Ongoing low interest rates, a demand for higher yields and a greater chunk of money now in the hands of seniors have all made the need for financial advice more crucial than ever, said leaders at the Investment Funds Institute of Canada’s (IFIC) annual conference. 

“Today a financial advisor is more important than before to cut through the turbulence and maximize income,” said Roy Ratnavel, executive vice president, Head of Distribution at CI Global Asset Management. 

For one thing, most clients have used a generic 60-40 split for stocks and bonds to diversify their portfolios. But with 10-year government bonds at about 1.5 per cent both in Canada and the U.S., the result is negative on a real basis, said Bruce Cooper, chief executive officer at TD Asset Management.

Leading asset managers and clients alike now think pretty hard about where they can get that lost income plus diversification. Many are now moving away from the 60-40 split, out of bonds and into investments like real estate, infrastructure and commodities – all that will help diversify clients’ portfolios, said Cooper.

“This is challenging and it will spawn enormous changes in the asset management business for sure,” he said.

Ratnavel said many clients are now using both mutual funds and ETFs to help diversify their portfolios, but noted that “the real money” is in the hands of those 65 and over because they have complex financial planning needs.

This group is not looking for someone who will sell them last year’s great idea, but rather to look after what has become an increasingly complex portfolio that includes everything from income maximization to tax management and multi-faceted financial planning – all of which he said are paramount to meet the needs of seniors now and for many years to come. 

A massive challenge 

“This presents a massive challenge for not just advisors but asset managers in designing projects,” said Ratnavel. “There’s a ton of risk on the table right now to achieve that asset liability matching to work.”

Judy Goldring, president and Head of Global Distribution for AGF, said global flows have almost doubled into private credit because of the low interest rates.

Another theme that is different from the past, said Ratnavel, is data. He said that at CI, the company is leveraging predictive modelling and advanced analytics to get to potential opportunities faster and often to build new relationships.

While all of these trends have made it more important for advisors to keep up, investors are also doing their share of educating themselves about products, particularly mutual funds and ETFs. 

Investor confidence 

According to the annual Pollara poll for IFIC, mutual fund investors continue to have more confidence in mutual funds than other products, but their trust in all investments declined slightly over the past year. 

ETF investors say they are knowledgeable and confident in ETFs, and feel about the same about stocks and mutual funds, but they have less confidence in GICs and bonds, with confidence in both decreasing this year. 

According to the poll, 78 per cent of mutual fund investors believe the advice they get from their advisor is worth the fees, but this is down 12 per cent from last year. Most mutual fund investors said they wouldn’t want to handle investments on their own, down 10 per cent from last year. 

ETF investors who use advisors also value their service but the number who say that service is worth the fees dropped 15 per cent from last year. Seven in 10 ETF investors say they have better investing habits because they use an advisor, a drop of 14 per cent from last year.

Another new theme this year dealt with responsible investing. The Pollara poll indicates that ETF investors are much more likely to have some knowledge (64 per cent) about responsible investing compared to mutual fund investors (54 per cent).