Why is this segment so important? According to the 2021 Investor Economics Household Balance Sheet, $3.7 trillion (two-thirds of Canadians’ financial wealth) is controlled by retirees or near-retirees. This is forecast to reach $6.4 trillion by 2030.
Therefore, this is an opportune time for advisors to reinforce their value and help their clients live a purposeful retirement by identifying retirement income possibilities and delivering innovative outcome-oriented solutions. Those advisors who can help their clients shift from a plan that has been primarily focused on growth to one that also prioritizes income and stability while guiding them in the pivot from saving to a tax-efficient drawdown will have an edge over those who don’t.
Below are some strategies advisors should consider as they seek to maximize their value and help their clients reconstruct their retirements with holistic and comprehensive plans that balance personal goals with the financial capacity to achieve them.
Reframe the retirement conversation. According to a study by Mackenzie Investments conducted in 2021, 71% of Canadians said they don’t know what to expect when they retire. To ease this uncertainty, advisors can help their clients by talking about more than just investment portfolios and help them understand what will give them purpose and meaning as they transition to the next phase of their lives. This sets the stage for a discussion and evaluation of matching needs and wants with financial capacity.
Re-evaluate the retirement income stream. The same research showed that 66% of Canadians are not confident in their retirement income sources. They want to know if they are going to be OK. How much money will they need to save, how long will it last and how much can they earn? By analyzing various income drawdown strategies, such as government and employer-sponsored pensions, registered/non-registered investments and corporate assets, advisors can demonstrate the value of advice through the optimization of after-tax income and/or maximizing net estate value.
Rethink retirement tax planning. Taxes may be the single largest expense during retirement. However, our research showed that the majority of Canadians are not confident about managing taxes when retired. There are numerous options available to retirees to help manage their tax bill. These range from income splitting, spousal loans and the use of family trusts. The order of asset withdrawal in the decumulation phase can also have significant tax implications. Depending on individual circumstances, it may be advantageous to draw from registered assets first and defer drawing from government programs such as CPP, QPP and OAS.
Re-examine retirement estate and legacy planning. Canadians approaching or entering retirement need to have a plan in place for their estates. Advisors can use this as an opportunity to help them with tax-efficient legacy planning and charitable giving, as well as succession planning for small-business owners and professional corporations. Establishing trusts, for example, can be a powerful tool in achieving many tax and estate objectives, such as the control and protection of minors, income splitting, confidentiality, probate tax minimization, charitable giving and more.
For business owners, an estate plan could also include transferring a private company’s ownership and leaving certain assets to charities for more flexibility in claiming donation tax credits to offset owed taxes.
Reconstruct the retirement income portfolio. New retirement realities mean Canadians need to reconstruct their portfolios; yet, over two-thirds of Canadians are focused primarily on the preservation of capital. Capital preservation is important, but a retiree’s portfolio must also provide growth and income as well as stability. Key risks that retirees face in their portfolios include the sequence of returns, longevity and inflation. A well-structured portfolio that is diversified by asset class, region and investment style can go a long way to mitigating these risks.
The retirement phase is not just a life stage for Canadians to explore new interests and pursuits; it’s also an ideal opportunity for advisors to expand their businesses through demonstrating the value of advice and offering both pre-retirees and retirees comprehensive retirement plans that consider all aspects of this exciting period.
At the end of the day, Canadians want to retire from work, not life.
Ron Hanson is senior vice-president, investment strategy and portfolio solutions, with Mackenzie Investments.
After FTX, is crypto as an investment dead?
But following a series of failures in the industry, including the collapse of Bahamas-based FTX Trading Ltd. in November, bitcoin and ether prices are now down by about 75% from their all-time highs a year earlier — and financial advisors and crypto experts are divided as to the industry’s fate.
Many crypto skeptics see the collapse of FTX as confirming their worst suspicions.
“[Cryptocurrency] is highly speculative, highly volatile and it’s something you steer away from until we see signs of maturity in that sector,” said Andrew Pyle, investment advisor with CIBC Wood Gundy in Peterborough, Ont.
While the blockchain technology that underpins cryptocurrency is likely to offer investment opportunities in the future, the sector has no place today in the portfolios of the “vast majority” of clients, said Pyle, who has never recommended crypto investments.
The fallout from FTX’s collapse means “you’re looking at a number of years before you get broader public trust in cryptocurrencies,” said Mark Noble, executive vice-president of ETF strategy with Horizons ETFs Management (Canada) Inc.
“That said, I don’t think the crypto ecosystem goes away,” Noble said, suggesting that blockchain innovations will continue during what could be a long “crypto winter” of little investor interest. Horizons ETFs offers both long and short bitcoin funds.
Institutional investors who believe in the transformative potential of blockchain technology are likely to “double down” on investments, said Michael Zagari, an investment advisor in Montreal with Burlington, Ont.-based Mandeville Private Client Inc.
“Just because one investment [FTX] didn’t work doesn’t mean they’re going to stop there,” said Zagari, who suggests there will be “a lot of deals to be had” but believes the industry will remain volatile for the next 12–18 months.
He recommends allocating no more than 10% of a portfolio to cryptocurrency or crypto-related investments for risk-tolerant clients with at least a 10-year horizon, as part of their equity exposure.
FTX’s bankruptcy has caused other crypto exchanges to suspend withdrawals, with some struggling to continue operating.
And “there are going to be more shoes to drop. We just don’t how many or how big,” said Alex Tapscott, managing director of the digital asset group with Ninepoint Partners LP, during a Nov. 24 webinar.
Characterizing himself as “short-term bearish, long-term bullish” on cryptocurrency, Tapscott suggested that the Ontario Teachers’ Pension Plan Board and the Caisse de dépôt et placement du Québec exposed themselves to “huge concentration risk” by each investing in a single crypto firm rather taking positions in established cryptocurrencies. (See “Highs and lows,” below.)
Brian Mosoff, CEO of Toronto-based Ether Capital Corp., also said bitcoin and ether will endure through this crash, even if some exchanges don’t. “Nothing has changed [in terms of the technology],” Mosoff said. Bitcoin and ether “still do exactly what they set out to do: the fundamentals are the same; the value proposition is the same.”
Retail investors seem to agree. While crypto ETF assets under management dropped by $4.1 billion between Jan. 1 and Nov. 30, only $66 million of the decline was due to outflows, according to data from National Bank Financial Markets (NBFM).
“It seems like the crypto ETF users in Canada are sticking to their allocations,” said Daniel Straus, director of ETF research and financial products research with NBFM, in an email to Investment Executive. “Bitcoin and ether are both extremely risky and speculative, but the anemic outflows from Canadian crypto ETFs suggest their investors may be treating them like ‘moonshot’ long-term bets.”
Mike Tropeano, senior director of wealth consulting with Broadridge Financial Solutions Inc. in Boston, said he expects global regulators to “be much harsher” on the crypto industry after the collapse of FTX. What will follow over the next few years is “a thinning of the herd,” a flight to safety to the most established names, and more innovation.
“The information is still flowing daily, [not only] with regard to FTX but [also] with the overall market,” Tropeano said. “Anyone who is looking to play a role in the market — the [financial] advisor especially — requires a lot of diligence to stay on top of what is happening.”
Mosoff suggested some “advisors are probably relaxing a little bit,” knowing that clients are less likely to be asking about investing in cryptocurrency “until the next cycle starts.” But he said that cycle will come, and advisors should use the crypto winter to educate themselves.
While the fall of FTX and BlockFi Lending LLC have shaken the market, the depth of the crypto winter may depend on how the industry’s established behemoths weather the storm, said Daniel Gonzalez, research analyst and consultant in Toronto with California-based Javelin Strategy & Research: “If a Coinbase, crypto.com or Binance were to go down the drain, I think that would end crypto adoption for retail investors for a while.”
In many ways, the advisor’s role now isn’t different from what it was when cryptocurrencies were trading at their peaks.
“There’s absolutely a role for advisors to play here, and it’s to be the voice of reason [in terms of allocation to cryptocurrency],” Mosoff said. “But I don’t think that’s saying, ‘I’m going to rule out an asset class entirely.’”
That said, cryptocurrency has not proven to be an inflation hedge or a diversifier, said Jason Heath, managing director of Objective Financial Partners Inc. in Markham, Ont. Furthermore, “higher interest rates and a likely recession are sure to hinder speculative investments like cryptocurrency in 2023.”
Pyle said expecting retail investors to understand is unreasonable “if institutional investors, traders, analysts, portfolio managers, hedge fund managers and even regulators can’t understand this space.”
An advisor’s “paramount responsibility is to protect your clients’ wealth,” Pyle added. “Protect it from inflation, protect it from running out and protect it de facto from things that most people don’t understand.”
Highs and lows in the crypto space
Feb. 18: Toronto-based Purpose Investments Inc. launches world’s first bitcoin ETF.
October: Ontario Teachers’ Pension Plan Board (OTPP) invests US$75 million in FTX Trading Ltd. through its Teachers’ Venture Growth platform.
Oct. 12: Caisse de dépôt et placement du Québec invests US$150 million in New Jersey-based Celsius Network LLC, a crypto lender.
Nov. 10: Bitcoin hits its all-time intraday high of US$68,789.63.
Nov. 16: Ether hits its all-time intraday high of US$4,891.70.
January: The OTPP invests another US$20 million in FTX.
Jan. 10: Fidelity Investments Canada ULC announces it will add 1%–3% exposure to bitcoin in its asset-allocation ETFs. (The target allocations remain the same as of press time.)
Feb. 14: New Jersey-based BlockFi Lending LLC agrees to pay the U.S. Securities and Exchange Commission US$100 million in penalties and pursue registration of its crypto lending product.
March 31: Canadian cryptocurrency ETFs amass $6.1 billion in assets under management, according to data from National Bank Financial.
May: TerraUSD stablecoin and Luna, a linked token, crash.
June 18: Bitcoin plunges below US$25,000. It was trading above US$50,000 in early May.
July 6: Voyager Digital Ltd., a New York-based crypto broker, files for Chapter 11 bankruptcy.
July 13: Celsius Network files for Chapter 11 bankruptcy.
Aug. 17: Caisse de dépôt et placement du Québec announces it is writing down its entire investment in Celsius Network.
Nov. 11: FTX files for Chapter 11 bankruptcy.
Nov. 17: OTPP announces it will write down its entire investment in FTX.
Nov. 21: U.S. senators Elizabeth Warren, Dick Durbin and Tina Smith send a letter to FMR LLC (Fidelity Investments) asking the firm to reconsider a decision to allow 401(k) plans to offer access to bitcoin.
Nov. 27: Bitfront, a U.S. crypto exchange, announces it will cease operations in March 2023. The platform stated the decision “is unrelated to recent issues related to certain exchanges that have been accused of misconduct.”
Nov. 28: BlockFi files for Chapter 11 bankruptcy, citing exposure to FTX.
Credit Suisse’s investment bank draws interest from Saudi crown prince, WSJ reports
Dec 4 (Reuters) – Investors including Saudi Arabia’s crown prince and a U.S. private-equity firm run by a former Barclays CEO have shown interest in investing $1 billion or more in Credit Suisse’s (CSGN.S) new investment banking unit, the Wall Street Journal reported on Sunday.
Crown Prince Mohammed bin Salman is considering an investment of around $500 million to back the new unit CS First Boston (CSFB) and its CEO-designate Michael Klein, the report said, adding that bank has not yet received a formal proposal from any Saudi entity.
Additional financial backing could come from U.S. investors including former Barclays chief Bob Diamond’s Atlas Merchant Capital, the report said, citing people familiar with the matter.
Credit Suisse did not immediately respond to a request for comment.
Seeking to restore vigor to a business that has been languishing, Credit Suisse in October said that it will reshape its investment bank by resurrecting the First Boston brand. The bank tapped board member Klein to lead CSFB.
Saudi National Bank (SNB), controlled by the government of Saudi Arabia, had earlier pledged to invest up to 1.5 billion Swiss francs ($1.60 billion) in Credit Suisse itself for a stake of up to 9.9%, and said it may back the standalone CSFB which will operate as an independent capital markets and advisory bank headquartered in New York.
Credit Suisse’s history with the First Boston brand dates to 1978 when the pair linked up to operate in the London bond market. They later merged to create CS First Boston, but a tough period followed after famed bankers departed and the firm ran into regulatory troubles.
Some bankers and investors have expressed scepticism over its ability to regain its past glory in a shrinking market.
($1 = 0.9373 Swiss francs)
Our Standards: The Thomson Reuters Trust Principles.
Consumption, not investment, now key to growth
Scholars and policymakers in China have not yet reached a consensus on whether stimulating consumption is the top priority for the Chinese economy at the moment. Some economists argue more about the need to boost growth by expanding investment, as they believe that stable investment will be the fastest way to encourage economic expansion.
My understanding is that competent policymaking departments and economists need to better realize and identify the importance of boosting consumption. Under China’s 20 years of stabilizing investment through infrastructure construction, it is necessary to completely change such concepts and realize the significance of encouraging consumption. There is still a lot of work to be done on this front. If this year’s policy is still the same as last year’s and the year before, it will affect growth stabilization performance in 2023.
What makes stimulating consumption for growth so important? The main reason behind it is that China’s economic structure has changed. In normal situations, consumption contributes about 65 percent of GDP growth in China. Therefore, as the proportion of fiscal funds spent to stabilize growth conforms to the economic structure, roughly 65 percent of fiscal funds are used to stabilize consumption, and the remaining 35 percent are put toward stabilizing investment. Yet, in practice, most of the fiscal funds are used to stabilize investment. This disrupts the overall growth structure.
With China’s economy developing and upgrading rapidly, consumption has now become the core factor in economic growth. The country has moved beyond the stage of 20 years of rapid urbanization and rapid industrialization, and infrastructure investment has been oversaturated. Therefore, if the method of stabilizing investment is once again applied to stabilize growth, it will seriously distort the driving force of China’s economic growth. However, I think such understanding has not yet been widely recognized by economists and policymakers, and therefore, further study on this matter is needed.
China’s previous strategy of stabilizing investment has caused distortions in the overall fiscal expenditure structure. Last year, China’s total GDP reached 114 trillion yuan ($16.2 trillion). The total amount of investment in fixed assets was 55 trillion yuan, while fixed-asset investment accounted for 48 percent of GDP. In comparison, in developed countries such as the United States, Australia, Japan and European nations, the annual total investment in fixed assets accounts for only about 20 percent of the country’s GDP.Long-term distorted structure caused by China’s large proportion of fixed asset investment in GDP is unsustainable.
I would argue that if the current economic structure is corrected and adjusted in the next 10 years, investment in fixed assets will drop from 55 trillion yuan to 30-40 trillion yuan and then decline further. Its high growth will undoubtedly crowd out consumption in the economy, and have a negative impact.
Here are some ways to boost consumption:
First, efforts should be made to promote consumption in terms of raising incomes, instead of working from the production standpoint. Since 2020, in Europe and the United States, the key measure to stabilize consumption has been to issue consumption vouchers to residents, and this has generated a notable effect in boosting the economy. If people’s disposable incomes decline, consumption will definitely drop. Therefore, efforts must be made to find a way to increase disposable income of Chinese consumers. However, if we talk about increasing disposable incomes and only work on stabilizing employment, it would not be sustainable over the long term. It is a long-term policy to stabilize employment as well as improve the social security system, medical system and education system, whatever the circumstances are. The core of stabilizing consumption is to increase household incomes. One way to bring this about is to increase current incomes; that is, issue consumption vouchers or money to residents. It is the correct way to stabilize consumption from the income side. Another way of effecting this is to increase investment income, such as making the stock market more prosperous, so that everyone makes money, thus leading to higher consumption.
Second, efforts should be made to increase the public’s marginal propensity to consume by cutting interest rates. The best way to increase the marginal propensity to consume in the short term is, in fact, by reducing interest rates, which frees up credit. The two methods for stabilizing consumption in Europe and the US in 2020 were distribution of money and lowering of interest rates. By raising incomes through distribution of money and lowering of interest rates, it is possible to increase the general public’s marginal propensity to consume. People’s incomes are divided into two parts. One part is used for saving and the other part is used for consumption. When savings increase, consumption decreases. Savings are closely related and very responsive to interest rate changes. When Europe and the US faced economic downturn pressure in 2020 and wanted to stabilize consumption, they once lowered interest rates to zero or even negative. But China seems to be more conservative with regards to cutting interest rates.
There are many reasons for China to be shy about cutting interest rates. These include the need to prevent real estate bubbles, avoid a stock market sell-off, safeguard against rampant inflation, and stabilize the RMB exchange rate. The goal of monetary policy is complicated and has many facets. It needs to work not only to maintain economic growth, but also to stabilize prices, support the capital market, undergird the housing market and stabilize the exchange rate. Currently, in terms of the stock market, the Chinese bourse has a flat performance during the past 10 years, and share prices of many listed companies have fallen to historic lows. A rise in the stock market can increase investment income and benefit consumption. In terms of prices, China’s producer price index has entered negative growth since October. Currently, we do not have serious inflation, so from the perspective of prices, cutting interest rates will also work. In terms of the RMB exchange rate, now that the appreciation of the US dollar has ended and interest rate hikes outside China have slowed, the pressure of RMB appreciation is gradually picking up. Therefore, to increase the public’s marginal propensity to consume and to stabilize consumption, we should cut interest rates.
In addition, it is also very important to boost consumption by creating consumption scenarios with engaging consumption activities, where consumers can truly interact with shops and products. If consumers cannot have such interactions, contact consumption in many scenarios will not be realized. This involves the impact of COVID-19 and how to contain the pandemic in a science-based, accurate way, instead of a one-size-fits-all approach.
To sum up, only by realizing the importance of consumption and work on the income front, cutting interest rates and creating more engaging scenarios for consumption can the Chinese economy likely see a rebound in the first quarter of next year.
The views don’t necessarily reflect those of China Daily.
The author is the director of the Wanbo New Economic Research Institute.
‘Bumbling and stumbling’: Alberta’s UCP caucus votes for changes to sovereignty bill
Canada imposes more sanctions in Haiti, targeting country’s wealthiest people
Polytechnique announces 2022 Order of the White Rose scholarship recipient
Silver investment demand jumped 12% in 2019
Iran anticipates renewed protests amid social media shutdown
Search for life on Mars accelerates as new bodies of water found below planet’s surface
News23 hours ago
‘Paris moment:’ COP15 conference in Montreal seeks hard targets on biodiversity
Politics21 hours ago
How Harlem Shaped Warnock’s Faith and Politics
Health9 hours ago
Serial cross-sectional estimation of vaccine-and infection-induced SARS-CoV-2 seroprevalence in British Columbia, Canada
Economy19 hours ago
Vermont Outdoor Recreation Economy
Investment20 hours ago
Consumption, not investment, now key to growth
Science7 hours ago
Clamshells Face the Acid Test
Sports19 hours ago
Jets score three goals in third period to complete comeback win over Ducks
Real eState21 hours ago
Fraser Valley housing market sees decrease in November sales: real estate board