For investors, volatile times call for calming measures. And in the past few months, investors, who have been inundated with information, have been increasingly relying on financial planners to reassure them that their retirement nest eggs are safe.
“The biggest job for us as financial planners is to make sure clients stay on the path of their financial plan and not get bogged down by the noise and help them filter out what they are hearing,” said Trung Oan, senior financial planner at TD Waterhouse.
He added that it’s key to keep investors focused on their investment goals and ensure they don’t make knee-jerk investment decisions.
“Most clients would be asking, ‘Does it make sense to sell any of my equity funds at a low price and go into a bond fund or cash that’s more stable?’ And the answer to that is, generally, no. The asset allocation should be appropriate to begin with.”
Jake Nemec, a financial planner with BMO Financial Group, said whenever clients ask about making portfolio changes, he refers back to the needs in their financial plans.
“We’re doing a financial plan for them, not just an investment plan. So, I’d ask if anything had changed in the past month. More often than not, they say no. They’re still working on the same goals. They still have the same overall level of risk tolerance. They’re just asking the question because of all the news they’re hearing out there.”
Investors moving money into more secure arenas
Nationally, however, Canadian investors aren’t staying the course in the face of a tough world economy. Over the summer, Canadian investors stampeded to less risky mutual fund investments.
According to data provided from the Investment Funds Institute of Canada (IFIC), nearly $2.7 billion flowed out of Canadian, global and sector-specific equity mutual funds in July and August.
Virtually all that money flowed into Canadian fixed income funds (66%) and global balanced funds (34%) that invest a larger proportion of assets in less risky investments like bonds.
That kind of investment shift doesn’t reflect Nemec’s client portfolios. But it may reflect a large portion of Canadians who make their own investment decisions through self-directed investment accounts.
A study conducted by Leger Marketing in June for BMO Nesbitt Burns found that only half of Canadians have a financial plan, even though 72% hold investments. The study found that investors without a financial plan were less likely to follow through, let alone meet, their investment goals. Those without a financial planner are more likely to make mistakes that generate more investment losses than returns (see “Emotional IQ key to avoiding common investment mistakes” – issue 1130; June 21-27).
“As a financial planner, we’re not trying to chase the hot sectors,” said Nemec. “Most of our clients have portfolios allocated the way that’s appropriate for them based on their time frame and risk tolerance.”
Added Oan, “We really preach discipline for financial plans. We want clients to view the big picture. We don’t want them to get caught up in the day-to-day movements.”
Despite uncertainty, Canadians investing
While equity markets have remained highly volatile, Canadians have not abandoned the investment market. Eddy Eng, IFIC’s senior economist of statistics and research, noted that even though mutual-fund flows have shifted to less risky asset classes, the total value of mutual fund assets held by Canadians continued to grow this summer.
The industry had net sales of $566.4 million in July and $205.2 million in August. As of August 31, total mutual-fund assets invested in Canada rose to $778.6 billion from $766.8 billion at the end of 2010.
“People haven’t left the mutual-fund world,” said Eng. “They’re just finding a better place to park their money.”
But Oan noted that current market valuations are attractive for investors who have the cash available and have longer-term investment horizons.
“Our view is that any market volatility that was experienced during the summer was a unique opportunity to make a meaningful investment at very reasonable prices,” said Oan.
“So, we were recommending long-term clients to view these dips as market opportunities, and for any clients that had large sums of money, several were investing during the summer. We did implement dollar-cost-averaging strategies so they could take advantage of the ups and downs.”
Need for financial planners growing
Surveys have suggested that Canadians are finally seeing the need to have a financial plan, or at least discuss their financial and investment decisions with a professional. The North Shore Credit Union (NSCU) has focused on wealth management as its key area of growth and differentiation among its competitors.
Over the past few years, NSCU has spent tens of millions of dollars in upgrading three-quarters of its branches to providing a “financial spa” experience, replete with soothing music, a concierge with wet towel service and even aroma therapy.
Chris Catliff, NSCU’s CEO, said the moves have been worth it: the credit union’s wealth-management revenue has grown by nearly 25% since 2003 and its assets under management have posted double-digit percentage growth each year.
According to NSCU’s annual reports:
•the value of RRSPs held by members grew 22% between 2006 and 2010; and
•the value of term deposits jumped 59% to $997.1 million as of December 31, 2010.
“We’re finding the 100% deposit insurance [for credit union deposits] has helped us tremendously,” Catliff said. “About 82% of our deposits are with people that have over $100,000 with us, so we’ve really grown the affluent deposit market. Members appreciate the approach we have. They’re not redeeming [their investments]. They like the proactive calls, and they’re sticking to the plan.” •
