The Renaissance Advisor

The Renaissance QUARTERLY FUND PROFILES / PRACTICE MANAGEMENT / OUTLOOK / OPINION

Q1 – MAR. 31, 2015

Running on Empty?

Living longer – Will your clients have the retirement income to go the distance?

ALSO INSIDE:

Higher Levels of Profit Margins are Here to Stay The Fear Factor!

Managing Human Nature in Volatile Times

For Advisor Use Only

A CLEAR VISION ISN’T CREATED BY THOSE WHO STOP HALFWAY.

®

TAX & ESTATE INSIGHT If you’re spending all your time sifting through information, how do you expect to focus on what matters to your business? We chip away the complexity from tax and estate issues to uncover clear and practical insights – so you can spend more time defining your success.

Federal Budget 2015 Report Now Available Renaissance can help you complete a clear tax picture for your clients. Access full budget insight from Jamie Golombek and his team at:

renaissanceinvestments.ca

Renaissance Investments is offered by and is a registered trademark of CIBC Asset Management Inc.

PAGE

In this issue

4 9

14

Tax and Estate Taxes and Retirement: Opportunities and Strategies

3

Economic Outlook Higher Levels of Profit Margins are Here to Stay

4

Back of the Napkin The Fear Factor!

Managing Human Nature in Volatile Times

6

Global Market Perspectives The Sub-Zero Effect

8

Running on Empty?

9

Solution Highlight Income and Downside Protection for Your Clients’ Retirement Needs

13

Read Away

14

Thanks to Our Supporters Every Client is Number One

17

Brain Calisthenics

18

From the Managing Director of the Renaissance Sales Team

Rethinking the Retirement Landscape Welcome to the spring edition of The Renaissance Advisor. The focus of this edition is on changing retirement realities for Canadians.

The topic of change can sometimes be a challenging discussion with clients. It requires a delicate balance of emotion and rationale.

Explaining that past financial planning methods – although conventionally successful – are no longer sufficient, is a tough but crucial conversation to have for the long-term benefit of your clients.

Our feature article, Running on Empty?, can help you guide clients through the changing retirement landscape. Canadians are living longer and the impact of greater longevity introduces new variables. Later inheritances and record-low interest rates have created a need for new investment approaches.

To assist you in these conversations, we speak to industry experts and investment professionals about best practices to prepare your clients for retirement.

In your discussions around retirement planning, consider Renaissance Optimal Income Portfolio as an all-in-one solution to provide investors with the opportunity to generate a steady income stream, benefit from capital appreciation and manage volatility.

Also in this edition: Jamie Golombek presents strategies to help clients reduce tax payments in retirement, Benjamin Tal suggests that higher profit margins are here to stay and Grant Shorten discusses the value of managing human emotions through volatile times.

We thank you for your business and welcome your feedback.

Shelly McLean Managing Director, National Sales Renaissance Investments

Taxes and Retirement: Opportunities and Strategies

TAX AND ESTATE

Retirement often coincides with a drop in income, so strategies to reduce taxes in those so-called “golden years” may be even more important than ever. Here are some potential tax-saving opportunities that may help your clients receiving “eligible pension income.” This includes payments from

To reap the benefits of pension splitting, both the client and spouse or partner must complete the Canada Revenue Agency Form T1032, Joint Election to Split Pension Income. The form must be filed with each of their tax returns.

employer-sponsored pension plans (defined benefit and defined contribution) and, if clients are at least 65, payments from Registered Retirement Income Funds (RRIFs).

The Pension Income Amount Clients who receive eligible pension income may claim a non-refundable federal tax credit of approximately $300 (15% on the first $2,000 of pension income) to help reduce taxes payable. Provincial credits for pension income may also boost tax savings.

Pension Splitting Clients may have another opportunity to save taxes by transferring up to

If clients feel they may have missed out on benefits in prior years, it might still be possible to catch up by late-filing a pension-splitting election.

Individuals generally have three calendar years after the income tax filing deadline for the election year, to file a late pension-splitting election.

RRIF Withdrawals Finally, if you have clients turning 65 this year who have no pension income, you may want to remind them that RRIF withdrawals are considered eligible pension income at age 65, while RRSP withdrawals are not. Those clients may want to convert a portion of their RRSP to an RRIF in order to benefit from the $2,000 pension income amount and pension splitting. Any withdrawals from the RRIF, whether minimum withdrawals or other amounts, will qualify.

50% of their eligible pension income to a lower-income spouse or partner.

For each $10,000 of pension income that is split, tax savings can be as high as $3,000 annually. Amounts may vary, depending on the province of residence and the spread between the tax rates of the client and his or her spouse or partner.

Pension splitting may even help preserve some or all of their Old Age Security

Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC Private Wealth Management. He works closely with advisors to help them provide integrated financial planning solutions for their high-net-worth clients. Jamie is frequently quoted in the media as an expert on taxation.

(OAS) benefits, if clients were otherwise subject to the clawback because net income exceeded about $71,000 in 2014. Also, for clients whose spouse or partner does not otherwise have eligible pension income, it may allow the spouse or partner to claim the pension income amount too.

Similarly, the age amount is reduced when income exceeds $35,466 in 2015.

By transferring pension income to a lower-income spouse or partner, clients may be able to reduce or minimize the loss of this credit.

Follow @JamieGolombek www.advisor.ca/togo Podcast > Goodies for Business Owners in Budget 2015 www.renaissanceinvestments.ca/en/jamie_golombek/

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Higher Levels of Profit Margins are Here to Stay ECONOMIC OUTLOOK

That different tune is also largely behind the recent divergence between profit margins in the economy as a whole, and those observed on the TSX. Profit margins in the energy sector had started to soften way before oil prices nosedived.

And given that the share of the energy sector in the TSX is a multiple of its share in GDP, that trajectory has a much more significant impact on the composite’s aggregate profitability.

The average corporate profit margin in Canada is at a 27-year high.

While some erosion from a softening economy is likely, we expect higher margins are here to stay. Over the past two decades, we’ve seen a fundamental structural shift in the economy that has carried profit margins upward. This shift has been driven by forces such as globalization, innovation, a lower cost of capital and high barriers to entry. More recently, margins have also been elevated by softening labour costs and a sinking loonie, fueling the near-three-decade record high. As we see a softening in some of these forces over the coming year or two, margins might go down, but not as much as the headline numbers suggest.

Zooming in on the non-energy profit margin trajectory (our main focus), we learn that the recent increase in margins cannot be fully explained by the economic cycle. The gap between profit margins and real GDP growth is currently hovering around the highest level in any non-recessionary period over the past 25 years.

(The gap tends to rise during recessions since GDP decelerates much faster than margins.) So we have to dig deeper.

Profit Margins at Record High At just over 8% of sales, the average profit margin of non-financial corporations in Canada has set another record in the fourth quarter of 2014. That is also the case when you exclude the energy sector that is currently dancing to a totally different tune.

Corporate Profit Margin – Record High 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0%

Total

2.0%

4

14-Q4

12-Q4

10-Q4

08-Q4

06-Q4

04-Q4

02-Q4

00-Q4

98-Q4

96-Q4

94-Q4

92-Q4

90-Q4

88-Q4

0.0%

Source: Statistics Canada, CIBC

One possibility is that the increase in margins is simply a reflection of a change in the composition of corporate Canada, with high-margin sectors seeing their share in the economy rising. An interesting notion, but evidently wrong. In fact, the share of high-margin industries such as manufacturing, transportation, agriculture and forestry has fallen notably over the past two decades while low-margin sectors such as retail trade and construction gained ground. That is, the rise in profit margins in Canada came despite the headwind from a less-favourable sector composition.

Mean Reversion

Excluding Energy

1.0%

“The gap between profit margins and real GDP growth is currently hovering around the highest level in any non-recessionary period over the past 25 years.”

This potentially can have important implications for the future trajectory of corporate profitability in Canada. Profit margins are largely assumed to be one of the most mean-reverting series in finance. The rationale here is simple.

Above-average margins, so goes the theory, must attract competition and investment, which, in turn, can reduce overall profitability. In fact, it is fair to say that the concept of margin mean reversion is embodied deep in many equity valuation models.

If indeed margins are mean-reverting, then the elevated level of margins today could lead to a notable softening in profitability as margins are currently two full percentage points above their long-term average. But a closer look suggests that things are not so simple. Margins might be mean-reverting, but it is possible that the mean has enjoyed a structural shift up. Following the 2001 tech meltdown, there appears to be a structural upward trend in the trajectory of profit margins in Canada, with average margins almost doubling during that period.

“...there appears to be a structural upward trend in the trajectory of profit margins in Canada.”

What tends to support the assessment that the upward trajectory in margins since 2001 was structural in nature, is the fact that it has been widely based. In fact, all sectors but one currently enjoy margins that are above the 2001-2014 average. And there is no shortage of explanations for such an upward structural trajectory – globalization, innovation, lower cost of capital, high barriers to entry and reduced bargaining power of labour, just to name a few.

The Role of Labour Cost and the Loonie It appears that even within the context of a structural upward trajectory, the rise in margins over the past two years has been relatively strong, with margins rising by almost a full percentage point since 2012. The pace of growth in unit labour cost in the Canadian economy softened notably over the past two years from 3.5% (year/year) to the current 1%, with the weakness being broadly based.

In fact, no less than one-third of Canadian GDP last year was produced by sectors with falling unit labour costs.

“...no less than one-third of Canadian GDP last year was produced by sectors with falling unit labour costs.”

And an even more important lift came from the near 25% depreciation in the value of the dollar over the past two years. For sectors with positive net export position, margins are the first place to feel the boost. Based on Statistics Canada’s input-output coefficients, we estimate that the depreciation in value of the dollar is responsible for no less than a full percentage point increase in average profit margin since 2012. The impact is far from uniform. The agriculture sector, with an estimated lift of close to four percentage points, is a big beneficiary.

The manufacturing sector is an important winner here – with sub-sectors such as wood products, pulp and paper, motor vehicles, electrical equipment, clothing, textile and basic chemicals leading the way.

The lift to the profit margins in the transportation industry is mostly in the rail and truck sub-sectors, while the impact on air transport is marginally negative.

On the other side of the scale, construction and retail trade see their already narrow margins shrinking further.

Some of the structural forces that worked to elevate the trajectory of corporate profitability might start fading in the coming years. But for the here and now, profit margins are fully supported by fundamentals.

Benjamin Tal is Deputy Chief Economist for CIBC. Described as one of Canada’s leading experts on the real estate market by the International Monetary Fund, he is responsible for analyzing economic developments and their implications for North American fixed income, equity, foreign exchange and commodities markets. www.advisor.ca/togo Podcast > Can Central Canada Prop Up Alberta?

Podcast > Which Way Is the Loonie Headed? www.renaissanceinvestments.ca/en/economy/ www.renaissanceinvestments.ca/en/economy/

5

The Fear Factor!

Managing Human Nature in Volatile Times

BACK OF THE NAPKIN

For the past few months, the word “volatility” has been turning up everywhere in the context of the capital markets. From BNN to CNBC, from the barbershop to the office cafeteria, experts and amateurs alike are contemplating ways to protect themselves from the tossing and turning currently being inflicted upon their investment portfolios.

What’s most interesting is the fact that volatility is nothing new for equity markets, and this is certainly not the worst we’ve ever seen. Historically, each period of increased volatility has come with its own personality and its own unique mix of sector meltdowns, asset class erosions and unexpected surprises. Today’s scenario just happens to involve: a collapsing oil price, an energy sector meltdown, a sinking Canadian dollar, an unresponsive gold market, and 200-year lows in interest rates.

In addition to these alarming factors, our financial media’s neon-sign emphasis on volatility continues to heavily influence the public’s perception. As a result, many of our clients are now living with varying degrees of anxiety, worry, panic or fear. And some of them are being tempted to make knee-jerk adjustments to their portfolios in order to stop the pain.

As a trusted advisor, how should we handle facing an anxious client who may be looking to make a change for all the wrong reasons?

The Universal Law When confronted with this scenario, it would serve us well to step back and remember the universal principle that underpins everything we do in the business of managing wealth. That universal law is: “Human nature is the greatest enemy to successful investing.”

6

This is the very same human nature that will have us believing we’re smarter than the market and jumping in and out in an effort to “time” our investment decisions, almost always resulting in the wrong outcome.

We, as a species, have consistently demonstrated how we will react when left to our own emotional and psychological devices. Like clockwork, we actively chase past returns, and jump in right near the top of a cyclical move. Then we run away from negative returns after they happen, and jump out right near the bottom, after much of the damage has been done.

This behavioural phenomenon is confirmed each and every year – through sentiment indicators, flow of funds data and many other excellent measures.

During periods of volatility, like the present, our clients are in dire need of emotional guidance and thoughtful coaching from us, their trusted advisors.

The good news is, our guidance doesn’t have to be overly complicated.

The more we can simplify our discussions around volatility, the easier it will be to install a repeatable methodology to address this issue across our client base.

Here’s a simple three-step process designed to address a client who is concerned about increased volatility.

Step 1: Identify, Align, Agree It’s absolutely essential to remain in rapport with your client – especially when they’re negotiating stressful emotions like worry, anxiety or panic.

Explain to your client that you fully understand their nervousness, and calmly assure them that “a lot of other investors are feeling the same way.” You might be amazed at how many troubled clients simply want to be heard and to have their emotions openly legitimized.

Step 2: Apply a Quality Control Check

How to address decreasing negative returns over time:

While remaining in alignment with your client, gently apply a “quality control check” to their current mindset and thought process. The easiest way to do this, is to take a few minutes to re-educate your client on some important core fundamentals by incorporating historical evidence with a compelling visual or two.

“Let’s take a closer look at the stock market and see if we can gain some perspective. Over the last 64 years, the index spent 38% of one-month periods going down. Only 25% of one-year periods showed negative rates of return.

Just 2% of five-year periods – and NO 10-year periods – have reported a negative rate of return!

There are many excellent charts and graphs available that show the long-term history of ‘ bull markets versus bear markets’; they illustrate emphatically that bull markets have consistently been longer and stronger than bear markets. Use these tools to remind your client that the stock market always moves in a series of rallies and corrections, and how these movements actually define the nature and the personality of the stock market. The message to our client is that, if they wish to take advantage of the tremendous wealth-building opportunities in equities, they will need to remain prudently invested, but that they also need to be willing to experience a few periods of increased volatility along the way.

Short-term market action can be scary, but in order to take advantage of the tremendous growth opportunities, you simply need to be there with a portion of your assets.”

Bulls are Longer and Stronger than Bears This chart is an example of a compelling graphic. It represents positive (bull) and negative (bear) markets on the S&P/TSX Composite Index from the 1950s to December 2014. Overall, bull markets have lasted longer and provided a more significant percentage change.

Cumulative Return (%)

300

ADVISOR TIP: Use the 2015 Big Picture Chart in your client conversations about volatility. The chart and a conversation guide are available at renaissanceinvestments.ca.

Step 3: Make a Specific Recommendation While you maintain a high degree of rapport with your client, and having applied a quality control check to their knee-jerk temptation, you will need to close the circle by making a specific recommendation about their portfolio.

Here’s a simple example of a spoken recommendation directed to the client: “I want to remind you that your portfolio has been built using prudent asset allocation principles, and is designed to minimize risk during volatile times.

In light of what we discussed today, I’m recommending that we stay the course, in order to be there for the opportunity to grow your wealth and to prepare you for retirement.”

200 100 0 -100 1956

Putting it All Together 1964

1972

1981

1989

1997

Bull Markets

Source: Bloomberg, December 31, 2014

2006

2014

Bear Markets

1

Negative Returns Decrease Over Time This example of a simple graphic reminds clients of the importance of longer-term thinking: The probability of negative returns decreases as your time horizon increases.

40% 38%

Percentage of periods with negative returns for S&P/TSX (1950-2014)

30% 25%

20%

The market moves in the path of least resistance and sometimes that path will bring an unexpected stretch of potholes and boulders. This is when human nature is put to the test, and precisely when your clients need to hear an understanding voice, get a quality control check on their emotions, and receive a solid recommendation from you…grounded in discipline.

Grant Shorten is Director of Strategic Insights at Renaissance Investments. He offers insights and approaches that will work with your clients and have an immediate impact on your practice.

10% 2%

0%

5 Years

10 Years

0% 1 Month

1 Year

www.renaissanceinvestments.ca/en/practicemanagement/

Source: CIBC Asset Management and Bloomberg, December 31, 2014

7

The Sub-Zero Effect

GLOBAL MARKET PERSPECTIVES

In the coming months we will continue to evaluate whether negative yields can stimulate economic activity in the long run. When confronted with negative interest rates, consumers and businesses could feel the need to save more rather than borrow and consume more. Negative interest rates could also pose a challenge to insurance companies and pension plans that use domestic sovereign bonds to help shield their portfolios from their long-term liabilities.

The Search for Yield Continues‌ For European and Japanese investors facing negative yields, North American sovereign bond markets still provide positive, albeit low, yields. North America may continue to benefit from this intensified search for yield in the coming months. The search for yield could also extend to other asset classes that provide some form of enhanced yield, such as corporate and high-yield bonds or highpaying dividend stocks. This could push the valuation of these assets to even higher levels.

Stocks for the Long Term?

Equity performance since 2009 might have reignited hopes that the stocks-for-thelong-term mantra is back, but equities will face increasing valuation headwinds.

There is a clear and indisputable empirical relationship between current equity valuation and future returns. Lower starting valuation (using P/E ratio) leads to higher real returns 10 years later, while higher valuation leads to lower real returns (see graph). For example, investors who bought the S&P 500 in 1977, a time of extremely low valuation, would have realized an 8.7% real total return 10 years later. Meanwhile, at the peak of the market in August 2000, the S&P 500 traded at 27.7, and returned -4.1% real over the following 10 years.

8

Equities Still Have Room to Grow We believe that equity markets are overvalued, but not extremely overvalued. This distinction is important because it leaves room for cyclical forces to outweigh the valuation headwinds. Cyclical forces may continue to support higher-than-average equity valuations a little longer, making equities more attractive than fixed income.

As always, timing the peak of the equity market is a tricky decision. However, with more than six years since the bottom of the equity market and above-average valuations, now is not the time to be complacent.

10-Year Real Equity Return (S&P 500 Total Return) – From 1885 to 2015 Average Return 10-Years After

We are worried about the consequences of negative interest rates, a recent development in many parts of the global sovereign bond market. In Europe, major central banks such as the European Central Bank (ECB), the Swiss National Bank, the Swedish Central Bank and the Danish Central Bank have all implemented negative policy rates. It is also estimated that over $2 trillion USD worth of sovereign bonds with maturities ranging from one to 10 years now have a yield to maturity below 0%, including German Bunds, French, Swiss and Japanese bonds.

12% P/E at Beginning of Period 9%

6%

3% 4.5 - 9.0

9.0 - 11.7

11.7 - 14.0

14.0 - 16.7

16.7 - 29.0

Source: Thomson Reuters Datastream, CIBC Asset Management Inc.

Luc de la Durantaye is Head of Asset Allocation and Currency Management with CIBC Asset Management.

He is responsible for strategic and tactical asset allocation, currency management, absolute return strategies and index management.

Perspectives Perspectives pectives p ctives d beginning April 1, 2015 For the period For

Current Asset Allocation, as at April 1, 2015 Underweight

Neutral

Read full Perspectives report on RenaissanceInvestments.ca

Overweight

Asset Class Significant Moderate

THE SUB-ZERO EFFECT

Moderate Significant

3

Equity Relative to Fixed Income Fixed Income

Sub-zero interest rates have been a rare event for major economies—until now now.. The spread of negative rates, and the unintended consequences for the economic landscape, has captured our attention. When confronted with negative rates, consumers and businesses could opt to save instead of borrow and consume, possibly triggering a more sluggish economic environment.

Overall, a sluggish expansion remains our central scenario with a below-consensus global growth expectation of 3.5%. The continuing recovery in developed markets offset by a slowdown in some will be offset emerging economies, particularly China.

More aggressive monetary policy actions in recent months, combined with declining oil prices, provide some upside risk to our growth estimate.

Canadian Money Market

3

Canadian Government Bond

3

3

Canadian Corporate Bond

3

International Government Bond Equity

3 3

Canadian Equity U.S. Equity

3 3

International Equity (Developed Markets) Emerging Markets

Underweight

Neutral

Overweight

ency (versus U.S. Dollar) Curr Currency Significant Moderate

Canadian Dollar Euro en Japanese Y Yen British Pound Swiss Franc Australian Dollar Emerging Markets

3

Moderate Significant

3 3 3

3 3

3 | 1

www.renaissanceinvestments.ca/en

RUNNING ON WE’RE LIVING LONGER

Will your clients have the retirement income to go the distance?

9

They can’t count on high yields from government bonds to generate income for retirement. According to the Bank of Canada, a 10-year Government of Canada bond currently yields around 1.35%, a far cry from the double-digit yields of the 1980s. Richard Lawrence, Senior Vice-President, Portfolio Management, Brandywine Global Investment Management, LLC expects yields to remain below 2% this year, suggesting clients look elsewhere for higher returns. “You need to be thinking about the opportunity set outside of the Canadian market, recognizing that it is more risky and more volatile. But if done properly, you’re also getting compensated for the incremental risk that you’re bringing into your portfolio.”

Government of Canada Benchmark Bond Yields – 10 Year (Dec. 1, 1993 - Jan. 1, 2015)

Baby Boomers, born between 1946 and

10 9

1964, have started getting ready for

8

retirement – if they’re not retired already.

7

But times have changed, with Canadians

6 5

both working and living longer than

4

before. Since 1921, the average life

3

expectancy has risen from 57 to just

2 1

to rethink the way they plan for the

2013-12-01

2008-12-01

2003-12-01

retirement savings has forced clients

1998-12-01

of longer life spans and less-certain

0 1993-12-01

under 82 years old.* The combination

Bank of Canada - Selected Bond Yields, http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

next stage of their lives.

Government of Canada Benchmark Bond Yields – 10 Year (April 4, 2014 - April 6, 2015) 2.50 2.25 2.00 1.75 1.50 1.25

Source: Thomson Reuters Datastream, CIBC Asset Management Inc.

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2015-04-16

2015-03-16

2015-02-16

2015-01-16

2014-12-16

2014-11-16

2014-10-16

2014-09-16

2014-08-16

2014-07-16

2014-06-16

2014-05-16

1.00

How Things Have Changed Grant Shorten, Director of Strategic Insights, Renaissance Investments says, “The financial crisis of 2008 was a true wake-up call to everyone engaged in the business of managing wealth on behalf of their clients. Advisors are now required to be that much more vigilant around managing client expectations, educating clients on the need for equity exposure, building deeper relationships and emotional bonds, rebuilding lost trust, and managing fear in these volatile times.”

“The financial crisis of 2008 was a true wake-up call to everyone engaged in the business of managing wealth on behalf of their clients.”

Eric Davis, Vice-President & Investment Advisor with The Davis Wealth Management Team, says The Great Recession brought two fundamental changes to his practice. For him, there’s now more “portfolio focus on risk and downside of investments,” and he emphasizes the importance of client education and stress-testing portfolios ahead of future bear markets.

in their family? And lots of clients have parents that are 85-95 years old, so if it looks like longevity is in your family, we need to plan for that.”

Total Number of Expected Years of Life at Birth and at Age 90 (1921-2011) 100

yrs.

90

80

70

60 At Birth At Age 90

50

40 1921

1931

1941

1951

1961

1971

1981

1991

2001

2011

What About Government Pensions?

Note: The total number of expected years of life is computed as attained age + life expectancy at that age.

In 2012, the federal government made waves by increasing the eligibility age for Old Age Security (OAS) benefits from 65 to 67, starting in 2023.

These changes will delay OAS payments for Canadians born after April 1, 1958.

Even for clients eligible for OAS at 65, the amount can be clawed back, but most will still receive benefits.

“It’s estimated that only about 5% of OAS recipients are affected by clawbacks and that less than 2% of those lose all their benefits,” says Jamie Golombek, Managing Director, Tax & Estate Planning, CIBC Wealth Advisory Services. However, he notes, “If you are affected, then the result is that once your income climbs to over $73,000, the clawback is 15% on the dollar.”

Clients are still eligible for Canada Pension Plan (CPP) payments at 65, although they can choose to receive CPP benefits as early as age 60 – or delay them until age 70 – based on their retirement income needs.

Golombek says that for CPP benefits, “If you live to your life expectancy, the total amount received during your lifetime should be the same whether you start early and receive reduced benefits for a longer time, or whether you start late and receive higher benefits over a shorter time.”

The Impact of Longevity Not only do clients have to contend with the costs of living longer, but they need to consider costs associated with long-term care – both for themselves and for their aging parents. Davis says, “We ask clients about their parents – is longevity

Source: Statistics Canada, Canadian Mortality Database, Canadian Vital Statistics - Deaths.

Many Baby Boomers, who might even be grandparents themselves, are still waiting to receive inheritances from loved ones. Shorten notes that “This massive shift of wealth will unfold very quickly as our oldest living generation passes on, leaving their financial legacies to their adult children and other beneficiaries.”

Intergenerational wealth transfer has become a hot topic, with Shorten noting that “Over the next decade, the average estate transfer value from the 75 years and over group is expected to test the $700,000 mark.”

That being said, family longevity could potentially reduce inheritance sums.

Matthew Brown, Investment Advisor, BMO Nesbitt Burns, says, “I would discourage clients from expecting an inheritance and would take it out of their plan as there’s a chance of there being substantially less money as parents and relatives are living longer.”

Preparing Clients for Retirement N

Brown can speak first-hand to the value of a solid retirement plan. “I had some

clients come in about a week ago with a retirement plan that I did for them 10 years ago,” he says. “They recently retired, so I did an up-to-date one, and the plan was too accurate to believe. There was only about a $1,000 difference.

The clients were thrilled, I was proud of the work we had done, and those clients were great advocates of my work.”

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For clients looking to minimize tax in retirement, Jamie Golombek suggests that they maximize their RRSP and TFSA contributions. When it comes to TFSAs, investment income is never taxed – and it doesn’t count as income when it’s withdrawn from the account. For non-registered accounts, he suggests “choosing investments with tax-preferred income such as Canadian dividends and capital gains.”

To ensure that assets remain with your practice when clients pass away, Grant Shorten says you should establish contact with the entire family. “We may have formed a solid working relationship with the patriarch or matriarch of the family, but we chronically maintain little or no relationship with their adult children or their grandchildren,” he says. “When our client’s wealth transfers out upon their death, it does so because there is no justifiable reason for that money to remain under our care.” He offers further tips in his paper entitled The Black Hole of Wealth Transfer, available on the Renaissance Investments website.

Advising Gen Y As Baby Boomers approach retirement, their Gen Y or millennial children (the generation born between 1980 and 2000) are starting to establish themselves in their careers. There will be an opportunity in the coming years to keep assets in the family by connecting with these younger clients.

Here are a few things to keep in mind: • They’re always plugged in: With the Internet offering instant access to information at their fingertips, you can expect to receive text messages beyond regular business hours.

• They prefer Facebook over face-to-face: Many millennials have practically grown up online. They’re certainly no strangers to social media, so be prepared to address them via Facebook or LinkedIn.

“When our client’s wealth transfers out upon their death, it does so because there is no justifiable reason for that money to remain under our care.”

• Work/life balance is a big deal: Younger clients often don’t want to wait until retirement to start travelling or to pursue their passion. You’ll likely need to educate them on the benefits of saving in an instant-gratification society.

So, what solutions do advisors recommend? Brown says, “I’m trying to get clients to invest in a few more equities, products like the Renaissance Optimal Income Portfolio, which provides stability with consistent income.”

• Treat them as equals: On the Internet, everyone’s an expert.

Anticipate that they’ll have done some research on a topic, and don’t talk down to them.

Davis, who says most of his clients have a traditional 60% equity, 40% fixed income portfolio, uses the Renaissance Optimal Income Portfolio within that fixed-income component. “I tell clients this thing is managed like a pension fund. It hopes to return 5% a year, pays out a monthly distribution, and does a beautiful job of managing downside risk.” Davis takes pride in the fact that none of his retired clients have ever had to go back to work.

Learn more about the Renaissance Optimal Income Portfolio in Solution Highlight.

*Statistics Canada (Ninety years of change in life expectancy, July 2014)

ADVISOR ToGo Access to the experts when you need them

A

John Braive, CIBC Asset Management

Podcast > Where to Find Fixed-Income Opportunities

Andrew J. Kronschnabel, Logan Circle Partners

Podcast > Offer Global Perspective on Bond Yields

Jamie Golombek, CIBC

Podcast > Prioritize RRSPs Over Debt Repayment

Luc de la Durantaye, CIBC Asset Management

Podcast > Bond Yields Won’t Rise Much in 2015

Powered by Renaissance Investments.

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Listen to short podcasts from these CIBC Asset Management experts. www.advisor.ca/togo

Income and Downside Protection for Your Clients’ Retirement Needs SOLUTION HIGHLIGHT: RENAISSANCE OPTIMAL INCOME PORTFOLIO

With Baby Boomers beginning to retire, the demand for income is growing quickly.

Features:

Markets, however, are unpredictable, particularly in the current economic environment.

• Fully diversified fixed-income exposure • Access to multiple asset classes • Managed by a collection of dedicated asset class specialists

The solution? Renaissance Optimal Income Portfolio is an all-in-one core product that generates a steady income stream and offers proven protection against market downturns.

The chart below shows Renaissance Optimal Income Portfolio’s ability to deliver consistent monthly income distributions since inception1.

The portfolio’s carefullyselected and diversified asset mix is designed to deliver steady, tax-efficient monthly income.

5.00%

$0.045 $0.040

4.00%

$0.035 $0.030

3.00% $0.025 $0.020 2.00% $0.015 $0.010

1.00%

$0.005 0.00%

$0 Nov-07

Nov-08

Nov-09

Dollar per unit distribution (left)

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14 Mar-15

Distribution yield* (right)

1

Inception date: November 13, 2007. *The monthly distribution yield is the most current monthly distribution multiplied by 12 and divided by the current market value.

For funds that don’t have a fixed distribution, the distribution yield is the last 12 months’ distributions, divided by the current market value.

Source: CIBC Asset Management Inc.

Contact your Renaissance representative for more details. | renaissanceinvestments.ca | 1-888-888-FUND (3863)

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READ AWAY 5

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BOOKS TO READ (OR RE-READ) THIS SPRING “The more that you read, the more things you will know. The more that you learn, the more places you'll go.” – Dr. Seuss

The Classic It seems like everyone is always looking for a good book to read. And why not? A good book changes you.

It can put things into perspective, inspire you to take positive steps or simply offer an entertaining escape.

The thing about a good book is that once you’ve read it, you want everyone else to read it, too. You want to pay it forward and share the joy.

We asked around and gathered opinions on five must-read books to

The Wealthy Barber: The Common Sense Guide to Successful Financial Planning by David Chilton A classic finance book that deserves a place on your bookshelf – if it’s not there already. The book gained popularity as a starting point for anyone hoping to construct a personal finance plan.

The Wealthy Barber, following the form of a novel, takes place in a barber shop in Sarnia, Ontario. Ray Miller, the well-established and downto-earth barber teaches three different characters how to get rich (and stay that way).

Ray shares his wisdom, and his “pay yourself first” golden rule.

Although some of the financial details have been updated in recent editions, the simple concepts and sound advice are why it has remained timeless. In The Wealthy Barber Returns, David Chilton revisits his original message while taking on a more modern-day approach. A good gift for a new client perhaps?

“The Wealthy Barber continues to be my favourite financial book. It relies on a very simple concept: save 10%. If you do that consistently, then your day-to-day spending matters far less!”

Jamie Golombek Managing Director, Tax & Estate Planning, CIBC Private Wealth Management

have on your list.

Happy reading!

Father Knows Best Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not!

by Robert T. Kiyosaki Through exposure to two contrasting influences, Robert Kiyosaki developed his own unique economic perspective.

He grew up observing the multimillionaire eighth-grade dropout father of his closest friend (rich dad), and his own highly-educated, but fiscally unstable father (poor dad).

Kiyosaki watched his own father work tirelessly to earn his weekly paychecks, never quite enough to make ends meet for the family. His “rich father” on the other hand, taught him that rich people let the money work for them. It’s the principle that incomegenerating assets provide a healthier bottom line. Incidentally, Kiyosaki preaches the lessons of his “rich dad.” He compellingly advocates for financial literacy not taught in schools, challenging the notion that working hard at traditional jobs is the only key to success.

“Rich Dad, Poor Dad talks about buying investments that create an income stream and it becomes a passive investment where you have little to no involvement. It’s a good read for people who want to further their education and perspective on investing.”

Eric Davis Vice-President & Investment Advisor, The Davis Wealth Management Team

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Move it or Lose it

Spring Cleaning

Spark: The Revolutionary New Science of Exercise and the Brain

by John J. Ratey, MD

The Life-changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing by Marie Kondo

Aerobic exercise physically remodels our brains for peak performance. That’s the message from the renowned psychiatrist and bestselling author of Spark. We know that breaking a sweat is good for our health, but we don’t really understand the science behind why it’s good for us. Spark is an entertaining and stimulating journey that extensively explores the connection between exercise and the brain.

If you’ve even been told to go clean your room, it turns out there’s actually a life-changing benefit to tidying your space. That’s according to Japanese cleaning consultant Marie Kondo, who takes tidying to a whole new level. Kondo says there is a right and wrong way to tidy up a space – and we’ve all been doing it wrong. She promises that if you properly simplify and organize your home once, you’ll never have to do it again. In fact, she boasts that none of her clients have lapsed since implementing her personal, category-by-category organizing system: the KonMarie Method. Her detailed guidance will help you determine which items in your home “spark joy.” Learn how to clear the clutter and enjoy the magic of a tidy home.

“I’ve always been a big believer in the importance of physical exercise, but it wasn’t until I read Spark that I more fully understood the incredible power of exercise in the context of brain health, moods, anxiety and general vitality. The stories and research in this book make a compelling case for ritualizing the habit of exercise – for reasons beyond the outer body.”

Grant Shorten Director of Strategic Insights, Renaissance Investments

“If you’re looking for that extra nudge to get your home in order, this is the book to read. Kondo not only explains how to create an orderly home, but why it’s important to do so. There is a sense of intrinsic simplicity in paring down our belongings and learning to focus on what brings us joy.”

The Renaissance Advisor editorial team

Shhh Quiet: The Power of Introverts in a World That Can’t Stop Talking

by Susan Cain Rosa Parks, Chopin, Dr. Seuss and Steve Wozniak are just a few examples of great contributors to society. Oh, and they were also introverts. In Quiet, Susan Cain champions for the value of introverts in a world where everything seems geared towards extroverts.

Through extensive research, personal and outside experiences, and even discussion on brain chemistry, Cain delves into the fascinating world of introversion. The book is highly insightful and uplifting for any introvert – and any extrovert who knows an introvert (over one-third of us are introverts, she says). Cain’s mission is to forever change the way we see introverts, and possibly most important, how introverts see themselves.

“An excellent read for anyone who would like to understand the contributions that introverts bring to a team environment. It provided me with a completely different frame of reference and led me down the path of considering what type of environment and stimuli we could provide to ensure introverts excel on the team.”

Shelly McLean Managing Director, National Sales, Renaissance Investments

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It’s tough to narrow down a list of top reads to only five books, but it’s a helpful starting point at least. Put away 10% of all income, get your body moving and organize your home properly.

An array of messages suitable for a variety of readers. Set aside some time and get reading today!

Every Client is Number One THANKS TO OUR SUPPORTERS

Without the support of advisors like you, Renaissance Investments would not enjoy the privilege of helping so many Canadians realize their investment goals.

Here is one of the outstanding professionals we are so very proud to work with.

Best tip for gaining new clients: Look after the ones you have. Deal with every client like they’re your most important one, and your portfolio will build itself. Your advocates are the ones that will make or break you.

Favourite hobbies: What do you love about the business?

I love my daily interactions with clients, and really getting to know them.

What is your personal formula for building strong client relationships?

Listening to clients, all the little bits and pieces they give you over the years and making sure that they are aware that I care about them personally, as well as financially. Whether it’s kids’ birthdays or pets, make sure you bring those points up in future meetings.

What are the most common client concerns you hear and how do you address them?

My biggest concern is that clients might outlive their funds. I keep updating and referring back to their financial plan and make sure they stay focused on the end goal of having enough money. I set realistic targets for myself and for them.

Hunting in the fall, skiing in the winter and water-skiing in the summer with my family.

One item I can’t be without: My BlackBerry. I like to be available to my clients all the time, so I am rarely without it.

Matthew Brown Firm: BMO Nesbitt Burns Location: Vernon, BC Years in Business: 13

Are there areas or themes of financial or investment planning that you plan to focus on more in the future?

Team Members: 1

No, I run a fee-based business focused on planning. That’s not going to change.

17

brain calisthenics Word scramble – Unscramble the following letters to spell words from the article on pages 9-12:

Sudoku – Complete the Sudoku puzzle so that each and every row, column and 3x3 box contains the numbers one through nine only once.

2

1. ilvgin 2. ormobse

3

3. sneeomdtcpa

7

4. gntiavi

6

5. iepnosn

7 6

5 8

6 7

2

3

2

4 8

3

4

6. vgoyinelt

8

1

7

7. elagicse

1

8. ctvaadeso

5 4

9. adtxe

3

10. minialelln

2

2

8 7

3 8 Source: 4puz.com

Spot the difference – Can you spot the five differences between the pictures below?

Check your answers at www.renaissanceinvestments.ca/magazine/answers/

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To learn more about how Renaissance Investments can help you and your clients,visit renaissanceinvestments.ca or call 1-888-888-FUND (3863).

FOR ADVISOR USE ONLY Renaissance Investments and the Axiom Portfolios are offered by CIBC Asset Management Inc. This material was prepared for investment professionals only and is not for public distribution. It is for informational purposes only and is not intended to convey investment, legal or tax advice. The material and/or its contents may not be reproduced or distributed without the express written consent of CIBC Asset Management Inc. 速 Axiom, Axiom Portfolios and Renaissance Investments are registered trademarks of CIBC Asset Management Inc.

Printed in Canada on 25% Post Consumer Recycled Paper

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($ Value in 000)

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Global Financial Crisis

12 11 10 9 8 7

2011 Downturn

6

Renaissance Optimal Income Portfolio

5

14

ar -1 M

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13 vNo

No

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12

11 vNo

10 vNo

No

v-

09

08 vNo

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07

5

S&P/TSX Composite Total Return Index

Learn how Renaissance Optimal Income Portfolio meets real client needs at

realoutcomes.ca

Source: Morningstar Direct as at March 31, 2015. *Compared to the S&P/TSX Composite Total Return Index. Volatility is measured by standard deviation of the daily returns over the periods June 18, 2008 to March 9, 2009 (Fund: 12.50, Index: 56.01) and April 5, 2011 to October 3, 2011 (Fund: 6.10, Index: 23.11).

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. The information presented is accurate at the time of first printing, and is subject to change without notice. Management fees for Class A and Class F units are outlined in the Fund Facts and Simplified Prospectus. Please read the Fund Facts or the Renaissance Investments Simplified Prospectus before investing. Mutual funds are not guaranteed, their values may change frequently and past performance may not be repeated. 速Renaissance Investments is offered by, and is a registered trademark of CIBC Asset Management Inc.

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