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Wealth Management Re-defined

Emotional, financial, social, and physical preparedness


Although wealth management 2023 is still the art and science of educated guesswork, factors like flux in the Canadian economy, inflation, two-plus years of pandemic business disruptions and some dramatically shifting demographics, continue to impact and redefine wealth management strategizing.

From technology, disrupted Baby Boomer retirement plans and some unprecedented personal and business broadsides continue to transform wealth management. To suggest there have been some changes made is a gross (and mild) understatement. And the changes are many.

The new wealth management bottom line is that Canadians are hitting the brakes on their retirement plans, mostly because fear that they can’t afford to stop working, with spiked inflation having eaten away at their savings and making life pricier.

Recent wealth management research from Fidelity Investments Canada shows that more than 60 per cent of people who have not yet retired say they are delaying their targeted retirement date because everything has gotten so expensive. The responses emphasized inflation as a primary worry, with 66 per cent worrying that it will erode their savings and their way of life. Another 55 per cent said that things were already tight, and they did not have enough saved.

According to the survey, the weak stock market is only making things worse for those who planned to quit working. Close to half, or 45 per cent, are delaying retirement and worrying about their investments. More than 33 per cent felt that high debt levels are also discouraging their wealth management plans.

“In the past five or so years, financial well-being became an important point of emphasis,” explains Michelle Munro, director of Tax and Retirement Research with Fidelity Investments Canada. “With stubborn inflation, market volatility and global uncertainty, it is not surprising that Canadians are anxious about their future and their retirement.

“Fidelity’s survey has been asking Canadians about their emotional, financial, social and physical preparedness for retirement, since 2016. Last year, only six in 10 pre-retiree respondents felt emotionally or socially prepared for retirement.”

In addition to the numbers crunching and stock market watching, demographics and dealing with lingering pandemic worries are also proving to be significant factors.

“One of the big trends among wealth management clients is an increased focus on health and wellness as they age,” says Cal Malhiot, vice president of RBC Dominion Securities for Alberta and Prairies. “The pandemic got people thinking about later-in-life planning, about their legacy for the next generation, and how they can properly get their affairs in order. Now, more than ever, ensuring they have an up-to-date will that reflects their current wishes and any recent life changes is essential.” He cites a recent RBC Wealth Management poll found that only 48 per cent of Canadians surveyed said they have a will, which is the basic building block of any estate plan. Among those aged 35 to 54, that dropped to 34 per cent.

While COVID commotion accentuated health worries about retirement and wealth management, age, circumstances and facts of Canadian life are key disruptors of classic clichés like neatly retiring at 65, investing in the stock market and happily enjoying the good life with golf, travel and procrastinated hobbies.

According to demographics research, Canadian workers have never been older. The Statistics Canada 2021 census showed that almost 22 per cent of Canada’s population is between 55 and 64, and the numbers suggest that the traditional “golden years” wealth management plans have become tarnished.

In addition to inflation, spiking interest rates and stock market broadsides, the nearing-retirement age group is also worried about high health care costs denting their financial security when they finally retire, and health benefits are no longer what they used to be.

Wealth management is taking a detour. The Fidelity survey tracks that with financial worries keeping older Canadians working for longer, more than half who are still working say it’s for financial reasons. About 60 per cent of not-yet-retired people expect to keep working in their golden years.

The new normal of wealth management strategizing also focus on the importance of savings versus investments. “Our survey continually finds that Canadians (over the age of 45) are prioritizing putting savings towards retirement over other savings goals,” Munro points out. “Less than one in four survey respondents have a written financial plan for retirement, although other surveys have shown that those with a written financial plan feel better prepared for retirement across four different aspects: socially, physically, emotionally and financially.

“Many Canadians are delaying when they choose to retire, which affects sources of retirement income and sequencing of those sources,” she adds. “For those already retired, technology and the ability to work from home is also a big motivator for individuals to work in retirement. In fact, one in four working retirees said that technology, and the ability to work from home, was a reason for continuing to work in retirement.”

The limitless, game-changer opportunities of technology are combining with longer life spans and dramatically impacting contemporary wealth management planning. “Some people may continue investing in the stock market for a longer period after retirement, instead of simply investing in fixed-income investments like government bonds or GICs,” Malhiot says. “For many retirees, having a certain percentage of their portfolio invested in high-quality stocks, and the rest in guaranteed investments, adds some long-term growth potential, helping them reduce the risk of outliving their savings. The right balance between growth-oriented and guaranteed investments varies, depending on factors like risk profile.”

Many seasoned financial advisors suggest a new, multi-dimensional shift in attitudes and priorities about wealth management. “The ‘new rules’ are really about understanding and articulating a person or family’s life goals, and not just financial goals, to help them realize dreams,” says Michael Wood, region head, TD Private Wealth Management, Prairies. “For example, some people want to retire at the earliest possible moment, and some want to continue being productive well past retirement age.

“Three trends that have emerged in the last five years include, virtual client engagements and digital advice delivery, the acceleration of Environmental, Social and Corporate Governance (ESG) investing, and the role of behavioral finance – the effects of psychology and emotion – on investor decisions.”

On the professional, fund manager side of wealth management, there are also changes. In a perfect and simplified world of wealth management strategizing, a pension fund manager’s role is to deliver a well-balanced and globally diversified portfolio that will maximize sustained long-term returns without incurring undue risk. The portfolio is structured to be resilient in the face of wide-ranging market and economic conditions, and covers all major asset classes, manages and mitigates significant risk factors, and encompasses multiple distinct investment strategies.

Because pension plans are basically retirement plans that require an employer to make contributions to a pool of funds which is set aside for workers future benefits, the pool of funds is invested on behalf of employees. The earnings on the investments generate income for workers on retirement, so pension fund assets must be prudently managed to ensure that retirees receive the promised benefits.

For many years, it meant that funds were limited to investing primarily in government securities, investment-grade bonds and blue-chip stocks. Not so basic or simple today. Pension fund managers are now updating and redefining their perspectives and their focus. In a sector with few strategic rules, pension fund managers increasingly invest in a variety of asset classes, including private equity, real estate, infrastructure and securities like gold that can hedge inflation.