It isn’t an easy time to be an investor. Stock and bond markets are choppy. Inflation is pinching budgets. As interest rates rise, there’s talk of recession. But, as advisors know, there are risks associated with avoiding investing, investing too conservatively or pulling out of the market, too.

If your clients have accumulated surplus savings but are nervous about what to do with those savings, convey to them that investing appropriately depends a lot on how long someone has to invest. Money clients need to use in the next six months should stay liquid. But money clients don’t plan to touch for 10 years has an opportunity to grow through volatile markets and create a bigger nest egg than if it stays on the sidelines.

It also helps to put the current situation in perspective, suggests Kevin McCreadie, CEO and chief investment officer of AGF Management Ltd. He points out that while many investors want to return to “normal,” they often don’t realize that March 2020—immediately before the impact of the pandemic hit markets—wasn’t normal. Ever since the 2008 global financial crisis, interest rates have been abnormally low in Canada, the U.S., and Europe, and the big fear in the years following 2008 was deflation, not inflation.

“It’s not that the absolute level of interest rates is high. They’re actually fairly normal relative to history,” McCreadie says. “It’s the pace at which we’ve gotten there that’s the problem. We went from near zero in the spring in Canada and the U.S. to now when we’re approaching 4%.”

While it’s been difficult for everyone to adjust to the very quick rise in interest rates, McCreadie says markets have already priced in a return to conditions more similar to the more accurately described “normal” of 2005 and 2006. In fact, for clients with enough runway before they need to access their money, this is an attractive time to invest. After all, many stocks have already declined in anticipation of a recession, and many bonds are finally providing income thanks to higher interest rates.

“Now is not the time to sit in cash or move to cash,” McCreadie says.

A portfolio approach can provide comfort

Portfolios geared toward different investor profiles can be reassuring for investors because they deliver discipline, diversification, and automatic rebalancing. McCreadie oversees the five AGF Elements Portfolios, which pre-emptively positioned themselves for the pivot to increasing rates.

“We were more cash based and underweight fixed income by a large amount, and then we used alternatives in our portfolios—liquid alternatives that gave us ways to be defensive [and] would actually go up when the market went down. [In addition,] we thought inflation was going to be around for a while, so we used real assets in our portfolios—things that would be inflation beneficiaries,” he explains.

Now that interest increases are expected to top out at 4% or perhaps 5%, McCreadie and his team are starting to reduce the portfolio underweights in equities and fixed income, while keeping inflation hedges and alternatives in place.

Professional oversight that investors know will proactively respond to market conditions can provide the reassurance clients need to keep investing their savings through all market conditions. That, in turn, makes it much more likely they’ll achieve their financial goals.

“The value of advice has never been greater for people,” McCreadie adds. “It’s never been more important to have an advisor.”

If there was ever a time for advisors to reach out to clients and make sure they’re invested appropriately for their investor profile, it’s now. There is an investment solution for everyone—you just have to help your clients find theirs.

PAID CONTENT

Inflation is increasing the price of almost everything in your clients’ budget, but the need to save for the future hasn’t gone away. Now is the time for advisors to step in with strategies that make spent dollars go further and open up space for saving. It’s the only way to keep long-term plans on track.

The challenge advisors face is that when clients have a comfortable margin between income and expenses, they often don’t pay as much attention to their budget. Spending a little more here and there doesn’t matter as much because they know they’ll be able to make ends meet.

However, in the current environment, many clients are covering higher costs with the same income and some may even be facing a shortfall. As a result, they’re starting to question every discretionary cost – and, for some, saving will fall into that category.

Unless advisors take action and help clients cut costs in other areas, saving may go on hiatus. When that happens, it obviously affects a client’s ability to meet long-term financial goals. It can also become an uphill battle to re-establish a commitment to saving even after conditions improve.

Tips to generate a surplus

Better cash flow management can often make significantly more room in a budget for saving. Quick tips you can share with your clients include:

• Track expenses for a month to see exactly where money is going
• Evaluate every cost to see if there’s a way to pay less for the same or similar value
• Prioritize expenses and consider trimming costs in lower-priority areas
• List needs and wants separately, and make sure saving makes the “needs” list
• Bundle services together with one provider and negotiate a discount
• Consolidate debt at a lower interest rate, and make paying off debt a “need,” too
• Establish an emergency fund so clients don’t have to dip into savings to cover unexpected costs
• Remember that budgeting is an ongoing process that must stay flexible to adjust to changing circumstances

It’s also important to let clients know that anytime they run into a cash flow crunch, you’re available to talk them through it and offer suggestions. Emphasize that making the best decisions in tough times helps to minimize the impact on the longer-term plans you’ve built together.

The fact is that, today, the most relevant financial education you can offer to clients relates to budgeting. It’s top of mind. It’s immediately impactful. It demonstrates the value you offer in a very concrete way, which solidifies client relationships.

It also opens the door to motivating conversations about saving any surplus. Encourage your clients to imagine a very specific picture of what they’re saving for. Steer them towards the experiences they’re dreaming of—for example, barbequing on a new deck steps away from a rippling koi pond, or sinking hands into clay in a pottery studio set up in the shed. Ask clients to describe the many aspects of their vision for the future in as much detail as possible. Then you can work together to save and invest towards them.

And where should you invest your clients’ savings in an environment of volatile markets and with a potential recession on the horizon? That’s the focus of the second article in this series.

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What’s the most compelling way to introduce critical illness insurance?

Most of us have a critical illness (CI) story—a family member, a friend, perhaps even ourselves managing an unexpected diagnosis along with the financial fallout. Sharing these stories, and inviting clients and prospects to do the same, is often the best way for advisors to help people understand the importance of CI insurance.

If the hero of the tale didn’t have CI coverage, the story underscores the need. Discuss the unexpected expenses that followed the diagnosis. The big one is generally lost income for the patient, and perhaps the spouse, but every story is full of unique and compelling examples. And, if there was a policy in place, you have a chance to explain precisely how it relieved financial pressure and allowed the patient to focus on recovery. Either way, stories make the risk real and relatable.

CI insurance itself has a good story, created by South African heart surgeon Dr. Marius Barnard because he saw his patients struggle financially after their illnesses. Barnard, who was on the team that performed the first human-to-human heart transplant in the world, recognized that financial insecurity can stand in the way of healing—and he did something about it.

Today’s CI solutions cover a very common risk at a reasonable cost. If policyholders are diagnosed with a covered condition—such as cancer, stroke, or heart disease—they receive a tax-free, lump-sum benefit they can use for whatever they need. That may include the following:

• Taking time away from work;
• Paying down the mortgage;
• Arranging childcare for children;
• Getting more help around the house;
• Making a home more accessible; and
• Travelling to get healthcare.

Because the CI benefit is so flexible, this type of insurance suits most people of working age and their children. And, while CI insurance is sometimes included in a group plan, topping up with a personally held policy can help clients make sure they’ll have enough. Also, when clients have their own coverage, they can keep it as long as they need it, rather than risking losing it if they change employers.

Clients often think they don’t need CI coverage because they’ve always been healthy, but there are plenty of examples of athletes in the prime of their careers who have been diagnosed with a CI. Stories can help here, too. For example, Mario Lemieux had to take time off from the Pittsburgh Penguins in 1993 to treat Hodgkin’s lymphoma, and Lance Armstrong had to stop cycling in 1996 to treat testicular cancer before returning to compete at the 2000 Olympics. Being healthy today isn’t a free pass for life—and of course the best time to get CI is while you are healthy.

The hardest objection to overcome is usually around cost, but this is where advisors are ideally positioned to find solutions. Problem-solve with your client to fit a CI policy into their budget—because this is one policy that many can’t afford not to have.

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Most Canadians with life insurance (62%, according to a recent survey) get their coverage through a workplace group benefits plan—but they likely don’t have enough to protect their families. The same study found that group plans generally insure just one to two times the employee’s annual income, or between about $55,000 and $110,000.

While life insurance coverage through a group plan is valuable, advisors who regularly run the numbers for their clients know sums in that range can quickly erode through funeral and other immediate expenses following a death. Based on an individual’s personal situation, something closer to six to 10 times an annual income may be more appropriate—and, it’s at the higher end for those who count on non-salary compensation such as commissions and bonuses.

In addition, spouses and children may not be covered under the group plan, which leaves a hole in a family’s risk protection strategy. Meanwhile, choosing to bump up coverage held with an employer—for example, to increase the life insurance benefit amount or add a spouse—leaves employees vulnerable because they generally can’t take their group coverage with them if they change employers.

Advisors can get their clients thinking about the range of common situations that might require additional, individually held life insurance by asking probing questions. Consider using the following as a starting point for conversations with your clients:

Do you need your own life insurance? 

• How much life insurance coverage would you have if you lost your job?
• What if you moved to an employer that doesn’t offer insurance benefits?
• What if your employer decided to stop offering insurance benefits?
• What would you do if you needed medical underwriting to get your own life insurance at some point in the future but no longer qualified?

Do you need to top up your life insurance? 

• With just your group life insurance, how much would your family have to cut back their expenses?
• Would they be able to keep up with mortgage or rent payments and afford any necessary repairs?
• Could they pay for health, dental, and other benefits if coverage from your employer stops with your death?
• Will your children be able to afford the education you want for them no matter what?
• Will there be some room in the budget for other activities, like travel?

Employees often feel “covered” when they have group benefits, and there’s no question workplace coverage provides an important foundation for the protection your clients need. However, it’s important to ensure everyone has sufficient (and ideally portable) life insurance for the unexpected events life sometimes throws our way. As an advisor, you can play a critical role by helping clients decide how much life insurance they need and then sourcing cost-effective solutions for individually held policies that supplement group coverage.

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News reports are full of stories about rising prices compounded by supply chain challenges, and your clients are seeing costs go up in their daily lives – at the grocery store and the gas pump.

As a result, many investors have two pressing concerns. First, are their investment returns keeping pace with inflation? Second, how big a bite are fees taking out of their returns? At the same time, they are demanding more from their investment products – for example, requiring them to focus on sustainability and deliver excellent performance.

It can be challenging for advisors to meet all client needs at once, but today’s lower-cost insurance risk-managed solutions are one potential solution, suggests Michael Rogers, senior vice-president, brokerage distribution networks, at Beneva, the company created by the coming together of La Capitale and SSQ Insurance.

Interest-bearing investments can be risky, too

Some people have reacted to the stress of the pandemic and anxiety about market volatility by restricting their investments to interest-bearing fixed-income products. The good news is that these products tend to be associated with relatively low fees. However, in the current low-interest-rate environment, fixed-income investors are right to wonder if they’re gaining ground against inflation. And, as advisors know all too well, there’s another big risk as well.

“Clients who are sitting on the sidelines and using that as a risk-management tactic are not aware that that’s actually staving off one type of risk, but creating another type of risk: opportunity risk,” says Rogers. “We’re in what’s probably an excellent bull market. We’ll only know at the end, but it’s performing very, very well. And, by sitting on the sidelines in money markets or T-bills, clients are missing out on that growth.”

Unprotected mutual funds are vulnerable to volatility

On the other hand, clients who have remained in diversified mutual funds, with exposure to investment markets, are more likely to achieve returns that beat inflation – but they are also exposed to significant market risk. As Rogers puts it, “While mutual funds have great advantages of pooling the investments and portfolio management, they are subject to the same market or economic forces and, if a correction should happen, they could be caught off-guard.”

Protection from downside risk is essential, but in the past, the comfort and security of guarantees tended to come with a sizeable price tag – and today’s price-conscious investors want to avoid additional costs.

Insurance-based products can help balance client needs

“Advisors are in a unique position to think outside of the box by offering growth potential within insurance risk-managed solutions,” says Rogers. “That allows for the best of both worlds, and they are priced very, very competitively, which historically wasn’t the case . . . The risk pools have evolved for insurance companies, the performance has done well, and we’ve had a chance to adapt our positioning and find a sweet spot, if you will, where clients can get the benefits without the higher cost.”

Now, investors may not have to pay anything more for the peace of mind that comes with insurance protection – so they’re essentially getting extra value for free. Some insurers’ products also check off other items on investor wish lists, with a verified focus on sustainability and solid return history.

For investors concerned about rising prices and advisors looking to satisfy their clients’ needs, that’s a win on many levels, says Rogers.

Market returns plus guarantees at a reasonable price

	La Capitale investment accounts1	SSQ Insurance guaranteed investment funds2
Insurance protection	100% capital guarantee on death on contributions made before age 75	75%/75% maturity/death capital guarantee 75%/100% maturity/death capital guarantee 100%/100% maturity/death capital guarantee
Managers/Indexes	Name-brand funds from AGF, CI Investments, Dynamic, Fidelity, TDAM and more	Institutional money management from Beutel Goodman, BlackRock Asset Management, Jarislowsky Fraser, PIMCO and more
Management fees	Range from 1.41% to 2.60%	Range from 1.30% to 3.30% Can be reduced by more than 1% within Private Wealth Management offer3
Value-add of guarantees	No additional fee charged for capital guarantee	Offers more generous protection, including maturity and death capital guarantees

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Michael Rogers Senior vice-president, brokerage distribution networks, Beneva

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¹ Offered by La Capitale Civil Service Insurer Inc. ² Offered by SSQ, Life Insurance Company Inc. ³ Available with a minimum bundled investment of $500,000. Some terms, conditions and exclusions may apply.

PAID CONTENT

The COVID-19 pandemic has upended our lives and rattled confidence in the concept of planning for the future. Two years on, shaken by this experience, many investors worry about whether they can count on financial markets to help them reach their goals.

Nearly six in 10 Canadians (59 per cent) were concerned about the effect of COVID-19 on their savings and retirement plans in late 2020, according to an Ipsos poll conducted in November of that year. In search of market exposure with less risk, many turned to segregated funds. Figures compiled by Investor Economics (an ISS Market Intelligence company) show seg fund gross sales reached a 12-year high in 2020, at $13.7 billion. The trend is continuing in 2021, with first quarter gross sales at $5.4 billion, up 25 per cent over the previous year.

Part of the appeal is that the cost of the seg fund insurance wrapper has dropped. In some cases, the management expense ratio (MER) of a seg fund is equivalent to the MER of the underlying mutual fund. That makes seg funds attractive to people of all ages who are looking to put a floor on potential market losses.

A multi-generational crisis of confidence

It is all ages that are experiencing pandemic-induced anxiety about market returns, according to a recent survey by Beneva, the firm created out of the coming together of La Capitale and SSQ Insurance.

More than half (57 per cent) of millennials who don’t yet invest worry about losing money in the financial markets. An even higher number (80 per cent) of Gen Xers, scarred by their experiences investing through the dot.com and global financial crises, think they will have a harder time achieving financial security than their parents.

Then there are the boomers, who are transitioning into retirement and moving from accumulation to decumulation. They’re on a quest for continued growth, but they’re also in need of capital preservation and estate planning solutions.

Guarantees offer a path back into investing

“Clients need to get back into investing, but we need to be there for them, understand their needs and make sure they’re also managing their risk,” says Lara Nourcy, executive vice-president, individual insurance and financial services, at Beneva. “That balance is what an insurance product can bring to clients.”

This RRSP season, Nourcy suggests advisors use products such as La Capitale investment accounts and SSQ Insurance guaranteed investment funds to give clients of every generation the potential for significantly better returns than fixed-income investments, with guarantees that protect assets from the worst effects of volatility.

“It’s important for advisors to provide Canadians with product solutions that give them the assurance of reasonably managing risk and also attaining their goals,” says Nourcy. “At Beneva, we’re focused on the client more than the product. The product is meant to help the client invest and be secure, but the client is at the centre and we work to make sure the product fits the client’s need to protect what’s most precious for them.” 

Market returns plus guarantees at a reasonable price

	La Capitale investment accounts	SSQ Insurance guaranteed investment funds
Insurance protection	100% capital guarantee on death on contributions made before age 75	75%/75% maturity/death capital guarantee 75%/100% maturity/death capital guarantee 100%/100% maturity/death capital guarantee
Investment opportunity	Name-brand funds from AGF, CI Investments, Dynamic, Fidelity, TDAM and more	Institutional money management from Beutel Goodman, BlackRock Asset Management, Jarislowsky Fraser, PIMCO and more
Management fees	Range from 1.41% to 2.60%	Range from 1.30% to 3.30%
Value-add of guarantees	No additional fee charged for capital guarantee	Offers more generous protection, including maturity and death capital guarantees

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Lara Nourcy Executive vice-president, individual insurance and financial services, Beneva