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Globe Advisor's Best of 2021: How these trends are reshaping the investment industry – The Globe and Mail



There are increased concerns among advisors about what products are receiving the RI or ESG label.Rawpixel/iStockPhoto / Getty Images

The end of 2021 marks more significant changes in the financial services industry with the implementation of the bulk of the client-focused reforms (CFRs).

These new rules will introduce enhanced know-your-product (KYP), know-your-client, and suitability requirements to which dealer firms and advisors must adhere. Yet, these reforms are not the only changes that advisors and their firms are focusing on.

From demographic changes to the rise of responsible investing (RI) and the hot housing market, these themes, and various others, made an impact in 2021 and will continue to do so in the year ahead.

Here are 10 articles on key trends advisors and the investment industry need to keep an eye on:

Why the investment industry should prepare for more rigorous regulations

Investment industry firms and advisors need to be working proactively on updating their client relationship policies and procedures in order to stay on top of anticipated future changes beyond the new CFRs set to take effect later this year. However, the CFRs don’t include several other proposals that have been discussed in recent years, such as a more rigorous KYP and investment suitability processes and restrictions on referral arrangements, which many industry players believe are coming.

New accreditation may lead to growth in use of the ‘Smith Manoeuvre’

The “Smith Manoeuvre” has been a niche strategy in Canada’s investment industry for decades, but a new training program and accreditation seek to professionalize the leveraged approach and, in turn, increase the number of financial advisors offering it to clients. Launched last year, the Smith Manoeuvre certified professional (SMCP) accreditation program aims to train not only advisors but also mortgage brokers, accountants, and other financial professionals who often help their clients use the approach of transforming non-tax-deductible mortgage debt into a tax-deductible investment loan.

Changing nature of financial advice could lead to rise of paraplanners

The increasing focus on holistic financial advice and financial planning in Canada’s financial services industry may lead to increasing demand for paraplanners – especially among those who bring an advanced skill set to the table. Paraplanning often involves the non-client-facing, data-driven aspects of a financial plan, and services range from providing more administrative tasks to the development of complex financial plans. It’s also an established service in the advisory space in places like Britain and the U.S.

Why advisors and investors need to take growing concerns of ‘greenwashing’ seriously

The skyrocketing interest in RI is posing a challenge for advisors: How to find the right investments for their clients while avoiding the growing concern of “greenwashing” that could backfire on results and harm their reputations. There are increased concerns about what products are receiving the RI or ESG label, along with the rising number of products on the market. Tariq Fancy, former chief investment officer of sustainable investing at BlackRock Inc., wrote recently that RI “boils down to little more than marketing hype, [public relations] spin and disingenuous promises from the investment community.”

What Canada can learn from the fallout of Britain’s financial services overhaul

As Canada embarks on yet another round of changes with the introduction of CFRs later this year, Britain still finds itself grappling with the fallout of its much more aggressive overhaul, the Retail Distribution Review, which took effect on Dec. 31, 2012. Britain’s regulators introduced sweeping reforms for the investment industry eight years ago, including banning all commissions, yet they still are working toward finding the right balance between ensuring investors receive high-quality advice that’s available to all and that the industry itself is healthy.

A different perspective on Canada’s aging advisory industry

The aging financial advisory workforce in Canada and the need to shift to a younger demographic have been concerns in the industry for about a decade. A 2019 survey of 2,000 members of Advocis, the Financial Advisors Association of Canada, found that 51 per cent of advisors were 55 years of age and older. More than half of those surveyed had been working in the industry for more than 20 years. Is that a bad thing? Older advisors say they bring skills that fit well with the future of the sector, benefiting clients and younger team members alike.

Do regulators need to prioritize negligence over fraud?

Investment industry regulators are focusing too much on trying to protect investors from fraudsters and not enough on shielding them from the more widespread problem of advisor negligence. While fraud awareness is important, so too is advisor negligence, says outspoken investor advocate Harold Geller, a lawyer at MBC Law Professional Corp. in Ottawa. That includes everything from advisors failing to know their clients’ needs and providing unsuitable recommendations to unauthorized trading or misleading a client with false information.

What needs to be done to bring more women into the investment industry?

Although the investment industry has shifted toward holistic, relationship-focused financial advice, there’s one thing that hasn’t changed: the proportion of advisors who are women remains stubbornly low, at about one in four in Canada. That’s not because firms haven’t been trying to attract more female advisors, say Judy Paradi and Paulette Filion, partners at in Toronto. While they emphasize that there have been concerted efforts among financial services executives to encourage women to enter the profession, the challenge, Ms. Paradi says, is that “the branches are still predominantly run by men, who do the hiring – [and] people hire in their own image.”

Will raising standards for advisors be a double-edged sword?

Although measures imposed in Britain to raise educational requirements for financial advisors have resulted in investors who are better served, they have also contributed to a continuing shortage of advisors that has made advice harder to access for many investors who are less affluent. With some Canadian provinces embarking on similar reforms, what lessons can the financial services industry in this country take from Britain’s experience?

Retail trading phenomenon putting advisors in a tough spot

Investors have been encouraged to jump in on trends such as meme stocks, bitcoin and cannabis thanks to the advent of no-commission, “gamified” trading platforms; an onslaught of easily accessible market information; and boredom resulting from being stuck at home during the COVID-19 pandemic, says Bryce Sanders, president of New Hope, Penn.-based Perceptive Business Solutions Inc., which coaches advisors on how to attract high-net-worth clients. That can put advisors in a tough spot as clients ask how they can get in on the action, he says.

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Toronto index set for biggest weekly drop since early December



Canada’s main stock index fell on Friday as weaker crude oil prices weighed on energy stocks, putting the benchmark index on course for its biggest weekly drop since early December.

At 9:35 a.m. ET (14:35 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 141.11 points, or 0.67%, at 20,917.07. It hit a more than two-week low in the previous session.

The index has lost 2.4% so far this week, hurt by higher bond yields as expectations build that central banks will hike interest rates over the coming months to tame unruly inflation.

The healthcare and technology sectors have dominated the weekly losses, dropping 7.4% and 4.5%, respectively.

On Friday, the energy sector led the declines with a fall of 1.9% as an unexpected rise in U.S. crude and fuel inventories profit-booking pressured crude oil prices.[O/R]

The financials sector slipped 0.8%, while the industrials sector fell 0.5%.

The materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.4% on weaker copper prices. [MET/L]

On the economic front, data showed Canadian retail sales rose 0.7% to C$58.08 billion ($46.40 billion) in November on higher sales at gasoline stations, and building materials and gardening equipment and supplies dealers.

“Canadian retail sales for November grew less than expected, while new house price inflation plateaued at a high level, another sign of stagflation in the North American economy,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.


The TSX posted one new 52-week highs and 10 new lows.

Across all Canadian issues there were two new 52-week highs and 55 new lows, with total volume of 32.05 million shares.


(Reporting by Amal S in Bengaluru; Editing by Aditya Soni)

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CAPP expects oil and gas investment to rise 22 per cent this year to $32.8 billion –



But CAPP president Tim McMillan pointed out that in spite of the fact that oil prices are at seven-year highs and companies are recording record cash flows, capital investment remains well below what it was during the industry’s boom years. In 2014, for example, capital investment in the Canadian oilpatch hit an all-time record high of $81 billion, capturing 10 per cent of total global upstream natural gas and oil investment.

“Today we’re at $32 billion, and we’re only capturing about six per cent of global investment,” McMillan said. “We’ve lost ground to other oil and gas producers, which I think is problematic for a lot of reasons . . . and it leaves billions of dollars of investment that is going somewhere else, and not to Canada.”

Investment in conventional oil and natural gas is forecast at $21.2 billion in 2022, according to CAPP, while growth in oilsands investment is expected to increase 33 per cent to $11.6 billion this year.

Alberta is expected to lead all provinces in overall oil and gas capital spending, with upstream investment expected to increase 24 per cent to $24.5 billion in 2022. Over 80 per cent of the industry’s new capital spending this year will be focused in Alberta, representing an additional $4.8 billion of investment into the province compared with 2021, according to CAPP. 

While the 2022 forecast numbers are good news for the Canadian economy, McMillan said, it’s a problem that companies aren’t willing to invest in this country’s industry at the level they once did. 

He said investors have been put off by Canada’s record of cancelled pipeline projects, regulatory hurdles and negative government policy signals, and many now see Canada as a “difficult place to invest.”

However, Rory Johnston, managing director and market economist at Toronto-based Price Street Inc., said laying the decline in the industry’s capital spending at the feet of the federal government is overly simplistic.

He added while current “rip-roaring, amazing” cash flows and a period of sustained high oil prices will certainly give some producers the appetite to invest this year, Johnston said, it will likely be on a project-by-project basis and certainly on a smaller scale than the major oilsands expansions of a decade ago.

“You have global macro trends across the entire industry that have begun to favour smaller, fast-cycle investment projects — and most oilsands projects are literally the polar opposite of that,” he said.

One reason capital spending isn’t likely to return to boom time levels is because companies have become much more cost-efficient after surviving a string of lean years. And that’s not a bad thing, Johnston said.

“The decade of capex boom out west was tremendously beneficial for Canada and Albertans, but it also caused tremendous cost inflation,” he said.

“While what we’re seeing right now is not as construction-heavy and not as employment-heavy —and those are two very, very large downsides — the upside is that you’re much more competitive in a much more competitive oil market,” Johnston said.

In a report released this week, the International Energy Agency (IEA) hiked its oil demand growth forecast for the coming year by 200,000 barrels a day, to 3.3 million barrels a day. 

According to the IEA, global oil demand will exceed pre-pandemic levels this year due to growing COVID-19 immunization rates and the fact that the new Omicron variant hasn’t proved severe enough to force a return to strict lockdown measures.

This report by The Canadian Press was first published Jan. 20, 2022.

Amanda Stephenson, The Canadian Press

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Cash-flow investing isn't just a strategy for your grandparents – Financial Post



Cash-flow investing is increasingly attractive during times of increased market volatility

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The outlook on the Omnicron variant of COVID-19 on global markets is changing by the minute, but I am reminded of a tried-and-true approach that can provide investors with some peace of mind during uncertain market conditions: focusing on the value quality that cash flow adds as opposed to movements in the asset price.


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Cash-flow investing, in basic terms, means purchasing an asset that provides income at regular intervals versus one solely based on price appreciation. Whether it is monthly, quarterly, semi-annual, etc., you will receive regular cash distributions that can be reinvested or used to finance your lifestyle.

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Considered a relatively conservative approach to investing, acquiring cash-flow-producing assets can be attractive for a number of reasons.

First, the asset will provide value on a regular basis regardless of its current market price. A temporary drop in value can be viewed as positive for cash-flow investors because they can now use the distribution amount to buy more of the asset at a distressed price, hence increasing their future cash-flow amount.


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Secondly, dividends or proceeds from cash-flow investments can be used to fund lifestyle expenses in retirement without eating into your overall pot of capital.

This shift in focus from market price to value can help diversify investment portfolios and mitigate the impact of public market uncertainty. Ultimately, cash-flow investments provide flexibility to rebalance, protection against market volatility, and peace of mind that you’re earning sustainable income with less concern about the economic impact of current events.

For example, in February 2020, we switched our monthly cash-flow-producing assets from reinvest to pay out for many clients when public equity markets sharply reacted to COVID-19 uncertainty. This free cash flow allowed us to purchase dividend-paying equities at a large discount for the ensuing six months until they reached their pre-pandemic valuations.


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Dividend-paying equities are just one of several types of cash-flow investments.

Real estate : Cash flow is the result of proceeds from rent collected. The value of the property will likely appreciate over the long term, but the cash flow produced monthly or annually is relatively consistent. The goal here is for the income from the property to cover all your costs on the property and provide a steady profit.

Investing in a real estate fund can be an excellent source of passive income and provide steady long-term returns. Real estate funds can have a similar return to individual property ownership without the added stress of personally maintaining the property.

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Mortgage funds : Cash flow comes from regular loan interest repayments over the term of the loan. Loans are often secured by real property with a varying loan-to-value ratio.

Private assets : Assets such as private debt offer higher-yielding returns with significantly lower volatility than publicly traded securities. By their nature, private assets are not subject to the same whims of the crowd that the public markets are.

Dividend-paying stocks : Arguably the most volatile cash-flow-producing investment available to the average retail investor. The income from dividend-paying stocks can be less consistent than other cash-flow-generating assets. Also, your investment value can fluctuate depending on market events and the company’s performance. One strategy for mitigating some of the volatility is to invest in a fund focusing on long-term growth in a large number of dividend-paying stocks.


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Bonds or bond funds : Bonds, essentially the debt of companies or governments, can provide relatively low returns, but are generally viewed as safe investments depending on their rating. Again, a way to protect your bond investment and still see regular cash flow is to invest in a bond fund that provides diversification across the bond market.

As a whole, cash-flow investing helps protect investors in volatile markets while also taking advantage of temporary market troughs. This is one strategy I would recommend to all investors regardless of portfolio size. If there’s one thing I’ve learned over the past number of years, there’s never a wrong time to start.

James McCarthy, CIM, is a senior wealth associate/client relationship manager at Nicola Wealth. This article should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. All investments contain risk and may gain or lose value. Nicola Wealth is registered as a portfolio manager, exempt market dealer and investment fund manager with the required provincial securities commissions.


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