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ETFs ON THE RISE Where is the ceiling for Canada’s new favourite investment vehicle?



Why one firm is doubling down on this segment of the population

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What your competitors are wearing, driving, earning and saving

INDUSTRY TRENDS What’s in store for fixed income, ETFs, mutual funds, alternatives and more in 2017?

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Still investing in average? Investing isn’t about achieving average. It’s about achieving goals. Simply tracking a traditional benchmark may not do the trick. Invesco doesn’t settle for average. We believe you should look beyond traditional benchmarks to high-conviction investing. Think beyond average. Visit

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ISSUE 4.10

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


24 Canada

UPFRONT 02 Editorial

Predicting the future isn’t as easy as it looks



One of Canada’s newest ETF providers weighs in on whether the sector can keep growing


04 Head to head

Alternatives are gaining ground among retail investors

06 Statistics

Canada is a world leader in financial literacy – but is that a detriment to advisors?

08 News analysis

The CSA’s attempts to streamline regulations are getting plenty of industry pushback

10 Intelligence

This month’s big movers, shakers and new products

12 Alternative investment update

Private debt fundraising in Europe hits a five-year low



Wealth Professional dusts off the crystal ball and speaks to some industry experts about what you can expect in 2017 for ETFs, mutual funds, fixed income and more



Genus Capital Management’s Stephanie Tsui reveals how her firm is catering to high-networth Asian investors


14 ETF update FEATURES

LIFE AND TIMES OF A FINANCIAL ADVISOR Wondering whether your peers drive a nicer car or hit the gym more often? Find out here


The explosive ETF market has drawn regulatory attention in the US

16 Opinion

A new report arguing for embedded commissions misses the mark

PEOPLE 34 Advisor profile

Tate Financial’s Steve Tate discusses his shift to a global perspective

47 Career path

Carol Lynde embraces the relationshipbuilding side of wealth management

48 Other life

Inside the dojo with Mary Hagerman FEATURES


Philanthropy isn’t just about feeling good – it’s also smart business


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18/11/2016 6:51:39 AM



The 2016 crystal ball malfunction


hen looking back on 2016, historians will note that it wasn’t the best of years for those in the prediction business. First Brexit, then Trump – pollsters, bookies, economists, market analysts and most of the mainstream media all failed pretty spectacularly when it came to reading the tea leaves. UK voters electing to leave the European Union was pretty shocking; Donald Trump winning the US presidency was even more so. Trump’s victory will undoubtedly have the greater implications for Canada, given the geographical, cultural and financial ties the neighbouring countries have. While international reaction to the election result was largely negative, there could be some benefits for this country in having the real-estate tycoon turned reality TV star in the Oval Office. The oil patch in particular could be in line for a boost, given the president-elect’s support for fossil fuels: It appears the Keystone pipeline, previously rejected by the Obama administration, could now be back on the table.

While Trump’s victory may yet prove beneficial for the mutual fund industry, that certainly hasn’t been the case for the bond markets For those in the advisory business, things are much less certain. In the US, the soon-to-be enacted fiduciary rule from the Department of Labor, which requires advisors to put their clients’ interests first, could be headed for the chopping block. Hedge fund manager Anthony Scaramucci, one of Trump’s key advisors on financial matters, said before the election that the GOP candidate would repeal the fiduciary standard. In Scaramucci’s view, the regulation would compel investors to move away from mutual funds and into low-cost, passive ETFs and index funds. While Trump’s victory may yet prove beneficial for the mutual fund industry, that certainly hasn’t been the case for the bond markets, at least in the early stages. With inflation expectations firmly in mind, the three days following the election saw more than US$1 trillion wiped off the value of bonds globally. On the campaign trail, Trump stated that, if elected, he would instigate a massive stimulus plan to rebuild American infrastructure. Whether the proposed US$500 billion-plus program will actually come to fruition is far from certain, however. With a spending-averse Republican-controlled Congress, Trump’s grand plan requires most of the investment coming from the private sector, using tax cuts as an incentive. Will that carrot be enough to attract the required funds? These are interesting times we are living in, to say the least. The team at Wealth Professional ISSUE 4.10 EDITORIAL


News Editor David Keelaghan

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When two parties’ interests are mutually aligned, they are said to be “all in the same boat.” Ever notice our logo? Everyone says they put their clients’ interests first, but at Vanguard Canada, it’s deeper than that. Our parent, The Vanguard Group, Inc., is owned by Vanguard’s U.S. funds and ETFs. Those funds, in turn, are owned by their investors. This unique mutual structure aligns our interests with those of our investors and drives our culture, philosophy and policies throughout the world. WE’RE IN IT TOGETHER Commissions, management fees, and expenses all may be associated with investments in a Vanguard ETF®. Investment objectives, risks, fees, expenses, and other important information are contained in the prospectus; please read it before investing. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. Vanguard ETFs® are managed by Vanguard Investments Canada Inc., an indirect wholly-owned subsidiary of The Vanguard Group, Inc., and are available across Canada through registered dealers. © 2016 Vanguard Investments Canada Inc. All rights reserved.

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Have you relied more on alternatives in 2016? Once the province of high-net-worth investors, alternative investments are now bringing diversification to retail investors

President and senior financial planner Pangea Personal Financial Planning

Victor Godinho

Co-founder and managing director Financial Literacy Counsel

Bobby J. Ning

Martin-Charles Plouffe

“At Pangea, our open architecture platform has always included alternative investment options. However, with the current state of the equity market and the level of uncertainty, we are actively sourcing more alternative deals in which our clients can participate. Most recently, a few opportunities brought to the table include commercial and residential real estate investments. A large part of the reasoning behind this transition is to be involved in investments where we as a firm have more control. Our clients are very receptive to our transition to more alternative investments.”

“In the current environment, I have been focusing on reviewing the basic tenets of financial planning to help establish what is important to the client today. It has led my practice to seeking alternatives that would better match the client’s goals and needs. As attractive as it may be to seek alternatives, I want to emphasize the importance of preserving capital and growing income in any market environment first and foremost, as many of our clients expect us to manage the risk first. The clients know how to make money; it is our responsibility to help nurture and protect it.”

“Alternative investments are an integral part of my portfolio models – between 5% to 15% of asset allocation. Most of the time, I include structured products, or investment products with formula-based returns that are linked to an underlying asset. They aim to provide risk-adjusted returns superior to those of the traditional investment approach and can be customized to fit investors’ and portfolios’ specific view and risk tolerance. Structured products can be used to enhance yield, protect capital, generate superior returns in flat market environments and/or improve diversification by accessing specific markets.”

Wealth management advisor National Bank Financial

THE LURE OF THE ALTERNATIVE Alternative investments – assets that don’t fit into the more traditional mould of stocks and bonds – can include such items as commodities, precious metals, and, these days, Bitcoin and its ilk. The disconnect these assets enjoy from the stock market adds a comforting element of diversification that seems to offset capricious conditions. Conversely, the prospect of a rate of return that’s much greater than what the conventional markets can offer is a strong lure for even the most conservative investor – perhaps most notably, the stellar performance of certain cryptocurrencies has offered an object lesson in the mesmerizing possibilities.


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The smart money

Canada 61%

Canadians know a lot about finances, but often they don’t know when to consult a professional CANADIANS ARE better financially informed than most of their peers around the world; however, the proportion of Canadian investors who consult an independent source of information – such as an advisor – before buying a financial product is low. That’s the message from the OECD/INFE International Survey of Adult Financial Literacy Competencies, which surveyed consumers in 30 countries.


Canadian respondents fared well in the survey, which evaluated attitude and behaviour, as well as knowledge, but revealed that they didn’t find it necessary to seek the advice of a professional before purchasing a financial product. While almost 60% reported attempts to gather information ahead of making a commitment, only 19% said they sought out independent advice first.


Canada’s financial literacy score, out of a potential 21

Canadians who rate feeling secure as their top financial priority


Canadians considered ‘active savers’


BANKING ON FINANCIAL LITERACY Canada came in near the top of the pack in terms of financial literacy –nearly two-thirds of Canadians correctly answered at least five out of seven questions about concepts like inflation and interest rates. A high proportion of Canadian men (72%) passed the financial literacy test, while Canadian women turned in a noticeably poorer performance (50%).

Canadian respondents who say they set long-term financial goals

Sources: OECD/INFE International Survey of Adult Financial Literacy Competencies, October 2016; Capital One Canada survey, November 2016



When asked whether an investment with a high return also carries a high risk, Canadian respondents showed a better understanding of the correlation between risk and return than the average across all countries.

When the scores for financial knowledge, behaviour and attitude were combined – with a potential score of 21 from a maximum of 7 for knowledge, 9 for behaviour and 5 for attitude – Canada was one of the most financially literate economies surveyed.





Average, all countries

83% Average, OECD countries Source: OECD/INFE International Survey of Adult Financial Literacy Competencies, October 2016


France Finland Canada Norway Hong Kong/China New Zealand Korea Belgium Austria Portugal Lithuania Knowledge score

14.9 14.8 14.6 14.6 14.4 14.4 14.4 14.3 14.2 14.0 13.5 Behaviour score

Netherlands Estonia Latvia United Kingdom British Virgin Islands Thailand Albania Jordan Czech Republic Turkey Hungary

13.4 13.4 13.3 13.1 13.0 12.8 12.7 12.6 12.6 12.5 12.4

Attitude score Source: OECD/INFE International Survey of Adult Financial Literacy Competencies, October 2016

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Finland 70%

Lithuania 60%

Latvia 67% France




Georgia Portugal







Turkey Belgium



Czech Republic 52%

Hong Kong/ China 84%


66% Thailand

New Zealand










South Africa 31% Source: OECD/INFE International Survey of Adult Financial Literacy Competencies, October 2016

SHOPPING AROUND Of the Canadians who had chosen a financial product, more than half sought out information prior to purchasing. However, the percentage of those who consulted independent sources of information, such as a financial advisor, was much lower.

Canada Some information Independent information

58% 19%

UNDERSTANDING DIVERSIFICATION Canadians seem well aware of the benefits of diversification, scoring slightly above the global average when asked whether buying a wide range of stocks can help reduce risk. RESPONDENTS WHO CORRECTLY ANSWERED A QUESTION ABOUT DIVERSIFICATION


Average, all countries Some information Independent information

62% 19%


Average, OECD countries Some information Independent information

63% 20%





Average, all countries

Average, OECD countries


Source: OECD/INFE International Survey of Adult Financial Literacy Competencies, October 2016

Source: OECD/INFE International Survey of Adult Financial Literacy Competencies, October 2016

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Regulation and mediation The CSA is trying to find agreement among the industry’s various regulatory bodies on a best interest standard, but that’s easier said than done

CANADA’S SYSTEM of securities regulation, with its various provincial and national bodies, is often criticized as a convoluted mishmash. Sitting at the top of that pyramid and trying to maintain order is the Canadian Securities Administrators [CSA], which has the unenviable task of finding consensus and trying to knit the industry together. The consultation paper it published earlier this year is a perfect case in point. Released in April, CSA Consultation Paper 33-404 is a series of proposals that seeks to clarify and expand the obligations financial professionals have toward their clients. These obligations include the identification of and response to material conflicts of interest, knowing your client and product, suitability, relationship disclosure, proficiency, and titles, among many others.

process of hosting roundtable discussions across Canada in an attempt to find a path forward that everyone agrees upon. That’s easier said than done, but progress is being made, says Cary List, president and CEO of the Financial Planning Standards Council. “In fairness to the CSA, they put out some bold ideas to get feedback,” he says. “They are not married to what is in the paper.” One of those ideas relates to the myriad designations available for advisors seeking to boost their expertise. It makes for a confusing mix of acronyms and abbreviations, and confusion is something the CSA is trying to limit with its latest efforts. List agrees that clarity is king, especially when you’re dealing with a person’s finances. “A consumer going to an advisor needs to know they are going to someone who is

“It’s confusing to understand where the different regulators are going and if they are all moving on the same track” Ian Russell, Investment Industry Association of Canada The paper also proposes a regulatory standard that would compel advisors to act in their clients’ best interests. That might sound like common sense, but as is always the case, the devil is in the details. The wording of CSA Consultation Paper 33-404 has divided the various provincial bodies, so the national umbrella organization is in the


competent, qualified and ethical,” he says. Ian Russell is president and CEO of the Investment Industry Association of Canada [IIAC] and a strong advocate for greater transparency among regulators. As he explains, however, the amount of different regulatory bodies out there makes finding definitive answers a difficult pursuit.

“It’s confusing to understand where the different regulators are going and if they are all moving on the same track,” he says. “The best interest standard is an example – the CSA thinks there is a need for a comprehensive rule across the advisor space. What IIROC has essentially said is that it’s not necessary. It already has a rule for conflicts of interest, and it has said it will develop guidelines to assist members to follow that rule.” The Investment Industry Regulatory Organization of Canada [IIROC] is another body under the CSA umbrella, as is the Mutual Fund Dealers Association of Canada [MFDA], and both have their own ideas when it comes to industry standards. In October, the MFDA proposed rule amendments that would set minimum proficiency requirements for mutual fund reps who want to identify themselves as financial planners.

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FAST FACTS ON THE CSA CONSULTATION PAPER Consultation Paper 33-404 is a set of proposals to enhance the obligations of advisors, dealers and representatives toward their clients It builds on 2012’s CSA Consultation Paper 33-403, titled “The Standard of Conduct for Advisors and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice Is Provided to Retail Clients” Roundtable discussions will take place in December in Toronto, Halifax, Montreal and Calgary, representing the Ontario Securities Commission, Nova Scotia Securities Commission, Autorité des marchés financiers and Alberta Securities Commission When the paper was introduced in April, only the Ontario Securities Commission and the Financial and Consumer Services Commission of New Brunswick were in support of a regulatory best interest standard The issue of titles – and, more specifically, just who is qualified to call themselves a financial advisor – was another key component of the CSA’s consultation paper. It’s also something Russell believes urgently needs to be addressed.

clear what each person is doing. The second bucket is more honorific – vice-chairman, executive vice-president – and these are confusing, too.” These appellations may look good on a business card, but they often leave consumers

“If you take the CSC and get your securities licence, that doesn’t automatically mean you can call yourself an investment advisor” Cary List, Financial Planning Standards Council “There is an array of titles that really fall into two buckets,” Russell says. “One is functional – financial advisor, investment advisor, portfolio manager, sales representative. They can be confusing because it’s not

in the dark as to what expertise or qualifications that professional may hold. This has to change, says the FPSC’s List, who outlines what he would like to see happen when it comes to regulation and

standards in the industry. “If you take the CSC and get your securities licence, that doesn’t automatically mean you can call yourself an investment advisor,” he says. “The securities commissions and the CSA would be well advised to start being more restrictive on who can call themselves what.” To achieve that, cooperation and an ability for the different bodies to consult each other is key. That’s why List believes the CSA’s roundtable discussions are a major step in the right direction. “There are a number of bodies that are working independently, but through the CSA, we should try bring this together,” he says. “The MFDA [or other groups] coming up with their own rules is not the best solution at this point. It needs to be a coordinated, sweeping reform.”

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18/11/2016 6:46:12 AM





Canaccord Genuity Group

LePoidevin Group

LePoidevin Group will complement Canaccord’s wealth management division with its economic expertise and deep client relationships

Interactive Investor

TD Wealth Holdings (UK), TD Bank International (Luxembourg)

TD Bank has agreed to sell its European direct investing business to the online platform so it can concentrate more on its core operations

Ontario Teachers’ Pension Plan

Constellation Brands Canada

OTPP’s acquisition of Constellation Brands Canada, the leader in Canada’s wine market, represents a valuable inroad into a lucrative consumer market




Echelon Wealth Partners

Shaunessy Investment Counsel

Echelon will gain access to SIC’s expertise in diversified, balanced, high-quality active ETFs for ultra-high-net-worth family offices and trusts

Royal Bank of Canada

University of Toronto

The partnership between the bank and the educational institution aims to foster Canadian research in machine learning and artificial intelligence

Innovative fintech-focused fund announced

Portag3 has made public the launch of the Portag3 Ventures Fund, led by Adam Felesky, cofounder and former CEO of Horizons ETFs, and Paul Desmarais III, a vice-president of Power Financial Corporation. Exclusively backed by a corporate partnership between Power Financial Corporation, IGM Financial and Great-West Lifeco, the fund aims to encourage entrepreneurship in the fintech sector by making early-stage investments in companies with the potential for innovative change and global impact. “We are looking for creative ideas that have great potential,” Felesky said. “Our vision is to be long-term partners in the businesses we invest in.” launches new platform for foreign investment in Canada, a newly launched platform for foreign investment in Canada, aims to encourage sustainable and responsible overseas investment in the country. Operated by Privest Wealth Management and co-founded by Gravitas Ilium Capital Corporation COO Max Guo, is designed to connect Canadian businesses to affluent investors in both China and Canada. While real estate has been a popular investment for Chinese buyers, Guo said the site is looking to expand into other spaces such as internet or Fintech businesses. “I think Chinese-Canadians here feel really underserviced,” Guo said, “and the story on the other side is that they want to participate in the economy by more than just real estate.” Launched in both Chinese and English, offers users institutional-quality Canadian financial products, which will be conservative enough to appeal to Chinese-Canadians’ appetite while providing more direct benefits to the Canadian economy via direct investment in businesses.


Excel Funds announces discount series

Excel Funds has launched series D units for five of its mutual fund strategies, including its flagship Excel India Fund, the Excel High Income Fund, the Excel Emerging Markets Fund, the Excel Latin America Fund and the Excel EM Blue Chip Balanced Fund. Applicable units will allow those who invest via discount brokerages to get exposure to stocks and bonds that trade outside the North American market, which are not readily available to Canadian investors. “[Do-ityourself investors] will now have access to some of our top-rated products at a much better price point,” said Bhim D. Asdhir, president and CEO of Excel Funds.

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PEOPLE NEI Investments launches new seniors-oriented fund

NEI Investments has introduced the NEI Generational Leaders Fund. Unique to Canada, the fund aims for long-term capital growth by targeting investments around the world that would benefit from rapidly aging populations. Possible sectors include wealth, longevity, lifestyle and personal care. While the fund focuses on older generations by investing in industries that target younger seniors (65 to 80 years old) and the elderly (older than 80), no age restriction applies to its investors: Baby Boomers, Gen Xers and even millennials have an opportunity to participate in the fund.

Mackenzie offers new tax-efficient offerings

Mackenzie Financial Corporation has strengthened its Corporate Class product shelf with four new mutual funds: the Mackenzie Canadian Growth Class Fund, the Mackenzie Canadian Growth Balanced Class Fund, the Mackenzie Ivy Canadian Balanced Class Fund and the Mackenzie Ivy Global Balanced Class Fund. Mackenzie designed the new investment solutions to reduce and defer taxes for Canadian investors. “Despite the changes announced by the federal government last March, corporate class funds still offer the potential for tax-efficient growth and tax-efficient income,” said Michael Schnitman, SVP of product at Mackenzie Investments.

New Sun Life products provide alternative yield

Sun Life Institutional Investments has launched the Sun Life Short Term Private Fixed Income Plus Fund, a product that aims to provide Canadian institutional investors with short-term private fixed income. Addressing clients’ near-term need for higher returns, it will seek higher-yielding assets via Sun Life’s market position and developed investment franchise in private fixed income and commercial mortgages. Investing in a diverse basket of short-term private and public fixed-income and floating-rate assets, the fund will be benchmarked against the FTSE TMX Canada Short Term Corporate Bond Index.





Gregory Chrispin


Desjardins Group

Executive vice-president of wealth management and life & health insurance; president and COO of Desjardins Financial Security

Kevin Cowan


Capital Markets Authority Implementation Organization

Chief regulator

Brady Fletcher

Sea to Sky Equities

TSX Venture Exchange

Managing director

Adena Friedman



President and CEO

Michael Lampel




Hany Naguib

Bank of America Merrill Lynch


Canada sales head, treasury and trade solutions

Frank Techar


BMO Financial Group


Larry Tomei


HSBC Bank Canada

Executive vice-president and head of retail banking and wealth management

HSBC Bank Canada welcomes new unit head HSBC Bank Canada has appointed Larry Tomei to the position of executive vice-president and head of retail banking and wealth management. Tomei previously worked at CIBC for 22 years, where he most recently held a senior vice-president position. He was assigned to increasingly high-ranking roles across a variety of divisions, through which he gained experience in retail, business, mass affluent and Asian banking. “[Tomei’s] depth of experience in Canadian retail and wealth management, with an emphasis on service, will be valuable in driving our efforts to make the business simpler, faster and more efficient for our customers,” said Sandra Stuart, president and CEO of HSBC Bank Canada.

Desjardins Group announces new executive VP Desjardins Group recently named Gregory Chrispin as executive vice-president of wealth management and life and health insurance. Chrispin will also serve as president and COO of Desjardins Financial Security. A Desjardins employee since 2010, Chrispin previously served as vicepresident of investments, where he was in charge of all of Desjardins Global Asset Management’s activities. Under his leadership, the sector underwent significant growth, amassing $80 billion in AUM. Chrispin’s professional career includes stints in insurance and the special­ ized investment product industry. He is currently an associate of the Society of Actuaries, as well as a member of the CFA Institute.

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Europe-focused fundraising slumps Amidst big changes in Europe, private debt funds have struggled to match previous levels of capital

and private debt funds – have surpassed the levels seen in 2015. “There has been a notable decline in direct lending that has contributed to a general slowdown in fundraising activity focused on Europe,” says Ryan Flanders, head of private debt products at Preqin. “It is unsurprising, given the intensely competitive fundraising landscape, that fund managers are having to work harder and spend longer marketing their

“The downturn in fundraising may act as a sign of a changing environment”

Private debt fundraising in Europe was down significantly this year after five consecutive years of annual increases. Funds have secured US$17 billion of investor capital this year, down from the US$33 billion raised in 2015. While the number of funds closed so far this year (28) is not far below the 2015 total (37), the aggregate capital raised is far off the pace of the previous year. Between 2010 and 2015, Europe-focused fundraising has almost matched North America totals; 2016,


however, marks a step backwards, as 55 North America-focused funds reached a final close of $27 billion. Direct lending represents the largest sector of the Europe-focused private debt market; however, the strategy has seen a notable downtick in the region in 2016, with 11 funds raising $6.3 billion, compared to 17 funds that raised $20 billion in 2015. Conversely, distressed debt funds were down only slightly from 2015, and certain strategies – including special situations funds

Franklin Templeton releases alternative strategies fund

Franklin Templeton has released its Franklin K2 Alternative Strategies Fund, which promises qualified retail investors access to top-level hedge fund managers. The managers will use a diversified portfolio of strategies to help the fund achieve attractive risk-adjusted returns, reduced portfolio volatility and decreased correlations to traditional asset classes. “We are pleased to open this fund to Canadians who are looking for an investment that can potentially reduce volatility,” said Franklin Templeton managing director Duane Green.


funds, and the downturn in fundraising may act as a sign of a changing environment.” Intermediate Capital is the largest Europebased private debt fund manager both in terms of capital raised in the past 10 years ($18.7 billion) and estimated dry powder ($9.1 billion). In Europe, six of the 10 largest firms by dry powder, and five of the top 10 firms by capital raised, are located in London. “Following the recent regulatory and border currency changes in Europe, the coming years will be telling in measuring the impact on intercontinental private financing and the global debt market,” Flanders says. “However, for the time being, it seems Europe-focused private debt fundraising has a chance to finish off 2016 with strong figures, considering more than $36 billion is currently sought for opportunities in the region by funds in market.”

Infrastructure spending presents opportunity

Canadian construction firms and pension fund managers see opportunities from increased federal infrastructure spending, even though projects approved in the last year have been slow to get off the ground. Finance Minister Bill Morneau has said Ottawa will add $81 billion in spending over 11 years, raising total federal infrastructure spending to $187 billion through 2028. “The most important part of those announcements is the confidence [it gives] long-term,”’ said Teri McKibbon, CEO of infrastructure developer Aecon.

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Ken Heinz

Low returns are driving investors to hedge funds


Years in the industry 25 Fast fact In the third quarter of 2016, hedge fund assets worldwide rose to $2.972 trillion, an increase of $73.5 billion from the prior quarter

It’s been a good year for the alternative space, particularly hedge funds. You had a record for the third quarter?

– things like M&As, distressed situations, shareholder activists, those type of events.

Yes, we had a record number of assets, which increased to just shy of $3 trillion.

Net redemptions are also at their highest level since 2009. It was obviously quite a different investment environment then compared to now. Why do you think this is happening now?

What do you attribute this increase to? It’s a combination of performance and investor capital flows. The performance-based asset increases were actually over $100 billion, and that was netted against $28 billion in outflows.

Are there certain regions that have had a strong 2016? When we talk about regions, we talk about where the manager is investing the capital, not necessarily where the manager is. Some regions that are relatively small in terms of capital have had outstanding years – the two that jump out are Latin America and Russia. The Bovespa (Brazil) is off the charts this year, up 26%; Russia is up almost 20%.

What funds in particular have been performing well this year? The leaders so far for the year are event-driven strategies

Brookfield takes advantage of asset sales in India

Brookfield Asset Management, Canada’s largest alternative asset manager, is seeking new investments in Indian infrastructure as companies in the South Asian nation pare assets to reduce debt. Indian firms are facing decreased access to capital as the country’s central bank pushes lenders to address stressed loans on their balance sheets, said Anuj Ranjan, managing partner and regional head of the Middle East and South Asia at Brookfield. Instead of borrowing, firms are considering asset sales to help reduce debt and increase liquidity.

The Hedge Fund Research Index is up about 4.25% at the moment, which should annualize to about 6%. It is a little bit below where US equities are for the year, but it’s catching up fast. Last year the index actually ended up down for the year. What you are seeing this year is a combination of a response to [a disappointing] 2015, and the fact that investors generally are very frustrated with low interest rates making it so difficult to make a required rate of return. They are looking at different ways to make those returns, so they are relocating capital.

Do you think these drivers will carry through into 2017? US equities are at record highs, so people are being very cautious, and that is driving more people to look at alternatives as a component for their portfolios. They are concerned about equities being near record highs and fixed-income yields at record lows, so people will be looking at making some allocations in hedge funds.

Private equity brings buy-and-flip methods to pharma

Private equity buyers are targeting aging pharmaceutical products to buy and sell on at great profits, says a leading academic. Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota, says the flippers usually identify drugs with little competition. “They’re taking advantage of a dysfunctional market,” he says. Actimmune, Denavir and Dutoprol are among dozens of drugs bought with private financing in the past six years that have seen three- and four-digit price hikes.

CPPIB invests in Chinese property fund

The Canada Pension Plan Investment Board has invested $375 million in CapitaLand’s latest China property fund, which will invest in gateway cities in China. CapitaLand, Singapore’s largest developer, will have a 41.7% stake in the fund, while the CPPIB will take 25%. “Investing in CapitaLand’s new China investment vehicle gives CPPIB the opportunity to expand on our long-term strategy of investing in highquality commercial real estate in China to deliver solid risk-adjusted returns,” said CPPIB managing director Jimmy Phua.

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ETF UPDATE NEWS BRIEFS Buyback-focused ETFs come to Canada Canadian investors now have the opportunity to invest in buybackfocused companies via two ETFs. The First Asset Canadian Buyback Index ETF and First Asset US Buyback Index ETF outdid broad market indexes over 15 years ending on Sept. 30, earning 11% annual returns compared to 8% for the S&P/TSX Composite. The ETFs’ impressive performance comes from their concentration on companies that buy back their own stock from the open market. Buyback ETFs have been available in the US for about a decade. “We think there is a lot of credence to a buyback strategy,” National Bank Financial ETF analyst Daniel Straus told the Globe and Mail.

New resourcelinked ETF launched Leading alternative investment manager Auspice Capital Advisors has announced the launch of a Canadian Natural Gas Index ETF (GAS) and a Canadian Natural Gas Index (CGI). Together, they allow investors and market participants to actively track and speculate outright on the price of Canadian natural gas. GAS and the CGI are the only ETF and retail benchmark globally tied to Canadaproduced natural gas. “Canada is the largest foreign supplier of natural gas to the US,” said Tim Pickering, founder and CIO of Auspice Capital Advisors. “As such, it is important for investors to be able to accurately track and capitalize on the commodity’s performance.”

Montreal firm introduces emerging markets fund

Gestion Férique has announced the launch of the Férique Emerging Markets Fund, a growth-oriented portfolio that achieves emerging-


market exposure by investing in the NEI Northwest Emerging Markets Fund and the TD Emerging Markets Fund. “Investing in these two underlying funds enables us to offer a diversified investment product with a very competitive management expense ratio,” said Louis Lizotte, VP of investment management at Gestion Férique. “In addition, we can remain faithful to our multi-manager approach while optimizing our costs, which is a net advantage for our investors.”

Are smart beta ETFs about to collapse? Robert Arnott of Research Affiliates, who created the strategy of fundamental indexing, has warned of a “smart beta crash” in the not-too-distant future, according to a Financial Post report, cautioning that excessive fund flows into ETFs that focus on specific factors could skew performance. However, author Yves Rebetez pointed out that, unlike passive index investing, wherein the reaction to crash warnings is for investors to lower their exposure, smart beta ETFs can employ several different mechanisms to regain altitude before crashing.

First Asset unveils new index ETF products First Asset Investment Management has launched three new ETFs: the First Asset US Tactical Sector Allocation Index ETF (FUT), First Asset Canadian Dividend Low Volatility Index ETF (TSX: FDL) and First Asset US Equity Multi-Factor Index ETF (TSX: FUM). All three have begun trading on the TSX. “This is a unique opportunity for investors to benefit from a range of quantitative indices designed by one of Canada’s leading index strategy teams, while also enjoying the benefits of the ETF structure, including transparency, tax efficiency, liquidity and low cost,” said First Asset president and CEO Barry Gordon.

US ETF growth to come under microscope The huge growth of ETFs has put the US Securities and Exchange Commission on high alert A report in the Financial Times reveals that the US Securities and Exchange Commission is preparing to review the ETF industry in light of concerns that massive inflows into the space may be exacerbating volatility in financial markets. ETF research authority ETFGI has reported that US assets in ETFs hit US$2.4 trillion at the end of the third quarter; globally, ETF assets were at $3.3 trillion. An estimate from Credit Suisse pegs ETFs’ contribution to the value of all US shares traded at 30%. ETFs were at the centre of wild equity trading in August 2015. In one session, more than 1,000 securities were suspended from trading for sharp moves, and some ETFs veered steeply from their net asset values. The chaotic trading highlighted how interconnected ETFs are with the underlying stocks, as well as the futures market. The SEC has done “bits and pieces” of examination, according to a person familiar with the matter, but is anticipated to scrutinize every aspect of the industry and the ramifications of its expansion. Another source reported the creation of an ETF working group, which consisted of at least a dozen people from across the SEC’s divisions, about a year ago. Issues to be examined vary, ranging from the implications of ETF flows dictating an ever-increasing share of the US stock market, to structural concerns around

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ETFs that track bonds. The meteoric rise toward passive investment products like ETFs has been accelerated by dissatisfaction with mutual funds, which has been driven by their underper-

“Further regulatory steps beyond additional disclosures may be needed to address some of these issues” formance and high fees. Although newer incarnations of ETFs offer “smart beta,” promising portfolio rebalancing and diversification based on specific investment factors, most ETFs only seek to replicate the return of a market, like US stocks, bonds or oil. Many investors have benefited from the speedy growth of ETFs, which allow them to spread their investments more cheaply, but the increasing size and complexity of the industry has raised concerns. SEC chair Mary Jo White expressed as much in a speech she delivered in May, where she highlighted the industry’s “astounding” growth and hinted at a wider examination of its implications. “The SEC has taken a number of initial actions to share our thinking on these issues,” she said, “and further regulatory steps beyond additional disclosures may be needed to address some of these issues.” The US regulator has already moved to rein in so-called leveraged ETFs, vehicles that use derivatives to increase returns, and singled out ETFs in general for “enhanced attention” in the wake of last August’s stock market slide.

Michael Kovacs

Canada’s latest ETF player


Why has Harvest decided to join the ETF space now?

Years in the industry 28 Fast Fact In converting four closed-end funds into ETFs, Harvest Portfolios Group has become the 18th ETF provider in Canada

From what our research is telling us, we are seeing a larger move by retail investors into ETFs. The first $70 to $80 billion in the ETF space, a lot of that was institutional and money managers taking positions in indexes. I think that’s also why you have seen such a proliferation of products. We talked to our clients, the brokers, and just a couple of years ago, there wasn’t such an acceptance of ETFs. Now with education and the low-cost structure versus mutual funds, we are starting to see a bigger move of retail clients into ETFs. It made sense for us to go there now.

What do you hope to offer to your clients with the funds you’ve launched? We have launched four funds, and three of them have US dollar versions. Our largest ETF right off the bat is the Healthcare Leaders Income ETF, which is $110 million in assets. It has good size, good liquidity and is focused on the long-term growth dynamics of the global healthcare industry.

What are the other three funds? We have Energy Leaders, which focuses on global energy companies. Next is Brand Leaders, which is a large-cap global equity fund focusing on the top 20 brands on the planet; it is mostly consumer products. Lastly, we have US Buyback Leaders, which has 20 of the largest buyback companies that are paying dividends.

Is it a long process converting from closed-end funds to ETFs? It takes about three months. You have to get holder approval, and then there is a regulation process you have to go through.

There are 18 ETF providers now in Canada. The challenge now will be differentiating yourself from the rest of the pack. How do you do that? We launched Harvest seven years ago, and we have been very focused on long-term trends and growth industries. We don’t have any fixed income, so we are all about equities. We really believe you have to keep your mandates simple. Investing doesn’t have to be complicated to be good. Keep it transparent with 20 to 30 names and no drift in the portfolio, and you can focus on growth and paying income. If you are going to buy healthcare, then why not buy a product that provides the top companies around the world that pay dividends and will be here for many years? That is striking a chord with advisors, and right out of the gate, we are seeing creations and no redemptions.

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Finding your niche amidst ETF growth Exchange-traded funds have had a record year in 2016, but can they maintain that momentum going forward?

IT HAS been a record year for the ETF industry both in Canada and globally. In this country, ETFs breached the $100 billion barrier in the summer and currently sit close to the $107 billion mark. Impressive numbers, but they’re only the tip of the iceberg when you consider the fact that mutual funds stand at $1.3 trillion in Canada. Clearly, ETFs have plenty of room to grow, which is why more and more providers are entering the space. The number currently stands at 18, but it’s highly unlikely that total will stay static for too long. One of the new entrants in 2016 was Mackenzie Investments. The Toronto-based asset manager introduced nine new ETFs throughout the year: four fixed-income and five equity funds. When discussing the rise of this investment vehicle, Michael Cooke, head of ETFs for Mackenzie, points to a number of different contributing factors. “Against a backdrop of more fee transparency, low interest rates and the prospect of muted equity returns, the focus on the cost of investments will continue to be relevant for advisors and investors,” he says. The issue of embedded fees and commissions – and, more specifically, the possibility of an outright ban – continues to divide


the advisor community here. The UK and Australia have already taken the plunge, and noises from the regulators seem to indicate that Canada could be next. “Fee-based advisor models are relatively nascent in Canada,” Cooke says. “The last numbers I saw put fee-based asset revenues for IIROC at about 35%. They range from 60% to 100% in other geographies. However, it’s clear the tide is turning – and should an outright ban happen, ETFs will clearly benefit. “The diminished use of embedded compensation has been a powerful catalyst for managing investment costs in client accounts,” Cooke says. “ETFs are an attractive option as cost-effective portfolio components.” Another indication of the broadening appeal of ETFs is that inflows have not been tightly linked to market performance. “Something that I found noteworthy from 2015 was the robust flow into every ETF product category in Canada despite the gyrations of the stock and bond markets,” Cooke says. “In 2015, Canadian equities were down something like 11% for the year, but we still had very strong inflows into Canadian equity ETFs.” This year has been different in that stocks

have soared throughout the year after a pretty miserable start, which coincided with ETFs’ record growth. The lesson, at least currently, seems to be that ETFs will not only increase in popularity in times of market turmoil, but also climb even further in a bull market. “To me, it speaks to a more secular behavioural change among advisors and investors,” Cooke says. “In more mature markets like the mutual fund industry, you see flow trends more closely correlated with the performance attributes of different markets. The pattern I am seeing with ETF usage is one of near indifference to under-

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lying market returns as more investors make larger strategic allocations to ETFs.” Given this environment, it wasn’t surprising that Mackenzie decided to throw its hat into the ETF ring earlier this year. Investors in the Great White North can now choose from close to 500 ETFs, a number that will likely grow substantially throughout the coming year. Will it be a case of diminishing marginal returns when it comes to these products, however? For his part, Cooke believes the laws of the market will ultimately decide how much is too much, and just as importantly, what types of ETFs will flourish.

If the past year is any indication, demand for ETFs won’t be drying up anytime soon, so expect to see more providers and more product launches in 2017. Mackenzie, currently 11th on the list of ETF providers when it comes to assets, plans to break into the top 10 with an increased suite of products next year. As Cooke explains, however, introducing new funds into what is becoming a crowded marketplace requires a great deal of preparation and care. “There will be more ETF listings, but we are certainly looking to take a measured approach to developing products,” he says.

“We want to ensure that we have identified real advisor and investor needs in the marketplace. We have the benefit of our deep distribution channels and wholesaling groups that have multiple touchpoints to understand our clients’ evolving needs and develop products accordingly.” Of the nine ETFs Mackenzie launched this year, it’s not surprising that one of its fixedincome offerings has been a top performer. Finding decent yields in the bond markets is becoming akin searching for to a needle in a haystack, which is why the inherent diversity of ETFs is proving popular with investors. “The Mackenzie fixed-income ETF suite rivals that of any other provider. In the current environment, the Mackenzie Core Plus Global Fixed Income ETF (MGB) has been a popular choice for advisors and investors,” Cooke says. “I think that speaks to the global diversification afforded by the strategy where you are investing in 30+ sovereign and corporate bond markets. You are diversifying away from the interest-rate cycle and monetary policy we have here at home. It gives you more choice and more ways to manage risk.”

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Don’t believe everything you read A public policy paper posits that changing financial advisors’ compensation model would hurt investors with fewer assets. Not so, writes Ken Kivenko THERE’S a lot to like about the recent paper published by the University of Calgary School of Public Policy on advisor compensation. The report does contain some solid facts, statistics and excellent reference research materials that attempt to support the argument that conflicted advice is better than no advice at all. If I didn’t know better, I might be swayed. So where do I take issue with the report? First, it refers to those providing advice as advisors, as opposed to their actual registration as salespeople or dealing representatives. It also assumes that the advice is actually delivered, but does admit that it could indeed be conflicted. Given the low qualification requirements for mutual fund ‘advisors’ even if advice is provided, it isn’t based on a high standard of proficiency. It’s easy to think that value of the service you’re getting is implicit. The report provides some rationale that a certain fraction of retail investors will refuse to pay for advice if charged separately. The overwhelming majority of investors want to be provided advice that is in their best interest. Most Canadians assume, incorrectly, that this is the prevailing case. The argument goes that if they refuse to pay for advice and go it alone, they will suffer much worse than the estimated 2.5% annual penalty for investing with conflicted advisors. I don’t understand why that would be the case. If a fee-based account was set up, clients would still pay 1% monthly, but then would


have a clear idea of the services provided, and the advisor would be free to recommend lower-cost funds, inexpensive index funds or tax-efficient ETFs. The net result would be increased retirement savings and improved retirement income security. The report counters this by pointing

that redress in Canada is robust. There is not a shred of evidence to support that statement. Given the emphasis on the financial illiteracy of Canadians, one would think the solution would involve a best interest advice standard as investor protection. Of course, that would make it hard to justify an embedded commission model, which is the apparent goal of the paper. I do agree that trust in the financial advice industry would certainly be enhanced if there were more discipline and standardization on the use of titles. I also agree that active consideration should be given to the benefits of the establishment of a professional designation for financial advisors. I think the paper underestimates the positive impact robo-advice will have. I believe technology-based advice at the competitive pricing levels and payment approaches being offered in Canada will be especially attractive to small investors, younger Canadians and millennials. If the US is any guide, many Canadians will sign up, thereby closing or greatly narrowing the postulated gap. Furthermore, most investors have no idea

“The overwhelming majority of investors want to be provided advice that is in their best interest. Most Canadians assume, incorrectly, that this is the prevailing case” to research that fee-based accounts are no panacea either. That is true where regulatory enforcement to counter reverse churning and fee overcharging is absent, which does appear to be the case in Canada. Regulators need to face up to that challenge. In essence, the report strongly recommends the status quo, asserting that “the existence of a regulatory body that provides oversight to a profession is a signal to consumers that they need not spend resources on costly monitoring in order to reduce selfserving behaviour by the advisor and that there is a mechanism for redress if that behaviour were to occur.” I totally disagree that mutual fund salespeople constitute a profession, that caveat emptor is not required, and

how their account has performed. It was only due to the relentless efforts of investor advocates that mandatory performance reporting will be required under CRM2. How advice was provided without clients knowing returns should have alerted the author of the report that something ain’t right. I remain convinced that a best interest standard is required for all financial advice-givers and planners.

Ken Kivenko is a retired professional engineer, president of Kenmar Associates and chair of the Advisory Committee for the Small Investor Protection Association.

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LOOKING EAST FOR GROWTH Stephanie Tsui, the new head of Asian Wealth at Genus Capital Management, describes how a career spanning two different continents has led her back to a familiar place

THE CAREER arc of Genus Capital Management’s new director of Asian Wealth, Stephanie Tsui, has a clear symmetry. Tsui interned with the Vancouver-based asset manager before going on to study financial engineering at the University of Michigan. Now she makes her return, albeit under a pretty different set of circumstances. Rather than trying to learn the wealth management business from the ground up, as she was doing during her first stint with the firm in 2002, Tsui now oversees Genus’ growing base of Asian high-net-worth retail investors. Vancouver has a large Asian community, and investment from China in particular is substantial. This has been most apparent with the city’s molten-hot real estate market, prompting the government to institute a 15% property transfer tax on foreign real estate buyers to try to cool down prices. The implications for Genus are clear: If Vancouver property is not as attractive an investment for Asian investors in 2017, then these clients will be looking to put their money elsewhere. It makes the appointment of Tsui, who has spent years specializing in Asian markets for some of the world’s largest financial institutions, pretty timely. “In 2006, I moved to Hong Kong to work


for Lehman Brothers, switching from asset management to capital markets on their investment banking side,” Tsui says. “We all know what happened to Lehman Brothers. Nomura International bought us out, and I stayed there for another year until I joined Goldman Sachs Asia, also working in capital markets and risk solutions in investment

clients Genus hopes to attract. They differ from Canadian clients in a number of ways, according to Tsui, something those in the business of offering guidance need to be acutely aware of. “Usually the criteria would be either US$50 million in assets across different banks, or $25 million in one bank, to qualify

“Investors in Asia are used to higher growth prospects and are also more open to ideas other than traditional asset classes. When you are innovative, they will be willing to listen to you” banking. My most recent role in Hong Kong was with the ultra-high-net-worth investment solutions team with Credit Suisse.”

Asia’s rise Tsui’s success at Credit Suisse led Genus to her door earlier this year with the intention of strengthening its private wealth management business. Asian investors, particularly high-net-worth ones, are exactly the type of

as ultra-high-net-worth,” she says. “These clients tend to invest in equity – traditionally, Asian investors tend to hold more equities in their portfolios. That doesn’t change in a particular year; it’s more about their return expectations and growth prospects.” Asia is a huge continent, of course – the world’s largest by far. It also has more than half the global population, but where in particular is Genus looking when it talks

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PROFILE Name: Stephanie Tsui Company: Genus Capital Management Title: Director of Asian Wealth Fast fact: Genus Capital Management has emerged as one of the leading lights in Canada’s divest-invest movement, with a suite of fossil-fuel-free funds for investors prioritizing a lowcarbon future

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about Asian investment? “In terms of clientele and revenue, a lot will be coming from Chinese clients – Taiwan and Hong Kong, too, and also other Southeast Asians countries like Thailand,” Tsui says. “Japan is also a significant portion as well.” Canadian investors have developed a reputation for being a conservative bunch and not exactly the fastest to embrace new ideas. They have finally warmed to ETFs, for instance, but much later than investors in the US. It’s something Tsui has also noticed while working in both Asia and North America.

downsized their equity portfolios a little bit towards alternatives – private equity, hedge funds, international real estate, as well as more liquidity in cash.” Real estate has long been a safe haven for Asian money, especially in Vancouver. The city has deep-rooted ties with China in particular, but in an effort to try to make homeownership more affordable, the BC government has elected to turn off the foreign investment tap. This is already having the desired effect (the BC government says international buying activity has decreased from 13.2% to 1.3%),

“My clientele in Hong Kong, they have invested a lot in North America, and now they are looking for opportunities in Europe. London is expensive, so they are looking at the real estate markets in Germany and France” “Investors in Asia are used to higher growth prospects and are also more open to ideas other than traditional asset classes,” she says. “When you are innovative, they will be willing to listen to you. Here, the markets are more mature, so people are used to certain ways of doing things.”

Alternative strategies While Asian investors tend to lean heavily toward equities, it’s been a tumultuous time for the main indexes on the continent. Both the Hong Kong and Shanghai exchanges took a huge dive in the latter half of 2015, although both have recovered somewhat this year. These conditions have made alternative strategies even more attractive, which is something Tsui certainly noticed during her time with Credit Suisse. “Since 2014, we have seen significant volatility in the Asian stock markets and the currencies,” she says, “so more investors have


which might mean a real property boon in other cities, Tsui says. “My clientele in Hong Kong, they have invested a lot in North America, and now they are looking for opportunities in Europe. London is expensive, so they are looking at the real estate markets in Germany and France.” Having returned to the firm where she learned the ins and outs of the wealth management business, Tsui has been tasked with driving Genus’ business forward. She has every confidence she can do so, targeting not just clients with plenty of personal assets, but also the firms that lead the industry. “Obviously I want to expand our presence in the Asian ultra-high-net-worth market,” she says. “I want to build a network of industry professionals for a whole wealth management approach. We want other industry professionals in trusts, law and tax planning. I would also like to have a presence in the institutional space, not just retail.”

WHAT’S HAPPENING IN ASIAN EQUITY MARKETS Shanghai SE Composite Index After taking a huge plunge in the second part of 2015, the Shanghai exchange bottomed out in January and has since had a slow climb throughout the remainder of 2016.

Hang Seng Index The Hong Kong exchange has been similarly up and down; despite a solid recovery in 2016, it remains below its early 2015 levels.

S&P BSE Sensex IDX The Bombay index’s strong performance this year has matched the rest of India, which is now the world’s fastestgrowing major economy.

Nikkei 225 Index Japan’s main index is down on 2015’s highs, but with 2012’s dire performance still fresh in investors’ minds, the past 12 months don’t seem so bad.

Taiwan SE Weighted Index The island nation’s exchange has echoed the performance of Shanghai and Hong Kong – a precipitous drop in 2015 followed by a solid recovery this year.

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INDUSTRY TRENDS FOR 2017 Where might the winds of change take wealth management over the next year? We spoke to some experts in their field in an attempt to find out

THE PAST year has certainly been an interesting one in investment circles. Canada saw the final phase of CRM2 take effect in June, although the implications of the new reporting standard won’t really be felt until January. Further afield, there was the shock of Brexit, which has not proved fruitful for the UK economy, although the global ramifications seem a bit overblown in hindsight. One area that did receive a boost from the Brexit vote was the Canadian bond market – although it still doesn’t offer much in the way of yields, it has proven to be an attractive purchase for


many foreign investors nevertheless. Canadian equities, meanwhile, have had a bumper year after the lows of 2015, but can that momentum be maintained in 2017? We spoke to a host of industry experts across Canada to try to gauge what could be in store for investors. Mark Twain once said: “Prophesy is a good line of business, but it is full of risks.” Sound advice, but in the wealth management business, it’s virtually impossible to avoid risk altogether. Better, then, to be prepared for whatever peaks and valleys may materialize in the year ahead.

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“People may be asking whether ETFs are getting over-saturated – investors will make that decision” Karl Cheong, First Trust Portfolios ETFs It’s been a great year for exchange-traded funds in Canada, so the challenge now is continuing in the same vein in 2017. Although Canada introduced the world to the ETF with TIPS back in 1990, this country has been slow to warm to the investment vehicle. That is no longer the case: ETFs now boast $107 billion in assets and 18 providers – a number that's expected to grow in the months ahead. At the top of the pile is BlackRock Canada, which has more than 100 ETFs listed here and an AUM of more than $50 billion. Warren Collier, managing director and head of Canada iShares at BlackRock, is confident his firm and the industry in general will continue to expand their reach in 2017 as investors keep gravitating toward ETFs. “Advisors searching for liquid fixedincome exposure and the move towards fee-based financial advice are accelerating ETFs in Canada the most,” he says. “People are looking for yield in the corporate space, but those segments of the market are less liquid, so corporate bond ETFs are increas-

ingly being used by both institutional and retail investors. Our corporate bond, XCB, has had an excellent performance this year.” Then there’s the issue of fees, which will be magnified in January when investors receive their first year-end statements with CRM2 provisions. The fact that ETFs are soaring in popularity at the same time commissions are becoming such a hot-button issue is no coincidence, Collier says. “The first reporting under CRM2 will mean an even greater movement towards fee-based [advice],” he says. “People in Canada have traditionally paid higher fees than anywhere else in the world for exposure to an active growth manager, but they will get that a much lower price with ETFs.” BlackRock is the undisputed world leader when it comes to ETFs, but it will need to stay at the top of its game, as its competitors are growing in number all the time. First Trust celebrates its 10-year anniversary in the ETF business next year, making it one of the more established names in the space. It is currently ranked 10th on the list of global ETF providers and has high hopes of climbing the ranks. Karl Cheong is head

“Advisors searching for liquid fixedincome exposure and the move towards fee-based financial advice are accelerating ETFs in Canada the most” Warren Collier, BlackRock Canada

of ETFs for Canada at First Trust and a passionate advocate for what these products can offer to investors. “In every industry, you need innovation,” he says. “Napster led to iTunes; MySpace led to Facebook. People may be asking whether ETFs are getting over-saturated – investors will make that decision. If the ETFs are too niche or poorly constructed, then investors will not put their hard-earned money in, and eventually they will close.” That certainly doesn’t appear to be a worry for the industry currently, as a number of outside forces are allowing for ETFs’ rise. In Cheong’s opinion, these trends will likely continue in 2017. “The market has been cooperating,” he says. “Both our fixed-income and our equity strategies have done extremely well this year. With interest rates going continuously down, one of the trends we are seeing is a technical demand from foreign buyers and a demographic push for income.” Like Collier, Cheong believes the changing regulatory landscape in North America – Canada already has CRM2, and the US will follow suit with its own rule change in April – means advisors will increasingly favour ETFs. “What the ETF industry does is provide tools, whether it is for fixed income or equities,” Cheong says. “You can take very targeted exposures or broad-based. Regulations from the US with DOL and in Canada with CRM are forcing the hand of many advisors to go to a fee-based business. In fee-based businesses, ETFs play really well.”

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COVER STORY: INDUSTRY TRENDS MUTUAL FUNDS While ETFs had a stellar 2016 and are looking forward to a promising year, it's a somewhat different tale for mutual funds. While the greater focus on fees and commissions has been a positive for ETFs, the opposite is true for their much bigger brother. Fund managers, by and large, are struggling to outperform benchmarks, which means high fees will stick in investors’ craws even more. That’s not to suggest active management is on some sort of irreversible slide – the mutual fund business still accounts for $1.3 trillion in assets in Canada and remains the overwhelming choice for investors here. What does appear certain, however, is the need for reform – CRM2 is surely a sign of things to come for the industry. Investors expect value for money, and if fund managers aren’t providing it, then they will go elsewhere.


“We have seen the average management expense ratio come down from about 2.04% in 2010 to 1.96% in 2015. I think we will see that as a continuing trend” Paul Bourque, Investment Funds Institute of Canada While net sales have been down this year for mutual funds, Paul Bourque, president and CEO of the Investment Funds Institute of Canada, is quick to point out that the reduction is from a very high level in 2015. “Assets are up 7.3% from 2015,” he says. “Sales are lower than 2015, but that was a record year. Mutual funds continue to be strong and are held by about 34% of Canadian households. There is more money in investment funds today than bank deposits, which is new since 2014.”

One of the newer players in the space is Sun Life Global Investments. Founded in 2010, it has amassed AUM of $15 billion and, in contrast to many of its peers, enjoyed an impressive performance with its funds in 2016. Rick Headrick, president of SLGI, identifies why his firm has been able to buck the mutual fund trend. “It has been a difficult year for the industry,” Headrick says. “Mutual funds net sales are down somewhere between 15% and 16%, while we are up over 70%. Over 85% of our sales are going into managed solutions, and there has been a huge shift that way.” In a strong year for the TSX, many fund managers have failed to match that index. It was a different story in January and February when the exchange was very much in the doldrums, but energy’s bounceback has allowed it to rally throughout the remainder of the year. Opinion is split on whether this bull market will continue into 2017, but regardless, Headrick extols the importance of being prepared for whichever way the markets turn. “We believe strongly in the need for passive and active management,” he says. “In down markets, active management tends to outperform; it’s a good riskmitigation strategy. We also believe strongly in using multiple managers for our funds, and we want the best in their asset class.” The third part of his mutual fund strategy trifecta is the need to really know how things are on the ground. This proved highly advantageous for SLGI this summer, in particular. “Tactical management is not to be confused with market timing,” Headrick says. “We can overweight or underweight

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“We believe strongly in the need for passive and active management. In down markets, active management tends to outperform; it’s a good riskmitigation strategy” Rick Headrick, Sun Life Global Investments certain funds depending on where we see risk. Before Brexit, we underweighted equities in Europe, for example.” Another factor – and one that will prove influential in 2017, too – was the fact SLGI heard investors’ grievances about fees, then launched products they felt would fulfil a need in the Canadian marketplace. “We had the advantage that we launched only six years ago, so we saw which way the wind was blowing as far as fees go,” Headrick says. “Our fees are towards the lower end of the spectrum for that reason, so we haven’t had to adjust.” Clearly, mutual funds’ preeminent status in the investment business isn’t under threat anytime soon, but that doesn't change the fact that mutual funds are in the midst of major changes. The rise of ETFs and the introduction of CRM2 point to an investment community that wants much more bang for their buck. Mutual fund fees in Canada have long been criticized as too expensive, which is finally b eing r ectified, according to Bourque. “Rob Carrick said in a column in the Globe and Mail that we are in the golden period of fee competition,” he says. “I think he is right. We have seen the average manage-ment expense ratio come down from about 2.04% in 2010 to 1.96% in 2015. I think we will see that as a continuing trend.”

FIXED INCOME Perhaps the most intriguing investment story of 2016 has been the growth of negative yields across the bond markets. Spreading from government debt to the corporate world, the phenomenon has confounded many experts. The yield on the 10-year benchmark German bund entered negative territory for the first time in history this past June, and the Japanese equivalent has also been trading at record lows throughout the year. While hardly spectacular, the Canadian government 10-year bond had a yield of 1.71% at the time of writing. Despite such meagre returns, it’s still better than most, and international investors have gravitated here throughout 2016 – and particularly after Brexit. But will this continue next year? The Fed appears to be on course to finally raise interest rates in December, but it’s unlikely that will be the start of any trend. The Bank of Canada, in fact, is more likely to

issue another rate cut in the early part of 2017. Kurt Reiman is chief investment strategist at BlackRock Asset Management Canada, and as such, keeps a close eye on the vagaries of the bond markets. The past 12 months have been unprecedented when it comes to yields, making life difficult for those in the business of anticipating where the markets may be headed. “We started off the year with the fear of deflation taking hold and a possible recession,” Reiman says. “The consequence of that was central banks becoming even more aggressive with their monetary policies. The Fed talked about four rate hikes, but we’ll be lucky to get one in December.” Whatever course Janet Yellen takes will obviously have major implications for Canada’s bond market, but in this era of globalization, there are myriad other factors that will likely come into play in 2017. “We are starting to see the reflationary consequences in North America,” Reiman

“Lower and lower interest rates year after year – that era is over. It means [you need] much more targeted, tactical exposures to get much more limited returns than investors are used to” Kurt Reiman, BlackRock Canada

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says. “The lingering deflationary impulse from China and other emerging markets has also faded. Markets are starting to price in the end of overly accommodative monetary policy, so the bond markets will get more challenging.” That will mean investors need to recalibrate their expectations, while BlackRock and its competitors will have a much tougher job on their hands. “Lower and lower interest rates year after year – that era is over,” Reiman says. “It means [you need] much more targeted, tactical exposures to get much more limited returns than investors are used to. We are entering 2017 still overweight in emerging market debt and investment-grade corporate bonds. We have pared back our maturities so we have a more mutual duration posture, but over the course of next year, we need to be prepared to make the necessary adjustments.” Florian Ielpo, head of Macro Research and Cross Asset Solutions at Unigestion, concurs with Reiman when it comes to central banks and interest rates. “We think we are seeing a reflation trade right now in the bond markets,” he says. “We have been through a long period of deflation and QE by central banks, but central banks are starting to see less need for QE.” The price of equities right now in North America has also created reluctance among investors to buy stocks. This typically means they tend to move toward fixed income, which has proven to be the case this year.


“Antiestablishment candidates are growing across the developed world. It will be part of the investment landscape for the foreseeable future” Florian Ielpo, Unigestion “Emerging equities are starting to get expensive, and developed equities are very expensive right now, so that’s why investors are buying bonds,” Ielpo says. People also tend to head for the relative safety of fixed income in times of uncertainty. In this respect, a Donald Trump presidency is not the only geopolitical shift to consider, Ielpo points out. “Next year we have elections in France, Germany and the Netherlands, so there is political risk for the markets,” he says. “Anti-establishment candidates are growing across the developed world. It will be part of the investment landscape for the foreseeable future.”

ALTERNATIVES One of the effects of falling bond yields has been investors moving toward alternatives in much greater numbers. That's been good news for the likes of Sprott Asset Management, a firm that excels in that space. “We have alternative income products that generate yields without owning bonds,” Sprott CEO John Wilson explains. “It’s a big growth area for us. Before the financial crisis, an investment-grade bond would get you a return of 7% to 8% with very low risk. Now both of those attributes are gone – they don’t have those rates of return and are very vulnerable if rates do rise.” Sprott’s selling point is the diversity it offers to investors when it comes to building a portfolio. Canadian equities performed strongly this year, but no one can say with any degree of certainty how 2017 will play out. Adding alternatives such as hedge funds or real estate becomes more attractive in such an environment. “We are seven years into a bull market, but bull markets don’t last forever,” Wilson says. “People want to balance equity exposure with products that are hedged in terms of forward-looking risk.” Using hedge funds requires a great deal of expertise and an ability to read financial headwinds. Bearing that in mind, what does Wilson foresee for Canada’s markets in 2017? “Earnings and the economy are still fine, so my view is that equities can run to new highs in the early part of 2017,” he says. “For

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“In the last few years, people have started to realize we probably won’t end up back how things looked before 2008” John Wilson, Sprott Asset Management us, it’s a natural part of the cycle that equities haven’t topped out yet. But that doesn’t stop people from buying hedged equity-risk products, alternative income products or gold.” In Wilson’s opinion, those looking for a historical comparison for this current investment environment will have a hard time finding a match. It’s now been eight years since the great crash, and while things have undoubtedly improved for most since then, it has been an underwhelming recovery. “For a long time after the financial crisis, people expected things to go back to what they thought was normal – how the world worked before the crisis,” Wilson says. “In the last few years, people have started to realize we probably won’t end up back how things looked before 2008.” In light of this new reality, Wilson predicts alternatives will only grow in popularity heading forward. “We are in a world where interest rates have never been lower, central banks continue to print money, and everything is

more connected and exposed to risk,” he says. “It’s a world where people feel they need to explore alternatives more than they used to.” This viewpoint is shared by Craig Skauge founder and president of the National Exempt Market Association, who predicts good things for the private capital markets in the coming year. “Even if there is a minor uptick in interest rates at the end of the year, it is going to be so nominal that it won’t affect investor appetites for these products,” he says. “Everyone is one year closer to retirement, and these Boomers don’t have adequate income available to them. They will continue to seek out alternatives.” The private equity markets are also a lot more accessible now than in the past – the Ontario government introduced a new offering memorandum [OM] exemption in January, becoming the last Canadian province to do so. This has allowed ordinary investors to access products that were once the preserve of the ultra-rich. “It’s been nine months since the OM

exemption was adopted, and we are seeing an uptick in numbers,” Skauge says. “Firms are getting out there and starting to raise capital. I think you will see a fair amount of activity in 2017, particularly in RSP season.” While energy’s comeback has led to a solid recovery in the Venture Exchange this year, in Skauge’s view, this is merely a stay of execution. Private capital is where the smart money will be in 2017, he believes – it’s just a matter of changing some preconceived opinions about this market. “There are a lot of companies on the Venture Exchange that are knocking on death’s door,” he says. “I don’t think things are going to improve in any meaningful way for them. To me, the exempt market is replacing the Venture Exchange.” Competition among asset classes for investors’ hard-earned dollars also means that Skauge is keen to lay down a marker for private capital. “Our competitors, the IIROC firms, the mutual fund firms, like to perpetuate the historical stereotypes about our space,” he says, “which is that it’s highrisk and lightly regulated – that’s not the case. There are good deals and bad deals in the exempt market, just like the other sectors in the capital markets.”

“It’s been nine months since the OM exemption was adopted, and we are seeing an uptick in numbers. I think you will see a fair amount of activity in 2017, particularly in RSP season” Craig Skauge, National Exempt Markets Association

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COVER STORY: INDUSTRY TRENDS “There is a real technology renaissance in Canada. Also, our retail and diversified sectors have been very strong, too. Those sectors are really something to look out for in 2017” Ungad Chadda, TMX Group

EQUITIES One year after the TSX had its worst performance since the financial crisis, the exchange has recovered to such an extent that Canadian equities are now outperforming their peers across the rest of the developed world. The reason for 2016’s rally is basically the same as the previous year’s plunge – oil. The resource-heavy S&P/TSX Composite Index and the Venture Exchange have both made hay while the sun is shining, and now that OPEC looks set to finally reach

true. Ungad Chadda, president of Capital Formation and Equity Capital Markets at the TMX Group, is pleased with how 2016 has gone for Canadian equities and believes the conditions are right for further growth in the coming year. “The mining and metals stocks have really moved up nicely,” he says. “Zinc, lithium and gold have all done much better. Even the juniors on the mining side have done quite well. If you look at venture stocks, that index is up 46% year-to-date.” However, a lot will depend on OPEC.

“I expect the very-low-interest-rate, low-growth, low-inflation environment to continue for the foreseeable future” David Pyper, Blair Franklin an agreement regarding oil supply, the price of crude should remain above US$50 going into 2017. That will likely mean the current bull market can run for some time yet, although there are plenty of industry experts arguing that the opposite will be


Russia remains the wild card as far as any deal goes, but it does appear likely that some middle ground can be found. “If we can get an overall production reduction and the oil price gets a boost, you will see the payoff for all the tough times

the oil patch has been through,” Chadda says. “They have a different cost structure now, so an increase in the oil price will really benefit them.” The resource industry isn’t the only sector driving growth on the TSX, however, which is good news for Canada’s long-term economic well-being. “There is a real technology renaissance in Canada,” Chadda says. “Also, our retail and diversified sectors have been very strong, too. We had the Aritzia IPO that was over-subscribed and priced right at the top of the range. Those sectors are really something to look out for in 2017.” Another development that has had obvious benefits for the equity markets in Canada is the growth of ETFs, a movement that is likely to gather pace in 2017. “ETFs have been a huge growth market for us,” Chadda says. “It is a global phenomenon how much ETF assets under management have grown in the last 10 years. I don’t suspect that trend will abate anytime soon.” For David Pyper, managing partner with independent investment bank Blair Franklin, the strength of the TSX this year has not been that surprising when you consider the monetary policies being

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pursued by central banks across the globe. “With interest rates so low, people have been putting their money to work in the equity markets,” he says. “Despite some concerns with valuations and macroeconomic issues, it really is the only place to invest, so that’s been pushing markets up.” It's an environment Pyper sees stretching into 2017 and beyond. “I expect the verylow-interest-rate, low-growth, low-inflation environment to continue for the foreseeable future,” he says. “People expect the Fed to raise rates in December, and in the past, that has worried markets, but right now they seem to have accepted the pending increase fairly well.” The overall economy, meanwhile, continues to splutter along, with periods of growth interspersed with dips in GDP. In Pyper’s opinion, 2017 will likely follow a similar path. “I would not be surprised to see the Bank of Canada cut rates next year,” he says. “The Ontario economy has underperformed – you would expect that with the low dollar, it would be doing much better and driving the Canadian economy. It is not that competitive right now globally.”

ECONOMY Craig Alexander, senior vice-president and chief economist of the Conference Board of Canada, is optimistic in his projections for the domestic economy – optimistic, but entirely realistic. Any growth Canada experiences in 2017 will be pretty tepid, he explains. “Our economic forecast for 2017 is growth of around 2%, which is in line with the Bank of Canada’s forecast,” Alexander says. “The regions that have been really hard hit by the drop in commodity prices will see improvement, with Alberta moving from contraction to growth. That’s where you will really see a swing with the Canadian economy.” Any upswing will be warmly welcomed by the oil patch, which has had a miserable two years since crude took its major plunge in 2014. Alexander has a word of caution for the western provinces, however – things are going to get better, but they’ll still be some way off those heady days of US$140 per barrel. “The issue for Alberta is that 2% growth will only make a dent in the decline it has had,” he says. “The good news is that the

“The regions that have been really hard hit by the drop in commodity prices will see improvement, with Alberta moving from contraction to growth. That’s where you will really see a swing with the Canadian economy” Craig Alexander, Conference Board of Canada worst is behind the resource-rich provinces. There will be an adjustment that will last about two years.” For the rest of the economy, the

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COVER STORY: INDUSTRY TRENDS “We have the oil price averaging about $55 for next year. Even if it went to $65, I think it will be some time before you see any type of investment in that sector” Brian DePratto, TD Bank Conference Board of Canada is of the belief that 2017 will be another year of anemic growth. The reason for that is the nation’s inability to boost exports to a level where one-off events like the Fort McMurray fire don’t send the economy into a tailspin. “During the recovery period from the 2008-2009 recession, we have been heavily dependent on consumer spending and real estate to drive growth,” Alexander says. “There has been a long-standing expectation that we would eventually see non-resource exports grow. They have, but not as much as many predicted.” When looking for reasons why a trading nation has failed to make its exports more


attractive on the world stage, one can point a finger in a number of directions. Canada isn’t the only developed nation struggling, of course, but low global growth inevitably means lower demand. The US remains Canada’s largest trading partner by far, and although its economy has performed pretty well recently, it has many avenues to pursue for goods besides its neighbour to the north. When analyzing why US companies might look elsewhere when it comes to trade in 2017, Alexander explains that inertia by Canadian firms is a key factor. “Business investment has been a big disappointment,” he says. “The Canadian economy is fundamentally challenged by

the fact that we have very weak productivity growth. One of the reasons why our productivity is weak is we use a lot less capital per worker.” That, in large part, comes down to a case of Canadian businesses being reluctant to invest, he adds. “Our economic models are predicting low economic growth for the coming years because we are not investing in capital today. The pace of investment right now is running below the pace of depreciation.” Brian DePratto, an economist with TD Bank, is in agreement with Alexander’s slightly downcast projection for Canada’s growth prospects. In fact, he believes 2% for 2017 is too optimistic, predicting growth of 1.8% instead. Things won’t get much better after that, either; DePratto forecasts 1.7% growth in 2018 and 1.5% in 2019. His reasoning for this is clear: “The main issues for Canada are twofold. One is the aging population, meaning the labour force is not growing as quickly as in the past. The other is productivity, which will be more or less in line with its recent history – about 1% per year.” The issue of investment and productivity, or lack thereof, is something that unites economists across the board in Canada, and DePratto is no exception. “We have the oil price averaging about $55 for next year,” he says. “Even if it went to $65, I think it will be some time before you see any type of investment in that sector.” Lower growth for the foreseeable future is presumably not something the Trudeau government banked on when it assumed power last November with a promise to reinvigorate the economy. With talk of increased deficits ringing in the ears of voters, Minister of Finance Bill Morneau is undoubtedly hoping Alexander’s and DePratto’s predictions ultimately turn out to be overly cautious. “We think the deficit could be as high as $34 billion, which is a little under 2% of GDP,” DePratto says. “In the greater scheme of things, it’s not a massive number, but it does make things more challenging for Minister Morneau.”

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NEW OPPORTUNITIES All of the experts featured here make a convincing case as to why their particular sector is where investors should turn their attention in 2017. It’s clear that investors have a lot of options these days when it comes to where they put their money, and new products continue to enter the market all the time. One such example is Invesco’s platformtraded fund, available on the Aequitas NEO Exchange. The PTF combines the active management of a mutual fund with the lower fees of an ETF, and Invesco has high hopes for its growth in the years to come. Invesco president Peter Intraligi reveals that in their first year of trading, PTFs

have amassed flows of $100 million. It’s a good start, but barely scratches the surface of where this product can go, in Intraligi's opinion. One need only look at how ETFs have exploded in popularity to understand why Intraligi and his team believe PTFs have so much potential. To achieve that, however, they must get past some pretty significant roadblocks. “The biggest challenge for these funds is distribution,” Intraligi says. “The largest asset managers are also the largest wealth managers, so that presents a challenge when you introduce something new because there is a competitive threat.” For these products to emulate the success of the ETF in Canada, all roads will ultimately lead to the Big Five. This isn’t

“At a high level, PTFs are designed to take the costs of active management down for the consumer – that’s the goal here” Peter Intraligi, Invesco

lost on Intraligi, who believes the banks will come around to the concept of PTFs as a worthwhile and needed addition to the marketplace. “Obviously we would like to be with the banks, but they have been cool on the concept so far,” he says. “At a high level, PTFs are designed to take the costs of active management down for the consumer – that’s the goal here.” In developing this product, Invesco went to its advisors to gauge the lay of the land – and, as is often the case, the discussions invariably led to the issue of fees. It’s unclear whether regulators will go down the UK/Australia route and ban embedded commissions outright, but the tide appears to have turned when it comes to how investors pay for financial advice. In a world where lower fees will be the focus of many, PTFs appear to be well placed. “The regulators are contemplating banning embedded compensation – we will find out before the end of the year if that is happening,” Intraligi says. “If it is banned, the best solution will be this one, bar none.”

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Taking the world view Steve Tate of Tate Financial explains his investment strategy and how he’s shifted to an increasingly global mindset over the past year

IT IS a common criticism of Canadian investors that home bias can often cloud their judgment. The equity markets here have had a bumper year in 2016, but the 12 months previous were anything but. Putting all your eggs into one basket is not an investment strategy you’ll hear from any advisor worth his salt, and Steve Tate of Tate Financial is no different. Over the past year, Tate has increasingly looked across the Atlantic in order to offer greater diversification to his clients. It’s an approach he believes will give the best results in the long term, so he sees no need to change the script for next year. “The US is a bit overvalued, so I have been looking at blue-chip stocks in Europe,” he says. “We definitely have increased our exposure to Europe, the UK and Japan. Canada I think had a bit of a lucky year. I will be maintaining the same approach in 2017.” Another feature of Tate’s investment strategy over the past year has been a shift into alternatives. With the bond markets not offering much in the way of returns, Tate decided that reducing costs was imperative when it came to clients’ fixedincome exposure. “We have moved into private equity,” he says. “On the fixed-income side, I made a move to a tactical bond fund, really just trying to lower management fees for clients. Someone going for a 65% equities, 35% fixed-income approach, I will put about 15%


into a tactical bond pool and the remainder of fixed income into private equity – commercial mortgages. For the equity side, then, I’m sticking with funds and basically going a third Canada, a third US and a third international.” An MFDA licensee, Tate has witnessed a mixed bag when it comes to mutual fund performance over the past year, which is reflective of the industry in general. Canadian stocks have rallied strongly over most of 2016 after a plunge at the beginning of the year, but his shift to more global exposure has not brought immediate results. “The Canadian balanced fund I use has performed exceptionally well,” Tate says. “It performed well because it wasn’t hedged, so it performed poorly last year but great this year. The international funds I use haven’t performed overly well – they are all sitting at about 2% to 3%. Corporate bonds did better than I expected, sitting at about a 7% to 8%

yield rate for the year.” Another change Tate has implemented is a move toward a fee-based business. With the possibility of an outright ban on commissions and trailer fees looming, he decided it would be better to act proactively. “We started moving everybody over to fee based about a year and a half ago,” he says. “Right now about 60% of my client accounts are fee-based. I have been building my practice towards a ban on commissions happening.” This doesn’t mean Tate would welcome such a ban, however – quite the opposite, in fact. Eliminating commissions will likely make things more difficult for younger advisors, he believes, which could be pretty damaging for an industry that already suffers from a lack of new blood. “I think it’s important for some advisors to earn commissions,” he says. “It will be really hard for young advisors coming into

CHANGES AHEAD FOR LIFE INSURANCE Advisors such as Steve Tate, who rely on life insurance as an integral part of clients’ portfolios, are preparing for changes on January 1, thanks to new legislation from the federal government that changes how life insurance is taxed. Two effects of the new regulations will be a reduction in the maximum amount of premiums that can be deposited in a policy, as well as a change to the maximum amount of cash that can be accumulated. The previous legislation had remained unchanged since 1982, but since then, life expectancy has increased substantially. The changes reflect the fact that people are living longer, as well as the government’s desire for greater consistency in how different insurance products are taxed.

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The mutual fund industry in Canada currently has assets of $1.32 trillion

According to the Investment Funds Institute of Canada, more Canadians have confidence in mutual funds (87%) than other financial products such as GICs (61%), bonds (55%) and stocks (62%)

“We definitely have increased our exposure to Europe, the UK and Japan. I will be maintaining the same approach in 2017” the business if they are not able to generate a commission.” Aside from directing his clients on where best to invest in the mutual fund world, Tate also holds a certified health insurance specialist designation. In that capacity, he’s preparing for big changes, as new legislation will limit the tax-sheltering capabilities of universal and whole life policies. But advisors across Canada have used life insurance as a handy investment

tool for decades now, and Tate believes that’s not likely to change now, as these products will retain their allure even with the new rules. “There has been a push from some corporate owners to get into universal life insurance while the tax exemption room is higher,” Tate says. “But I have gone through some of the new products with my clients, and the changes are not going to be overly drastic.”

Approximately 33% (4.9 million) of Canadian households hold mutual funds

Mutual funds account for 31% of Canadians’ financial wealth

Mutual fund assets have increased by an average of 12.2% per year over the last 20 years

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THE LIFE AND TIMES OF A FINANCIAL ADVISOR Wealth Professional’s third annual lifestyle survey reveals some interesting developments in the advisory business WHAT MAKES a financial advisor tick? It’s not, it seems, the prospect of a Rolex watch or a high-end sports car. That’s according to our readership, who paint a picture of a profession where most are raising a family rather than splurging on expensive luxuries. Although they manage money for a living, advisors are not without financial worries of their own – the mortgage debt that so troubles the mandarins in Ottawa is an issue for our readers, too. Having children, as many of them do, equates to the need for a family home – which certainly don’t come cheap in 2016. When it comes to personal investments,
























advisors in our survey ranged from as low as $5,000 right up to $5.5 million, and the disparity was also pretty big when it comes to the rate of return they saw on their portfolios over the past year. Another key finding was the fact that the number of advisors who deem themselves independent has decreased by 3% from last year’s survey to its current level of 35%. With regulatory requirements and their associated costs increasing all the time, this is a trend that could gather pace in the coming years. According to our survey, the wealth management industry is still very much

male-dominated, although things are improving on that front: 26% of our respondents were women, compared to 23% in last year’s survey. It is also a greying industry – the highest number of advisors fall in the 55 to 59 age bracket. Predictably, advisors in Canada are primarily concentrated in the main urban centres of Toronto, Vancouver, Montreal and Calgary. For investors living in more remote parts of the vast Canadian landmass, however, there are wealth professionals located there too. Our respondents stretch from Victoria, British Columbia, to St. John’s, Newfoundland, and all points in between.




British Columbia





Newfoundland and Labrador











New Brunswick


Nova Scotia


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THE NUTS AND BOLTS OF FINANCIAL PLANNING Wealth management can be financially rewarding, but it requires plenty of sacrifice. Long hours are often a prerequisite to excel in this business; more than 50% of our respondents say they work weekends. That doesn’t seem like much of a deterrent to longevity, however – the majority of our advisors have been in the job between 15 and 30 years.


6-10 years

10.2% 7.6%

11-15 years


16-20 years


1-5 years


YES 11%

NO 89%





Portfolio manager



21-25 years


26-30 years


More than 30 years



YES 35.6%

NO 64.4%





Less than 6 hours

6-10 hours

More than 10 hours

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YES 50.4%

NO 49.6%

PRACTICING WHAT YOU PREACH When it comes to their own personal finances, advisors were something of a mixed bag. Canada’s household debt and huge mortgage repayments are reflected here – the majority of advisors have less than $100,000 in home equity. Others appear to be doing quite well indeed: Most advisors had investments around the $100,000 mark; one even reported a nest egg of $5.5 million.


$0 to $20,000 7.1%


$21,000 to $50,000 16.5%




1 2

Through an advisor


$51,000 to 100,000 54.1%


4 5




92% 8%


$101,000 to $500,000 2.4% $501,000 to $1 million 7.1%



Over $1 million 2.4%

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$0 to $100,000


$101,000 to $250,000


$251,000 to $500,000



$501,000 to $1 million



Over $1 million



Less than 1.0%


5.0% to 9.9% 10.0% to 14.9% Greater than 15%


0 to 5


6 to 10

27.3% 12.5%

11 to 15


1.0% to 4.9%




16 to 20

23.8% More than 20


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No surprises when it comes to higher education: The vast majority of advisors have studied to at least university level. And given the increased expectations of investors and the industry’s various regulatory bodies, many feel obliged to continue their studies with a series of professional designations.


Making a good first impression on clients is obviously important for many advisors. That said, plenty believe that’s achievable without the need to splash out on custom-made suits or expensive jewellery. Wealth management is the name of the game, and many of our respondents clearly think a brand-new Rolex doesn’t send out the right signals.






69% TWO


Undergraduate degree






Some university

High school diploma


Graduate degree

14.6% 20.7%




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Two to five



One or two

More than five





$500 or under

$100 to $499


$500 to $1,000


$1000 to $,2000

$500 to $999







21.3% GETTING FROM A TO B Similar to their attitude towards personal appearance, advisors tend to go for solid and dependable rather than fast and flashy when it comes to their cars. Very few elect to do the daily commute in a Porsche or Ferrari, instead opting for an SUV or sedan. Those vehicles are expensive too, however; the largest portion of our respondents spent more than $50,000 on their vehicle.




A sedan


A sports car


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Do not have a car




Less than $20,000


$20,000 to $25,000 $25,000 to $30,000 $30,000 to $40,000 $40,000 to $50,000


69.0% ALL WORK AND NO PLAY? Between the long hours and the inherent volatility of the markets, managing other people’s money tends to be a pretty stressful way to spend your days. Taking proper vacations becomes essential. In that respect, the majority of our respondents take four weeks or more, which compares favourably to most other professions in North America.

9.5% 10.7% 10.7% 21.4% 32.1%

$50,000 to $80,000 $80,000+




One week 4.8% Never


No 68.4%

Two weeks 10.7%

Yes, a cottage 18.4%

41.5% Once a week

Three weeks 25.0%

11.0% Two to four times per week

Yes, both 6.6%


Yes, a condo or house (in the US or international) 6.6%

Four weeks or more 59.5%

36.6% Five or more times a week


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Yes 86.2%

No 13.8%


Never 5.0% One 71.3% Two 17.5% Three or more 6.3%

Advisors tend to be on the older end of the spectrum, so it’s not surprising that the vast majority are married and have children. Only 5% of our respondents have never walked down the aisle, while most are on marriage number one. A majority don’t own pets, but those who do tend to favour canine companionship.



Both 2.5%

Cat 7.5%

Dog 37.5%

No 52.5%

None 13.8% One 12.5% Two 35.0% Three 27.50% Four or more 11.3%


Our respondents' attitudes toward social media are perhaps another reflection of the demographic makeup of advisors in Canada. In 10 years, it's unlikely that 13% of our readers will say they never use social media, although by then it’s questionable if Facebook and Twitter will still rule the roost.


Yes 29.3%






3 4 No 70.7%

5 Daily


52.4% 34.1%

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The power of giving The act of giving is now expected of most businesses, explains John Sikkema, and you won’t just be helping people in need – your staff will feel great about it too

PHILANTHROPY WAS once considered a noble endeavour for the rich, but the social market has shifted. The new generation expects businesses and corporations to be socially responsible and engaged. Donating money is not enough – the expectations of businesses are now higher due to globalization and access to social media platforms. There are now an increasing number of new enterprises whose sole purpose is to make a difference in the world – but to do it in a profitable way, rather than purely exist for profit share. Businesses such as Who Gives A Crap, which sells toilet paper to fund developing world sewerage problems, is one example. They stepped into the consumer goods industry to gain market share from the corporate giants, with the goal of syphoning funds into the nonprofit sector while increasing the profile of the cause. Thankyou Water has shown that, by combining entrepreneurial flair with a noble cause and an existing product, you can persuade consumers and suppliers to switch from traditional brands, all because the profits are used to provide clean water in developing countries and allied philanthropic and charitable causes, as compared to traditional brands, which are solely focused on maximizing shareholder investment returns. Often people place philanthropic activity in the to-do-later basket, saying they’ll get to it “when I have more money or time, or when


I’m retired.” What opportunities are passing you by? Melinda Gates’ mother persuaded Bill and Melinda to become philanthropic 20 years ago, saying, “To whom much is given, much is expected.” Imagine if they had not listened to her.

A life of significance As a success-driven business builder, I had a personal experience that shifted my focus. I realized I was focused on monetary success, and this was no longer satisfying. This, as outlined in my book, caused me to have a huge paradigm shift. I wanted to build a life of significance –one focused on others, not

the luxury of our five-star resort. I was unsettled and felt a deep conviction that we should be giving back to the community. As CEO, I shared my thoughts, and our team came up with the idea of building an orphanage in Thailand that would be run by a local NGO. In the space of an hour after

Melinda Gates’ mother persuaded Bill and Melinda to become philanthropic 20 years ago, saying, “To whom much is given, much is expected.” Imagine if they had not listened to her just myself. I took this on as both a personal and corporate challenge. How could my company become actively engaged with philanthropic opportunities? While in Phuket for our company’s conference, our team was transported daily between the hotel and the conference venue. We saw great poverty, an extreme contrast to

launching our plan, we raised the funds to build the orphanage from our franchisees and staff. I was surprised by the significant acts of generosity that came from several of the most hard-headed businesspeople in our organization. Over a decade later, whenever we meet, their first question is, “How’s the orphanage

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everyday small businesses and people. It begins with the heart of a leader to embrace the concept that to whom much is given, much is expected. A good place to start is by following these three principles:


Align your philanthropic activity to your life purpose or life mission statement

What are you passionate about? What needs do you see around you, locally or globally, that get you angry, that others are not tackling sufficiently? What organizations exist that do good that you could help make better? Virtually every business has a business plan, but sadly I have found very few business owners or key leaders who have a clear personal plan for their life. By establishing your life purpose, it then becomes clearer which opportunities to pursue.

going?”, rather than how we grew our small business into a very successful national firm. If you embrace the practical power of giving, the personal and corporate rewards will astound you. It will take the culture of your company to a level well beyond where boardroom planning or HR programs teaching theoretical corporate values can take you. Here are seven reasons why giving will take your company to another level: Corporately unifies employees Creates a culture of collaboration among the staff Creates a corporate and individual purpose beyond themselves Broadens people’s horizons and experiences, creating excellent opportunities for personal growth Gives employees a conversation starter in varied social settings, which increases their connection with people around them Exposure to the difficulties that developing countries face creates a sense of gratitude and gives employees a realization of the

power they have to change the world Gives your business a leading edge among competitors to become an employer of choice I see personal transformation as the most powerful catalyst to become a genuine, giving and generous person, which ultimately will flow into the DNA of the organizations that you lead. Unfortunately, in our western culture, we have given away our personal responsibility to help those in need and expect the government to use our taxes to take on that responsibility. This means many people miss out – the task is simply too big! Thankfully, the tide is turning, and wealthy individuals such as Warren Buffet and Bill Gates are setting a great example. These business owners are pledging to give away 90% of their wealth to needy causes around the world prior to dying. There is now a healthy global movement where other wealthy individuals have been challenged to do likewise. This is cascading down to


You will need to lead


Be prepared for change

Once you have a compelling vision in the philanthropic space, others will follow, but initially you may get some opposition. Maybe you are the only person in your sphere of influence who is committed to making a positive impact in the world. Clarity, communication and passion for your cause are needed.

The bigger the philanthropic project or cause you embrace, potentially the bigger the changes you will need to make. Risktaking, uncertainty and adventure are all key things to embrace as you seek a life that is fulfilling and meaningful. As children, we’re often encouraged to dream about how we can make the world a better place. It’s now time, as adults, to use our time, skills, personal and corporate resources, and a child-like attitude of sharing to make a difference in the world. Why not start today?

John Sikkema is a philanthropist, thought leader and entrepreneur. He is executive chairman of Halftime Australia, inspiring leaders to live their life purpose now.

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Her career has taken her a long way, but for Carol Lynde, it’s always been about the people Intrigued by business, Lynde’s first foray into the working world – as manager of operations for a small business that specialized in colourizing black & white movies – involved an expansion that took the five-person operation to 150 employees, working 24 hours a day “I’ve always been entrepreneurial – it was my job to make [the expansion] happen. But I felt I was flying by the seat of my pants; I didn’t have formal experience”




TAKES A SEAT IN THE BOARDROOM When Lynde joined the board at Fundserv, it was her first time working on a board with industry colleagues, and she found herself drawn to the collaborative nature of the experience “It’s an industry utility that is owned by the industry, and the board is [made up of] industry participants. Even though we’re competitors, we’re working for a common good. I was intrigued by that – people who worked at competitive firms but had a common vision of what we were trying to achieve”


RUNS HER FIRST MARATHON Having thought about attempting a marathon for a while, Lynde decided that 2004 was the right time, and ran her first along with a team of colleagues (and her husband). Since then, she has run others, including the Toronto Marathon, but says her favourite was the New York Marathon, which she completed in 2010 “It was a great experience. There’s a tremendous amount of time that goes into training for a marathon”


NURTURES REBRANDED RELATIONSHIPS ACROSS CANADA In 2013, Bridgehouse introduced a business model that offers an independent platform to managers with institutional roots. It has since grown to encompass Lazard, Greystone and Morningstar “I‘ve got the absolute best job. I not only have the pleasure of working with my team, but of going across the country and working with investors. There is such diversity in the business. I feel very fortunate to have been able to build relationships across the country. It’s about the people – that’s the fun part” 46


MANAGES PEOPLE FOR THE FIRST TIME Eager to learn what she could from a big firm, Lynde moved to Royal Trust, where she found herself running a department. With the encouragement of a mentor, she overcame a case of nerves to take on the task of managing older and more experienced employees “He was the first person who told me I would be good at managing people. It was a pivotal moment, and I found that I did enjoy the role”


JOINS BRANDES IN NEW CANADIAN OPERATION When Brandes Investment Partners launched its Canadian arm, Bridgehouse Asset Managers, Lynde was presented with an opportunity she couldn’t refuse

“Oliver Murray called in early June and asked if I was interested in coming to Brandes. I thought, ‘Yes! This is fantastic.’ How often do you have the chance to build something from the ground up? There were five of us who started with the firm, and by October of that year, we had 50 people” 2015

CREATES MPOWER MONEY COACHING PROGRAM Having caught wind of a financial planning program for low-income earners at a US conference, Lynde looked around for an equivalent here. Not finding one, she partnered with Prosper Canada, the City of Toronto, and other financial services companies and associations to launch a pilot program that matches volunteer financial planners with Canadians who can’t typically afford advisors “There’s a definite need for this type of service. We were thrilled with the level of support – financial advisors want to help”

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NOT JUST FOR KICKS The practice of karate pervades Mary Hagerman’s work life, family life – even her recently published book


KARATE IS a family affair for Mary Hagerman. A Montreal-based portfolio manager and investment advisor with Desjardins, Hagerman has been a practitioner of Shotokan karate for 20 years and is currently studying for her third dan. She’s only ever taken a break in her training once: to give birth. It’s fitting, then, that her daughter took up the sport at the age of 6 and qualified as a black belt by 15, while her son and husband, a relative latecomer to the sport (“he joined after 15 years of


Hours Hagerman has devoted to karate, in both class and practice


watching me do it”), both tapped out after reaching the rank of brown belt. Hagerman credits the martial art, which she praises for its combination of “power, speed and flexibility,” with bolstering her work life – so much so that she recently penned a book, The Black Belt Investor, that intertwined her professional life and her love of karate. “Karate is my best defence in being effective as a money manager,” she says, “to view the markets without letting emotion interfere with my decisions.”


Exams Hagerman had to pass to attain her current level


Number of katas (simulated defences) known by those at Hagerman’s level

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The 3rd Annual Wealth Professional Awards is the Wealth Management industry event of the year. Over 500 industry professionals will gather once again to celebrate the year’s successes and the achievements of their peers.



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However you take it. Your choice of expertise and your choice of solutions – all for your investment performance. Choose quality, innovation and confidence, according to your taste.

ETFs PRIVATE WEALTH POOLS MUTUAL FUNDS MANAGED ASSETS FEE-BASED SOLUTIONS Find out more about the many forms of performance from Mackenzie Investments.

Commissions, trailing commissions, management fees, brokerage fees and expenses all may be associated with investment funds. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. 00_OBC.indd 10

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Wealth Professional 4.10  

Industry trends for 2017

Wealth Professional 4.10  

Industry trends for 2017