPPIB, which manages the $287 billion fund. The new plan will put the fund on track to reach $2 trillion by 2045 – doubling the value of the original program.

In order for the proposed reform to take place, all seven provinces representing two-thirds of Canada’s population need to be in agreement. The federal government is confident it can find consensus on the issue; British Columbia is the latest signee to the deal.

Addressing the plans, Finance Minister Bill Morneau said his provincial counterparts are still finalizing pension expansion changes and will meet in December.

“We need to make sure we get all the details right,” Morneau said. “We see the CPPIB as a respected and effective vehicle for managing Canada’s pension assets.”

Private debt filling the void for riskadverse banks

As new regulations and capital requirements have curtailed lending by the country’s big banks, independent lenders, life insurers, pensions and hedge funds have stepped in and are being rewarded with double-digit returns. Arif Bhalwani, co-founder of private-debt lender Third Eye Capital Management, believes companies like his are succeeding because they operate under a different set of rules more based on the realities of the markets. “We’re really arbitragers of actual risks versus perceived risks,” he said.

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Q&A

James Burron

The role of hedge funds in today’s market

Chief operating officer ALTERNATIVE INVESTMENT MANAGEMENT ASSOCIATION CANADA

Years in the industry 22 Fast fact An AIMA report found that 77% of managers offer or are considering offering a sliding fee scale, whereby management fees are reduced as the fund raises assets above particular thresholds

AIMA recently released a paper on the alignment of interests between managers and investors, hosting a number of presentations around the world. How was that received?

It’s always a bit of a dance when you bring managers and investors together. We came up with this paper to try to show where things are and where they might be headed.

Presently, many stocks in Canada are deemed too expensive and poor value. Then there’s the situation with the bond markets. What impact has this had for alternatives?

It’s not just in Canada but everywhere, really. If you see that rates are negative, then where will investors go to make money? I have been in alternatives for quite a while, so I see new investors coming in all the time, and they are looking at real estate, infrastructure deals and private equity. Then they ask about hedge funds. I explain that they provide a relative liquid buffer against the markets. With private equity, you may have to wait eight, 10 years to get your money back. But with hedge, if you want your money quickly, it’s there.

Fees are a big issue in the investment world.

How is the debate affecting hedge managers?

Investors always ask why they pay a performance fee when a fund goes up, but the manager keeps that fee if

PPNs becoming a useful replacement for bonds

Speaking to BNN recently, National Bank Portfolio Manager Rob Tétrault outlined an alternative to bonds for a diversified portfolio, bemoaning the fact that a 10-year Government of Canada bond currently offers only a 1% return. Instead, he suggested, “one place I like is real estate exposure through a mortgage investment corporation. The other thing you can do is you can structure a principal protected note or a PPN.” PPNs are a debt instrument issued by a bank, which guarantee full preservation of the principal.

it goes down 80%. The larger fund managers can be a little more creative when it comes to the performance fees they charge. I have noticed some newer funds with really low fees, but I question that because the investor will do the math and ask how much money the fund manager will need to just break even.

The biggest worry for investors is not fraud, because that’s very rare in a regulated environment. It’s not even investment returns – it’s the possibility of a fund closing after not hitting its numbers, leaving the investor having to start again. People are willing to pay more if they get access to the manager and have information on that fund.

Who are the typical investors when it comes to hedges and other alternatives right now?

The investors are not insiders or money people who know how to run strategy. They want to know what they will get out of alternatives. They want a decent return stream, but where hedges are different from mutual funds is that when markets are down, they will provide that airbag for you. That’s what they’re supposed to do.

There are always new advisors coming into the business, so they are learning how to use hedge funds.

It’s a way for them to differentiate themselves to the client if they know a hedge manager who is doing things well. What you read about now is usually the worst thing to invest in because it’s going to be something else going forward, so that’s what advisors have to remember.

New mortgage rules will reduce property speculation

A report from Moody’s says the new government measures on mortgage lending will help limit the chance of a housing crash. One major change is that nonresidents must pay capital gains taxes on house sales, and residents will have to prove they qualify for a capital gains exemption on the sale of a primary residence. The new rules “will improve mortgage loan quality and reduce incentives for speculative real estate investment, both of which will reduce the potential for losses on Canadian mortgage loans,” the credit rating agency said.

US election won’t have major impact on gold price

Gold experienced its steepest drop in over a year at the beginning of last month. Regardless, a report from BMI Research predicts the gold price will stay at historically high levels heading into 2017. The results of the US election will have some bearing on the price, the report noted, adding that a Hillary Clinton victory could have some downward pressure on gold, but it will be offset by the low-interestrate environment. The report predicted that rather than experiencing another decline, bullion may average US$1,400 next year.

www.wealthprofessional.ca

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21/10/2016 10:52:42 PM

UPFRONT

OPINION

GOT AN OPINION THAT COUNTS? E-mail wealthprofessional@kmimedia.ca

The law of unintended consequences The Know Your Product obligations proposed by the CSA have the potential to curtail choice to the detriment of consumers, writes Ryan Colwell THE comment period for the Canadian Securities Administrators’ Consultation Paper 33-404 ended on September 30, but there seems to be no end to the conversation about it in our office.

By now, you have no doubt read numerous articles about the elimination of embedded fees, the Best Interest Standard and the standardization of titles. But what consumes my thoughts is the potential interpretation of the Know Your Product obligations – specifically, the obligation for a representative to “understand the specific structure, features, product strategy, cost and risk of each product their firm trades or advises on.”

In principle, this makes a lot of sense.

Advisors should be able to help clients pick the best investments for their specific situation, and how can you possibly do that if you don’t know all the products available to you?

Right now, I know most advisors do offer a limited product shelf, choosing to focus on only two or three different fund companies.

But how does one ensure these are the best?

My dealer, IPC Investment Corporation, currently has 20,222 fund codes on its product shelf as of the beginning of October, with more being added every day. It is impossible and unreasonable for any advisor to “know” all of those products. I fear that, in order to comply with the KYP obligations, many dealers will be forced to drastically limit their product self.

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The CSA acknowledged this possibility themselves in the paper, asking, “Will this requirement cause any unintended consequences? For example, could this requirement result in firms offering fewer products?”

Indeed, some dealers might prefer this.

The reduced data entry and compliance costs

include these types of mutual funds or would limit the SRI offerings to one or two token options – not enough to build full fossil-fuelfree or SRI portfolios.

On a related note, in their expanded Know Your Client obligations, the CSA indicates that an advisor should understand the client’s “investment constraints and preferences – for example, socially responsible investing and religious constraints.”

Adding SRI questions to the KYC form is nothing new. Australia has done it since at least 2009, and the Responsible Investment Association here in Canada has been pushing for it since 2009 as well.

A 2014 client survey by NEI Investments shows that 92% of Canadians believe that it is important to choose investment products that are consistent with their values, yet a full 52% of Canadians are not familiar with SRI. Given that most clients rely on their advisors for information and recommendations (7 in 10, according to the study), I see these mandatory questions as a way to hopefully bridge the gap between what clients want and what advisors ultimately recommend.

“A limited product shelf would favour the bigger funds and fund companies at the expense of the smaller firms/funds” should appeal to every dealer. However, a limited product shelf would favour the bigger funds and fund companies at the expense of the smaller firms/funds. It could also limit product innovation and generally homogenize client offerings.

A limited product shelf could also make those funds that do remain on the firm’s product shelf so big as to make it impossible for them to manoeuvre in and out of securities, reducing the chance for active managers to outperform their benchmarks.

I’m certain this is not what the regulators have in mind. I can’t imagine how this would affect our IIROC cousins, where the current investment universe is even larger.

My practice focuses on socially responsible investment [SRI] solutions. I worry that a limited product shelf would not

According to the 2015 Canadian Responsible Investment Trends Report, there is $1 trillion in mainly institutional money (including the CPPIB) that has embraced SRI. Unfortunately, it will take enhanced regulation for retail advisors to finally open the conversation with their clients. So while the CSA may help encourage new demand in SRI products through the KYC obligations, there may be fewer SRI investments left to satisfy that need due to the unintended consequences of KYP obligations.

Ryan Colwell is a Certified Financial Planner with IPC investment Corporation/C&C Planning Group in Georgetown, Ontario.

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21/10/2016 10:53:26 PM

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21/10/2016 10:53:31 PM

PEOPLE

INDUSTRY ICON

RISEN FROM THE ASHES Sentry Investments CEO Sean Driscoll explains how the financial crisis of 2008 helped shaped the asset management firm into what it is today

WHEN SEAN DRISCOLL made his return to the family business, he didn’t get much of a grace period to learn the ropes. The year was 2007, 10 years after Sentry was founded by Sean’s father, John F. Driscoll. The firm was still very much a growing company at that time, but as events played out over the next 12 months, its identity as an independent investment manager was forged.

“It was a baptism by fire, but a very interesting time in the business,” Driscoll says.

“When I first joined, it was called Sentry Select Capital and was mainly in retail structured products and closed-end funds.

After the financial crisis, we looked at the business and decided we would focus more on mutual funds, so we converted many of those closed-end funds into mutual funds.”

Driscoll had previously worked with Sentry Select before getting his MBA from York University’s Schulich School of Business. This led to a position with Canaccord Capital Corporation, where he developed expertise in M&A, equity and debt underwriting, as well as developing valuation models for private and public companies. His time there served him well, and within two years, he had rejoined Sentry.

“I started in investor relations with the firm in 2007 and progressively moved up and took more responsibility,” he says. “I became

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CEO in 2013, but my role with the company hasn’t changed dramatically, just my title.”

His return to Sentry was a period of great change, both for firm and the industry at large, but looking back, Driscoll realizes that the events of 2008 are what built Sentry Investments into what it is today – an asset manager with $19.5 billion AUM, representing more than 500,000 Canadian investors. Driscoll has had a front-row

depending on your perspective. Experience is a highly valuable asset, of course, but it’s also true that most firms have had a lot of trouble reaching younger investors.

Sentry primarily targets high-net-worth clients, which today usually means Baby Boomers, but that won’t always be the case.

Thus, it’s important to have more people in the industry who are actually from that younger demographic – and to have some

“Our style really is balance-sheet and cash-flow focused, so we want to invest in companies that are resilient to various changes and external shocks. The result of that tends to be strong risk-adjusted returns and a lower volatility than many of our peers” seat for the company’s growth – a seat that would eventually occupy centre stage in the boardroom.

House rules At age 38, Driscoll is certainly one of the younger CEOs on Bay Street, which could be considered a negative or a positive,

of them in top positions.

Sentry clearly thinks so, and its CEO has been central to the direction the firm has taken in what has become a difficult investment environment. For Driscoll, maintaining a “house style” for the firm is crucial to its continued growth. This has meant an approach to investing that clients can

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21/10/2016 10:54:15 PM

PROFILE Name: Sean Driscoll Company: Sentry Investments Title: CEO Years in the industry: 13 Industry accolades: In addition to its recent recognition as Best Small and Medium-Sized Employer by Aon Hewitt, Sentry was named Lipper’s Best Equity Fund Family back-to-back in 2011 and 2012. “This was important because it validated our investment approach and consistency across the fund family to deliver risk-adjusted returns,” Driscoll says.

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21/10/2016 10:54:19 PM

PEOPLE

INDUSTRY ICON

associate with Sentry whenever they walk through the door.

“Our style really is balance-sheet and cash-flow focused, so we want to invest in companies that are resilient to various changes and external shocks,” Driscoll says.

“Having high free cash flow is important, as is having quality management teams that allocate capital well. Our house style is applied consistently across the product range here. The result of that tends to be strong risk-adjusted returns and a lower volatility

range will be Gaelen Morphet, who joined the firm as CIO in April in what was one of the more notable hires seen in investment circles this year. The position had been occupied by Sentry’s vice-chairman and director, Sandy McIntyre, on a temporary basis following Dennis Mitchell’s abrupt departure last year, so the firm was keen to install a long-term replacement. Adding the highly experienced Morphet to the team was considered a real coup for Sentry.

“What we wanted to do was find a long-

“It’s an area of the market we are monitoring, but we have no plans to launch ETFs. We are firm believers in active management and that it really adds value for investors. So we are focused on generating strong risk-adjusted returns in the mutual fund market” than many of our peers.”

Currently, the firm’s main focus is on the North American market, but Sentry is dipping its toe into international waters, too, looking at developed markets in Asia, Australia and Europe. Canada is its home, however, and will always be a key consideration. Most recently, this was evidenced by the launch of the Sentry Private Investment Program for those planning for retirement.

It’s a substantial population in this country, and an obvious market for the firm to target.

“The retired market is huge,” Driscoll says. “People are living longer, so longevity risk is becoming a key issue. The Private Investment Program is for high-net-worth investors, so a minimum investment of $100,000. It has lower fees and more costtraded portfolios.”

Poised for the future Aiding Sentry as it expands its product

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term solution for the next decade,” Driscoll says. “So after an exhaustive search, we approached Gaelen. When she agreed to join, we were absolutely ecstatic. Her reputation is stellar, and she will allow for a lot of consistency in what Sentry is trying to deliver in the marketplace. Stylistically, she is very much aligned with Sentry, so she’s a great fit in a number of ways.”

Clearly Sentry is a company not afraid to change direction when warranted. Its name in the industry has been built on mutual funds, but with ETFs really starting to gain a foothold in Canada, will Sentry become the latest provider?

“It’s an area of the market we are monitoring, but we have no plans to launch ETFs,” Driscoll says. “We are firm believers in active management and that it really adds value for investors. So we are focused on generating strong risk-adjusted returns in the mutual fund market.”

KEY MILESTONES AT SENTRY INVESTMENTS

1997

The company is founded by John F. Driscoll

2007

Sean Driscoll joins Sentry Investments after earning an MBA and doing a stint at Canaccord Capital

2010

Following the global financial crisis, the firm changes from Sentry Select Capital to Sentry Investments, putting its primary focus on mutual funds

2013

Sean Driscoll follows in his father’s footsteps and becomes the firm’s CEO

2014

The firm’s assets under management reach $15 billion

2015

To the surprise of many in the industry, Dennis Mitchell leaves his position as CIO after a decade with the company; he was replaced earlier this year

by Gaelen Morphet

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21/10/2016 10:54:28 PM

FEATURES

COVER STORY: OUTSTANDING TEAMS

CANADA’S OUTSTANDING ADVISORY TEAMS The wealth management business is becoming more about catering to the full range of a client’s financial needs. As a result, advisors in 2016 tend to see the merit of collaboration and being part of a team. Here are some of the country’s best

THERE’S NO I in team, or so the saying goes, and when it comes to the advisory business, there are reasons aplenty to combine your talents with those of your peers. Today’s clients tend to have high expectations of their financial planners – and that’s doubly the case when it comes to the rapidly growing highnet-worth segment.

There are only so many hours in the day, though, so when an advisor can call on the expertise of a colleague to chart a detailed wealth management and investment strategy, all the better.

The 10 teams featured on this list have all

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excelled in this regard, showing consistent growth and holding ambitious plans to continue in that vein.

Investment is not an exact science and requires rolling with the punches when necessary. The groups highlighted here certainly realize that, because the best advisory teams have a long-term strategy that doesn’t deviate every time the markets hit a speed bump – that’s why investors come to them in the first place. Here, some of Canada’s leading advisory teams reveal how they’ve made connections with clients and have managed to keep those bonds strong.

COMPANY NAME

PAGE

Alexandra Horwood & Partners (Richardson GMP)

28

Green Private Wealth Counsel (HollisWealth)

33

Roberts Nash Advisory Group (National Bank Financial)

24

StennerZohny Investment Partners (Richardson GMP)

26

Summit Private Wealth (Mandeville Private Client)

32

The McClelland Financial Group (Assante Wealth Management)

30

The Pyle Group (ScotiaMcLeod)

23

The Racine-Marcotte Advisory Group (RBC Dominion Securities)

35

The Wolf on Bay Street (Canaccord Genuity)

36

Woodgate Financial

34

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22/10/2016 4:03:44 AM

THE PYLE GROUP SCOTIAMCLEOD Another key development this year was the introduction of the final phase of CRM2.

The new reporting standards are welcomed

by Pyle and his team, who believe investors now have the all the information available to them to make the right decisions when seeking advice.

“For advisor teams that already have adopted a fully transparent fee-based model, CRM2 is a big positive,” he says. “It really takes the veil off other platforms across the country. Investors will now be seeing things for the first time they hadn’t seen before.”

WP: More and more government and corporate bond yields have headed into negative territory this year. Has this had a major impact on your asset allocation?

Peterborough, ON Established: 2009 Number of employees: 6 Target clients: High-net-worth segment, assets close to $1 million and above for families AUM: $330 million Now in its eighth year of operation, The Pyle Group has established itself as one of Canada’s go-to advisory teams for high-net-worth clients. Based out of Peterborough, Ontario, the team’s name comes from its founder and senior wealth advisor, Andrew Pyle. With more than 25 years in the business, Pyle and his colleagues have built a reputation for delivering highly personalized investment strategies, which has made for a strong performance for The Pyle Group in 2016.

“Last year we saw depressed valuations, not only in the stock market, but also in the preferred segment,” Pyle says. “The majority of the business we do is on a fee-based platform, and for all advisors that are fee-based, your top-line performance is wedded to the markets, so this year has been beneficial to

clients and our team.”

While Pyle and his team concentrate principally on the high-net-worth segment, that area has plenty of room for deviation, depending on the particular client.

“We manage every household on a unique asset allocation basis,” he says. “Our equity/ fixed-income mix is different according to the client – it is customized to them. It’s within those asset classes that we made some pretty significant moves at the beginning of the year on the fixed-income side, moving more into higher-risk, higher-yielding assets.”

A lot has happened since then, of course – Brexit is perhaps the most notable example.

Any wealth manager worth his salt is nothing if not adaptable, however, and The Pyle Group doesn’t plan to stand still as outside events chart a different course for investors.

“I’m paring back on [fixed-income] positions, and we are building significant cash positions across the portfolio for the first time since the team started,” Pyle says. “I’m concerned about the US election and ongoing strains in Europe. There is a splintering theme taking hold in Europe over and above what we have seen already with Brexit.”

Andrew Pyle: At the beginning of this year, we made a switch out of government bonds entirely. I rotated our fixed-income asset mix heavily toward corporates, whether they are investment grades or convertibles. We also built a significant exposure to US corporates.

WP: The equity markets in Canada have had a strong recovery this year after a difficult 2015. How has your position changed throughout the year?

AP: There is a lot of uncertainty about the fourth quarter. I think we are at risk of having a selffulfilling-prophecy-style correction, where a lot of investors are getting antsy because they are not sure where the US election is going, where Europe is going, where the UK is going. So we are taking a precautionary stance on both equities and fixed income right now.

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FEATURES

COVER STORY: OUTSTANDING TEAMS ROBERTS NASH ADVISORY GROUP NATIONAL BANK FINANCIAL Roberts Nash will be operating primarily under a fee-based model, an approach that’s really starting to take hold in an industry where commissions previously reigned.

“We have always been upfront about our fee structure and the advice that comes with it,” Nash says. “Of our revenue, 90% comes from a fee source. We adopted that model in the early ’90s, well before it was trendy. Do I believe trailer fees will go the way of the dodo? Absolutely.”

WP: Your team has had a feebased model for quite some time now. Do you think CRM2 will cause more firms to follow your lead?

London, ON Established: 1994 Number of employees: 7 Target clients: Investors looking for a family office approach to wealth accumulation, preservation and transfer AUM: $315 million The meeting of minds of portfolio managers Kelly Roberts and Jay Nash brought about the formation of the Roberts Nash Advisory Group in 1998. At various periods, the team has come under the umbrella of Merrill Lynch, CIBC Wood Gundy and Wellington West Capital, and now finds itself part of National Bank Financial.

Diane Nash, a wealth advisor with the team, explains what sets Roberts Nash apart from many of its competitors in the space.

“We believe everybody’s wealth experience is unique,” she says. “If someone has $75,000, but they are committed to saving, then we provide direction to all who ask us, taking on

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those we can.”

The easy access to information clients have today means they often have plenty of their own ideas when it comes to investment strategy, and it’s up to the advisor to guide them in the right direction. In that respect, 2016 has been a great year for Roberts Nash.

“It’s been a challenging market, but that means there are more people out there who need advice,” Nash says. “Our clients have become more complicated in their needs and their goals, but we have had a great year as far as our asset growth goes.”

In light of the relatively high cost of stocks, driven by the TSX’s strong bounceback, as well as plummeting bond yields, Roberts Nash has been taking a cautious approach. “About 90% of our clients are on a balanced mandate – in this environment, it makes most sense,” Nash says. “We work to limit stock-specific risk. We look for wealth preservation primarily for our clients. If you can get single-digit returns for the next 20 years, you’ll be a rock star.”

In achieving those 7% to 8% gains,

Diane Nash: CRM2 is inadequate in what it will report for Canadians. I think the regulators missed a huge issue when all they are enforcing is what the advisor is making. They are not showing what the total MER is. They are not making the banks report the fees the clients aren’t seeing.

CRM2 was a half-measure; all investment costs should be visible.

WP: : Limitations aside, how has the new regulatory standard affected how you do business at Roberts Nash?

DN: Our team does an extra level of reporting to our clients beyond what CRM2 mandates. I believe in paying for valuable advice, and that is the same in any industry.

CRM2 means that advisors will [have to] articulate their advice and their service model better to clients. There are some in our industry who will be able to do that, and some who won’t.

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COVER STORY: OUTSTANDING TEAMS STENNERZOHNY INVESTMENT PARTNERS RICHARDSON GMP

Vancouver, BC Established: 2007 Number of employees: 7 Target clients: Entrepreneurial families and family office, $10 million to $1 billion+ in assets AUM: $600 million

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One of the top-performing teams at Richardson GMP, StennerZohny Investment Partners will celebrate its 10th anniversary next year. In that time, Thane Stenner and Youssef Zohny have been able to grow their group to $600 million in AUM, with $1 billion under advisement.

The past year has seen StennerZohny deliver reliably solid returns for their clients

following a challenging 2015. “Last year, we were definitely focused on capital preservation, but we actually produced some reasonable growth,” Zohny says. “Late last year, we made some strategic asset allocation decisions to move more into resources and gold.

That has proven to be very fruitful this year for our clients, so we have been pleased to see the rotational value patterns we were

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WP: Your team has had a strong performance in 2016, reflecting market results. Do you see this continuing into 2017?

Youssef Zohny: It has been a strong bull market the last few years, so valuations are quite expensive, and interest rates have probably bottomed. Those are two factors we think will provide headwinds to the markets, so we want to be more cautious because some areas of the market are very stretched, in my opinion.

WP: Given the record-low yields for many government bonds, how has your approach to fixed income changed?

YZ: Most public fixed-income investments are significantly overvalued and carry with them quite a bit of risk. How we are dealing with the low-yield world is by focusing on alternative strategies and income ideas that are more private- or alternative-based. The risk-reward in public fixed income is not tilted in favour of the investor.

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positioning for earlier in the year.”

What worked in the spring often doesn’t work in the winter, however – something the team at StennerZohny is well aware of and has positioned itself for. “As the year has progressed, we have become more and more defensive,” Zohny says. “We have been locking in gains on the resource and gold side and putting up more market hedges and short positions. We have had a strong year, but we are moving more to protection mode at the moment with the anticipation of a likely correction.”

That projection is shared by many in the industry – the consensus is that the markets’ rally this year likely won’t last heading into 2017.

It’s perhaps a pessimistic view, but one that’s entirely plausible and reason enough to be adequately prepared as an investor, as Zohny explains. “The common problem for a lot of people who have a liquidity event is what they do with their cash and how they allocate capital,” he says. “What we try to do is help entrepreneurs come up with a proper game plan and asset allocation so they are not rushing to deploy capital. The most important thing is to preserve capital and show some modest growth.”

The Vancouver-based team has growth ambitions of its own, although its expansion plans will be driven by clients’ needs. “We continue to add team members and resources to our multi-family office,” Zohny says. “Our business mantra is to serve fewer clients, but build more meaningful relationships. We tend to beef up our resources for our existing clients and then a select few that join each year.”

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COVER STORY: OUTSTANDING TEAMS ALEXANDRA HORWOOD & PARTNERS RICHARDSON GMP

Toronto, ON Established: 2010 Number of employees: 4 Target clients: $1 million+ in liquid investable assets, business owners, successful mining executives, inheritors, agricultural families, entertainment professionals AUM: $165 million

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It’s been a rapid ascent for Alexandra Horwood & Partners since its formation back in 2010. Targeting high-net-worth clients, the team has accumulated $165 million in AUM, but that’s just the tip of the iceberg as far as its ambitions go. Associate investment advisor Ghinel Bozek reveals how the tightly knit group has been able to build up such a loyal client base in its short history.

“We want to grow our business very

quickly – last year we added $40 million in net new assets,” she says. “This year we are on track to add $50 million. It has always been our experience that when we do the best possible job for our clients, our business grows organically. As our clients’ trust with us grows, the more wealth we accumulate.”

The team was founded by Alexandra Horwood, who holds the distinction of being the youngest wealth management director

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WP: Have the latest CRM2 requirements had a major impact on your business?

Ghinel Bozek: We have always been direct and clear on the services we provide. Our costs are very competitive, and the services we provide for those costs represent value for our clients. We are transitioning our business 100% to portfolio management, which will be completed by the end of 2016. That will add to our transparency when it comes to costs for the clients.

WP: One of the big investment stories of 2016 has been low fixed-income yields. Do bonds still hold an important place in your portfolios?

GB: We still find we are generating really good rates of return in fixed income. There is a lot of opportunity in the private lending space with Canadian companies, so we haven’t moved away from it. It is still a very important part of a balanced portfolio.

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and portfolio manager at Richardson GMP. She reveals the high standards she applies to her business.

“We have always been big fans of Warren Buffet and follow his investment philosophies,” Horwood says. “So we have always invested in high-quality, concentrated and balanced portfolios. We have streamlined our investment management so that our clients’ portfolios have 10 to 12 core investment holdings that are professionally managed with the highest accountability and expectations.”

When catering to the high-net-worth segment, client expectations tend to be lofty: There’s a lot of money involved, and that potentially means big losses. Accordingly, the Horwood team has strict criteria it applies when considering investments in order to mitigate risk.

“We look at only the top 1% of investment options across Canada,” Horwood says. “Number one on our list is a solid track record, but we are also looking for a 10% annualized rate of return after costs, as well as first quartile against peers – outperforming the respective benchmark and peer group after costs.”

This policy has served Horwood and her team well, and expansion plans are already underway as Alexandra Horwood & Partners makes its transition into strictly portfolio management.

“The switch will have benefits for our clients in many ways,” Bozek says. “The costs for clients are now tax-deductible. We have also shifted the administrative costs from our clients onto us. It really is providing that enhanced, institutional level of service that has a higher degree of professional and ethical requirements.”

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21/10/2016 11:51:53 PM

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COVER STORY: OUTSTANDING TEAMS THE MCCLELLAND FINANCIAL GROUP ASSANTE CAPITAL MANAGEMENT

Thornhill, ON Established: 1992 Number of employees: 13 Target clients: Engineers, as well as pre-retirees who are within five years of retirement AUM: $375 million

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For The McClelland Financial Group, specialization has been a key component of success.

The brainchild of Rob McClelland was born in 1992 and has been providing financial advice to engineers ever since. That approach has served the team well, as its AUM of $375 million attests, but it means catering to a fairly demanding group of professionals.

“They don’t trust you in the first year, but

when they do, they put away their calculators and their spreadsheets and let you look after their finances,” McClelland says. “We also find they tend to be good savers and conservative, so they are not trying to get double-digit returns every year or anything like that.”

The McClelland Financial Group’s client base isn’t exclusively engineers, but the basic financial planning principles that appeal to

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this group can be adapted to suit any individual – including those on the verge of retirement, another market the team specializes in. The group’s performance in 2016 suggests that its position has been a savvy one.

“The more services you can provide for a client, the better you can protect your business. Doing tax returns for a client means they rely on you, so the more services we can provide, the better”

WP: Your team is different in that you target one profession in particular – engineers. How did this come about?

Rob McClelland: We found that when we started booking our practice, we attracted quite a few engineers.

We use a detailed financial planning approach, a factorbased investment approach, and that sits well with engineers. We found that not many advisors targeted engineers, so it was fairly open for us.

WP: Having filled in this gap in the market, how has your team been received?

RM: The difficulty is that a lot of newer Canadians are engineers, and they tend to want to do it themselves. But the best engineers are typically business owners and engineering executives, and they make good clients.

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“We are up $40 million in assets, with revenue and profit growth close to 12%,” McClelland says. “We don’t deviate with our asset allocation – our portfolios are typically 60% equity, 10% real estate and 20% fixed income. The fixed income has to stay as a safety net.”

The team celebrates its 25th anniversary next year, and it will mark the milestone with some big expansion plans. “We are continuing to expand – we started a tax service three years ago, so in the next 12 to 24 months, we want to bring in an accountant and also a full-time IT person,” McClelland says. “The more services you can provide for a client, the better you can protect your business. Doing tax returns for a client means they really rely on you, so the more services we can provide, the better.”

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COVER STORY: OUTSTANDING TEAMS SUMMIT PRIVATE WEALTH MANDEVILLE PRIVATE CLIENT Now that it has navigated the transition from Manulife to Mandeville and emerged even stronger, Summit has grand plans to expand its presence in the wealth management business. Such growth will require good people, however, which is something Kim and his partner at Summit, Jonathan Showers, have emphasized.

“We have been garnering a lot of attention from advisors looking for another home,” he says. “They see us as a practice of the future, and that interest is coming not only from independent channels, but also many bank advisors as they grow discontented with payouts, older technology and a lack of differentiation.”

Montreal, QC Established: 2004 Number of employees: 10 Target clients: High-net-worth and ultra-high-networth individuals AUM: $250 million The rise of Summit Private Wealth has had a certain symmetry. The team was formed 12 years ago under the Berkshire-TWC Financial umbrella; when that company was bought out by Manulife in 2007, Summit came as part of the package. Last year, the team decided to return to its roots – specifically, Michael Lee-Chin’s latest operation, Mandeville Holdings.

For Summit’s founder and president, Gene Kim, it was an easy move to make for a number of reasons. “It was really an alignment of values,” he says. “We feel that standing for something is important, and Mandeville is one of the few firms I felt had a distinct philosophy that very much mirrored our own.”

That shared perspective when it comes

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to wealth management means the team has enjoyed an impressive 2016. “We have a value-oriented approach,” Kim says. “Despite the negative markets in 2015, our group preserved capital, and we had net positive results. It was a transition year for us last year, but now we are back to growing our practice at a 20% per annum rate.”

The difference in the markets between 2015 and 2016 is stark, but Summit has found staying the course to be a winning strategy. “We didn’t feel a compelling reason to change our position,” Kim says. “A lot of the bounce-back in the Canadian market is due to energy, but we were never really heavily concentrated in energy. We made good returns despite the fact we weren’t correlated to energy stocks.”

With oil & gas largely out of the mix, Summit has been able to build its AUM by looking outside the markets when necessary.

“One of the things Mandeville does really well is adding unique access to private equity,” Kim says. “If you look at the Forbes list, most high-net-worth individuals have created their wealth by investing in private companies. Why would we be any different with retail clients?”

WP: Holding private assets is a key part of your investment philosophy – are there certain industries you tend to look at when seeking opportunities?

Gene Kim: We are agnostic to industries; we just want to buy good companies. A balance sheet is a balance sheet at the end of the day. I think that a lot of the less sensitive stocks have now been bought up as quasi-bonds. Due to the lower rates, there has been a migration of risk undertaking – moving away from bonds to so-called dividend-yielding defensive stock positions.

WP: Is that an approach your team at Summit has taken?

GK: I feel that migration has meant a high valuation for stocks, and I find that many of these sectors are overvalued. We like dividends, but we like dividend growers, not just payers. So we look to companies in areas the herd has not already gone to.

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GREEN PRIVATE WEALTH COUNSEL HOLLISWEALTH This year will be remembered as the one when the final phase of CRM2 went into effect, but for Green Private Wealth Counsel, the effects should be minimal, as the team migrated to a fee-based system some time ago.

“We completely embraced the whole idea and think it’s so far overdue,” Green says.

“We have been fee-based for a long time now – we haven’t done commissions in 10 years.

Clients do not want to be in a commissiontype world. They want to be aligned with the advisor.”

Despite some instability in the markets and the industry itself, there are some constants when it comes to wealth management, Green explains.

“One thing that has stayed consistent is that we are financial planners first and foremost,” he says. “So we are holistic, and we cover investment risk, tax and estate. That is the core of what we do.”

WP: What kind of investment strategy can clients expect at Green Private Wealth Counsel?

Woodstock, ON Established: 1994 Number of employees: 8 Target clients: Business owners and retirees with assets of $500,000 to $20 million AUM: $185 million Part of the HollisWealth group, Green Private Wealth Counsel has been in operation for more than 20 years, and today offers clients the full range of services that goes along with discretionary wealth management in 2016.

It’s been a steady climb for the team, but its ascent has really gathered pace over the last few years.

“What has changed is the way that we

manage money,” explains the team’s founder, Paul Green. “We have gone from MFDA and are now discretionary portfolio managers.

We were at $85 million four years ago and now we’re at $185 million, so we have huge growth plans.”

Green is candid when discussing his team’s investment strategy and the inevitable hiccups that occur along the way. This year could have been better for the team, but everything is relative in this business, and the performance of Green Private Wealth Counsel over the long run suggests it won’t be long before the team is firing on all cylinders again.

“The plan is to get to $1 billion within a 10-year period,” Green says. “We are looking to reach net new money of $50 million for 2016, and we are on target for that.”

Paul Green: Our style is much more alternative and technical, so we use a lot of relative strength.

We moved to cash from January until the end of March. We have been invested since March, but there has been very little direction. It happens roughly once every four years that our style is out of favour.

WP: So have you changed direction somewhat throughout the year?

PG: We stick to our discipline. We are very rules-based, so we take our lumps when we have to. We have had very good results over the past four years – way, way above the benchmark.

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FEATURES

COVER STORY: OUTSTANDING TEAMS WOODGATE FINANCIAL “When they announced CRM2, I looked over the requirements and honestly forgot about it,” Pereira says. “The reason for that is our team has being doing that stuff for years. We have been fee-based for a long time, and whenever possible, using funds that disclose the fee in dollars.”

Clients can be a pretty demanding bunch, but those who elect to seek guidance at Woodgate Financial can rest easy that the fees they pay will be easy to quantify. This is crucial when it comes to financial planning in 2016, Pereira says. “We are already ahead of the curve on disclosure. In the last two years, we started producing fee disclosure forms where we basically show the client what the fee is and how it is broken down between advisor, dealer and fund manager.”

WP: It’s been a pretty solid year for the North American markets. How has that affected your business?

Toronto, ON Established: 2009 Number of employees: 7 Target clients: Households with assets between $500,000 and $750,000 AUM: $170 million One of the newer teams on this list, Woodgate Financial has made great progress since first opening its doors in 2009. The decisionmakers at Woodgate have repositioned the business in recent years, subscribing to the belief that more isn’t always better when it comes to clients.

“Over the last while, we have been focusing more on rationalizing the business,” explains co-founder Jason Pereira. “Six years ago, we had about 1,000 households and $120 million in assets. With the current iter-

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ation, we have reduced our household count by 66% and increased our assets by over 50%. We have been focusing on moving up the scale for higher-dollar-value families.”

And that’s just the start for the Woodgate team, which is primed for further expansion.

Pereira outlines how having fewer clients allows his team of advisors to spend more time on developing complex wealth management strategies for those who do remain in the fold. “With fewer households, we can deepen our relationship with the clients we keep and provide more services. Really, the focus is on growth at this point because we have the capacity to do so.”

Much of the discourse in the advisory world currently centres on fees and commissions and whether the old system is still viable in 2016. Consensus on this issue is hard to find, but for Pereira and the team at Woodgate, it’s pretty much old news.

Jason Pereira: I’m a big believer that you prevent problems by planning for them well in advance. So we have always adhered to diversified portfolios that are properly run. We had a big correction late last year that rolled over into the beginning of 2016, but since then, returns have been good.

WP: What has your investment strategy been?

JP: We utilize mutual funds and SMA platforms, so the nuts and bolts of stock selection is handled by third-party managers. In general, they have been trending outside of Canada and have very different opinions on bonds. We have been looking more toward the international side than Canada lately.

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THE RACINE-MARCOTTE ADVISORY GROUP RBC DOMINION SECURITIES opposed to mutual fund salespeople, so we concentrate on individual pension plans for professionals and corporates,” Marcotte says.

Like many of this year’s top teams, Racine and Marcotte are wholehearted believers in CRM2; in fact, they are perhaps the most bullish on why a fee-based system is the only way to go for advisory firms in Canada.

“Not only do we welcome it, we have been pushing for this for 22 years now,” Racine says. “We have always worked in a fee-based fashion, where all our fees are transparent. We are so happy this is happening – finally, a lot of people are waking up and smelling the roses.”

WP: Has your asset allocation changed much in 2016 compared to previous years?

Montreal, QC Established: 1998 Number of employees: 5 Target clients: Business owners, retirees and professionals with minimum assets of $500,000 AUM: $205 million The partnership between Nathalie Racine and Philippe Marcotte began in 1998, and The Racine-Marcotte Advisory Group’s dedication to providing clients with expert portfolio management and investment strategies has meant steady growth since then. In 2016, the group has looked across the border to the US, which has proved fruitful for it and its clients.

Part of RBC Dominion Securities, the team has the resources of Canada’s largest bank behind it, which means Racine-Marcotte can

offer services that many of its peers cannot.

“We are putting a lot of effort into our enhanced individual pension plans,” Racine says. “We are pretty much the only firm that has this product. It is offered to professionals that have recently incorporated and allows them to put money aside the same way as with one of the big pension plans. We are very excited about building business with this service because it’s very different and very innovative.”

When the two partners first discussed forming their own advisory team under the RBC umbrella back in the late ’90s, they agreed the group’s success would be dictated by its approach to business. This meant showing dedication to the finer points of wealth management, rather than simply offering clients easy access to a huge list of products.

“We wanted to be portfolio managers as

Nathalie Racine: We are looking at 12% to 13% growth in net new assets year-to-year. Our average asset allocation is 45% fixed income and 55% stocks. We are more than 45% in US currency and US exposure, so that’s where we made money this year, not on the Canadian side.

WP: What do you find are the main differences when it comes to your US and Canada strategies?

NR: We have a strategic portfolio committee process.

Before, that was only offered to our institutional investors, but now thanks to computers, we can offer it to our regular clients. It has a quantitative and qualitative approach – we concentrate a lot more on equity-income stocks in Canada because the value in Canada is in dividends. In the US, it is another animal altogether, so we concentrate there for growth.

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FEATURES

COVER STORY: OUTSTANDING TEAMS THE WOLF ON BAY STREET CANACCORD GENUITY In contrast, the names many investors often gravitate to in times of market uncertainty haven’t exactly thrived. “It’s been energy, basic materials, junior golds – basically all the high-beta, lower-quality names that have rallied hard this year,” Klein says.

“The Canadian banks, insurers and consumer staples haven’t really done that well, so if you didn’t have those high-beta names this year, you didn’t perform.”

WP: What areas have you favoured with your portfolios this year?

Toronto, ON Established: 2001 Number of employees: 4 Target clients: Professionals and entrepreneurs, no minimum asset level AUM: $150 million Wolfgang Klein’s The Wolf on Bay Street team was established in 2001 – predating the similarly named movie by some 11 years.

While the protagonist in that particular tale famously played fast and loose with his clients’ money, that’s certainly not an investment strategy Klein would subscribe to – rather, he preaches caution when it comes to the current market, specifically in fixed income.

“We continue to be very underweight in bonds,” he says. “The markets, the central banks, the leaders – they want people to take on risk and get money into the system to prop up asset prices. That’s why they have negative yields and low interest rates.”

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Government and corporate bonds continue to attract investment, however, even in this environment. It’s confounding to many experts, especially considering the implications a rate hike could have.

“When you have negative yield, it becomes a safety trade,” Klein says. “I would encourage anyone to not buy those bonds because they are probably the most risky of all. The safe trade has become a very risky trade, in my opinion, because if interest rates go up 1%, the 10-year bond will correct by about 10%. We saw that with the bund in Germany last year.”

Back on this side of the Atlantic, Canadian equity markets have performed well this year, but as Klein points out, this is being driven by firms that had such a dire 2015, the only way to go was up.

“We had a strong 2015, as we were heavily weighted towards the American market – low double-digit returns,” he says. “We made a big shift this year and repatriated a lot of money back to Canada. It has been a challenging year, in that the weaker-performing names from 2015 have driven the TSX up.”

Wolfgang Klein: Our portfolios are North American-centric, but with slightly more US exposure than Canada. We run three separate portfolios – conservative, balanced and growth. In all of those, we have good positions in the US market, be it healthcare, technology, industrials, financials. The US financials are a much better value than the Canadian financials. If you are worried about rising interest rates, then add US financials to your portfolio.

WP: How about internationally – do you have exposure to emerging markets?

WK: Canada is an emerging market. We are so reliant on commodities that we move in a very similar direction to emerging markets. If China performs well, then Canada performs well. Canada is not a diverse economy; it is a bifurcated economy, with banks and financials on one side, and oil and commodities on the other.

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21/10/2016 11:52:27 PM

FEATURES

ETF PORTFOLIO CONSTRUCTION

ETF PORTFOLIO CONSTRUCTION WORKSHOP Wealth Professional delves into how to build a strong portfolio using ETFs

THE YEAR 2016 will be remembered as a formative period for exchange-traded funds in Canada, as the ETF market passed the $100 billion threshold for the first time. Investors have noticed this trend and are turning to this investment product in increasing numbers. It makes Wealth Professional’s latest ETF Portfolio Construction Workshop pretty timely.

Providing his expertise is Brent Vandermeer, portfolio manager and director of the private client group at Vandermeer Wealth Management. A 17-year veteran of the business, he is no stranger to the merits of ETFs when it comes to building a well balanced portfolio.

Here, he applies his investment strategy to the case of Stephen Wilkins, the owner of a successful marketing firm located in downtown Toronto. Wilkins has some knowledge of the markets, but wants guidance from a professional on just how to invest his assets.

Having built his marketing firm from the ground up, Wilkins now has $100,000 in investable assets. He has a medium risk tolerance and believes ETFs could offer him

a chance to gain solid returns, while negating a lot of the risk and high fees associated with other investment vehicles. His knowledge of ETFs is limited, however, which is why he came to Vandermeer Wealth Management.

About the advisor Having gotten his start in the business at the age of 19 with the Ottawa firm Balanced Planning, Vandermeer formed his own team in 2006. Although he offers his clients the

full range of investment options, Vandermeer has developed a reputation for his ability to use ETFs to build portfolios with strong foundations. This led him to win the CETFA ETF Champion of the Year Award at the 2016 Wealth Professional Awards.

“I became a fee-for-service advisor in 2006,” he says. “One of the main reasons I did that was to take advantage of low-cost ETFs and diversify in the fund world.”

Now under the HollisWealth umbrella,

ABOUT MACKENZIE INVESTMENTS Mackenzie Investments is a leading asset management partner to Canadian financial advisors as they help clients meet their goals.

Mackenzie delivers asset management expertise in multiple ways so advisors can choose what solution works best for their clients: ETFs, private wealth pools, mutual funds, pension-style managed asset portfolios or fee-based solutions.

Mackenzie is also committed to providing investors with other financial solutions to meet their specific needs. Mackenzie is the only independent asset manager to offer a Charitable Giving Program and Registered Disability Savings Plan.

Proudly independent and Canadian, Mackenzie Investments is owned by the Power Financial Group of Companies.

www.wealthprofessional.ca

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FEATURES

ETF PORTFOLIO CONSTRUCTION Vandermeer Wealth Management offers investors the chance to build their portfolios using ETFs.

Asset allocation Canadian investors are not short of options when it comes to ETFs in 2016 – new providers with new products are appearing all the time. This is generally a positive, but there are potential downsides with too much choice. As with any other investment vehicle, these funds require attention to detail and an ability to think long-term.

“I think the most common problem for investors would be not really understanding their asset allocation, or not sticking to a disciplined allocation,” Vandermeer says.

“Maybe they read about a new fund or stock and then build a really haphazard portfolio.”

He recommends an overall allocation of 2% cash, 38% fixed income, and 60% equities and sectors for Wilkins.

“If you don’t have a direct asset allocation model, you tend to run with your emotions,” Vandermeer explains. “You are better sticking to something like an investment policy statement as your guide when times get tough.

When people build their own portfolios, they tend to lack sell-side discipline and end up really over-diversified.”

PORTFOLIO BREAKDOWN CASH 2%

FIXED INCOME 38% 23% VANGUARD CANADIAN AGGREGATE BOND INDEX (VAB) This ETF seeks to track the performance of the Bloomberg Barclays Global Aggregate Canadian Float Adjusted Bond Index. It invests primarily in public, investment-grade fixed-income securities issued in Canada. It currently has net assets of $1 billion and an MER of 0.12%.

15% HORIZONS ACTIVE CORPORATE BOND (HAB) This fund invests in a portfolio of debt securities of Canadian and US companies and seeks to hedge its non-Canadian dollar currency exposure to the Canadian dollar. Net assets are $529 million, and it has an annual fee of 0.50%.

EQUITIES AND SECTORS 60% 21% VANGUARD US DIVIDEND APPRECIATION INDEX (VGG) This ETF tracks the performance of the NASDAQ US Dividend Achievers Select Index, which measures the investment return of common stocks of US companies that have a record of increasing dividends over time. The fund currently has net assets of $240 million, and the management fee is 0.28%.

12% PURPOSE CORE DIVIDEND FUND (PDF) This ETF targets high-quality North American dividend-paying companies, giving investors tax-efficient monthly income. The fund is 49.46% Canada, 48.42% US and 2.11% cash. Utilities and consumer discretionary are the two biggest segments. It currently has $388 million in assets, and the management fee is 0.55% annually.

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INVESTOR PROFILE Stephen Wilkins is the owner of a successful marketing company he started 10 years ago. He has investments in real estate and has regularly contributed to his RRSP and TFSA accounts.

However, he has an additional $100,000 of liquid cash that he wants to grow through the markets. He has a medium risk tolerance, as he is a business owner. He has limited investment knowledge in the markets, but has had some exposure to mutual funds in the past. He is open to exploring new investment vehicles and has read how ETFs offer good exposure to a variety of different segments, but would like to learn more.

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VANGUARD FTSE DEVELOPED ALL CAP EX-US INDEX (VEF) This CAD-hedged ETF seeks to track the FTSE Developed All Cap ex-US Index. It invests directly or indirectly in large-, mid- and small-capitalization stocks of companies located in developed markets, excluding the US. The fund has net assets of $438 million and a management fee of 0.22%.

Sector overweight allocation 5% ISHARES GLOBAL AGRICULTURE INDEX (COW) This ETF provides exposure to companies involved in the production of agricultural products, fertilizers and agricultural chemicals, farm machinery, and packaged foods and meats. Current net assets are US$222 million, and the management fee is 0.65%.

5% ISHARES GLOBAL WATER INDEX (CWW) This ETF gives exposure to 50 issuers from developed markets, selected on the basis of the relative importance of the global water industry within their business models. Net assets are US$92 million, and the management fee is 0.60%

5% BMO GLOBAL INFRASTRUCTURE INDEX (ZGI) This ETF is designed to replicate the performance of the Dow Jones Brookfield Global Infrastructure North American Listed Index. Net assets in the fund are $262 million, and the annual management fee is 0.55%.

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ETF Q&A Michael Cooke SVP and head of ETFs Mackenzie Investments

You launched four fixed-income ETFs in April: MKB, MGB, MUB and MFT. Why did you feel that was a good time to introduce these funds?

If you look at it through the lens of the increasing complexity in the bond markets, they are less liquid, transaction costs are higher, and there is more credit risk with individual bonds. Fifteen or 20 years ago, most advisors would pull together a handful of government or corporate bonds or GICs to create a diversified fixed-income portfolio. It’s much more difficult to do that now, both for institutional and retail investors, so a strong demand for fixedincome ETFs has emerged as many financial professionals have substituted the onerous task of diversifying a fixed-income portfolio for the very efficient vehicle that is the exchange-traded fund.

Negative yields in the bond world have been a big talking point this year. What has that meant for the ETF industry?

There is a general backdrop of ultra-low interest rates and, in some jurisdictions, negative yields. It has become prohibitively more difficult for investors to generate attractive sources of current income. Many segments of the population are getting older and are more dependent on current income and more conservative in their investment objectives. The need for fixed income hasn’t diminished – capital preservation, generating current income and diversifying a portfolio.

That was the catalyst for us to look at the needs of the marketplace and parts of the burgeoning ETF market that were underrepresented. We saw there was a dearth of quality fixed-income solutions that were cost-effective and

TOP ETF PICK Mackenzie Core Plus Canadian Fixed Income (MKB) Tracks the FTSE TMX Canada Universe Bond Index, creating better yield opportunities while maintaining an overall credit rating of A- or better. Current net assets are $5.11 million, and the current annual management fee is 0.55%.

provided active management, which we felt was especially important in this marketplace. The feedback we have received from advisors and investors is that we have filled a void and provided solutions to the problems they have faced with fixed-income investing.

You also launched five equity ETFs this year – MKC and MUS in June and MWD, MXU and MEU in September. How have they performed in the midst of market shocks like Brexit?

These solutions are all index-based, but indexing has evolved to mean a lot of different things. Thirty years ago, we automatically associated indexing with the capitalization-weighted approach. Over the past 15 years, we have seen the smart-beta phenomenon taking centre stage, which is an alternative form of indexing using different weights and methodologies to guide portfolio construction.

“Many professionals have substituted the onerous task of diversifying a fixed-income portfolio for the very efficient vehicle that is the exchangetraded fund” These are index-tracking funds, but using an alternative weighting methodology. It is a classic example of smart beta, and I think one of the more innovative ones. We have partnered with TOBAM, an award-winning asset manager, to offer a methodology designed to protect portfolios from bias and concentration risks. TOBAM’s innovative investment approach seeks to combine stocks with low correlations – in other words, stocks that do not move or behave in the same way – so that the price changes of any stock do not have a big effect on the others. We are achieving a more equitable balance of all of the risk factors that drive stock market returns.

Focusing on the Canadian markets in particular, where do you see those risks?

In this country, we have a large exposure to the risk factors associated with financial services institutions, materials and resources companies. We are a more concentrated economy in that regard, so a passive investor would be exposed to the risk factors inherent in the Canadian economy. A solution like maximum diversification takes a more objective approach to getting an equal contribution of risk from all of the risk factors that drive stock market returns.

Historically, a strategy like this can generate excess returns of 2% to 3% annualized versus benchmark indices.

www.wealthprofessional.ca

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21/10/2016 10:56:03 PM

PEOPLE

ADVISOR PROFILE

An alternative approach Kevin Hegedus of Prairie Wealth Management reveals why alternatives have become a central pillar of all his portfolios

THESE ARE strange times in the investment world, especially considering where bonds have gone over the past year. The equities markets, meanwhile, appear overvalued, and many experts are predicting a correction sometime in the near future. It means advisors really need to be on their toes, minimizing risk for their clients while at the same time providing consistent returns. In Kevin Hegedus’ case, that has meant moving away from fixed income and toward alternatives, a strategy that has served him well in 2016.

“In 2015, we began becoming more and more conservative with our portfolios,” he says. “We added a lot of alternatives and reduced the beta on all of our models. We added some return-of-capital notes, private debt and hedge funds to our strategy. We traded out of REITs about two years ago, and we have really reduced our exposure to fixed income. We have done that by adding private debt and the notes into the accounts.”

Hegedus got his start in the industry in 1991 and went on to form Prairie Wealth Management in 2004. Part of the HollisWealth Group, the team includes two CFAs, two chartered accountants, an insurance specialist and six support staff. Having a collection of specialists under the same roof was a priority for Hegedus when he started the firm 12 years ago, and that approach has obviously paid off – his team won the Multi-

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Service Advisor of the Year Award at this year’s Wealth Professional Awards.

His team’s attitude toward alternative investments is indicative of a line of thinking that’s increasingly taking hold in the industry. Now that most bond yields are in low or negative territory, advisors are beginning to explore other options for diversifying a portfolio.

“I’m a strong believer that people should have anything from 5% to 30% in alternative strategies, depending on the client,” Hegedus says. “We never want to get into a situation where everything in a client’s portfolio goes up or down at the same time, so alternatives are becoming more and more important over time.”

Hegedus says his decision to move away from fixed income was not that tough, given the current lay of the land in that particular marketplace.

“You have to believe that human beings are rational, so it just doesn’t make sense to me why someone would lend money for 30 years to someone else and accept less back,” he says. “It’s unprecedented times, and because of that, people have to become cautious with their portfolios.”

Bonds aren’t the only place he advises caution, however. While equities have had a strong rally in Canada this year, last year was an entirely different story, which meant a lot of people lost significant amounts of money.

“What I have seen over the last few years is a lot of retirees making some pretty big mistakes with their portfolios because they have been chasing yields,” Hegedus says. “A few years ago we saw retirees piling into the energy sector because they could invest in an energy stock that paid them a 7% dividend, not realizing that there’s a lot of underlying risk – like the price of oil going from $104 to $28.”

INTEREST RATES & FIXED INCOME The Bank of Canada resisted pressure to cut interest rates in its October meeting, but most indicators show that the US Federal Reserve will finally make its much-delayed move to increase rates before the end of the year. A rate hike by the Fed will obviously have major implications for the bond markets, and that’s a major reason why Kevin Hegedus and his team have been wary when it comes to fixed income in their portfolios. “We are in the camp that thinks interest rates will eventually go up, so any fixed income that we do own is short duration,” he says. “The average maturity on our bonds is 2.8 years.”

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ALTERNATIVE INVESTMENT PERFORMANCE Hedge funds The HFRX Global Hedge Fund Index year-todate performance was up 1.41% at the time of writing

Gold While gold is up significantly in 2016, its dive in October indicates its inherent volatility

Infrastructure

“We never want to get into a situation where everything in a client’s portfolio goes up or down at the same time, so alternatives are becoming more and more important” Energy stocks have recovered considerably since those lows, but Hegedus stresses that investors still need to think long-term when it comes to what assets they buy into.

“You are seeing some of that inherent risk with utility companies now because retirees are chasing yields that they can’t get with GICs or bonds,” he says.

Then there are the myriad outside factors that could have major implications on the market. By the time this issue comes out, the United States will have decided its next presi-

dent, and while a second President Clinton looks to be the likely outcome, the Brexit vote earlier this year showed that counting chickens can be a dangerous pursuit in the current financial and political climate.

“We invested about 4% of our portfolios in cash during the Brexit vote,” Hegedus says.

“Depending on the model, we are sitting with about 8% to 15% cash. The US election is the next buying opportunity, so we think there may be a catalyst for a drawdown in US stocks, and if there is, there will be some value there.”

By the third quarter, global infrastructure deals amounted to $277 billion, putting 2016 on track to be a record-breaking year

Private capital Capital raised by the third quarter of 2016 is $426 billion, a decline of 9% compared to the same period last year Venture capital Global deal activity had its lowest level in the third quarter since 2011 – there were 2,050 venture capital deals worth a combined $26 billion

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21/10/2016 10:56:49 PM

FEATURES

PORTFOLIO MANAGER

Searching for dividends Ian Hardacre, senior portfolio manager with Empire Life Investments, discusses the mutual fund industry and the pitfalls of exclusively chasing yields IT’S BEEN a tough year for mutual funds – many large-cap funds have failed to outperform basic benchmarks. As a result, investors are increasingly looking to other avenues, such as ETFs. While ETFs recently passed the $100 billion mark in Canada, mutual funds are still the overwhelming choice for most investors in this country, with more than $1 trillion in assets.

Senior portfolio manager Ian Hardacre oversees the Empire Life Dividend Growth GIF and the Empire Life Dividend Growth Mutual Fund. While the reputation of mutual funds has taken a bit of a battering in recent years, he is a passionate advocate for what they can offer to investors. When it comes to these funds, he stresses that it’s all about quality control – and that means a strategy that ensures he selects high-quality stocks with plenty of room to grow.

“With this fund, we have a valueoriented investment style,” he says. “What I’m looking for is above-average businesses with good management teams that tend to be out of favour. So there is definitely a contrarian element to it. We like to take a different view than the market, but really that’s how you make money longer term.”

Many market observers have been critical of central bank policy they say is artificially propping up the equity markets. The Bank of Canada’s key rate remains at 0.5%, while the Fed is still stalling on raising rates, despite committing to do so late last year. This has made life difficult for fund managers trying

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to find equities for a good price that will then outperform the benchmark. Difficult, but not impossible – it just takes a dedicated approach, as Hardacre explains.

“Often you may have a different view of a company, or it could be a symptom of time arbitrage where the market is so short-termfocused on what may happen this quarter,” he says. “You can take a 12- to 18-month view and make money that way. It is about protection of capital as well. The primary role in investing is to conserve your capital before anything else.”

In constructing the fund, Hardacre doesn’t show bias towards countries or

CHASING YIELDS IN 2016 The growth of negative yields in the fixed-income space has been one of the major investment stories of 2016. This phenomenon has led many investors to turn to the equity markets instead – the TSX’s sustained rally since the lows of February is a testament to that. But for those who have swapped bonds for stocks, Ian Hardacre has a word of caution.

“If you are buying individual stocks because of the dividend and nothing else, that’s a big risk,” he says. “You have to look at the fundamentals of a company over time. If you buy into a company with a high yield, that may not be sustainable.”

By their very nature, equities can be prone to wild swings if the market dictates, so investors have to be prepared for all eventualities.

As Hardacre explains, the best way to minimize risks when it comes to stocks is to research thoroughly before you purchase.

“Investors have to remember that when you buy an equity, it has a different risk profile than a bond,” he says. “The key is understanding the company, knowing the fundamentals and its ability to grow the business and grow the dividend over time.”

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business, the quality of the management team and the valuation,” Hardacre says. “I like to meet all the management teams, as it is a means of analyzing the business so you can buy the companies at less than the intrinsic value.”

One such opportunity presented itself in the form of Shaw Communications. Recent upheaval at the Calgary-based teleco meant

2015, oil & gas has made a strong comeback this year, although it’s still a long way off from its heyday. With OPEC making noises about limiting supply, oil’s recovery is expected to stretch into 2017.

“Energy has bounced back, and I still think there is some room to go,” Hardacre says.

“When it comes to energy, we have mainly the large-cap names, and that’s because they are

“For a value investor, volatility is good because it causes dislocations in the marketplace. If you have done your homework on companies, it provides opportunities to invest”

sectors. The criteria for inclusion is simply good companies with plenty of potential to get better.

“The fund’s parameters are 70% Canada and 30% anywhere else,” Hardacre says. “Right now the makeup of that 30% is just over half US and half Europe. Brexit was an opportunity for us to invest in a few UK stocks. For a value investor, volatility is good because it causes dislocations in the marketplace. If you have done your homework on companies, it provides opportunities to invest.”

In the current environment, finding these companies isn’t exactly picking low-hanging fruit. It takes a lot of research and an ability to read the markets and where they might be headed.

“It’s a three-tiered approach when it comes to company investing – it’s the quality of the

its share price dipped earlier in the year, so when Hardacre came on board with Empire Investments in May, he was quick to act – his willingness to take a hit in the short run with expectation of long-term growth made Shaw an obvious target for the Dividend Growth Fund.

“Shaw is a top-10 name in the fund,” Hardacre says. “It is basically a business in transition. They sold off their media business to Corus to raise capital to buy WIND in the wireless space. It puts Shaw in a better strategic position than their competitors in Western Canada. When that happened, there was a sell-off of the stocks, so that was an opportunity for us to add to our position on Shaw. It also pays a nice dividend that is safe.

It’s a good business in transition.”

Presently, the fund is 27% financials and 25% energy; names like TD Bank, RBC, Suncor Energy and Enbridge make up some of the top 10 holdings. After a nightmare

really the only ones that pay dividends.”

The mutual fund industry has had better years than this one, to be sure, but it’s not all doom and gloom. There are plenty of high-quality funds out there that offer investors solid returns – the Empire Life Dividend Growth GIF, for example, has a one-year rate of return of 10.48%. The key to achieving that has been sticking to the fund’s investment principles in both good times and bad, Hardacre explains.

“We have 49 companies in the fund today,” he says. “It is a well-run mutual fund concentrated in its names and willing to go against the grain. The issue with mutual funds is that there are too many out there that are really closet indexes. That’s unfortunate, but it is the way the industry has gone. The investor needs to understand there will be points in time when a well-run mutual fund will under-perform, so the investor has to live with that.”

MORE ABOUT IAN HARDACRE Ian Hardacre joined Empire Life Investments in 2016 as senior portfolio manager.

He is a member of the Investment Team, providing investment management for segregated funds and mutual funds, and is responsible for managing the company’s Canadian equity investment portfolios. He is the lead manager of the Empire Life Dividend Growth GIF and the Empire Life Dividend Growth Mutual Fund. Before joining Empire Life, Hardacre held positions at Invesco Canada, The Ontario Teacher’s Pension Board, Scotiabank and HSBC.

www.wealthprofessional.ca

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SPECIAL PROMOTIONAL FEATURE

CHARITABLE GIVING

The return on doing good MacKenzie Investments’ head of strategic philanthropy outlines the benefits of charitable giving to limit a client’s tax burden

ACCORDING TO data released by the Charities Aid Foundation earlier this year, Canada ranked third in the world when it came to charitable donations as a percentage of GDP. Although the country came in behind the United States and New Zealand, it was a result the nation could take pride in.

Less so the recent study commissioned

by Mackenzie Investments, which showed that Canadians are significantly less charitable now than they were 10 years ago. In the survey, respondents were asked how much they would donate from a milliondollar windfall. The response was somewhat disappointing – the average donation of $69,000 was less than half of the $177,000 people had been willing to share

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a decade ago when taking the same survey.

The timing of the poll is no coincidence – Mackenzie’s Strategic Charitable Giving Foundation celebrates its 10th anniversary this year, and the firm is keen to stress the benefits of supporting worthy causes.

“We set up the foundation 10 years ago so clients using a financial advisor could set up their own foundation account without going through accountants or lawyers,” explains Carol Bezaire, VP of tax, estate and strategic philanthropy at Mackenzie.

In the survey, 39% of people said they did not donate enough to charities, while 45% of 18- to 44-year-olds said the same.

Clearly there is a want there, which is being neglected by many advisors when it comes to wealth management, Bezaire believes.

“We just did a survey, and only 6% of advisors talked about charitable giving in an overall investment or estate plan,” she says. “But the advisor can handle investment through the foundation account in order to facilitate giving to various charities.”

In donating to worthy causes, there are clear benefits outside of warm feelings.

Canada’s long-standing tax credits for charitable giving have benefited all those concerned for decades now.

“The Canadian government wanted to encourage philanthropy because it would take some of the onus off them to fund social agencies,” Bezaire explains. “They changed the Income Tax Act to say that if you donate $10,000, for example, you would get a tax credit against that money.

It’s a donation tax credit that will offset taxable amounts of up to 75% of your net income in a given year.”

Those tax credits can have a big impact on a client’s tax return each year, but will be even more important when it comes to estate planning.

“When someone passes away, there is a deemed disposition at death,” Bezaire explains. “So if you had an RSP worth $100,000 and you die, that $100,000 is deemed to have been received by you as income and will be taxable on your final tax return. When we talk about estate planning and charitable giving, you have a tax credit that will lower the tax payable and give more to the next generation.”

Then, of course, there is the very real impact on the charities themselves. In Mackenzie’s survey, 89% of Canadians said they would donate some of their milliondollar windfall to charity – and when deciding where to send their money, many went local.

“There is a big concentration on children and families in need in Canada, as well as the arts,” Bezaire says. “Our donors like the money to be local. Someone living in Toronto who is into the arts may donate to the Royal Ontario Museum, the Toronto Symphony Orchestra – places where they will be recognized.”

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PEOPLE

CAREER PATH

SIMPLIFYING THE COMPLEX David Christianson has always been a good listener and a good talker – skills that have served him well in wealth management

With a psychology degree in hand, Winnipeg native Christianson moved to Los Angeles to become a psychotherapist and unexpectedly found his métier in sales. The bridge came from a job he took selling houseplants doorto-door while studying at a private clinic “I found out sales was much more fun and much more profitable [than psychology]”

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MOVES TO LA; DISCOVERS SALES

1988

IS INSPIRED TO PASS THE RFP The day Christianson sat his six-hour RFP exam was memorable: Ben Johnson’s Olympic gold-winning 100-metre race that morning inspired Christianson, who took it as an omen “I literally said, ‘If Ben can do it, I can do it.’ Then, the first words I hear when I get in the car [after the exam] were, ‘has tested positive for banned substances.’ I dwelled on that for six weeks until I got the results”

1993

BEGINS WRITING DOLLARS AND SENSE COLUMN While hosting The Money Show on Winnipeg’s top-rated radio station, Christianson was approached to write the column that’s still a fixture in the Winnipeg Free Press 23 years later.

Later, he authored a book, Managing the Bull: A No-Nonsense Approach to Personal Finance “It turns out I’m good at explaining complex terms without being condescending or patronizing”

2012

CROSSES TO ‘THE DARK SIDE’ The latest step in Christianson’s career was to become an IIROC investment advisor, then portfolio manager, with Christianson Wealth Advisors at National Bank Financial. He calculated that he would need to bring over 60% of his AUM to guarantee a viable business; in the end, the figure was 110%, and the team grew assets by another 50% the following year “What compelled me to make the move was that I realized could save our clients over $500,000 a year in fees by putting them on book and becoming their IA as well as their financial planner”

1982

RETURNS TO WINNIPEG AND BECOMES A FINANCIAL PLANNER After a few years in LA, Christianson moved back to Winnipeg, where he was recruited to join North American Life. He lasted two years there before becoming a financial planner. Some of the client referrals he provided helped start the company that ultimately became Assante “I liked financial planning. I liked helping people, and I was fairly adept at learning acts and investment rules”

1992

HELPS LAUNCH MACDONALD SHYMKO & CO. Along with industry legends Doug Macdonald and Larry Jacobson – whom he considers mentors – Christianson opened the fee-for-service planning firm, which evolved into a portfolio management service and a dominant force in Winnipeg

“My experience was unexpectedly positive in terms of reaction from the marketplace.

There was a desperate need for a financially literate, experienced advisor whom people felt they could count on to give them independent, objective advice” 2000

MOVES FEE-ONLY PRACTICE TO WELLINGTON WEST Having bought out the other half of Macdonald Shymko & Co., Christianson agreed to sell to Wellington West while continuing as a separate fee-for-service entity “My stubborn adherence to the independent fee-only model had likely outlived its usefulness – it forced me to stay low-tech and labour-intensive a little too long” www.wealthprofessional.ca

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PEOPLE

OTHER LIFE

TELL US ABOUT YOUR OTHER LIFE Email wealthprofessional@kmimedia.ca

INVITATION TO THE DANCE Andrea Thompson’s love of dance inspired her to start a dance company to share that passion with others

AS A teenager, Andrea Thompson’s devotion to dance sometimes meant practicing five hours a day, but as dance receded from the senior financial planner’s life, she found that it was getting up on stage that she missed most.

“Performing is the greatest part of dance,” Thompson says. “It’s a very emotional and cathartic. You feel alive when you’re onstage.”

So in September 2010, Thompson launched Momentum Dance Toronto in partnership with three fellow dancers.

At its heart, Momentum has a mission to provide an inclusive environment that’s in contrast with dance’s sometimes “stuck-up, judgemental, hierarchical

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Age at which Thompson started dancing

and competitive tone,” Thompson says.

As well as offering the cheapest dance classes available in Toronto (“We’re not trying to make any money,” Thompson says), Momentum also puts on two shows annually, one of which is a fundraiser that has benefited such charities as the Salvation Army and the Daily Bread Food Bank. This year, rehearsals are already underway for the performances that will showcase the company’s highest-ever number of dancers, and Thompson couldn’t be more pleased.

“We’ve grown with the company over the years; we’ve come so far,” she says.

“The company has come along in leaps and bounds.”

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2,000

Number of dancers in Rehearsal hours that typically Momentum Dance Toronto go into a Momentum performance

Andrea

Raph Nogal Photography

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LIFE | HEALTH PROFESSIONAL LIFEHEALTHPRO.CA ISSUE 2.04

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Which carriers won over advisors with stellar service this year?

PASSING THE TORCH Why life insurance needs more millennials

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A LASTING LEGACY The new (old) product that’s a hit with parents and grandparents

STATE OF THE INDUSTRY Revealing stats from the CLHIA’s latest Fact Book

21/10/2016 11:03:18 PM

MARKET WRAP

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www.lifehealthpro.ca

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www.lifehealthpro.ca 21/10/2016 11:24:22 PM

MARKET WRAP

CONTENTS 49 Market wrap

The latest news from the life and health insurance marketplace

Q&A

How insurance can close the protection gap Veronica Scotti, President and CEO, Swiss Re Canada Years in the industry: 17

52 In depth

The CLHIA’s latest Fact Book offers some important insights on the state of the life and health insurance industry in Canada

Fast fact: According to analysis by Swiss Re, the protection gap – defined as difference between the resources a family has and what they would need if the primary breadwinner passed away – is more than $20 trillion in the US and Canada

54 Spotlight

Mark Lampel has tapped into an underserved niche by reviving a 170-year-old life insurance product

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56 Cover story: Advisors on carriers 2016

For the second year in a row, advisors speak out on where their carriers are making the grade

61 Transfer of power

What advisors need to know about recruiting millennials

Is the protection gap in life insurance being felt outside of North America?

This is not unique to the Americas – it is a global phenomenon. Six years ago, we gave an external firm a global mandate to study the propensity to buy life insurance. We wanted to find out what a consumer was willing to pay for $100,000 worth of protection.

There were 40,000 people interviewed across the world, so it was very comprehensive and unique in its scope.

What did you find from your research?

The evidence showed that people were willing to pay more than what the actual cost was. So we realized that wasn’t the problem.

The next year, we had a campaign to judge people’s recognition of certain brands. It was very telling, as we realized there was an issue of brand recognition.

So in other words, insurance companies are suffering in comparison to the Cokes, McDonald’s and Nikes of this world?

We asked why there are certain brands that are so popular even though they had no history. Manulife has over 150 years of history, so how is it even possible it doesn’t make it into the top of the lists for brand recognition?

Our analysis showed that people tend to remember companies whose services they use most regularly. Uber is mainstream today because of that.

How do insurance providers respond to that disconnect?

I think people want to be engaged, and they want that to be meaningful to their lifestyle.

I hold a lot of hope that we are going to see a positive transformation in the capabilities of the industry to actually be closer to consumers.

Will the insurance companies that are doing more to embrace the digital age facilitate this?

The key is in what technology enables today. Using Manulife as an example, they are a fabulous company for a worldwide comparison. They have taken the digital transformation very seriously. They have taken a number of steps to simplify client interaction.

So how is Swiss Re approaching this new reality for life and health insurance?

Companies now have to be client-centric, so it has to be one or two questions, but they have to be the right questions. That’s where predictive analytics comes in.

We have the largest life database in the world, so we try to use it to help all the insurance companies – Manulife, Sun Life, Great-West. We can help them build algorithms because they need to be really sharp in how they engage with consumers.

They are there at the front end, and we are willing to extend our knowledge across the whole value chain.

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21/10/2016 11:26:10 PM

MARKET WRAP

NEWS BRIEFS - HEALTH Emerald Health introduces cannabis oil products Emerald Health Therapeutics has launched three new cannabis oil products – THCA oil, THC oil, and THC:CBD oil – via its wholly owned subsidiary, Emerald Health Botanicals. The company markets its cannabis oils as whole cannabis plant extracts that provide users with the benefits of cannabinoids. The oils can be ingested orally with ease, eliminating dosage problems associated with inhalation. Emerald Health Botanicals claims it is the first licensed producer in Canada to offer THCA oil, which produces no psychotropic effects.

Health Canada allows exemption for marijuana growing While Health Canada has consistently warned the public at large of the dangers of obtaining cannabis from any source outside of the 35 licensed and recognized producers, the authority is now relaxing the rules for individual producers. A new provision allows individuals with a medical need to apply to Health Canada for the rights to grow their own cannabis. They will only be allowed to grow a limited amount, and they can choose to grow it themselves or have someone else do it for them.

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New Manulife program rewards healthy living The insurer’s recently launched Vitality program aims to reinvent life insurance Manulife has described its newly launched Vitality program as “life insurance for the living.”

The program awards customers Vitality Points and other rewards for completing healthrelated activities such as exercising, getting an annual checkup and getting a flu shot.

“Manulife is changing the whole notion of life insurance,” says Manulife Canada President and CEO Marianne Harrison. Until today, Canadians purchasing life insurance filled out an application, paid their premium, and eventually their family makes a claim. Manulife is now actively partnering with customers who want to achieve physical and financial health and overall well-being.”

Technology is a key component of the program: Manulife Vitality members get a voucher for a free bilingual Garmin vivofit3

wearable to help track their progress. Those who are already using a wearable tracker can integrate it, while those who prefer to go without wearable technology can log their healthrelated activities independently. The program also leverages other technological features, such as a proprietary Vitality mobile app, online and automated tools, and personalized health goals sent directly to members.

Program members have a chance to get discounts on GoodLife Fitness/Énergie Cardio memberships; the program will continue to engage new providers with the aim of expanding the range of rewards it can offer. The program is currently offered under the Manulife Family Term with Vitality product, which has coverage for 20 years renewable until the age of 80, or coverage until the policyholder reaches age 65.

“Manulife is now actively partnering with customers who want to achieve overall well-being”

Saskatchewan at the centre of Canadian HIV problem

Canadian private health insurance experiencing shortfall

Ontario psychiatrists call for better youth suicide prevention

A recent AIDS conference in South Africa revealed a startling statistic: HIV rates among Saskatchewan’s indigenous people were comparable to or higher than those seen in many developing countries.

There were 1,458 HIV diagnoses in the province from 2005 to 2014. Of those, 203 died within a year of being diagnosed; whether the deaths were caused directly by AIDS or HIV infection isn’t clear. The number of new HIV cases in Saskatchewan hit 160 in 2015; the rate of new HIV cases in the province is twice the national average.

Private health costs have surged for Canadians, according to John Have and Robert L. Brown, fellows of the Canadian Institute of Actuaries.

In a commentary in the Hamilton Spectator, Have and Brown revealed that healthcare costs Canadians must pay or insure privately have surged in the last 40 years, increasing by more than 220% on average since 1975 – a figure that’s already been adjusted for population growth and inflation.

Currently, Canadians must absorb 30% of health costs themselves for items like vision, dental and pharmaceutical drugs.

According to a report from the Coalition of Ontario Psychiatrists, suicide is the secondleading cause of death among Canadians between the ages of 15 and 34 years old, right behind car accidents.

However, unlike with car accidents, there has been no change in the number of suicides across Canada for more than four decades. According to the report, 70% of mental health issues observed in the 15- to 34-year-old age bracket started in childhood, and suicide accounts for 24% of all deaths among young people.

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21/10/2016 11:26:19 PM

Class-action settlement could set a new precedent A million-dollar settlement from Manulife might open the door for further lawsuits Manulife Financial’s recent class-action settlement could be a sign of things to come in the life insurance space. In September, the Ontario Superior Court of Justice approved a settlement worth between $1.6 million and $2.03 million to be paid to Manulife policyholders. The suit alleged breaches of contract on life insurance policies dating back to the mid-1980s, and according to plaintiff’s counsel Megan McPhee of Kim Orr Barristers, this case could have successors.

“While the issue in this case is idiosyncratic, we have heard from a number of other universal life policyholders who are experiencing issues with their policies,” she says.

“We’re now looking into their concerns. It’s no secret that declining interest rates have wreaked havoc in the industry.”

The case in question involved life insurance policies that were originally issued by Maritime Life Assurance, which was acquired by Manulife in 2004. Plaintiffs Wendell and Linda Allen sued

iA Financial puts faith in Fintech firm Health Smart Financial The insurance industry’s shift into the digital age continues to gather pace with iA Financial’s recent deal with Fintech firm Health Smart Financial. Health Smart provides credit to customers who are facing expensive medical bills, allowing them to pay loans back on a monthly basis. The firm launched in 2009 and has significantly expanded its roster of providers since then. The equity financing agreement with iA Financial ensures that the lender can continue its expansion across Canada, building on the 1,500 provider locations it currently serves.

“While the issue in this case is idiosyncratic, we have heard from a number of other policyholders who are experiencing issues” for breach of contract, claiming that they were never notified by Manulife about expenses that were being deducted from the accumulation fund of their TermPlus policy until the fund had veered significantly into negative territory. The Allens said they only became aware of the problem when Manulife informed them that their premiums would be increasing substantially in order to sustain the policy. Eventually, close to 170 policyholders joined the classaction suit, and they will now receive reimbursements equal to their accumulation accounts.

Equitable Life announces redesigned website Equitable Life of Canada has launched an update of its plan administrator website, with a new look and new functionality. The new design allows plan administrators to access all of their services and content from a single homepage.

“The design is more user-friendly and easier to navigate,” said Norma Crouse, assistant vice president of claims and administration at Equitable Life. “It allows plan administrators to quickly update plan member changes, perform administrative updates and easily find the documents they need.”

NEWS BRIEFS - LIFE OLHI reports strong performance at annual meeting At its 2016 annual general meeting, the OLHI reported strong performance over the past year.

The complaint resolution service has invested in a new case management system and website, which chair Janice MacKinnon called “a real game-changer.”

Data from the organization’s annual report showed that public contacts in fiscal 2015/16 reached 86,000, which matched historic levels. Complaint investigations, meanwhile, increased by 27.6% over the period.

Industry reached new milestone in 2015, says CLHIA Despite challenging economic conditions, the life and health insurance industry in Canada achieved strong growth in 2015, exceeding $100 billion in premiums for the first time, according to the 2016 CLHIA Fact Book. “The strong performance of the Canadian life and health insurance industry highlights the trust Canadians have in our companies, and that we continue to offer products and services that our customers need and value,” notes Frank Swedlove, president and CEO of the CLHIA. “In particular, this year’s growth was led by the pensions and retirement solutions market.”

Court of Appeal sides with plaintiffs in Transamerica suit The Ontario Court of Appeal has dismissed an attempt

by Transamerica Life Canada (now Ivari) to overturn a previous ruling on a class-action lawsuit over alleged misrepresentation of segregated fund disclosure documents. The lead lawyer in the case believes the decision could have far-reaching implications. “If the case is successful, it would be a message that statements insurance companies make have to be accurate and fair,” said David O’Connor. “I think it would provide a strong incentive for some behaviour modification.”

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21/10/2016 11:26:23 PM

IN DEPTH

The facts of life and health The recently released CLHIA 2016 Fact Book indicates that the Canadian life and health insurance industry is experiencing solid growth, both at home and abroad

THE RELEASE of the Canadian Life and Health Insurance Association’s 2016 Fact Book was pretty revealing, demonstrating just how important the industry has become to a great number of people across the country.

In total, there are 156 life and health insurers in Canada, who paid out $84.2 billion in benefits during 2015, 90% of which went to living policyholders.

It was a boom year for insurance in general – premium revenues passed the $100 billion mark for the first time. That growth was fuelled by pensions and the retirement market.

On the life side, insurers paid out $11.1 billion in benefits in 2015 – $6.4 billion for death benefits and $4.7 billion to living policyholders as disability benefits, cash surrenders or dividends.

Health insurance had even grander numbers: $32.2 billion in benefits last year, a large slice of which ($10.7 billion) was spent on prescription drugs, representing 30% of national spending on drugs.

Not surprisingly, the highest amount of 52

benefits paid out in 2015 was the $40.9 billion that went toward retirement. Canada’s aging population means this number will continue to grow, accelerating a trend that has seen annuity payments on employer-sponsored and individual products increase by 63% over the past decade.

The Fact Book has become a staple of the industry over the years and is a valuable resource for all those who work in life and health insurance in Canada. Its contents are quite comprehensive, breaking down and summarizing huge amounts of data. Noeline Simon, VP of taxation and industry analytics with the CLHIA, explains the process carried

out by CLHIA researchers to develop the annual Fact Book.

“We send out several surveys as part of collecting the information,” she says. “We also have access to companies’ financial filings to the regulator. There is also other public information available through other

“The industry is evolving just like any other business. There is a growing number of retirees, so that market will be a focus. On the health side, rising costs are another area that needs a solution” Noeline Simon, Canadian Life and Health Insurance Association

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21/10/2016 11:26:52 PM

LIFE INSURANCE’S SHARE OF PENSIONS Canada’s pension wealth reached $3.3 trillion at the end of 2014, according to StasCan. That includes $592 billion in assets held by about 16,500 private employer-based plans. Seventy per cent of these small- to medium-sized plans are managed by the life insurance industry.

Private (employer-based plans): $592 billion $131 billion managed by life insurers Total pension wealth $3.3 trillion

Personal (RRSPs, TFSAs, etc.): $1.114 trillion $123 billion managed by life insurers Public (CPP/QPP and government employees): $1.57 trillion

data services.”

One of the more interesting statistics revealed by this year’s Fact Book is the fact that assets in the Canadian life insurance space rose 5.7% to more than $760 billion.

What was notable was the fact that 90% of those assets, or $690 billion, were held in long-term investments, providing muchneeded capital to Canadian enterprise and governments at all levels. At a time when both the domestic and global economy are on unsure footing, this infusion is invaluable in trying to stimulate growth.

Canadian life insurers now operate in more than 20 countries, and Canada-based Manulife, Great-West Life and Sun Life are in the top 15 of life insurers worldwide. Back on the home front, business remains robust – 22 million Canadians own $4.3 trillion in life insurance coverage.

In addition, two-thirds of all private pension plans are managed by the industry.

Given the demographic shift that’s currently underway in Canada, that market is poised to become a highly lucrative sector for life insurers in the years ahead.

“The industry is evolving just like any other business,” says Simon. “There is a growing number of retirees, so that market will be a focus. On the health side, rising costs are another area that needs a solution. In terms of traditional life insurance, be it permanent or term, that is also evolving, with term insurance being much more predominant than permanent.”

Aside from a greying population, how Canadians work has changed markedly in recent years, which is another factor in the industry’s evolution, as Simon outlines.

“Individual and group life insurance are both growing in absolute terms,” she says. “In 2005 the coverage in total was $2.5 trillion – now it’s $4.3 trillion. Individual now is higher than group, and there are a number of factors behind that. A lot more people are selfemployed these days; also, with house prices and mortgages going up, the need to get term coverage increases during your key incomeearning years.”

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21/10/2016 11:26:57 PM

SPOTLIGHT

Investing for the future Michael Lampel explains how a little-known insurance product with a 170-year history will help financial planners survive the generational transfer of wealth

REACHING THE millennial generation has been an ongoing issue for advisors. But while technology is ever-changing and there’s never been more choice when it comes to investment products, some things never change. The strength of the parental bond is one such constant: It’s the same whether you’re a Boomer, Gen X or a millennial.

That was something Michael Lampel realized when he started his own firm, insuranceforchildren, in 2013. Previously an advisor with RBC Dominion Securities, Lampel found himself on a different path after birth of his third child in 2009. While researching investment options for his daughter, he found that Canadians weren’t exactly spoiled for choice. In fact, he found there wasn’t a single company devoted to financial planning for children across the entire country.

That isn’t the case today, however, and Lampel’s firm is currently thriving. His success didn’t require reinventing the wheel; rather, it was a case of marketing a product that has a 170-year history in Canada, but had largely been forgotten – a participating whole-life insurance contract.

“Millennials delayed having children until they were over 30 – delayed, not cancelled,” Lampel explains. “So I created a category of insurance for children in a market nobody was serving. I took a contract that has been there for 170 years and said, ‘Let’s educate the consumer on how this works.’”

Lampel explains the mechanics of the product: “It is a fantastic tax-free investment

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that can only be opened by parents or grandparents, and the child will receive an annual dividend for life.”

The timing couldn’t have been better to launch the Child Plan product. After somewhat of a lull, Canadians were back in the habit of procreating: In Ontario alone, there are 732,000 children under the age of four. By 2020, that is projected to be 823,000.

Another key factor for Lampel was the ubiquitous RESP, a plan he believes doesn’t offer parents much flexibility.

product works so they can relate that to the millennial customer.”

The transfer of wealth between generations is something advisors certainly need to be on top of in 2016 in order to remain relevant, and Lampel is confident that his product can help them achieve that goal.

“Vanguard wrote a paper in December 2014 where they said only 5% of assets would remain with the same advisor after inheritance,” he says. “That’s unless wealth advisors can find a bridge between the two

“I took a contract that has been there for 170 years and said, ‘Let’s educate the consumer on how this works” “The child can use it for education, but if they receive a scholarship or take another path than going to university, then unlike the RESP, with Child Plan, the parents have not just spent 18 years needlessly paying into a program they now have to close,” Lampel says.

Now that his company is established in the space, Lampel has grand ambitions to make Child Plan the first point of call for advisors and parents when it comes to safeguarding a child’s financial future – and education is a key component of that.

“Advisors who want to offer Child Plan must go through our own communications training program,” he says. “It’s a four-day program where we educate them on how the

generations. This is an investment that can be opened by grandparents – they can own it, fund it and then transfer it to their children to hold in trust for their grandchildren, all tax-free.”

The ability to connect three generations is a major selling point of the product, in Lampel’s view.

“The average grandparent today is 64,” he says. “They are not dying anytime soon.

That’s why Child Plan works – grandparents say to us that they don’t want to wait 30 years to give their grandchildren something. It’s a load off the parents’ minds because they know there is an asset that is growing in value from the child’s birth.”

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21/10/2016 11:27:19 PM

FACTFILE Name: Michael Lampel Company: insuranceforchildren Title: President and founder Years in the industry: 9 Not just for kids: “Participating whole-life insurance is a fantastic investment for retirement. I have had people who are 40 years old asking if they can open one. As long as you have a minimum of 25 years left to live, then these are great investments.”

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COVER STORY

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2016 ADVISORS ON

For the second year in a row, Life Health Professional asked advisors to give us the scoop on how well their carriers are performing. The verdict?

While carriers made great strides over last year’s survey, there’s still plenty more to be done

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21/10/2016 11:28:08 PM

THE RESULTS of Life Health Professional’s second annual Advisors on Carriers survey were a mixed bag. Canada’s life and health insurance advisors weren’t shy about airing their grievances. The consensus among our respondents seems to be that there is plenty of room for improvement among insurance providers. And while carriers have certainly made steps in the right direction since last year’s survey, inertia has taken hold in other areas.

On the positive side, advisors made it clear that the major life and health providers have status and brand value enviable across any industry. Premium pricing is another area where advisors believe the carriers have listened to the market and responded in kind.

AVERAGE CARRIER PERFORMANCE

4.2 Reputation

4.0 Premium pricing

3.9 Commission structure

3.8 Claim responsiveness/turnaround time

3.6

The major providers have status and brand value enviable across any industry Not so positive are our respondents’ thoughts on the underwriting process and claims – both need to become more efficient and timely to ensure clients receive a fair deal. The tide also seems to have turned on the need for carriers to embrace technological change, and those that neglect or ignore the benefits of technology will almost certainly be left behind.

It’s a different market out there in the life and health insurance space, with more carriers and a greater range of products than ever before. For advisors, this has an obvious upside, but it can also present a challenge when it comes to moving a client in the right direction.

The message from our respondents on carriers’ performance over the past year is clear: a lot done, but a lot more to do.

Automation

3.6 Overall service (critical illness/disability)

3.5 Underwriting responsiveness/turnaround time

3.5 Overall service (life insurance)

3.5 Fairness in claim adjudication

3.5 Client management

3.3 Marketing support 0

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The life and health insurance industry is undergoing a great period of change at the moment, but one constant will always be the necessity for products that are priced affordably for the general public. This category’s average score of 4.0 out of 5 suggests that carriers have their fingers on the pulse of consumers when it comes to setting premiums at affordable levels.

In last year’s survey, Canada Life featured strongly in this category, taking home the silver medal. This year, the Great-West subsidiary has done one better, winning the top spot for premium pricing. Empire Life and Sun Life also performed well here, capturing the silver and bronze medals, respectively.

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While the big three of life and health insurance in Canada feature heavily in the rankings for carriers this year, that’s not to say there aren’t other options available. One such carrier is Benefits by Design, which received the gold medal from our respondents for its reputation.

The firm has grown from a six-person operation in 1996 to a team of more than 3,000 today. Writing more than $75 million in annual premiums, the firm continues to expand and has developed a stellar reputation in the process.

Joining Benefits by Design on the winner’s podium are RBC Life and Great-West Life, reflecting the increased choice available now that the big banks have entered the market.

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While commissions are a hot-button issue in the wealth management space, in the insurance world, the conversation is somewhat different.

While more and more financial advisors seem to be shifting toward a fee-based model, commissions are still the backbone of remuneration for insurance advisors. This year’s average score of 3.9 indicates that advisors are pretty satisfied with the commission structures in place with carriers across Canada.

Sun Life leads the way in this respect – this year’s gold-medal winner has clearly put emphasis on making sure advisors and brokers are well compensated for their efforts. Joining Sun Life on the winners’ podium are Manulife (silver) and Canada Life (bronze).

PRAISE FOR CARRIERS

“Manulife is the best carrier, as they are always developing new products and technology” “Empire Life has the best renewal philosophy in small group.

Co-operators is also doing well by pooling small business group” “Manulife is way out front with automation, products and excellent marketing support” “Sun Life and Canada Life both have been strong in dealing with complex case scenarios and support” 58

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Insurance is an industry with a long and proud history in Canada – some of today’s carriers have been providing policies since before the country was officially founded – which means carriers can sometimes be slow to embrace change. However, this year’s survey results indicate that insurance providers (both longestablished companies and those relatively new to the space) are taking the issue of automation pretty seriously. Advisors gave carriers an average score of 3.6 out of 5 in this category.

While it’s only been around for a comparatively short 20 years, Benefits by Design has excelled when it comes to automation, earning gold from this year’s respondents. It shares the winners’ podium with two legacy carriers: Sun Life, which earned silver, and Blue Cross, which took home the bronze.

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One key area where time is of the essence is with claims – fast turnaround in this category is key to keeping customers (and therefore their advisors) happy. There was slight improvement on last year’s average score in this category, but advisors as a whole still believe the decision-making process could improve, judging by the overall average score of 3.8 out of 5.

In 2016, the carrier that best understood the importance of a timely response on claims was Desjardins Insurance, which displayed an ability to make decisions more quickly than its competitors. It wasn’t the only firm to excel in this regard: Sun Life added to his medal haul by taking home the silver, while Assumption Life enhanced its reputation with a bronze medal.

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The underwriting process is a frequent cause of headaches for advisors. This year’s middling average score of 3.5 out of 5 shows that underwriting still creates plenty of frustration among our respondents, although that score is a slight improvement on 2015’s result.

That’s not to suggest progress isn’t being made – the performance of gold-medal-winning Empire Life in this category points to an industry that has its ears open when it comes to advisors’ complaints regarding turnaround time. The company climbed two place from last year’s bronze-medal finish, suggesting that it’s put some effort into making more timely underwriting decisions. The same could be said of Assumption Life and Blue Cross, who took the silver and bronze medals in this category.

WHAT COULD CARRIERS DO TO IMPROVE THEIR SERVICE?

“Reduce stop-loss attachment points on small group, fully pool plans under 10 lives and get back into the insurance business. They could also reduce their risk and improve their clients’ plans by integration with Trillium” “Marketing so that products are understandable to non-industry people” “The underwriting/rating on insurance policies” www.lifehealthpro.ca

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The arrival of the banks into the insurance space in Canada didn’t sit well with many insurance advisors. That said, greater competition usually means more product choice and lower prices for the consumer, so the arrival of RBC has proven to be a shot in the arm for the industry.

The insurance branch of Canada’s biggest bank took the gold for client management this year, no doubt by adapting its vast experience in the banking world to the life and health insurance industry. Desjardins, once a credit union co-op but now a mainstay of the insurance space, took the silver medal, while Blue Cross nabbed the bronze – another sign of its growing reach in the life and health insurance industry in Canada.

N CARRIE

20 1

3.5

SO

S

6

Blue Cross

OR

IS

R

ADV

N CARRIE

20 1

6

Average score

SO

S

20 1

Desjardins Insurance

OR

IS

R

MARKETING SUPPORT

ADV

N CARRIE

IS

SO

S

RBC Insurance

OR

ADV

R

6

Another area our respondents thought had plenty of room for improvement is fairness in claim adjudication. Advisors were critical that there doesn’t seem to be set criteria by which carriers determine whether claims are successful or not.

Trying to find unanimity in such a large and complex industry is perhaps impossible, but advisors agreed that they’d still like to see more consistency overall when it comes to claim decisions.

In 2016, Desjardins Insurance stood ahead of the pack in this category, earning the gold medal. The industry’s big hitters are represented on the winners’ podium, too: Sun Life took home the silver medal, while Blue Cross earned the bronze.

N CARRIE

20 1

3.5

SO

S

6

Blue Cross

OR

IS

R

ADV

N CARRIE

IS

SO

20 1

Average score

6

Sun Life

OR

ADV

R

IS

N CARRIE

ADV

SO

CLIENT MANAGEMENT

S

OR

20 1

6

Desjardins Insurance

IS

R ADV

N CARRIE

20 1

ADV

SO

S

OR

S

IS

FAIRNESS IN CLAIM ADJUDICATION

Desjardins Insurance 3.3

While the majority of the categories in this year’s survey showed improvement over 2015, marketing support was one that went in the opposite direction. Marketing was a major bugbear for advisors last year and remains so in 2016. The average score of 3.3 out of 5 is the lowest for any category, indicating that carriers have some work to do when it comes to how they market their products to both advisors and clients.

In doing so, the industry might want to take a look at how Sun Life, Blue Cross and Desjardins are handling marketing support.

This year’s gold-, silver- and bronze-medal winners demonstrate while marketing can be a challenge, there are providers out there that are prospering in this area.

WHAT’S THE BIGGEST CHALLENGE YOU’VE HAD WITH A CARRIER’S SERVICE IN THE LAST 12 MONTHS?

“Failing to respect their own contracts” “Underwriting process” “Now offshore, slow response times, change in client management systems is not being well handled” “Responsiveness”

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R

SO

N CARRIE

R

SO

N CARRIE

R

20 1

20 1

6

6

6

Manulife

OR

S

S

20 1

Canada Life

OR

IS

N CARRIE

ADV

SO

S

6

Sun Life

OR

IS

R

ADV

N CARRIE

IS

SO

20 1

6

Manulife

OR

ADV

R

IS

N CARRIE

ADV

SO

OVERALL SERVICE: LIFE INSURANCE

S

OR

20 1

6

Canada Life

IS

R ADV

N CARRIE

20 1

ADV

SO

S

OR

S

IS

OVERALL SERVICE: CRITICAL ILLNESS/ DISABILITY

Sun Life

WHAT WILL BE THE MOST IMPORTANT ISSUE THAT WILL AFFECT THE ADVISOR/ CARRIER RELATIONSHIP IN THE NEXT SIX TO 12 MONTHS? 42.86%

Average score

3.6

Average score

3.5

Products

14.29% Healthcare is always a major issue in Canada, and for advisors who specialize in that sphere, carriers have a vital role to play. The average score for overall service in the critical illness/ disability sector was a somewhat disappointing 3.6 out of 5 – lower than last year’s 3.8, suggesting that advisors believe carriers still have a long way to go in upping their game.

Our respondents praised Canada Life’s service in this regard, awarding the company the gold medal. Joining Canada Life on the winners’ podium are two other stalwarts of the industry: Manulife earned a silver medal from our respondents, while Sun Life won the bronze.

Service from life insurance companies also dropped in the rankings from last year’s poll, which is broadly reflected in the other categories. While carriers have made improvements in premium pricing and the commission structure, many advisors feel that carriers can and should do a lot better in other areas, such as marketing support and automation. The overall score of 3.5 out of 5 suggests that the industry, while clearly evolving, needs to speed up that process to the benefit of both advisors and clients.

The carriers that understand that need best were Canada Life, Manulife and Sun Life, which took gold, silver and bronze, respectively.

Commissions

14.29% Claim responsiveness

14.29% Underwriting

14.29% Marketing support 0

10

20

30

40

50

WHAT’S THE BEST THING A CARRIER HAS DONE FOR YOU IN THE PAST 12 MONTHS?

“Underwriting cases that are processing. Willing to look at cases in detail and not just be satisfied with a typical response” “Sent out marketing material to existing clients about their policy options” “Paid a claim that contractually did not have to be paid” “Keeping us informed regarding CRM2” “Accepted a block transfer from a poor carrier” www.lifehealthpro.ca

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COVER STORY

The evolution of life and health What the changing face of insurance means for advisors in the wealth management business

GOOD, BUT could be better – that’s a somewhat simplistic overview of our 2016 Advisors on Carriers survey, but a pretty accurate one nonetheless.

Life and health insurance is a vital component of any wealth management plan, and the consensus among advisors is that more needs to be done to improve standards in the industry. Developing a more efficient under-

Awards, believes carriers really need to focus on their strengths rather than trying to cater to everyone.

“The reality is we all need insurance, and that’s not something that is going to go away,” he says. “What we will see over the next couple of years is more consolidation in terms of the product shelf. Some of the carriers are too complex and are offering everything under the

“Some of the carriers are too complex and are offering everything under the sun. I think you will see that won’t be as profitable as it once was, so there will be fewer players in every space” Jason Pereira, Woodgate Financial writing process was a common suggestion among our respondents, as was embracing the digital age. Jason Pereira, the founder of Woodgate Financial and winner of the award for outstanding advisor in the insurance channel at this year’s Wealth Professional

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sun. I think you will see that won’t be as profitable as it once was, so there will be fewer players in every space.”

At the moment, however, that isn’t the case, especially since the introduction of the banks into the insurance space. That development

has made for a pretty crowded marketplace, which Pereira believes is ultimately is not to the long-term benefit of Canadians. “[The banks] are not serious about it,” he says. “When they have had difficult financial times and needed to cut costs, insurance is not their bread and butter. In 2008, when every insurance company was challenged by lower interest rates, we saw RBC pull various life

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message out that all Canadians need to protect themselves, that will make everyone’s life easier in terms of sales.”

The need for speed Another thing advisors generally agree will make everyone’s life easier is widespread adoption of technology by carriers.

“I would like to see a movement towards electronic-based underwriting,” says Sterling Rempel, the founder of Future Values Estate & Financial Planning, which specializes in creative uses of tax-preferred insurance products. “That would speed up the issuing time. As we move more and more into the digital world, there are some growing pains, but I think it’s important to have that available.”

“There are a lot of legacy systems in this industry – some carriers are over 100 years old,” he says. “So I can appreciate how the policy management systems provide a weight that they need to carry. We are seeing them consolidating more of their products onto a single system, and that could speed up service, product changes and answers to inquiries.”

That sentiment is shared by Asher Tward, vice-president of estate planning at TriDelta Financial Planning. “We have a lot of electronic access now for underwriting and to receive policy information,” he says. “Most companies have online portals for clients as well, so I definitely think the industry has made some strides, although not as rapidly as maybe they should.”

“As we move more and more into the digital world, there are some growing pains, but I think it’s important to have electronic-based underwriting available” Sterling Rempel, Future Values Estate & Financial Planning

products that were permanent. To me, that showed a lack of commitment to be a true insurance carrier.”

The flip side of that argument is that the banks have enviable resources, and if directed in the right way, that could mean the expansion of the industry to the benefit of all carriers.

“I have a ‘rising tide raises all boats’ attitude,” Pereira says, “so if the banks can help get the

Being able to harness technology is what will separate the best carriers from the rest moving forward, which is something Rempel is already positioning his business to take advantage of. This has clear advantages, in his opinion – including overcoming the challenges posed by Canada’s vast size.

“A number of the carriers have brought out their processes for non-face-to-face applications,” he says. “We are licensed from BC through to Ontario, so we can’t see all our clients face-to-face, but we have been able to sell insurance in those provinces through telephone, email and Skype.”

All of the major carriers are currently undergoing a seismic shift when it comes to tech capabilities. As a veteran of the business, Rempel understands that there’s some pain involved with this transition, but he’s confident that it eventually will bear fruit for customers and carriers alike.

Coming changes This January, the tax rules for life insurance policies will be revamped, which has major implications for advisors across Canada.

“The carriers have strong headwinds ahead of them,” Pereira says. “With the low-interestrate environment continuing, we are going to see upward price pressure. Also, with some of the changes that will take effect with universal life next year on prescribed annuities, some of these strategies are no longer as tax beneficial as they were before.”

Tward agrees that 2017 is shaping up to be a challenging year for both carriers and advisors in the life and health insurance space. “[The new rules] will change how we use products for our clients, especially in corporate situations,” he says. “Also, it will impact pricing – it already has. As advisors, we definitely have some headwinds regarding tax and the changes that will have on pricing.”

www.lifehealthpro.ca

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SPECIAL PROMOTIONAL FEATURE

Transfer of power A veteran and a newcomer in the industry discuss how important it is to attract younger talent

CANADA HAS an aging population, and the implications of the coming demographic shift will be a key concern for governments for generations to come. The wealth management business is a microcosm of what’s happening in the country – finding new talent to replace advisors on the way out has been a problem for quite some time now. The dearth of younger advisors has meant the industry as a whole has struggled to reach the millennial generation.

Sam Albanese is the head of the Centre for Financial Services at Seneca College, and as someone who has been tasked with preparing the next generation to enter the financial industry, he is concerned about its failure to attract young talent.

“It doesn’t apply to every organization – Investors Group, for example, they are

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constantly recruiting,” he says. “It is the same for London Life and Sun Life in life insurance.

Really, it is more the independent channel where this problem with demographics is, but that’s the largest piece of the market.”

A veteran of the insurance business for more than four decades, Albanese came into a very different industry than the one that exists today.

“In the old days, everybody represented a big company; it was Montreal Life in my case,” he says. “These companies were manufacturers of products, but also distributors through their own branches. Part of a branch manager’s job was bringing in new blood, so we had people coming in fairly regularly.”

That all changed as the 1990s rolled in and the major players decided they could cut costs dramatically with a new distribution

model. That decision had a far-reaching and unwanted side effect, however.

“Companies started to move their products through the independent channel, so they shut down their branch offices,” Albanese explains. “The MGA system came into being, but they are not recruiters, and we now face a situation where we have a bunch of older people and very little new blood in the ranks.”

It’s a phenomenon that Albanese hoped to remedy when he established the Centre for Financial Services 11 years ago. The future well-being of the industry is dependent on its ability to attract new customers, and he believes the best way to do that is through younger advisors and agents.

“Older advisors are not going after the younger crowd,” he says. “The number of sales and the number of people getting insured has been in decline. There’s not as many agents in [the 30 to 50 age group], so they are not being as serviced as well as they should be.”

One example of the new talent that the industry so desperately needs is Sam Waxman. Just 28 years old but already running his own shop, Waxman explains the impetus behind his decision to start Millennial Financial Group in 2014.

“We started Millennial because we thought there was a gap in the market for younger advisors and for a younger clientele,” he says.

“The struggle that some older advisors may have is that they are stuck in their ways. What worked 10 or 20 years ago is not necessarily what will work today.”

Being able to create that bridge between veterans and new advisors is something Waxman is quite familiar with. While a family connection spurred his interest in the business, he hasn’t hesitated to reach out to other industry partners for support and advice.

“I’m second generation – my father was also in the insurance business,” he says. “My MGA is Gryphin Advantage, and they have a lot of successful advisors that not too long ago went through the same struggles in entering the business. They have been very good to me, helping me get over some of the big humps in the industry.”

www.lifehealthpro.ca

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