Advisors have an opportunity to attract underserved investors

Advisors have an opportunity to attract underserved investors

Advisors have an opportunity to attract underserved investors After a recent report by the Investment Planning Counsel (IPC) on Canada’s high-net-worth market, we caught with Sam Febbraro, the IPC’s Executive Vice President of Advisor Services, to discuss the findings in a little more detail and ask how advisors can take advantage of the current opportunities. The report, The Pulse of the Canadian High-Net-Worth Market: A view from the Ground, found that as the big banks’ focus on investors with over $1 million in liquid assets, independent advisors have a good opportunity to attract the underserved and emerging mid-tier affluent investors, those with $500,000 to $1 million in investable assets.
 
“We see this demographic as a mass affluent group and we’re not sure that a lot of companies are addressing their need, although we’ve been focusing on them heavily,” Febbraro says. “There’s a real opportunity for financial advisors to proactively work with this group. Typically, when we think of the personas of this group we think about stereotypes but, meanwhile, it’s the mass affluent who lives right next door to you and has these investable assets.”
 
The report also found that women have now captured an equal, if not greater, control of wealth. With that in mind, Febbraro believes it’s imperative for advisors to include both spouses (regardless of who earns the most) in financial planning discussions. “Historically, only one of the partners would attend meetings, information sessions or review the financial plan,” he says. “We’ve been suggesting more of an intergenerational approach, which includes both parents. Nowadays, a number of advisors are conducting family meetings.”
 
As part of an intergenerational plan, an advisor may arrange an initial meeting with both parents, followed by a second meeting which also includes a lawyer. “The third meeting will include the parents – maybe the grandparents – and the children along with a lawyer or accountant,” Febbraro says. “That helps the clients do proper estate and tax planning and take more of a household look as opposed to an individual account view.” 
 
Febbraro identifies three key market risks affecting investors today: Canada’s aging demographic, low yields and uncertainty caused by events like Brexit and the US election. As a result of these risks, investors may not be in a position to remain in full control of their retirement portfolios. “You may retire in a market downturn or suffer a period of negative returns in the pre or post phase of retirement; these risks go beyond volatility and returns,” Febbraro says. “There are three factors to consider during market decline: depth, which tells us how far a portfolio can decline; duration, for how long the decline may occur; and frequency, how often a portfolio declines in the market.”
 
A market decline can have a devastating impact on a retirement portfolio, especially when an investor is looking to decumulate. An investor who is accumulating, with a long-term investment horizon, has the potential to weather the storm, but that can be difficult for someone who is looking to create income in a fairly volatile market. So, what should investors do in an extended market downturn or if they’re suffering from a period of negative returns pre or post-retirement?
 
“Risk adjusted strategies, with downside protection, that create income could include everything from treasuries to investment grade fixed income to high yield fixed income,” Febbraro says. “To find that level of income, we’re not afraid to look at global equities, emerging market debt, and perhaps even some alternatives, like high income preferred shares or real estate, especially if it’s for an income portfolio.”


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