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Financial firms focused on investors’ behavioural tendencies



As more financial services companies integrate behavioural economics into their business models, they’re encouraging and providing financial advisors with the necessary skills to focus on investor behaviour as a way to add value to their relationships with clients for the benefit of all parties.

Specifically, wealth-management firms are developing tools, resources and training material for advisors on how to talk to clients about the various psychological factors that impact decision-making when investing. Notable examples include loss aversion, the pain of losing money in the stock market has twice the negative impact as the pleasure of experiencing gains, which could spur someone to sell stocks in a downturn, and confirmation bias, which is when investors seek out or interpret information that supports their existing point of view, potentially ignoring information that could cause the value of their portfolios to drop.

In May, Manulife Investment Management announced a partnership with BEworks, a Toronto-based consulting firm focused on behavioural science, to help advisors guide their clients through market volatility through access to research, a relaunched microsite, whitepapers and other relevant resources.

“Behavioural economics helps us understand why investors make irrational decisions,” says Catherine Milum, head of wealth sales, retail markets, at Manulife Investment Management. “We’re starting to have different conversations about investor behaviour and how we can help.”

Other firms delving deeper into this area include ATB Financial, which brought on behavioural finance expert Daniel Crosby to develop tools that help advisors discover what biases may be affecting their clients’ financial decisions, and TD Wealth, which also has a tool to help clients identify their wealth personalities and financial blind spots that impact financial decision-making. TD Wealth is also a founding partner of the Behavioural Economics in Action at Rotman (a.k.a. BEAR) centre at the University of Toronto’s Rotman School of Management, which conducts research in this field to help organizations design better products and services.

Identifying and managing investor behaviour has many benefits. Not only could it add value to the investor-advisor relationship, but it can also prevent investors from panic-selling during a market downturn, which could be negative for investors, advisors and their wealth-management firms.

Thus, some firms, such as Manulife Investment Management, are using behavioural economics principles proactively to try to prevent the type of panic-selling that occurred when the market corrected in the fourth quarter of 2018, particularly as some economists are predicting a recession in the near future.

“The timing was right to do a deeper diver into investment behaviour,” Ms. Milum says.

Manulife Investment Management’s new initiative is based on work with BEworks’ chief client officer, David Lewis, on what drives investor behaviour – with the aim of increasing client engagement. The firm’s relaunched microsite contains videos and other resources to help guide advisors in their conversations with clients; a cross-Canada roadshow to promote the initiative further is planned for the fall.

Advisors also are given tips on what to tell clients who may be susceptible to certain behaviours. For example, someone with loss aversion should be discouraged from checking her investment account regularly. One suggestion might be for the client to check the account as often as she goes to the dentist.

The goal is to help advisors understand why people make certain investment decisions and how to counteract a move that might throw an investment plan off track, such as selling when the market is in the midst of a correction or buying a speculative stock without enough due diligence, Ms. Milum says. The focus is on advice, not just products, which “we think will have more positive outcomes for their client.”

ATB Financial’s wealth-management division, ATB Wealth, developed a program called “Money 20” with Mr. Crosby, who is also chief behavioural officer at Berwyn, Penn.-based asset-management firm Brinker Capital Inc. and author of books such The Laws of Wealth and The Behavioral Investor. Money 20 is a 20-question assessment that helps advisors identify behavioural biases that might cause clients to go off course from their financial plan.

“For us, it’s about asking better questions that allow us to have a richer conversation with clients,” says Chris Turchansky, ATB Wealth’s president.

The firm also has a coaching program to help advisors improve their interactions and engagement with clients through a behavioural finance lens.

“Even though we were trying to move the bar and focus on having good conversations with clients about goals and dreams, what we weren’t getting at were the underlying emotions that oftentimes derail someone’s investment or financial success,” Mr. Turchansky says. “The more we prepare and have better and deeper conversations with our clients about how they respond [through market volatility], the better off we are.”

TD Wealth has its own tool for advisors that helps clients understand their “blind spots” when it comes to investing, says Dave Kelly, the firm’s senior vice president, private wealth management.

For example, someone who has a high degree of loss aversion or is focused on the short term would likely require and value more conversations and contact with an advisor than someone who doesn’t have these same behavioural tendencies.

TD Wealth’s tool leverages the commonly used “five-factor model of personality” assessment – which gauges a person’s openness, conscientiousness, extraversion, agreeableness and neuroticism (or OCEAN) – to determine an investor’s wealth personality.

The tool has “changed not only the conversation, but the relationships that [advisors] build with customers, which are at a deeper level than they were before,” Mr. Kelly says.

“The way I describe it to advisors is that customers have always intuitively known what we are just starting to figure out, the value is in the ongoing relationship and advice that [a client receives] and the counsel when life happens,” he adds. “It’s not actually anchored in the investment conversations.”

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Algonquin Power new share offering, Boyd Group Income Fund conversion and top 10 year-end tax tips




Looking for investing ideas? Here’s your weekly digest of the Globe’s latest insights and analysis from the pros, stock tips, portfolio strategies plus what investors need to know for the week ahead.

Algonquin Power’s new share offering raises issues for investors

Algonquin Power & Utilities expected to close an offering this past week that would see the renewable energy producer and distributor sell an additional 23 million shares priced at US$13.50, David Berman writes. The offering price marks a 4-per-cent discount to the stock’s recent record high of US$14.06 in New York. No doubt, the new offering raises a couple of issues for investors who have bet on Algonquin’s growth-oriented approach to wind, solar and hydroelectric generating facilities in Canada and the United States.

One issue: dilution. Since the new offering will raise the number of outstanding shares by 4.7 per cent, existing shareholders will see their slice of ownership shrink a little. Another issue: Algonquin may be signalling that the valuation on its stock is a bit stretched.

Why Boyd Group Income Fund’s conversion will trigger a hefty tax hit for some

Boyd Group Income Fund has indicated that it plans to convert from an income trust to a corporation and exchange its units on a one-for-one basis for new common shares. If you hold Boyd Group units in a non-registered account, you could be facing a hefty capital gains tax hit when the conversion takes place, John Heinzl writes. That’s because the exchange of units for common shares of the new company, to be called Boyd Group Services, will be treated for tax purposes as if you had sold the units.

Assuming the transaction is approved at a special meeting on Dec. 2, the conversion to a corporation would be effective on Jan. 1. The silver lining here is that, based on the information provided by the company, the transaction will fall in the 2020 tax year, said Dorothy Kelt of That means investors who exchange their units for new shares won’t have to report their capital gains, if any, until they file their 2020 tax returns in 2021.

More from John Heinzl: Johnson & Johnson, SIR Royalty Income Fund and more investing stars and dogs of the week

The top 10 year-end tax tips for investors

Year-end tax planning can save investors significant dollars, Tim Cestnick writes, and he shares his top 10 ideas here. They include observing investment deadlines. If you hope to sell an investment at a loss in 2019 to offset it against capital gains, the settlement date – not the trade date – is what matters. To ensure that your transaction settles in 2019, place any trades on or before Dec. 24.

Another tip is to trigger losses before year-end. Have you realized capital gains this year, or in one of the three previous years? If so, consider selling investments that have dropped in value so that you can apply those losses against the capital gains. Losses must be applied to the current year first, then can be carried back up to three years or forward indefinitely.

Gordon Pape weighs in on using DRIPs as an investment strategy, plus answers other readers’ questions

A reader asks Gordon Pape to weigh in on DRIPs as an investment strategy. He responds: DRIP is short for dividend reinvestment plan. Many companies offer them to allow people to reinvest their dividends in new shares. No commissions are charged and, in some cases, companies offer a small discount from the market price. DRIPs are an excellent option if you don’t need the cash flow from dividends and if you want to build your position in a company over time. I’m not a big fan of buying partial shares as it complicates the calculation of adjusted cost base. He answers more reader questions here.

Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up here.

How the federal election could impact the Canadian stock market

Can voters affect stock prices in Canada? Investors are about to find out, David Berman writes. The different approaches of the major parties on a number of key issues during the campaign could have a profound impact on certain sectors – particularly energy, but also telecommunications and financial stocks.

The past four years under the Liberal government offers some guidelines on what is at stake in Monday’s election. Over all, the S&P/TSX Composite Index has risen 19.4 per cent (not including dividends) since the Liberals were elected with a majority in 2015. While that may sound good, the performance has lagged the 47.4-per-cent gain in the S&P 500 – where profits have been pumped up by U.S. corporate tax cuts.

The Canadian energy sector is a clear laggard. It has tumbled 12 per cent since the October, 2015, election, the victim of weak crude oil prices, but also what some critics see as a fumbling government policy response to pipeline construction and concerns over climate change.

Read more: Tracking what the federal political parties would do for your personal finances

What investors need to know for the week ahead

It’s a busy week ahead for corporate earnings, as companies releasing their latest financial results include Canadian National Railway, Canadian Pacific Railway, Rogers Communications, Tesla, eBay, Canfor, Kimberly-Clark, Procter & Gamble, 3M, Altria, Amazon, Comcast, Verizon, Expedia, Husky Energy, Twitter, Shaw Communications, Ford, Restaurant Brands International, Lockheed Martin, UPS, Halliburton, Newcrest Mining, West Fraser Timber and Domtar.

Economic data on tap include: Canadian retail sales for August and U.S. existing home sales for September (Tuesday); Canada’s wholesale trade for August (Wednesday); and U.S. new home sales and durable goods orders for September (Thursday).

Looking for more money ideas and opinions?

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A frighteningly good strategy for income investors: Mash momentum into the mix

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Space Companies Are Investing Big in 5G Technology




Space companies worldwide want to bring more data to your devices, faster than ever before.

Entities ranging from SpaceX to Amazon are launching (or may launch soon) huge numbers of new satellites that can carry the extra bandwidth. And cellular network providers around the world are upgrading their equipment on the ground to meet the expected future demand.

This new technology is being built out for new 5G networks. It’s touted as a big leap over current 4G technology, which allows you to do data-intensive things like stream Netflix.

5G will be even better, Will Townsend, a senior analyst for market research firm Moors Insight & Strategy, told Users will experience less latency, he said. Latency refers to the time it takes to send a packet of data to a receiver (like a cellphone) on a network. 4G networks have about 50 milliseconds of latency, and 5G networks are expected to be 10 times better, with latencies of less than 5 milliseconds.

This will result in a “faster and more responsive” experience, Townsend said in an email. “For consumers, this will equate to faster downloads and a non-buffered video playback experience,” he said. “Mobile gamers will appreciate fast responsiveness.” Business applications will range from remote manufacturing to telesurgery, he added, and there will be a “richer retail experience bridging online capabilities.” The growth of 5G will also help to address the rise of the internet of things, or the proliferation of network-connected, or “smart,” devices. There are already smart fridges, stoves and security systems, for example, and consumers are also using wearable devices that share bandwidth on crowded mobile networks.

Meanwhile, businesses have embedded tracking devices in locations such as shipping containers, oil and gas lines, and power generators, with each device providing real-time information on the status of the thing being tracked. This information is meant to make it easier for companies to respond if something breaks and to keep better track of shipments crossing the globe with manufactured goods. Whole industries may change with the rise of connected devices, such as driving (with the use of autonomous vehicles) or factories (with production lines that may be able to monitor themselves).

When is 5G coming?

In the United States, the big four carriers — AT&T, Sprint, T-Mobile and Verizon — have already launched mobile 5G in a handful of metro areas. For example, as of July, Sprint had deployed mobile 5G in parts of Atlanta, Chicago, Dallas-Fort Worth, Houston, and Kansas City, Missouri, according to an article Townsend wrote for Forbes. And deployment will continue for all carriers through the rest of 2019 and into 2020, he said.

In many cases, however, you won’t be able to access the network with your older device. Once the infrastructure equipment is upgraded, consumers will need to buy new cellphones. Check your preferred brand carefully. “Samsung and Android devices will lead Apple by 18 to 24 months in handsets,” Townsend said. But there is big potential for carriers, who “are spending billions globally to upgrade the networks because they see the potential in monetizing new services,” he added.

On the business side, one of the big arguments for moving to 5G is the ability to participate in “Industry 4.0,” or the fourth industrial revolution. This term commonly refers to factories embedded with wireless connectivity in their machines and equipment. Using emerging artificial intelligence, the goal is for the factory to monitor its own production line and to make changes as needed for safety, efficiency or other needs. Some analysts worry that AI could replace jobs and make unemployment rise, while others are optimistic, saying new job opportunities will arise with the new technology.

Which space companies are working on 5G?

Many space entities are rushing to be trendsetters in 5G. For example, SpaceX has received approval to launch nearly 12,000 Starlink internet satellites (and recently applied to loft up to 30,000 more). In May, SpaceX launched its first 60 Starlink craft, which operate at a low-Earth-orbit altitude of about 342 miles (550 kilometers). (For comparison, the International Space Station orbits about 250 miles, or 400 km, above Earth.)

OneWeb has satellite-internet plans as well. The company plans to assemble a constellation of nearly 650 satellites to make web access easier around the world. OneWeb launched the first group of six satellites in February aboard a Soyuz rocket provided by European launch company Arianespace. These satellites circle Earth in near-polar orbits, at an altitude of roughly 750 miles (1,200 km). Amazon and Facebook are among the other companies planning 5G satellite networks.

What are the risks of 5G?

The proliferation of 5G satellites in orbit raises a number of questions from industry observers. A big one is the rising risk of collisions, which could, theoretically, spawn huge populations of orbital debris. The world got an inkling of this risk last month, when a European satellite made a precautionary maneuver to dodge a potential collision with one of the SpaceX Starlink satellites.

There also are worries about radio-frequency interference with all of these coming satellites. Operators of weather satellites, in particular, are concerned about some of the authorized 5G frequencies approaching the 23.8-gigahertz frequency commonly used in weather forecasts. At this bandwidth, “water vapor in the atmosphere gives off a feeble signal,” and the satellites can examine humidity in the atmosphere, even if the region is cloudy, Popular Mechanics reported. That said, both NASA and the U.S. National Oceanic and Atmospheric Administration are negotiating with the Federal Communications Commission (which allocates spectrum frequencies to U.S. companies) to protect weather satellites, according to Popular Mechanics.

There’s also concern that the abundance of satellites will interfere with sky observations. In June, the International Astronomical Union (IAU) expressed concern that thousands of satellites could interfere with the ability to examine dim and distant objects, not to mention the lives of nocturnal animals. “We do not yet understand the impact of thousands of these visible satellites scattered across the night sky, and despite their good intentions, these satellite constellations may threaten both,” IAU officials said in a statement at the time.

As the 5G providers work out these kinks, there may be unpredictable effects of the new mobile technology, Townsend said. “Case in point: 4G LTE brought the capabilities required to make ride sharing a reality; no one really predicted that use case,” he said. Townsend called this a positive development, as it “disrupted a multibillion [dollar] taxi cab industry [and] created new income opportunity” for individuals.

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Investing in teachers is investing in children




While Isabel Teotonio’s article demonstrates that parents and students understand the negative impacts of educational cuts, we still have to ask when will the Ford government notice that teachers are a fundamental part of the overall success of students? It has been stated that the Ford government wants to cut back on the number of teachers for cost benefits, but at what expense? It is at the expense of students like myself, who will be our future. This cut will not only increase class sizes and require more online learning, which studies have proven have no positive impact on one’s learning, but it also reduces the amount of one-on-one time students can receive from their teacher, which is a key aspect for active and progressive learning. This impact will be reflected in future generations to come. Along with current students who are confused and struggling in an overcrowded class, all because there is not enough time for all the students to receive the individualized help they need and are entitled to. In an era where face-to-face communication is already limited and technology takes over every aspect of a child’s life, we’d hope at least while in school these students could learn socialization and communication skills, but instead they will be lost in the large classes, just because the Ford government wants to hypothetically save money.

As a community, we need to invest in our children. These cutbacks will not only affect the children now but the adults that they will become, which in turn will be the adults governing us.

Diana Malatesta, Hamilton

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