SUN LIFE AT 150 DEAN CONNOR SPEAKS OUT AFGHANISTAN VETS FIGHTING THE FINANCIAL WAR ON THE HOMEFRONT WWW.WEALTHPROFESSIONAL.CA ISSUE 3.4 | $6.95
BUSINESS MODEL WILL IIROC MEMBERS BE ALLOWED TO INCORPORATE?
YOUNG GUNS 2015 THE NEXT GENERATION OF ADVISORS STEPS UP
COVER STORY / TOP 50 ADVISORS
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ISSUE 3.04
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CONTENTS
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UPFRONT 04 Editorial
How our ‘Young Guns’ are defying millennial stereotypes
18
FEATURES
ETF PORTFOLIO CONSTRUCTION
22
Leading advisors offer tips to a couple looking to grow their retirement portfolio by investing in ETFs
INDUSTRY ICON Sun Life CEO Dean Connor reveals how the life insurance giant has weathered the financial storms of the last 150 years
36
FEATURES
40
BUILDING A PORTFOLIO ON INFRASTRUCTURE Global infrastructure investments are becoming an ever more attractive prospect for Canadian investors looking to diversify their portfolios
PEOPLE
Should the CSI give up its monopoly on advisor exams?
10 News analysis
Behind the new push to allow IIROC advisors to incorporate
12 Intelligence
Why responsible investing is the hot new trend
16 Alternative market update A new report attempts to quantify the exempt market
PEOPLE 47 Career path
David Dyck rose through the ranks at CIBC before jumping to WealthBar
48 Favourite things Chris Nicola of WealthBar
44
ADVISOR PROFILE
After serving in Afghanistan, Ian Chen and Edmund Chien returned to help other vets take control of their finances
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08 Head to head
14 Funds update
YOUNG GUNS 2015
PEOPLE
Most Canadians failed to de-leverage after the global financial crisis – and it could mean trouble down the road
This month’s key corporate moves and new products
COVER STORY
Meet some of the industry’s up-and-coming young advisors – and hear their thoughts on new practice models and the issues that matter most to them
06 Statistics
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WE FOSTER GROWTH. PORTFOLIOS AND OTHERWISE. When people are given the freedom to act, they grow. When people are trusted and supported, they flourish. When people feel deeply responsible and charged with doing the right thing – you got it – they’re happy. And when they’re happy, their clients tend to be too. If a place that embraces the possible and encourages portfolios to grow by encouraging people to grow first sounds interesting, call John Cucchiella in strictest confidence at 647 428 8225. Dundee Goodman Private Wealth is a division of Dundee Securities Ltd. Member CIPF. Dundee Goodman Private Wealth is a trademark of Dundee Corporation, used under license.
UPFRONT
EDITORIAL
wealthprofessional.ca ISSUE 3.04 EDITORIAL Editorial Director Vernon Clement Jones
The next generation
T
he annual Wealth Professional Young Guns issue is here. Check out the package on page 22 for the stories of the bright young personalities that will people the industry in the years to come. Of course, these advisors are coming of age at a time when it is tougher than ever to make a living in the industry. Fees are compressing as a result of technology and regulation. Interest rates are lower than ever, making it tough to deliver an income from a portfolio of fixed-income securities. So it’s impressive that so many of the voices in these pages are optimistic, determined and eager. The advisors on our list don’t seem to be phased by the bad news. Many on the list entered the industry in the wake of the Great Recession. They’re already seasoned veterans when it comes to market vol-
These advisors are coming of age at a time when it is tougher than ever to make a living in the industry atility. For a generation that has been maligned by some pundits as selfobsessed, these young advisors offer examples of how to make it work for clients even when the headwinds are strong. This is a generation that has grown up in the shadow of the boom markets that defined the late ’90s. Those good times helped many boomer-era advisors develop their now large books. As this next generation starts into the industry, they’re going to have to call on that survival instinct honed through the Great Recession to forge a career. The good news: If the resilience, fortitude and determination of the faces on our Young Guns list provide any indication, the industry is passing into very good hands. The WP Team
SALES & MARKETING National Accounts Manager Dane Taylor
Senior Writer Jeff Sanford
Associate Publisher Trevor Biggs
Writers Will Ashworth Jordan Patrick Donald Horne
General Manager, Sales John Mackenzie
Research Editor Ryan Smith Copy Editor Clare Alexander
CONTRIBUTORS
Marketing and Communications Claudine Ting Project Coordinator Jessica Duce
CORPORATE
Nick and Joseph Bakish
President & CEO Tim Duce
ART & PRODUCTION
Office/Traffic Manager Marni Parker
Design Manager Daniel Williams Designer Kat Vargas Production Manager Alicia Salvati Traffic Manager Kay Valdez
Events and Conference Manager Chris Davis Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil Global COO George Walmsley Global CEO Mike Shipley
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UPFRONT
STATISTICS
IN DEBT WE TRUST
Unlike our American cousins, Canadian consumers are still highly leveraged. Does the economy face a balance-sheet recession? THE NUMBERS are not pretty. According to Equifax Canada’s National Consumer Credit Trends Report, total debt rose another 7.7% in the last quarter. Over the last year, Canadians took on another $80 billion worth of mortgages, personal loans and credit card debt. The ratio of household debt-to-income is now at a record 163.3%, according to Stats Canada. Canadians are now holding a massive $1.8 trillion in household debt, up from about $1
$1.529t
Total consumer debt (including mortgages)
$519b
Consumer credit debt, up 0.8%
trillion in 2005, and are now more leveraged than American consumers were just before the global financial crisis occured. As less-leveraged American consumers begin a new round of credit expansion, the American economy is expected to recover – but the Canadian consumer has yet to work through the de-leveraging cycle. Some wonder if the Canadian economy is beginning to slip into a national debt-based financial crisis.
$20,967
Average consumer debt held by Canadian consumer (excluding mortgages)
$22.6b
Increase in borrowing in the fourth quarter, up 8.6% from the third quarter
THE GOOD NEWS
MORE TO THE STORY
The National Balance Sheet Accounts from Stats Canada for the last quarter of 2014 show that household net worth rose 0.9%. This was the slowest rate in six quarters. But on a per-capita basis, household net worth climbed to $233,000. Overall net wealth is 7.5% higher now than at the end of 2013.
Net wealth may be higher, but Canadian consumers are now more highly leveraged than their American counterparts, who de-leveraged somewhat in the wake of the financial crisis. Canadian consumers did not, and are now more highly leveraged when measured on a debt-to-income basis. 100% Household debt to GDP
Total net wealth in Canada US
90%
CANADA
$2,469b 2000
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$7,507b 2014
80% 2009
2010
2011
2012
2013
2014
DEBT DENIAL A recent survey of credit card debt suggests that “carrying a balance may be the ‘new normal’” for Canadians. The survey also found that cardholders were generally oblivious to how their debt compares to the population as a whole. According to the study, 22% mistakenly believe they owe less than the national average. Forty-two per cent believe their debt is on par with the average but are actually carrying more than the norm.
RATE CUTS HAVE HELPED Bank economists like to point out that while total debt is at record levels, the cost of servicing that debt has dropped steadily over the years. Central bank rate cuts have allowed Canadians to manage their outstanding debt by decreasing the cost of servicing that debt. Debt service ratio (%) 12 10 8
AT LEAST WE’RE NOT JAPAN A McKinsey report published in February found that seven years after the financial crisis, little de-leveraging has occurred globally. Only the countries at the core of the crisis – Ireland, Spain, the UK and the US – de-leveraged. All major economies have higher levels of debt relative to GDP than they did in 2007.
6 4
Debt vs. GDP around the world
2
Japan Spain US Canada China
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Q1
Q2
Q3
Q4
400% 313% 233% 221% 217%
Source(s): CANSIM tables 378-0123 and 380-0073
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UPFRONT
HEAD TO HEAD
Q:
Should the CSI give up its monopoly on proficiency?
The Investment Industry Association of Canada supports more competition in the field of proficiency exams. For varying reasons, advisors agree ...
Michelle Alexander
Vice president THE INVESTMENT INDUSTRY ASSOCIATION OF CANADA
Darren Luck
Vice president THE LUCK FINANCIAL GROUP CIBC WOOD GUNDY
Rona Birenbaum
“IIAC members do not believe the Canadian Securities Institute has been providing value relative to its cost, nor offering the highest quality of education. CSI has difficulty keeping pace with content and continuing education changes, entrance and individual learning requirements, new product offerings, and technology enhancements. The IIAC strongly believes that competition drives innovation and efficiency. The IIAC proposed adopting the FINRA model ... in November 2014. Adopting this alternative model would create competition among alternative course providers, improvements in the quality of course materials and more competitive pricing.”
“The monopolization of any organization leads to a less than ideal product with higher costs. I don’t see why one would expect anything different with the CSI having a monopoly over the Canadian Securities Course [CSC]. Is the objective lowering costs, or producing the best students and future financial professionals? In my opinion, lowering costs should not be the impetus to open the CSC to competition – lowering costs will only flood an already crowded market. I would rather see the CSI raise the standards and the costs if it produces better or more qualified students. The CSC should be opened up to competition.”
“I have seen the IIAC’s position on this, and I have to agree. Any monopoly is not ideal for consumers. It usually results in higher than necessary costs. Competition drives innovation, efficiency, higher quality and lower prices. That stuff has to come first. They should provide greater choice and access to its members’ employees when it comes to education and proficiency requirements. I can’t see how greater competition in this sphere would be a bad thing. I’ve heard discussion that the government should take it over as well but I don’t think that’s the right move either because the government is one big monopoly with more bureaucracy.”
President and founder CARING FOR CLIENTS
TIME FOR A CHANGE? The Investment Industry Association of Canada [IIAC] recently released a letter describing its desire to see the current monopoly on the application of basic exams in the advisor industry opened up to competition. According to the letter, competition would lead to improved product quality and lower pricing. The IIAC suggests adopting the FINRA model used in the US, which offers a choice of service providers for proficiency exams.
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UPFRONT
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Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Sentry, Sentry Investments and the www.wealthprofessional.ca Sentry Investments logo are trademarks of Sentry Select Capital Corp.
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UPFRONT
NEWS ANALYSIS
Is a perennial issue set to return? Incorporation is a basic business idea open to Canadians. MFDA dealers can do it, so why can’t IIROC dealers? THE INVESTMENT Industry Regulatory Organization of Canada [IIROC] recently published its Annual Consolidated Compliance Report. Each year at this time, the organization releases the document to capture “changes in market structure, investment products, demographics and business risks.” This year’s report suggests IIROC compliance teams will focus on the implementation on CRM2, cyber security, best practices, “assessment and monitoring of systemic risks and electronic trading rule compliance” and “seniors’ issues.” What was not mentioned anywhere in the document was an issue that continues to burn away at a grassroots-advisor level – the inability of IIROC-licensed advisors to incorporate. This is a perennial issue that never really seems to be cleared up. While MFDAregistered advisors can set up as a corporation,
MOVES TO INCORPORATE In 2004, the Securities Commissions offered extensions to Mutual Fund Dealer Association of Canada (MFDA) member firms to permit member dealers to direct commission payments to a registered advisor’s private corporation. As each temporary exemption term approached expiry, a further extension was granted. In 2006, IIROC approved amendments to the Principal/Agent Bylaw 39 that would allow retail advisors to incorporate. In 2010, the MFDA approved changes to their bylaws to allow incorporation.
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IIROC-registered advisors are not allowed to do so. Even though the advisors licensed by each of these organizations compete against each other in the same profession, unlike almost every other professional group in the country, Canadian securities law effectively prevents IIROC-level advisors from incorporating. As the average street-level advisor suffers the combined effects of higher compliance burdens, low interest rates and a dismal economy, many would like to harvest the tax advantages that incorporation allows. “It comes back in a regular cycle, often around tax time,” says Kevin Whelly, national sales director, private client group, at Raymond James. When IIROC advisors look at the tax forms they think, ‘My MFDA-licensed cousin and my brother operate in exactly the same business … and they can incorporate … but I can’t. Insurance agents can incorporate. The MFDA-licensed advisor can. The IIROC guy can’t. This doesn’t seem fair to many.” Raymond James conducted a crosscountry series of discussions on the issue in
Canadian cities a couple years ago. The firm found remarkable and serious grassroots-level interest among advisors. “We visited eight cities and held functions where we invited advisors to talk about this,” Whelly says. “We had over 600 advisors come to those meetings … universally, the advisors said how much they supported this.” Nevertheless, the issue continues to be
“Insurance agents can incorporate. The MFDA-licensed advisor can. The IIROC guy can’t. This doesn’t seem fair to many” Kevin Whelly, Raymond James
POTENTIAL BENEFITS OF INCORPORATION • Income splitting is allowed, which could see other family members, as shareholders, involved in retirement and legacy planning • The potential to use retained earnings in the firm to fund a retirement of an advisor • The possibility to create and fund an Individual Pension Plan (IPP), which would allow an advisor to potentially make far greater contributions to a tax-sheltered retirement plan • The corporation can continue after the retirement or death of the founder, and provide Pension and Survivor Benefits • Some expenses would be recognized as deductible business expenses that are after-tax expenses in an employee structure • Flowing commissions through a corporation would allow advisors to pay a portion of their taxes at a corporate rather than a personal rate • The Lifetime Capital Gains Exemption of $750,000 creates an opportunity for future tax savings if the eventual sale of the advisor’s book is structured as a sale of the corporation’s shares ignored. In 2011, IIROC responded to a consultation paper that proposed allowing incorporation. The organization suggested that because this is not a “regulatory issue,” the organization is “not expressing any opinion” on the matter. As it is, the vast majority of advisors in the industry work for the dealers attached to the Big Five Canadian banks. These advisors work as either employees of the dealers or as contract workers with these organizations. As a result, the bank that ‘owns’ the relationship with the client. Allowing advisors to incorporate would shift deep dynamics in the industry. Not to mention that the buildings advisors work out of would have to be under control by the advisors, as per the rules of incorporation. “The banks are all ‘long’ on the leases advisors work out of,” Whelly says. The membership ‘weight’ at IIROC is with
“Various solutions have been presented ... without a regulatory solution. IFB was disappointed that the CSA did not deal with this issue ...”
Susan Allemang, IFB the big banks – 70% of advisors are with the big banks – so no wonder there is little movement on this issue. Susan Allemang, director of policy and regulatory affairs at the Independent Financial Brokers of Canada [IFB], is skeptical IIROC advisors will ever get the option to incorporate now that various provincial regulators have formed a co-operative national regulator. “Var-
ious solutions have been presented over the years without a regulatory resolution. IFB was disappointed that the CSA did not deal with this issue when drafting NI31-103. More recently, the introduction of a co-operative national regulator and harmonized legislation doesn’t address advisor incorporation, which is likely to delay any decision further,” she says. The perennial debate goes on.
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UPFRONT
INTELLIGENCE CORPORATE Acquirer
FUNDS
Target
Comments
Coastal Community Credit Union
N/A
Coastal Community Credit Union launches private wealth group focusing on high-net-worth individuals
Financial Horizons Group
R.G. Packman & Associates
Acquisition adds more than 1,000 independent insurance advisors, allowing Financial Horizons to remain the leading MGA in Canada
Värde Partners
Canaccede Financial Group
Värde Partners’ purchase gives it majority control in a provider of alternative financial services solutions in the Canadian consumer credit market
Banco Santander
Carfinco Financial Group
Spanish bank’s acquisition of Carfinco will allow it to enter the Canadian consumer car loan business
PwC Canada
Platinum Legal Group
PwC Canada has acquired one of Canada’s leading electronic discovery and litigation support firms
Diebold
Phoenix Interactive Design
The combination allows Diebold to deliver further growth in the self-service marketplace on a global basis
Smart Employee Benefits
Paradigm Consulting Group and PCGI Consulting Services
The acquisitions provide Smart Employee Benefits with a much stronger presence in Western Canada
N/A
The holding company, which controls Great West Lifeco and IGM Financial, announced its first dividend increase in six years
Power Financial
ETF expansion Raymond James Financial has made a big move into the ETF wealth management space with the acquisition of Toronto-based Cougar Global Invest ments, a firm with approximately $1 billion in assets under management, all of it in globally diversified ETF portfolios for high-net-worth individuals. Advisorcentric, Cougar’s business takes the pension model and makes it available to the middle market. With this acquisition, Raymond James will be able to provide its clients with another investment option on both sides of the border.
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>>DESJARDINS MOVES TOWARD ENVIRONMENTAL
RESPONSIBILITY
Desjardins investments has proposed that its Desjardins Environment Fund’s investment objective be amended to allow for equity and equity-related securities of companies located everywhere in the world, including emerging markets, taking into account environmental factors when making investment decisions. The proposed changes are intended to reduce the environmental impact of investment decisions in the Fund’s portfolio. To achieve this, investments in industries such as mining, oil and gas will be de-emphasized. >>STANDARD LIFE CHANGES
MUTUAL FUND MANAGER
Security holders of all 57 Standard Life Mutual Funds (SLMF) have approved the change of investment fund manager from Standard Life Mutual Funds to Manulife Asset Management. As part of this process, SLMF will be amalgamated or otherwise consolidated with Manulife Asset Management. The approval process is part of Manulife’s integration of Standard Life’s Canadian operations into its own. >>1832 ASSET MANAGEMENT MERGES FUNDS In its role as manager for Dynamic Funds, DynamicEdge Portfolios and Dynamic Managed Portfolios, 1832 Asset Management has proposed the merger of 12 funds into 12
PEOPLE Name
other existing Dynamic funds. The proposed mergers are the result of the manager’s ongoing review of its respective fund lineup. These mergers are believed to be in the best interests of the terminating funds. Those holding units in the terminated funds are expected to benefit from the increased scale, improved diversification and operational efficiencies provided by the merged funds. >>FRANKLIN TEMPLETON SLASHES FIXED-
Company
Comments
Steven Hawkins
Horizons ETF Management
Horizons has named current CIO Steven Hawkins and executive chairman Taeyong Lee co-CEOs. Hawkins will run the firm’s day-to-day operations.
Sandra Stuart
HSBC Bank Canada
HSBC has named Sandra Stuart as president and CEO, replacing former CEO Paulo Maia who has been appointed head of HSBCs Latin American operations.
Chery Graden
TMX Group
TMX Group promoted Chery Graden to senior vice president and group head of its legal and business affairs department. Graden has been with the company since 2004.
Doug Melville
The Ombudsman for Banking Services and Investments
OBSI has announced that its CEO, Doug Melville, was stepping down as of May 31 to take over the top job at the Channel Islands Financial Ombudsman [CIFO].
Carl Mustos
IA Clarington Financial Group
IA Clarington has ppointed Carl Mustos as president of IA Clarington Investments. Mustos has been with the company for the past eight years, most recently in charge of national sales.
David Scandiffio
CIBC Asset Management
CIBC named David Scandiffio as its CEO, replacing Steve Geist, who was promoted to head up CIBC’s wealth management business.
Barbara Amsden
Investment Industry Association of Canada
The SRO announced that Barbara Amsden, its managing director, is moving on to another chapter in her life.
INCOME FUND FEES
Franklin Templeton Investments Corp. has announced that it is cutting the management fees of its domestic and global fixed income funds by as much as 29%. These fee reductions enable Franklin Templeton to provide Canadians with fixed-income diversification on a global basis while reducing their risk exposure at a lower cost. This move will bring down fees not only in its Series A funds, but its Series F funds as well. >>LYSANDER FUNDS OFFERS
MANAGEMENT FEE REDUCTION
Lysander Funds Limited has announced it is offering lower management fees to anyone purchasing new Class A or Class F units between the fund’s creation date and the end of June. The reduction will be achieved by reducing the management fee charged based on the net asset value of the units held by an investor, and distributing the value of the reduction to the investor in the form of additional units of the same series of the applicable fund.
SCANDIFFO TO LEAD CIBC ASSET MANAGEMENT CIBC Asset Management has named David Scandiffio as its CEO, filling the position left vacant when Steve Geist was promoted to head up CIBC’s wealth management business in both Canada and the US. Scandiffio has more than 20 years of experience in the financial services industry, including more than a decade as president of IA Clarington Funds. Prior to his role at IA Clarington, Scandiffio spent 10 years at Mackenzie Investments in various capacities.
AMSDEN LEAVING IIAC The Investment Industry Association of Canada announced that after seven years working through some very tricky projects including CRM2, managing director Barbara Amsden is moving on from the SRO. Amsden was one of the original employees back in 2008 when the Investment Dealers Association of Canada merged with Market Regulation Services to create what’s now known as IIAC.
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UPFRONT
FUNDS UPDATE NEWS BRIEFS from 14% to 36% over the past several years. The survey also found 62% of pre-retirees stated they expect to work full or part-time in retirement, up from 55% in 2005.
The ETF turns 25 The Canadian ETF Association (CETFA) celebrated the 25th birthday of exchangetraded funds this past month. Twenty-five years ago, the Toronto Stock Exchange began listing so-called TSX Index Participation Units, or TIPs, on the exchange as a way for institutional investors to get exposure to the broad market index. Those TIPs eventually evolved into modern exchange-traded funds.
B2B Bank inks loan deal with Canoe Financial Advisor-centric bank B2B Bank is set to offer preferred rates on investment and RSP loans to Canadian investors through Canoe mutual funds. The loans will be made through financial advisors. The program became available on March 6. Canoe is one of this country’s newest fund providers.
U.S. mutual fund industry moving to trust structure? In the mid-2000s, Canadian corporations rushed to convert corporate structures to a trust structure as a way of taking advantage of tax benefits before the government eventually quashed the trend. Now a similar trend is playing out in the US in the mutual fund industry. Funds companies have slashed fees on their most popular funds by shifting billions of dollars into collective trusts not regulated by the US Securities and Exchange Commission. As actively managed mutual funds lose out to low-cost passive investment products (ETFs), converting to a trust structure seems to be one tactic companies are using to preserve market share.
Aston Hill launches new liquid alternative mutual funds
Home equity loans playing bigger role in retirement A new survey from Fidelity Investments Canada finds the number of retirees relying on home equity loans to fund retirement has more than doubled since 2005. The percentage of elderly Canucks tapping home equity as a way of financing living expenses increased
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Aston Hill Asset Management has launched two new so-called ‘liquid alternative’ mutual funds. The funds use a variety of option strategies to generate income, enhance returns and provide downside protection. The fund managers also employ shorting strategies to reduce volatility. The funds were launched in response to “advisors seeking non-traditional equity and fixed income strategies,” said Ben Cheng, president and co-CIO.
Responsible investing on the upswing INDUSTRY INTEREST in responsible invest ing has been gathering steam for years. But the latest survey on uptake of the trend suggests the sector may have just experienced the surge in interest needed to take this trend mainstream. According to the 2015 Canadian Respon sible Trends Report, the amount of assets in Canada being managed using one or more responsible investing [RI] strategies increased from $600 billion to $1 trillion in just two years – a substantial increase of 68% in assets. “There is no doubt that the growth has been pretty tremendous,” says Martin Grosskopf, a portfolio manager and RI expert with major independent fund company AGF. According to Grosskopf, much of the recent growth is a result of major institutional funds like pension funds adopting RI strategies and applying those strategies across entire portfolios. “The big pension funds today are not just running an environmentally sustainable fund, but they applying these principles to the entire asset base, which is a new trend,” he says. “The institutions are asking for it. These funds are signed on.”
“The next generation has inherited the habit of spending and consuming and investing this way” But the retail investor base is also showing interest in this sector as well. Younger generations no longer see a divide between ‘real’ investing and ‘sustainable’ investing. “The next generation has inherited the habit of spending and consuming and investing this way,” Grosskopf says. “Their purchasing decisions are more in line with this. Brands like Lululemon and Whole Foods … this is just
where the economy is today. We’re seeing a lot of interest in our environmental thematic fund. The interest is broader today.” New and more intensive debates are taking place today about the current ‘constant growth’ economic system. The effects of CO2 combustion are clearly emerging, and the climatechanger deniers seem increasingly out of touch with average people. British Petroleum has just announced it will withdraw from the ‘climate denial’ organization, the American Legislative Exchange Counsel. The Norwegian Sovereign Wealth Fund, the world’s largest such fund, which is based on oil money, just set up a study on this. The Rockefeller Foundation, deep old oil money, is also talking responsible investing seriously. Now, pension fund executives are getting serious about RI. “These managers are taking a longer-term perspective,” Grosskopf says. “The timelines on pension investments go out 50 years. The beneficiaries of these will be living then. So these are decisions that go beyond short-term market concerns. “All the asset owners we’re in touch with are debating this,” he continues. “It’s been a longterm trend, but it’s been accelerating significantly in the last two years. There is significant interest from investors who didn’t consider these issues just a couple years ago. The financial crisis got a lot of people thinking about the drawbacks of short-term thinking. Some people are realizing we weren’t protecting ourselves from ourselves.”
Q&A: The EagleCougar deal RICHARD ROSSI Co-COO Eagle Asset Management
Eagle Asset Management’s acquisition of Cougar Global Investments offers a clue to the future of the North American advisory industry. Co-COO Richard Rossi explains how WP: Why this deal now? Richard Rossi: We’ve been looking for an acquisition like this for a while now. One of the things we’ve been looking for is the kind of product that will be going to appeal to clients in the future. And we thought this is one of those. This is a product that is not a ‘fat’ product [i.e., ETFs are inexpensive]. In a very volatile market and industry in particular, we felt like there was a tremendous opportunity in ETFs.
WP: What was it in particular about Cougar that you found appealing? RR: We were looking for a firm, or a team of individuals, that we could work with. Over the last four years we’ve talked to everyone in the business. We knew what everyone is doing and how they fit in the industry. We were particularly impressed with Cougar. We were highly impressed with the company’s founder, Dr. Breech. This company has one thing that no other firm in this industry has – they have a track record that goes way back to the ‘90s. That is not something that a lot of people have in the ETF industry. This is a relatively new industry. There are now a lot of people who are producing ETFs today, and they are back-testing those products to create a history. But that’s still different from having an actual track record, which Cougar has. The company also has an impressive number of assets under administration, now over $1 billion. We were also impressed with the process itself. They had the most well thought-out process we came across. The Cougar perspective is completely different than most ETF fund companies. They are focused on preservation of capital, which is a completely different perspective. We thought that made a tremendous amount of sense. And so Cougar’s whole perspective on the process is unique. For Eagle, it’s clearly important. We do not think that ETFs are fad. We think this is a long-term trend. And we knew we wanted to be part of this evolving industry. The acquisition of Cougar enhances our presence within the asset management industry by providing us with the ability to provide an important suite of investment options that our clients are seeking. We are very confident that we have found the right partner.
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UPFRONT
ALTERNATIVE MARKET UPDATE
Alternative investing on the rise
A VARIETY of recent news stories suggest the alternative investment sector will grow steadily through 2015. The Canadian Venture Capital and Private Equity Association’s [CVCA] 2014 VC and PE Market Activity suggests that the Canadian private capital market had a strong investment year, and the industry is optimistic about 2015. The report found that a total of 379 venture capital deals saw $1.9 billion invested. From the private equity end, 296 PE deals resulted in $41.2 billion being invested. “Venture capital and private equity investment are robust,” says CVCA
NEWS BRIEFS
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CEO Mike Woollatt. “The feeling among those in the industry is that won’t change very much in 2015. Despite the economic uncertainty … there are opportunities.” Woollatt expects the strong results to continue in 2015. Survey data suggests the majority of those in the industry (77%) believe current economic conditions favour the private capital industry. Another twothirds (61%) believe that depressed oil prices improve their business outlook for this year. Another story suggesting strong interest in the exempt market: Toronto-based
Industrial services companies attract PE attention One of Toronto’s leading private equity players, TorQuest Partners, has announced a majority stake in a fast-growing industrial services organization Envirosystems. Industrial service companies seem to be attracting new levels of interest from private equity funds of late. Along with the Enviro systems deal, Newalta Corporate recently announced it was selling Terrapure Environmental to another well-known Toronto private equity firm, Birch Hill Equity Partners.
start-up Purpose Investments just announced that the firm’s assets under management surged past $1 billion. Purpose Investments’ stated goal is to “democratize” the investment industry by providing Canadian investors “access to a range of investment strategies that had previously only been available to larger investors.” “Today, we have over $1 billion in AUM, outpacing our internal growth projections, says president and CEO Som Seif, who previously founded early ETF fund manager Claymore Investment Management. “Reach ing this significant AUM milestone in a short period of time is a testament to our unique offerings and the great value that we provide to investors.” The task is especially impressive considering Purpose only launched in the fall of 2013.
“Venture capital and private equity investments are robust. Despite the economic uncertainty ... there are opportunities” Former head of RBC Capital Markets moves to hedge fund Canada’s biggest public sector pension fund, the Canadian Pension Plan Investment Board, is investing in a new hedge fund, Deimos Asset Management. Deimos has a fascinating, impressive pedigree. The new hedge fund is run by Mark Standish, the former co-head of the capital markets division at Royal Bank of Canada. Also investing in Deimos is the Ontario Teachers’ Pension Plan, which will be an ‘anchor investor’ in the multi-strategy fund.
Q&A: How large is the exempt market? A new report from the School of Public Policy at the University of Calgary suggests that the market is bigger than many think VIJAY JOG Author ‘The Exempt Market in Canada’
WP: What is the average person missing about the story on exempt markets? How big has this market become? Vijay Jog: First, I’d like to point out one potentially one main misconception: Exempt market does not mean a market with no regulation or a market where there is no disclosure. All it means is a market where the disclosure is less than usual since it is for investors who are knowledgeable and potentially hold a diversified portfolio. With respect to the size of the market, it is the case that no one really knows. My data does not contain Quebec, and in many cases – except Ontario and BCSC, which by the way keeps better data than many other jurisdictions – I am not sure I got all the data. More importantly, in some provinces, I could not classify data into equity and debt. But it does seem to be over $100 million annually.
WP: How is this market being used in ways that many might not assume? VJ: Data indicate that the market is used by financial sector and other large companies, public and private, to issue debt securities that may have short-term duration. That is, large institutional investors are using this market, as opposed to the common belief, which is that [it is used by] small and medium-sized enterprises [SMEs] that want to raise equity capital from individual investors. I could not get any information on redemptions, but there are some very large companies in this market.
WP: What was the biggest surprise in terms of your findings? VJ: The big surprise was that there is no good single source of micro data that can be analyzed. There is no single place to get such data. Beyond that, there is no, or limited, knowledge about the various participants – institutions, size of companies or the size of exempt market dealers. There are challenges with data in terms of gross versus net value of issues, and the amount of debt versus equity being issued. And there is no knowledge about performance of securities, especially equity, after it has been issued.
WP: You call for a data repository before any regulations are considered. Why is this important? VJ: As we all know, when we have good data and information, markets function better by channeling capital to the right use. It allows participants to know whether this market is providing reasonable risk-adjusted returns or not, and thus, whether or not they should invest in these ‘exempt’ securities. Moreover, regulators can see, and defend, the regulations they have imposed or want to impose. Judgments are based on facts or anecdotal information – currently it looks like it is the latter. With better information, size of the market may even become bigger if investors see that they can get good rates of returns and SMEs see that they can raise capital at a lower cost and with relative ease.
Computershare launches solutions for exempt securities
Lawrence Park Capital Partners celebrates third anniversary
Emerging Quebec-based hedge fund snares award nomination
Dealers, issuers and investors in Canada now have access to account administration and trustee services for exempt market securities in Tax-Free Savings Accounts [TFSA] and Registered Retirement Savings Plans [RRSP]. An Australian company, Computershare, is entering the Canadian market through Computershare Trust of Canada to offer the services. The company will provide trustee, account administration and recordkeeping for the exempt market.
Lawrence Park Capital Partners [LPCP] a Toronto-based alternative fixed-income manager, is celebrating its third anniversary. The fund is also celebrating positive returns on its flagship fund, the Lawrence Park Credit Strategies Fund, which has generated a net return after fees of 21.03% for Series A investors since inception. The fund also boasts positive returns 32 of 36 months, and volatility is lower than the FTSE TMX Canada All Corporate Bond Index. LPCP has a partnership agreement with CI Financial Corp.
The Lakeroad Hedge Fund is a finalist at the 2015 Investors Choice Awards to be held in New York City. Lakeroad, one of Canada’s top-performing alternative fund managers, is amongst a select group of Canadian managers to have been nominated. The Annual Investors Choice Awards honor fund managers that have achieved outstanding risk-adjusted absolute returns. Fund managers are considered for the awards by institutional investors, who determine the winners.
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FEATURES
ETF PORTFOLIO CONSTRUCTION
ETF PORTFOLIO CONSTRUCTION WORKSHOP Wealth Professional’s monthly look at building a better ETF porfolio This is Wealth Professional’s very first ETF portfolio construction workshop, the first in what we hope will be a regular feature tapping the plans and the thoughts of Canada’s biggest providers and the most succcessful advisors. Sponsored by Invesco PowerShares, this month’s feature combines the chartered financial planning experience of Karin Mizgala, CEO of Money Coaches Canada, a national network of advice-only professionals, with John DeGoey, a financial advisor at Burgeonvest Bick Securities in Toronto – one of the earliest adopters of ETFs in Canada. Mizgala brings to the workshop a client case study: a Vancouver couple, both working and in their mid-forties. They have two children aged five and seven, and hope to retire by age 65. Using on the couple’s profile, Mizgala has provided the appropriate asset allocation for her clients based on their current goals and desires for the future. DeGoey will provide
It’s not just about finding the right ETFs for a portfolio; it’s doing so with an acceptable level of risk 18
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INVESTOR PROFILE
Jennifer and Mike (not their real names) own a home valued at $600,000 with a mortgage of $380,000. In addition to equity in that primary residence, the couple has a combined $258,000 in RRSPs, $62,000 in TFSAs, $28,000 in taxable investments and an RESP balance of $38,000. In addition, Mike has a defined benefit pension plan. The couple has three major goals: 1. Retire by the age of 65 – Mike is 43 and Jennifer 44 2. Continue to contribute to their children’s education 3. Buy a small used boat (value $15,000) within two years
ETF recommendations based on the allocations below.
68% equities, 27% fixed income and 5% cash.
Asset allocation While Mizgala provided Wealth Professional with asset allocation recommendations for both Jennifer and Mike, in the interest of space, we’ve presented her recommendations in one overall package. Generally, though, financial advisors would address a couple’s situation both separately and as a whole. Because Mike’s financial acumen isn’t nearly as proficient as his wife’s, the overall allocation won’t be as equity-based as it would be if Jennifer’s situation were presented alone. Mike and Jennifer have total investment assets of $386,000. Mizgala recommends an weighting of 68% in equities, 24% in fixed income and 8% in cash.
TFSAs – Mike and Jennifer have combined TFSA assets of $62,000. Mizgala recommends a weighting of 55% equities, 25% fixed income and 20% cash. Remember, there’s a boat to be paid for, hence the higher cash allocation.
RRSPs – Mike and Jennifer have combined RRSP assets of $258,000. Mizgala recommends a weighting of
68% equities
The couple has done a good job maxing out their TFSAs since the account’s introduction in 2009. It’s possible that the money required for the boat purchase will either come from one of their TFSAs or their joint non-RRSP account. In terms of their investments, Jennifer’s risk tolerance and investment knowledge is medium to high, while her desired level of involvement with investment management is low. Mike’s risk tolerance is medium, while his investment knowledge and desired level of involvement in investment management is extremely low.
8% cash
24%
fixed income
Joint non-RSP – Mizgala recommends that 100% of the $28,000 here be invested in equities.
POWERSHARES CANADA
PowerShares Canada’s ETFs provide advisors with a suite of low-volatility ETFs, which may be a smart choice in periods of equity market volatility. PowerShares’ low-volatility ETFs are built on an easy-to-understand index methodology that’s transparent by nature and uses smart beta investment strategies to potentially generate benchmark-beating returns. The company’s philosophy boils down to the belief that you can’t beat the benchmark by following the benchmark. The smart beta product line reflects this belief and is designed to provide investors with a smarter way to access the markets. By partnering with next-generation index creators, PowerShares Canada delivers ETFs that go beyond market capitalization weighting, seeking to manage risk and enhance returns. PowerShares Canada is a registered business name of Invesco Canada Ltd.
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FEATURES
ETF PORTFOLIO CONSTRUCTION
Portfolio breakdown
20.9%
iShares Short Term Strategic Fixed Income ETF (XSI)
While a bit too aggressive for some, this new product offers diversification across a number of income mandates
15.6%
Vanguard FTSE Developed ex North America Index ETF (VDU)
Offers wide exposure to the world outside of North America (relatively rare among most people) at a reasonable cost
13.6%
Vanguard S&P 500 ETF (VFV)
“It’s about bringing together different sub-asset classes to produce reasonable returns in most every ... economic climate”
A vanilla way to get access to US large-cap stocks at a ridiculously low cost
12.3%
iShares MSCI World Index ETF (XWD)
A great option for small accounts because it offers instant global diversification as a single-ticket solution
6.8%
PowerShares S&P 500 Low Volatility Index ETF – Hedged (ULV)
Low-volatility exposure to US large-cap stocks with historically higher yields than the S&P 500
6.8%
PowerShares S&P International Developed Low Volatility Index ETF – Hedged (ILV)
Low-volatility exposure to international assets – e.g., US stocks with historically higher yields than the MSCI
5.4%
First Trust AlphaDEX Emerging Market Dividend ETF - Hedged (FDE)
A ‘factor’ approach to investing in emerging markets, an asset class that is under-owned by most people
5.4%
Vanguard FTSE Canada All Cap Index ETF (VCN)
Broad exposure to Canadian stocks, including mid-cap and small-cap companies that often perform better over time
2.5%
PowerShares 1-5 Year Laddered Investment Grade Corporate Bond Index ETF (PSB) Short-duration, investment-grade corporate exposure that offers balance to RESP portfolio
2.0%
BMO Low Volatility US Equity ETF (ZLU)
More conservative investors like Mike might prefer a low-volatility exposure to equity investments
1.2%
Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY)
Canadian dividends as a surrogate for income – dividend yields are higher than bond yields
7.5% 20
Cash
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RESP – Mizgala recommends 65% of the $38,000 go into equities, 25% into fixed income and 10% into cash. Portfolio construction John DeGoey has been constructing and deconstructing investment portfolios since 1993. He knows a thing or two about ETFs and how best to utilize them in a client’s portfolio. Given the asset allocation provided by Mizgala, John’s has provided us with the appropriate portfolio construction. The process involves organizing Jennifer and Mike’s investment portfolio in a logical, organized manner where all the pieces fit together so that the couple is able to achieve most, if not all, of their investment objectives and by extension, their major life goals. It’s not just about finding the right ETFs for a portfolio; it’s doing so with an acceptable level of risk. It’s not just about providing diversification; it’s about bringing together different sub-asset classes to produce reasonable returns in most every investment and/or economic climate — in good times and bad. Conclusion This balanced strategy should give Mike and Jennifer the portfolio they need to achieve their goals – both now and in the future.
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FEATURES
COVER STORY: YOUNG GUNS
YOUNG
GUNS 2015
Wondering where the industry is headed? The fresh faces on our Young Guns list are a picture of the future ESTABLISHED ADVISORS love to complain about how tough it is to make a living in the industry today. Interest rates are low. Stock markets aren’t growing as they were in the 1990s. The new regulation and compliance initiatives are burdensome. The list goes on. But here’s a challenge – try getting a practice off the ground today in these headwinds. This is the real test of strength. And so it is heartening to see that a new generation of
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advisors has taken up the challenge and is working out new paths to success, all the while doing it with a cheeky sort of optimism. The investment advisors on our Young Guns 2015 List are full of energy and ideas. They’re got loads of talent. They’re more knowledgeable than any plus-40 advisor was at this age. There may be some envy among the elders. The competition is here, they’re managing the challenges … and they’re gaining on you.
YOUNG GUNS 2015
JASON BLUCKE Financial consultant Investors Group, Kelowna, BC
CAVIN MORTON Portfolio manager TD Wealth Private Investment Advice, London, Ont. One gets the sense it won’t be long before Cavin Morton is one of elite advisors advisors in the city. Still in the early stages of his career, he is developing a sophisticated practice. Morton attended the prestigious Ivey Business School at the University of Western Ontario. Recruited into an investment banking role at TD Securities, he spent five years working with corporate and institutional clients before building out his wealth planning practice. Since then, he has grown his business of fee-based clients (with an average household wealth of $1 million) by $18 million a year. Today, he is focused on delivering financial “peace of mind” by applying institutional-level investment advice in the retail sector. “Prior to working with individual investors, I worked in capital markets,” he says. “There I gained a solid understanding of how large institutional and pension clients structure their portfolios. I have modelled our investment process after this ‘pension-style’ approach.” He realized he needed to do so during the financial crisis, when it became clear “that a huge disconnect existed between the way retail investments were managed and the way large, professionally run pension funds were managed.” The portfolios of many individual investors performed significantly worse than the large professionally run pension funds he was working with on Bay Street. After seeing “many people I know and care about lose half their savings, I made the decision to bring a pension-style investment approach to individual investors,” he says. In an era of high market volatility, an approach that places an emphasis on capital preservation never goes out of style.
Everybody comes to the industry in their own way. For Jason Blucke, it was through hockey. Pursuing a career in the western junior leagues, he eventually had a choice to make: “Finish the year and move on to play college hockey, go to Europe and try a pro career, or go back to school full-time get a job and start a career.” Blucke’s stepfather, a long-time stockbroker, suggested financial planning. “I drove back home to Kelowna from Winnipeg for twenty-plus hours. I immediately got a part time sales job at a local fitness store and enrolled in the business diploma program at Okanagan College, specializing in finance,” he says. He got his Canadian Securities Course, applied at Investors Group and was hired at 22. He put in nine- and 10-hour days at work and then spent another four or five hours finishing online and night courses. Blucke took the CFP exam after a year in the field, passed, and became one of the youngest advisors in the Kelowna area. At just 23, he found himself running his own business.
JEFF CORMIER Independent wealth advisor and financial planner (CFP, CFA) Armstrong & Quaile Associates, Shediac, NB At just 27 years of age, Jeff Cormier already owns and manages a thriving boutique financial planning firm. He had his investment license when he was just 17. He worked at planning while in university. He got his CFP designation and completed his four-year finance degree in just three years. That accumulated experience saw Cormier achieve his CFP license at the tender age of 21. His nominator believes Cormier is the “youngest to ever earn the designation in Canada.” At the age of 24, he purchased a book of business of an older advisor, folding in his existing business to form his current firm. He has been growing the practice since. In November 2012, Cormier was asked to join the Panel of Examiners for the Financial Planning Examination level 1. He is a wealth management specialist on the eight-member panel that designs and sets the standards for that exam. Not content to sit still, Cormier went on to earn his Chartered Financial Analyst (CFA) charter by age 26.
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FEATURES
COVER STORY: YOUNG GUNS
ROSEMARY HORWOOD
ALEXANDRA HORWOOD
Investment advisor The Horwood Group, RichardsonGMP, Toronto
Investment advisor The Horwood Group, RichardsonGMP, Toronto
Rosemary Horwood isn’t kidding when she says she was “born and bred” for this industry. Her mother, well-known advisor Rebecca Horwood, taught her how to borrow against margin at age 7. By the time she was 10, her dad had taught her how the TSX worked, drawing graphs on the back of a napkin at a restaurant over dinner. She went on to major in economics at the University of Waterloo. Her parents cajoled her to join the family team; she finally gave in and started as an assistant while working on her licensing. She’s never looked back. “This is the career for me. I understand money, I understand the markets, and I love people,” she says. Today, the Horwood Group is an extremely successful practice with more than $700 million in assets under management. “I conduct my business with a reasonable expectation that a crash in the markets could come at any time … and I am prepared for that,” Horwood says. “I want my portfolios to be bulletproof, with a good idea of how they held up in the line of fire in the past. I love building and managing my business, and I hope I can stay at my desk for the next 40 years … at least.”
The other sister at the Horwood practice, Alexandra, has taken a slightly different tack in her career. She is actively pursuing a niche market, managing the personal financial affairs for many successful mining executives. “We’re a one-stop shop, whether it’s strategic investments, tax and estate planning, insurance, option exercise, cross-border advice, currencies, capital raises, or creditor proofing,” she says. Like her sister, she grew up interacting with clients, and she’s always loved being around the action. “It’s always been a family affair. I saw their clients so often I thought they were aunts and uncles,” Horwood says. A top math student, she tutored statistics in university. The love of numbers has transferred well to her role as an investment advisor. “I have been in the business for nearly five years now, so I am over the initial hump of building my business,” she says. She has developed traction, credibility and trust in the industry. Now she’s thinking about how to “attract smart, young talent” and “properly incentivize them to work really hard and grow with me.” Her goal: to reach $1 billion in assets under management by the time she’s 40.
MARCO ZAINO Vice president, portfolio manager and branch manager (FCSI) Dundee Goodman Private Wealth, Montreal, Que. Marco Zaino is a busy guy. One of the youngest branch managers in the industry, he manages a team of 15 advisors – 14 of whom are older than him. “They all feel they have more experience, and they know what they are doing,” Zaino says. However, he has risen to the challenge. “The industry is changing to a new school, [and] most of the older guys are finding it hard to adapt. My initiatives have led to some interesting growth, cross-selling opportunities and better team unity. We are on track to grow branch revenues by another 15% this year, all through organic growth,” he says. As an advisor, he divides his practice into three components: discretionary management, fee-based non-discretionary and a ‘next generation’ practice that applies discretionary management to clients under 35 with assets below $150,000. “I want to help the younger generation,” he says. “They typically don’t have a great deal of savings, and many advisors won’t bother with them because there is no short-term ROI. However, I felt that being the same age as these individuals, I could relate and understand what they are going through.” Many of these younger clients started with as little as $5,000, but now those accounts have turned into $500,000 as they have inherited money or started working as lawyers or doctors.
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YOUNG GUNS 2015
ANDREW FILICE Wealth advisor (CFP) Assante Wealth Management, Burlington, Ont. Andrew Filice was sitting in a financial planning course at McMaster University when he heard a statistic that startled him: Over 45% of individuals who retire become financially dependent on the government. “It was shocking,” Filice says. His course was clear. “I geared my courses toward the financial planning profession and launched my career from the ground up straight out of university,” he says. Graduating with an honours Bachelor of Commerce degree in 2007, he started with Investors Group at age 23. He got his CFP designation at age 26 and began building his business through cold calling and small marketing events. Recruited to Assante Wealth Management in 2012, he is now happily growing his business at the well-known firm. As a millennial, he “grew up in a generation where your financial future is in your own hands, but unfortunately there is a big lack of understanding of the fundamentals of how personal finances work.” Although he doesn’t want to boast about a large book, he has steadily grown his business. “I started by being an honest and thorough advisor,” he says. Now 31, he credits his hardworking Italian immigrant family as being the foundation of his success. “They have always taught me the importance of working hard and building a strong future for your family,” he says. “I want the same for my clients that I want for myself.”
“[I] grew up in a generation where your financial future is in your own hands, but unfortunately there is a big lack of understanding of the fundamentals of how personal finances work” www.wealthprofessional.ca
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COVER STORY: YOUNG GUNS DEREK POLSON Mortgage agent, insurance and investment advisor (CFP) Polson Bourbonniere Financial, Hollis Wealth, Markham, Ont.
DAVID DYCK Financial advisor (CIM) WealthBar, Vancouver One of the biggest stories of the past year has been the emergence of robo-advisors, the new crop of tech-oriented advisory firms that have sprung up to challenge existing modes of business. As a young advisor just coming into the industry, David Dyck knew he had to be at one of these cutting-edge firms. “Looking forward for the next 10 years, I felt that this area of the market, the online delivery of advice, is poised to expand,” he says. “The traditional face-to-face advice delivery model is facing challenges. I wanted to position myself in an area of the marketplace that is poised for growth, not contraction.” He believes there is a large group of potential clients who want advice but aren’t able to get it and are being pushed to ‘DIY’ because they don’t see any other option. “I want to help that group of people get access to advice that is affordable and accessible so that the people who want advice can get it,” he says. He was attracted to WealthBar because of its advisor-centric approach. “It is really the only robo-advisor fully dedicated to delivering a full-service advisor relationship,” Dyck says. “Providing well-rounded financial advice in all areas is what I want to be doing. None of the other robo-firms take this approach of integrating a real advisor with the technology and online delivery.”
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Derek Polson’s first summer job was at his father’s financial planning firm. He did the odd jobs, stuffing envelopes and filing. “The real exciting stuff,” he says today. But he experienced firsthand the difference an advisor can make. “Seeing the satisfaction of his clients when they knew they could retire worry-free was an experience second to none,” Polson says. Since then, he has gained his life license, securities registration, CFP designation and is qualified to provide mortgage broker services. Working out of the offices of Polson Bourbonniere Financial in Mark ham, Ont., he targets a niche ‘sweet spot,’ helping clients who are within five to 10 years of retirement. “This is where many clients have real challenges,” he says. While some advisors worry about CRM2 or robo-advisors, Polson thinks of these as short-term challenges. “I’m more concerned about the financial health in general of our aging population,” he says. “There are many Canadians who are not getting sound, quality advice on how to make the transition into retirement. How long will [their] money last? These are the real questions and challenges that Canadians have.”
ZAC MURPHY Financial advisor Younker & Kelly, Charlottetown, PEI Zac Murphy’s father, Brian, has been a financial advisor in PEI for more than 20 years. Originally, Murphy had no interest in getting into the financial services, but he was approached by someone in the industry with an offer. He sat down with his father and was convinced to take up the family trade. “I haven’t looked back since,” he says. He cites his father and Matt Younker as mentors. “I’ve certainly had some great advice along the way,” Murphy says. He thinks this is a good time to get into the business. “With all the changes coming down the pipeline, we as younger advisors have a chance to be ahead of the curve and really cement ourselves as the next generation of financial advisors.”
YOUNG GUNS 2015
“Many people are overwhelmed by the information they receive from friends, family and media, and as a result, simply do not take action”
RACHEL DYCK investment advisor (RRC, CFP, CFM) CIBC Wood Gundy, White Rock, BC Rachel Dyck was born in Winnipeg, Manitoba, but today she calls White Rock, BC, home. The flourishing city in the southern part of the province is host to many highnet-wealth types. It even attracts some American tech money from Seattle. It seems to be a bit of a hotbed for advisors. Like many of the young advisors on this list, her interest in financial planning started early. When she was a child, her Opa took her to open her first bank account. “I remember saving all my money, looking forward to depositing it at the bank, and the excitement of viewing my bank book. I could hardly wait to see how much interest I had earned,” she says. It was no surprise she majored in Economics at the University of Alberta. Today, she is articulate, sincere and professional. Her commitment to lifelong learning is clear in the number of accredited designations she holds. “I am concerned that there is too much information overload – and people are either impulsive or paralyzed by the fear of making the wrong decisions. It can be very difficult to filter through the ‘noise’ that we hear and see. Many people are overwhelmed by the information they receive from friends, family and media, and as a result, simply do not take action,” she says.
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COVER STORY: YOUNG GUNS KURTIS DUKELOW investment advisor (RRC) CIBC Wood Gundy, Victoria, BC
SHANNON DALZIEL Investment advisor PWL Capital, Toronto Shannon Dalziel was in her third year at Ryerson University when she began to think about the financial advisory industry. “Ever since I was young, I’ve always been passionate about budgeting and saving for the future. Wealth management felt like a very authentic career path,” she says. Things began to heat up when she met Justin Bender, an investment advisor at PWL Capital. Justin was looking to add a member to the team; Shannon joined the firm as an executive assistant. Since then, she has been working toward her CFP. “As a new advisor, it is imperative that I continue to work on improving and expanding my knowledge,” she says. “There is a wealth of information available, and I want to ensure that I continue to develop my skills through lifelong learning.” She hopes to obtain a portfolio manager designation. Doing so would be a perfect fit for the type of high-end practice PWL is putting together. The PWL team works out of a carefully restored 100-year-old heritage building in the wellheeled St. Lawrence Market neighborhood. The firm targets high-net worth clients with $500,000 or more to invest, and has experienced a great deal of growth over the past few years. “When I started at the firm in 2011, the team’s book of business was at approximately $50 million,” Dalziel says. “We now manage over $140 million in investable assets and growing.” The best part of the story is the fairy-tale ending: Bender and Dalziel are engaged to be married in May 2016.
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Like many of the Young Guns, Kurtis Dukelow has financial planning in his blood. His father has been a financial planner for more than 30 years, so he has “always been aware of the profession. The more I learned about it, the more I understood, the more I liked it,” he says. But it wasn’t until after his third year of business school that the way forward became clear. He entered an internship at Raymond James and found he enjoyed what he was doing. “I’ve always been one to spend the extra time with existing clients, and especially new ones, to make sure they truly understand what I’m recommending,” Dukelow says. His big concern is the way the generational transfer of wealth is happening. “One trend that’s a little worrisome is that a lot of Canadians are assuming, and waiting, for their inheritance to come. So they’re spending outside their means while their parents are still living,” he says. “It’s those people I enjoy getting in front of by making sure they’re not neglecting their own situations. People are living longer nowadays, and nobody knows what things are going to be like in 10, 15 or 20 years, so it’s vital for people to have a plan in place. I make an extra effort to make sure client’s estate plans are ready and in place, that wills are updated, POAs and executors selected. I take the time to meet with the children to make sure they’re ready and prepared.”
SAMEER AZAM Wealth advisor Absolute Wealth Management, FundEX Investments, Mississauga, Ont. Members of the millennial generation are said to be particularly attuned to the issues of the world, and Azeem is a great example. “The older I got, the better I grasped an understanding of this profession,” he says. But like many of those in his generation, he is focused on ethical and socially responsible investing. “I decided to get into this industry not only to help my local community, but help all individuals across Canada to build and preserve wealth. I want to bring some changes to the industry. I feel like we are here to serve people, not become their masters.” He is building an evolved practice that relies on a flat fee on AUM. If the client is looking for just financial planning, that is also available for a flat fee. His optimism is refreshing. “I have come across many financial advisors in this industry who, despite being occupied with their work and life, continue to volunteer and take part in making their community better and stronger. I want to be like that,” he says. His long-term goal: Set up a charitable “endowment fund that would help some great causes.”
YOUNG GUNS 2015
“There is a staggering amount of Calgarians under-advised in terms of investment, tax and estate planning”
BLAKE C. GRIFFITH Wealth advisor Sun Life Financial, Calgary, Alta. Blake Griffith initially studied to be an accountant. But it was during a finance course that he discovered his true passion. Taking a cue from two family members, he became a financial advisor. Today, his Calgary-based practice is focused on the many professional engineers and owner managers so common in the Canadian oil patch. He is concerned about client needs in this record low-interest-rate environment. “In this environment, advisors looking for the necessary investment returns to meet client requirements have two options. One, we can move away from traditional low-risk investments like government bonds and GICs and toward higher yielding investments such as common stock, high yield bonds and REITs. But these carry greater risk for the client. Second, we can retain a more traditional asset allocation and settle with a lower return. Regardless of what scenario we choose, either holds some risk, and thus concern,” he says. That said, Calgary’s recent population boom means there is “a staggering amount of Calgarians under-advised in terms of investment, tax and estate planning.”
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COVER STORY: YOUNG GUNS CIMON PLANTE Vice president and portfolio manager Financial National Bank Canada, Brossard, Que. Cimon Plante has a strong entrepreneurial spirit. By the age of 17, he had already started a commercial cleaning business. That kept him going until he finished his studies. Then he jumped into the financial services, which allowed him to combine his passion for both finance and entrepreneurship. Today, his practice serves affluent families in the healthcare sector and business owners. With a client list slightly above 100 families, the office manages a combined $200 million in investable assets. He makes a point of offering monthly communication, which is impressive. “The strength of my model lies in the fact that we limit our services to a number of families, so as to put more emphasis on the quality of our investors and what we can bring them rather than the quantity,” he says. “As our business is growing, narrowing down our clientele and having to say goodbye to some is not always an easy task, but I am devoted to constantly improving my customer base, and letting some go is part of the process.” As a way of developing his book, he has significantly increased his exposure in the media. He makes sure he is interviewed at least once a month by different television programs and newspapers. “This exposure helps me create brand awareness while building more credibility with my clients,” Plante says.
CAVAL OLSON-LEPAGE Mutual funds specialist (CFP, RRC) TCU Financial Group, Saskatoon, Sask. Caval Olson-LePage started in the financial services as a teller. Stationed near the wealth management department, she witnessed firsthand the firm’s financial planners, and she knew where she wanted to be. Today she works out of the TCU’s Saskatoon Stonebridge office. Described by her nominator as “highly motivated,” she is a member of the Saskatchewan Young Leaders, and the Business and Professional Women of Saskatoon. She is concerned about the amount of negative press around high fees and ‘bad advisors.’ “The media is very quick to paint all advisors with the same brush, and this couldn’t be further from the truth,” she says. “There are great advisors out there who honestly want to do what is best for their clients.”
BEN EBY Financial advisor (CFP, CLU, CHS) Eby Financial, Waterloo, Ont. Ben Eby found also found his way into the industry through family. But he didn’t come into the business right away – he had to see what else was out there. He went off to study science in university, thinking that exposure to another career path would be important. “It was interesting, but I found myself pulled back toward the financial services industry,” he says. “Your success is a direct result of your own actions, and the impact of those actions are clear.” He and his father are currently working to update the practice to modern standards. “So far, about 40% of our clients have a formal financial plan,” Eby says. “We’ve transitioned 70% of client assets to a fee-based platform over the last 18 months with the ultimate goal of being 100% fee-based.”
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YOUNG GUNS 2015
OLIVIER AND JUSTIN GRENIER Investment advisors Assante Wealth Management, CFPNational Bank Financial, Quebec City The twin Grenier brothers work in a French-speaking family practice alongside their father, Gerald, an investment advisor for more than 20 years. The brothers have been passionate about investments since the age of 13. “At that time, we were mowing our parents’ and neighbors’ lawn and washing our parents’ cars. Instead of buying candies with the money, we were asking our father to invest that money in the stock market” Olivier says. “We knew at that age that we wanted to become stockbrokers like our father.” After completing their studies, they worked as account managers in the commercial financing business of a Canadian bank. After seven years, they joined their father as investment advisors. “Since joining our father, our assets under management have doubled to $350 million,” Olivier says. The firm’s 300 families are entrepreneurs, health and business professionals. “In everything we’ve done – sports, studies, work – it has always been important for us to perform,” Olivier says. “These are the values our father has passed to us.” Olivier won the Rookie of the Year award for Canada from National Bank Financial in 2013 and qualified for the President’s Club in 2013. Justin also won NBF’s Rookie of the Year award in 2012.
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COVER STORY: YOUNG GUNS JAKE LOCKHART Financial planner (CFP, CHS) Quail Ridge Financial Services, Kelowna, BC Jake Lockhart senses many people experience a “disconnect between what their true values are in life and where their money goes.” This is a feeling Lockhart has experienced firsthand. “One of my first jobs after my postsecondary education was as a day trader. Day after day, I would stare at computer screens without interacting with anyone. I would buy a stock at $4.00 and sell it at $4.01, over and over again. I thought to myself, ‘If every day trader vanished from earth, who would notice?’” The answer, he realized, was ‘no one.’ He had to make a change. “The advisory industry allows me to help people and provide value to many people and families,” he says. Today, Lockhart has a multi-tiered practice. He worries about the average Canadian and their ability to access advisory services. “The future of the financial advisory profession is under threat,” he says. “Regulators are pushing in a direction that would remove access to financial advice from the middle class. I would hate to employ a business model that would exclude those who require quality financial advice the most.”
JEFF SHIGEHIRO
AARON ARNOLD
Investment advisor (CFP, CLU) Shigehiro Wealth Management, Vancouver
Financial planner Luft Financial, Hollis Wealth, Vancouver
Jeff Shigehiro developed his full-service, fee-based practice after a veteran advisor recognized his potential and offered him a space in the office. “He felt this could be a great career for me,” Shigerho says. He sees the industry as a place where an individual can achieve what they want if they are prepared to work hard. “Being challenged intellectually every day is important to me. Considering the complexity behind some of the planning work we do, this desire is always met,” he says. One oft-overlooked challenge in the industry: “Young families are getting married at a later age and establishing roots later than previous generations,” he says. “As a result, saving money for retirement also gets pushed off, and the ever-increasing cost of living affects the amounts of investable income. However, they still want to retire at the same time as previous generations.” Herein lies the modern challenge – getting the next generation to face up to reality. “There is a growing amount of household debt in Canada right now, and it is quite concerning for long term planning,” Shigerho says. “Just because the bank or non-bank lender approves you for a loan doesn’t necessarily mean that you can afford it.”
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Studying economics at the University of Victoria, Aaron Arnold knew he was interested in finance. But what drew him to the financial planning side was the opportunity to build and maintain long-lasting rela tionships. “I’m a people person,” he says. Today, he runs a feefor-service practice in Vancouver and is starting to transition to a discretionary model. The goal is to provide clients with exceptional service, but also have clients and experts involved in the process. To this end, “we have developed a portfolio management committee, the members of which run and oversee our rules-based model portfolios,” he says. He also teaches financial and retirement planning courses for the City of Vancouver. “We are overly compliant … as a fee-for-service transparent model, I’m not worried or concerned about CRM2, but I hope it will benefit the investor and help people realize what they are paying and in turn ask what are they getting for that,” he says. “I find most people are undereducated when it comes to dealing with their finances. This is why we put so much time and effort into educating our clients and teaching investment and financial planning courses. I am a big advocate for providing more financial education starting at a young age.”
YOUNG GUNS 2015
ALANA GUTHRO
MILLENNIAL MANPOWER
Insurance and wealth advisor Guthro Financial, Worldsource Financial Management, Flamborough, Ont.
Will the up-and-coming generation ever get to work? The millennial generation is made up of those born between 1980 and 2000. They are the largest generation in the US and represent one-third of the total US population. The oldest cohort of millennials is in their early thirties. But they have had a tough time making a go of it in the job marke – the unemployment rate for this generation remains at 13.6%. They are well-educated, though – about 61% of adult millennials have attended college, whereas only 46% of Baby Boomers did so. But the oldest millennials were just 27 years old when the recession began in December 2007. As unemployment surged from 2007 to 2009, many millennials struggled to find a hold in the labor market. Many made educational and career plans, including whether and where to attend college, during a time of great economic uncertainty. Their early adult lives were shaped by the experience of establishing careers when the economy was volatile.
At just 29, Alana Guthro has been in business for seven years already. She credits her outgoing personality as the secret to helping her grow her business by meeting new people. She is also following in her father’s footsteps – the elder Guthro is a chartered accountant and investment advisor. “He says he knew when I was making business arrangements in grade school that I was an entrepreneur,” Guthro says. She began working with her father after graduating from university. Since then, the business has evolved into a partnership, formed in 2012. “He works with our investment clients, and I work with our insurance clients,” she says. “I find that being 29 and younger than the average age in this industry, often I am underestimated in terms of my industry knowledge. I was very intimidated my first few client meetings. [But] with a few years under my belt, I am now very confident in my abilities, and my clients quickly realize that as a broker, I can offer a lot of different options to suit their needs. By the end of our meetings, my clients are very comfortable with me and happy with the service I provide.”
JOSEPH ALFIE Investment advisor Hollis Wealth, Scotiabank, Montreal
VICTOR GODINHO Managing director (CLU) VTAG Financial Group, Toronto What a year for Victor Godinho. A return player from last years’ Young Guns list, Godinho is growing a practice in Toronto’s burgeoning Liberty Village neighborhood. This year, that practice was acquired by Pangea Global Wealth Group. “We are a strategy-first, independent-thinking financial solution for entrepreneurs and high-performance professionals,” he says. “Our offering is strictly based on unbiased financial planning.” Staying firmly on the cutting edge, he is also involved in a family office just getting off the ground in Toronto. The trend toward family offices is well-established in the US, but is evolving here. Godinho will be a part of that as he continues to chart the emerging trends in the industry.
Money was never openly discussed in Joseph Alfie’s home when he was young. The mystery of finance tweaked his curiosity. He was deciding whether to be an industrial or electrical engineer when he read a book, Rich Dad, Poor Dad. It changed the course of his life. Today, Alfie runs an independent investment advisor practice under the Hollis Wealth banner. He started off the hard way, generating most of his leads through cold calling – which he still does, though with a little more sophistication. His staff contacts business owners and professionals and offers them a second professional opinion on their investments at no cost. When asked about challenges in the industry, he prefers to be positive: “I see opportunity, not issues,” he says. “The opportunities lie in the fact the investment advisor’s average age is about 58 years old in Quebec. Between aging advisors, compliance becoming more stringent than ever and new CRM 2 regulations, I believe that there will be a tremendous amount of books of business for sale in the next five to 10 years. My ‘issue’ will be having the proper infrastructure to absorb these assets.”
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FEATURES
COVER STORY: GUEST COLUMN
TARGETING THE CHALLENGES FOR THE YOUNG GUNS What are the obstructions that will challenge the next generation of advisors? The Bakish Brothers bracket the targets – compliance, cost, complexity and competition
*Performance for the five year period ending February 28, 2015. The inception date of the fund was November 13, 2007. †Morningstar Canadian Fixed Income Balanced Category. The indicated rates of return are the historical annual compounded total returns for the Class A units including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by a security holder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. The information presented is accurate at the time of first printing, and is subject to change without notice. Management fees for Class A and Class F units are outlined in the Fund Facts and the Simplified Prospectus. Please read the Fund Facts or the Renaissance Investments Simplified Prospectus before investing. Mutual funds are not guaranteed, their values may change frequently and past performance may not be repeated. ®Renaissance Investments is offered by, and is a registered 34 www.wealthprofessional.ca trademark of CIBC Asset Management Inc.
STARTING OUT in this business more than 10 years ago, we depended heavily on our own ability, and voice, to meet new prospects. Not only was this cheap, it was a very simple process: You make so many calls. You book so many appointments. You establish so many client relationships. At the time, there was virtually no number that we weren’t able to call, and there were few restrictions as to when we could call. Add to that the minimal amount of cost of running a financial advisory business (no marketing, no inventory, no machinery) and a straightforward value proposition (basic tax savings strategies and diversification), and in hindsight, one can almost say it was easy. Of course, it wasn’t as easy as it might sound. But fast forward to today, and the landscape has changed completely. One can’t simply pick up the phone and book meetings with a simple sales pitch. Why? We call it the four Cs: compliance, cost, complexity and competition. Compliance There has been a significant and seemingly never-ending increase in the amount of documentation required to maintain a compliant practice. The days of simple client logs and KYC updates are long gone. Now, every form of communication, from email to texts, must be docu-
mented and summarized. Every recommendation must meet strict standards and should be initialed by clients before implementation. Even a sale of a small basic term-insurance policy requires letters of understanding to be signed and a comprehensive insurance ‘needs analysis’ performed. These requirements ultimately serve the client well. These measures go a long way toward providing transparency around advisor recommendations. However, they also create a taxing set of procedures for the advisor. For those just coming into the industry, staying compliant requires a significant investment of precious time – the main asset for a new advisor as they grow their book. Developing a client base today requires time-intensive prospecting and lots of footwork. The increase in compliance is an extra cost to new advisors that didn’t exist for the last generation, making those early, hard-charging years even more onerous. Compliance also extends to the marketing side of the modern practice. With the introduction of the Canadian anti-spam law (CASL) and the national do not call list (DNCL), a new advisor faces huge challenges in coming up with a pool of names to contact cheaply. There is now a new risk in getting penalized for making contact.
YOUNG GUNS 2015
Short of one’s ‘warm’ market (family, friends, old work colleagues) and meeting new prospects, advisors must be much more creative in their marketing approach. The classic marketing techniques of booths and seminars are still available. But advisors now have to establish well-thought-out brand strategies, which have to be executed flawlessly via social media, blogging and Internet posts. Cost Taken together, the changes in compliance have necessarily led to an increase in overall time and monetary costs. Registration fees for the DNCL, increased fees for the information technology needed to maintain compliant files, a greater number of continuing education courses – all of this has a dramatic effect on the likelihood that an advisor just starting out will succeed. Our recollection is that we had very little income (negative, in fact) in our earliest years. Adding costs at that time could have very well jeopardized our career path. Many of these costs can be absorbed by the firms, of course, but more often than not, they aren’t. Basic economic theory tells us that an increase in business maintenance costs acts as another barrier to entry to a market. Complexity Another cost new advisors are carrying: the
need for ever-increasing levels of education in order to keep up with industry changes and product innovation. Initially, a Certified Financial Planner designation was a means to get ahead of the pack. Now that designation is seen as a basic requirement to starting a credible financial planning practice. Simply put, the industry has become much more complex. At one point, the task of the advisor was to simply explain the difference between a GIC and a mutual fund. Today, to be relevant, one must have knowledge of mutual funds (and their multiple series), exchange-traded funds, principal-protected notes, complex insurance strategies and all the rest of the products on the market. The issue of product knowledge becomes even more complex when one thinks of changing laws and cross-border tax issues. Should an advisor recommend a common-sense strategy (a TFSA, for example) to the wrong client, the penalties could be high. Competition It is, of course, the case that complexity has increased for the established players in the market as well. But unlike new advisors, established advisors have the time and resources are available to meet these changes. The true value-add for the client can be accomplished. It is the young advisor who is really suffering the effects of these new regulations. In a world where the competition is much fiercer and cheaper than in the past, the space new advisors had to carve out a practice is quickly disappearing. The ‘four Cs’ suggest a bleak picture for new advisors – and certainly, for those using the same approaches as we did to build our business, it will be tough. But just as our industry has evolved, so too must the new advisor. In order to become successful, in our view, new advisors starting out in the field will need to be more educated, work in teams and run an extremely efficient operation. Doing so will provide better service to clients and greater market integrity, which will have large positive effects among the general population. But the days of the ‘salesman’ and partially retired ‘careerists are numbered. Now only the innovative professional will survive.
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INDUSTRY ICON
SUN LIFE AT A CENTURY AND A HALF Keeping a company solvent over 50 years is no small feat. CEO Dean Connor offers up the secrets to sustainability IN 1865 the New York Stock Exchange had just opened. The U.S. Civil War was underway. In Canada, the legislative assembly granted permission to Sun Life to start selling insurance – and a century and a half of careful, steady risk management got underway. Today, the Sun Life banner wraps the globe. The company operates in a dozen countries, from Bermuda to Indonesia to Vietnam. Here in Canada, there are 8,240 employees and an advisor force 3,830 strong. In the last quarter of 2014, the company pulled down $511 million in operating profits. As the company celebrates a century and a half of successful underwriting, CEO Dean Connor took the time to discuss how Sun Life’s managers have kept the corporate entity on the vanguard. Global presence Sun Life ‘globalized’ long before that term was trendy. The company expanded into Hong Kong in 1892, the UK in 1893 and the Philippines in 1895. Its history is a great example of how it is Canadian companies can be ambitious and successful. Connor paints a thrilling picture of how those early global forays came to be. “Imagine sitting in the boardroom in 1892, and the CEO says to a gentleman named Ira Thayer, ‘Here’s a good idea. We want you to get on the train that goes to Vancouver, which had only been completed in 1877. Get on a boat to
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China. Go start an insurance business in a country where you don’t know anyone and you don’t speak the language. Here, take this trunk full of policy applications. And good luck. Write us and tell us how you are doing. And you know what, he did it. We were the first life insurance company to start business in Hong Kong in 1892.” Since then, the company has managed through more than 20 recessions, three official
Philippines, the records of those with paid-up claims had been lost. Even so, Sun Life made the decision to pay every claim submitted. “To this day, generations of Filipinos remember that story from their parents or grandparents,” says Connor. “Later on, we found the records. Somebody had hidden them under the floorboards in an office. We went back and checked, and there was no fraud.”
“We’re managing through [low interest rates] by doing what we’ve done for 150 years; we’re constantly changing the company. We’ve made a huge amount of change to reposition the company to succeed in a low-interest-rate environment” depressions, several financial panics and dozens of wars. But through it all, Sun Life has maintained the client promise. One story has been absorbed into the company’s DNA: During World War II, the overseas business units of Sun Life were shut down during the Japanese occupation of Singapore, Thailand and the Philippines. But when the war ended, as could be expected, a flood of death claims was presented to the company. In the
Risk management One of the keys to Sun Life’s long-term solvency has been the distribution of operational risks across several countries, so that troubles in one region can be offset against growth in another. Also important to the company’s survival has been the evolution of a conservatively managed balance sheet. “There haven’t been many failures of insurance companies,” Connor says. “But when insur-
“Equities have played a relatively small role on our balance sheet. The company has been very conservative in setting reserves and making sure we have enough capital�
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INDUSTRY ICON
ance companies have failed, there have been two things that made it happen. One is low interest rates. ... [The] second reason insurance companies have failed has to do with illiquidity in assets.” Back during the Great Depression, Sun Life learned the importance of maintaining a liquid, diversified and conservative balance sheet. “If you go back to that era, Sun Life had more equities on its balance sheet than it should give,” Connor says. “The company wasn’t alone. A lot of insurance companies back then had a lot of equities on the balance sheet. And so the crash
than expected. We have this additional amount on the balance sheet of cash and protection. It’s one of the reasons there have been so few defaults in the Canadian system.” Which is comforting, but in today’s era of ultra-low rates, how is Sun Life protecting its balance sheet? Connor explains that Sun Life sold its US annuity business, which shed a big chunk of rate liabilities. “That vested at low interest rates, so that was good for us,” he says. “In hindsight, we’re very glad we sold it.” Sun Life also updated its products to reflect
“Trust is obviously the foundation of any financial organization. We’ve been fortunate to be voted the most trusted insurer in Canada over the last six years” of 1929 was traumatic, not just for Sun Life, but for the whole insurance industry.” At the time, regulators had to step in to help the company through the rough patch. It was a life-altering experience, and a lesson that every CEO of Sun Life has been conscious of since. “Since then, equities have played a relatively small role on our balance sheet,” Connor says. “The company has been very conservative in setting reserves and making sure we have enough capital. That’s true for me, as it was for Donald Stewart and TK. They have all been very prudent making sure we had a very strong balance sheet. And we continue that today.” Maintaining trust In 2015 Sun Life carries a strong double AA credit rating. Connor notes this is partly the result of a Canadian regulatory environment that is uniquely strong. “In addition to capital requirements, in terms of policy liabilities, we have p-fibs here. These are provisions for adverse deviations. There are additional provisions so that there is additional money we are holding just in case our assumptions around interest rates, equity returns or mortality rates don’t work out and are worse
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the new low interest rate environment. Major businesses were bought and started in Malaysia, Vietnam and Indonesia, where the insurance industry is less interest-rate-sensitive. The company also launched Sun Life Investment Management to provide commercial mortgages, private fixed income and real estate investments to pension funds. These investments typically have wider rate spreads, good for the balance sheet. The company also has redeployed $1.6 billion in cash and capital over the last 24 months as a way of paying down debt. “To answer, ‘How are we managing through this?’, we’re managing through it by doing what we’ve done for 150 years; we’re constantly changing the company,” Connor says. “We’ve made a huge amount of change to reposition the company to succeed in low-interest-rate environment.” Sun Life also carefully manages a well-defined and well-understood risk management program. The company sets budgets for each type of risk it takes on, then looks at the interplay between those risks and hedges them against one another as a way of providing balance to the overall capital structure. The company also puts great effort into mod-
eling potential risks. Each year, OSFI asks the industry to undergo so-called dynamic capital adequacy testing. “This is taking your company and shocking the balance sheet in extreme situations to test the solvency of the business.” Connor explains. “But then we go a step further and conduct our own shocks and tests.” The insurer realizes it cannot anticipate everything. “But at the end of the day, that is why we carry lots of capital on the balance sheet of the company,” Connor says. “The list of things we worry about today is long. It includes things like pandemics ... Ebola, avian flu virus … we worry about that a lot. We worry about terrorism risks … we’ve got lots of life insurance in many cities around the world. We worry about cyber terrorism. We see examples of that every week in terms of companies being tapped into.” To the company’s credit, the recent financial crisis of 2008 saw Sun Life emerge with flying colours, and at the head of the pack. As Sun Life employees have been proud to point out, Sun Life was the only full-service life insurance company in North America that didn’t have to cut dividends, dilute shareholders through an equity raise or take a government handout. These are the benefits of constant vigilance that has, over the years, created a remarkable level of trust. “This element of trust …. trust is obviously the foundation of any financial organization,” Connor says. “We’ve been fortunate to be voted the most trusted insurer in Canada over the last six years.” This point of trust draws Connor into another one of those legendary stories that make up the bones of Sun Life. “One of the best kept secrets of World War II is that Winston Churchill, worried about [an] invasion in England, put the whole of the UK Treasury, billion in guild, billions in bearer bonds ... on the ships, through the North Atlantic, through U-boat lanes, landed in Halifax, but on a train to Montreal. The gold cars were separated and went to the vaults of the bank of Canada. The bearer bonds were put in in the basement of the Sun Life building in Montreal and then guarded 24-7 by 24 RCMP officers. That’s trust.”
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INFRASTRUCTURE
Building a portfolio on infrastructure There is an increased willingness among Canadian investors to look at global infrastructure and other international investment opportunities, despite a lingering home country bias. Is the growing interest all about yield, or are Canadians just more comfortable with foreign investment?
INFRASTRUCTURE IS a hot topic for governments around the globe, and investor money seems to be following that lead. Gajan Kulasingam, senior portfolio manager for Sentry Investments in Toronto, sat down with Donald Horne to talk about the move to invest in infrastructure. “It is a compelling, emerging asset class – global infrastructure investment – that offers several years of asset growth,” Kulasingam says. “People continue to diversify away from your typical equities and bonds.”
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Kulasingam says that, in general, investors are increasingly adding real estate, infrastructure, and some miscellaneous private equity and hedge funds to their portfolios. “You are really starting to see sophisticated investors like pension fund managers focus on niche asset classes like infrastructure,” he says, “and we think that is a really prudent way to allocate capital.” The allure of investing in infrastructure outside of the North American market is what keeps Kulasingam and his team of two analysts travelling throughout Europe and
“[Infrastructure] is a compelling, emerging asset class ... People continue to diversify away from your typical equities and bonds”
AMERICA NEEDS NEW INFRASTRUCTURE According to the World Economic Forum most recent report ranking countries by the quality of their infrastructure, the United States ranks 12th, behind countries like Switzerland, Germany and the UK. In air transport, the US is ranked 9th, which shouldn’t come as a surprise, as not a single major new airport has opened in that country since Denver International in 1995. Another report puts almost one-third of America’s most important roads in need of major repair, while 70,000 bridges – one in nine – are deemed structurally deficient. Those numbers became hard, cold reality when a bridge over the Mississippi River in Minneapolis, Minn., collapsed in 2007, killing 13 people; more recently in 2013, a bridge failed on I-5, the main Pacific coast highway in Washington state. Rail transport isn’t much better. Of the 22,530-plus kilometres of high-speed rail in operation around the world, not a single kilometre is in the US. And with the new Panamax container ships ready to pass through the Panama Canal, two of America’s largest ports – Los Angeles and Long Beach, Calif. – are already heavily congested, handling 40% of the imports into the US. Public spending on infrastructure as a share of GDP has dropped since the 1960s to around half the European average. The American Society of Civil Engineers estimates that $3.6 trillion will have to be spent if the US is to catch up.
Asia, seeing businesses firsthand and talking to management teams. “We spend about a third of the year travelling, to get a sense of what is going on,” Kulasingam says. “You get a very high level of comfort when you are buying a Canadian or a US name, because they are so close. You’re in the same time zone; you speak the same language. But if you are investing in an Asian or a European business, you really need the boots on the ground to get a sense of what’s happening in the marketplace.” Kulasingam describes it as a critical com-
ponent of the investment process – understanding the environment these companies are working in. “The culture, the market, the dynamics – it is the kind of stuff you just can’t get by surfing the Internet,” he sais After graduating from the University of Toronto, Kulasingam went to Deloitte to get his CA, “or what is called the CPA now,” he says. He articled there, eventually moving on to a private equity firm before joining Sentry in 2011. Since his start in the industry more than
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FEATURES
INFRASTRUCTURE
ASIAN INVESTMENT OPPORTUNITIES
in the investment sector: millennials. “If you look at those aged 40 and below, they are much more educated and investment savvy,” he says. “They appear more comfortable with taking on more risks that are normally outside of their comfort zone.” And for those who do educate themselves on the investment opportunities that are out there, they quickly realize the grass is a lot greener across the ocean. “It is no secret that the Canadian market is heavily dominated by financials, energy and materials,” Kulasingam says. “Canadians understand that if you want to diversify your portfolio with exposure to tech, healthcare and infrastructure, you have to go outside of Canada. So you soon understand that if you want to ‘high grade’ a portfolio … you need to invest globally.”
The China-led Asian Infrastructure Investment Bank [AIIB] is gaining momentum, with at least 35 countries indicating that they are willing to join. According to a Globe and Mail commentary by Stewart Beck, CEO of the Asia Pacific Foundation of Canada, “AIIB’s goal of developing infrastructure in the Asia-Pacific region benefits Canada significantly. With the proliferation of global supply chains throughout Asia, better roads, railways, ports and telecommunication networks allow for greater interconnectivity and more efficient delivery of Canada’s exports to our regional trading partners.” Currently, India, Indonesia and New Zealand have expressed interest in joining the bank, following requests by Britain, France, Italy and Luxembourg to become founding members.
a decade ago, Kulasingam has seen changes in how investments are made. “It is evolving; the world’s changed quite rapidly in the last three or four years,” he says, “particularly with monetary policy easing across the world, and an increase in currency and regulatory risks, and what that’s caused me to do is to be a lot more intensive in my due diligence – particularly on global opportunities.” Traditional Canadian pension funds (such as the Ontario Teacher’s Pension Plan investment fund) have been investing in infrastructure for almost two decades, those who are following their lead are helping to spur investment abroad.
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“You soon understand that if you want to ‘high grade’ a portfolio ... you need to invest globally” “Canadians get the added benefit of that to their pensions, but a large percentage of investors take a more active role,” Kulasingam. They’re asking themselves and their advisors: “Should I be investing in those same infrastructure projects on my own, because I want the same return as the large pension funds?’” The millennial effect Canadians are getting more educated about investing, and that can be attributed to the Internet and a growing cohort of individuals
Renewables are ripe for investment Global warming has spurred many governments – especially in China and Europe – to pour billions into renewable energy infrastructure programs. That presents considerable investment opportunities for Canadians, Kulasingam says. “Any time you have a paradigm shift in carbon policy or power generation policy, it requires a significant investment in infrastructure to backstop that,” he says, citing the shift by China to move from coal generation to solar and wind. “Coal is produced in a different way, transported differently, burned differently; now, to shut that down and shift to renewable, you have to rebuild the grid system, the distribution and transmission network. It really requires a complete overhaul of your energy infrastructure.”
Gajan Kulasingam joined Sentry in 2011 and has more than 10 years of financial industry experience. Kulasingam manages Sentry Infrastructure Fund, and is a member of the global equity team, covering industrials, telecom and utilities. Kulasingam graduated with a Bachelor of Commerce degree from the University of Toronto. He holds the Chartered Professional Accountant (CPA) and Chartered Financial Analyst (CFA) designations.
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ADVISOR PROFILE
From the battlefield to Bay Street After tours of duty in Afghanistan, Sun Life advisors Ian Chen and Edmund Chien are dedicating themselves to helping vets keep their finances on track IN THE FALL of 2008, Ian Chen was sitting on a plane, armed with a rifle, his gear and the company of more than a dozen other soldiers, en route to Afghanistan. After hundreds of thousands of hours of brutal, strenuous training regiments and boot camps, Chen, now a SunLife Financial advisor, was finally on his way to Kandahar, about to do what he had trained for – defend Canada and protect our interests overseas. “It was intense, to say the least,” Chen says. “You’re put into all kinds of situations. Some you’re prepared for and other things you’re not. But you rely on your training.” After seven months overseas, Chen returned home, having completed his tour of duty. With 15 years of service behind him, it was now time to look for new challenges – and for Chen, those opportunities were outside of the military in the private sector. He explains that military and business skills go hand-in-hand: Discipline, problem-solving, leadership and mentoring, and the drive to achieve goals with limited resources are all transferrable to the business world. Several months and a couple of courses later, Chen was working in the financial industry. He is one of the lucky ones. He came back with all parts intact, but his story is also an example of the stark reality for many veterans – coming back to Canada post-service and hoping to reintegrate is another tough mission. Imbued with
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the spirit of brotherhood instilled through military service, Chen and his colleague Edmund Chien are working to pay it forward by connecting veterans to Bay Street and helping to secure what are often tenuous financial lives. Financial support Canadians have heard much about the mental effects of the war. But there is another side to the story of Afghan veterans – the money side. Often overlooked, this is the piece of the story Chen and Chien have taken on as their new mission. “As financial guys, we’re trained to equip people with the tools to deal with money,” says Chien, a retired reserve master corporal. He is also an advisor. He helped Chen adjust to ‘civvie’ life by setting up an opportunity to work with SunLife. “The military community is pretty tight. The military has a philosophy of mutual support,” Chien says. “Ian, myself and others have positioned ourselves through training and licensing to be advisors on Bay Street to now help our fellow soldiers in the next phase of their life.” At a time when veterans are receiving max payouts for their service, the SunLife advisors and others on Bay Street are stepping up to help them make the right longterm financial decisions for retirement while potentially finding alternative paths to employment. State of affairs As it is, the Department of National Defence, through the Canadian Forces Morale and Welfare Services, supports a financial services firm, SISIP Financial, which works with veterans to secure their long-term financial health. The firm invests benefits and pension funds in term-life insurance plans, CAF Saving plans and mutual funds provided through FundEX Investments. The company also offers the Great-West Life Assurance Company’s online investment service as an option for veterans. Still, more could be done. Many soldiers often suffer from post-traumatic stress disorder [PTSD] and other war-related afflictions. These disabilities make it tough to reintegrate into society. Today, there is a growing sense that some veterans are being left behind by the system. In response, the federal government has recently announced measures to assist veterans and ensure they can access the programs and benefits they need to reintegrate into Canada society. The proposed new Family Caregiver Relief Benefit would provide eligible Veterans with an annual tax-free grant of $7,238, allowing their informal caregivers to take a well-deserved break while ensuring the veterans continue to get the support they need.
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ADVISOR PROFILE
“You are your best investment return. The amount of money you invest far exceeds the return anyone can get for you”
The government can also offer a lump-sum payment of up to $306,698, which can be taken in a single payment or be spread out in recurring payments. The amount depends on the degree of one’s disability. For example, someone with mild hearing loss could collect just $14,929, while someone who has lost complete function of their lower limbs or is confined to a wheelchair could receive the maximum. However, Canada is still behind when you compare the amounts that veterans are eligible to receive in other countries such as Britain and Australia, where the maximums are $1,092,348 and $420,207, respectively. There are also, still, many, many tales of disastrous and needless bureaucratic snafus. Beth LePage, an Air Force veteran, was denied a portion of her pension benefits when they couldn’t be converted because of a difference in the way government and military pensions are calculated. There is a sense that the government hasn’t done enough to synchronize military and pension benefits in recent years. Increasing pressure on the government’s treatment toward veterans has had some effect. Newly crowned veteran affairs minister Erin O’Toole, who replaced the often-criticized Julian Fantino, announced two new initiatives, one of which will provide seriously injured veterans with a monthly financial benefit under the New Veterans Charter [NVC]. O’Toole also discussed enhancing the Permanent Impairment Allowance [PIA], which provides lifelong monthly financial support to vets whose employment potential and career advancement opportunities have been restricted due to permanent injury or illness. The advisor’s role These are the kinds of needless paperwork issues that professional advisors can straighten out. Advisors also can help make sure that any payments advanced by the government get put to good use, and not inadvertently squandered. The wave of lump sum payments coming represents an opportunity for advisors to help veterans that will receive the max payment manage that money. Among those working with veterans, this is an issue of the classic ‘sudden wealth syndrome.’ “From the recipient’s point of view, they’re not equipped to get a lump sum ... and haven’t studied investments,” says Thane
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MORE HELP FOR DISABLED VETERANS Veterans Affairs Minister Erin O’Toole recently announced additional money for Canada’s most seriously disabled veterans as the government tables legislation that would top up the lump sum disability benefit for those vets who are most seriously incapacitated. Veterans’ advocates were informed that O’Toole and the government will offer an additional $70,000 on top of the $306,698 that is the maximum amount currently available under the one-time, non-taxable benefit. Despite the good news, there was much concern that the criteria for receiving the new award would be so narrow that the number of veterans who qualify will be small. About 1,600 veterans are considered to be totally and permanently impaired as a result of an injury received in the line of duty, according to government stats. Of those who fall under the New Veterans Charter, only 186 received the maximum lump-sum award, the amount of which is determined by the extent of the disability. The Conservative government has been making several announcements aimed at easing tensions with veterans in the lead-up to a fall election, but that also presents a new challenge and area of business for financial advisors on Bay Street. Stenner, a principal with StennerZohny Investment Partners (RichardsonGMP). This is where SISIP, SunLife and other advisors come into play. “What do you plan to do for future wealth?” he says. “You are your best investment return. The amount of money you invest far exceeds the return anyone can get for you. The most amount of wealth is your ability to generate income. I can be a champion in your life, then focus on wealth.” Chien is applying the lessons learned in the military to guarantee benefits for his brothers in arms. “That’s what I learned a master corporal. They taught me to take raw candidates and squeeze out the best version of themselves. I can look at them and push them to do it. I like to extract the best I can out of people. And other advisors should do the same when dealing with vets.”
PEOPLE
CAREER PATH
FROM ZERO TO HERO Advisor David Dyck went from an uncertain future to a place at the forefront of the advisory industry’s technological revolution 2015
JOINS WEALTHBAR With his confidence at an all-time high, Dyck joined WealthBar, a robo-advisor start-up that hopes to make waves. “Working in the industry, you can see the direction the tide is blowing. Technology is becoming more important in the financial planning industry, but working with the big banks, you’re limited. WealthBar gave me the opportunity to reach more clients across the country and help to develop the industry-changing technologies that we’re about to see become more of a reality in the next couple years.”
2014
WINS UNSUNG HERO AWARD Thanks to his work helping clients and colleagues improve, Dyck was honoured with CIBC’s Unsung Hero Award. “That was a very humbling award. I’ve never measured my success that way. I was most proud because you get the award for helping not only clients, but also advisors you work with, so it was a good award that helped propel me to my next step.”
Soon, Dyck was recruited to open new CIBC branch.
“It was much more hands-on, and I went from having to start fresh to having almost 1,000 clients at the end of the year.”
2011
BECOMES AN ADVISOR Dyck finally got his chance to become an advisor, managing investments for clients in a place that was all too familiar. “It was right across the street from where I grew up as a kid in Surrey. There used to be a driving range and just fields and fields of land. Now it was developed with new commercial space and the CIBC building where I’d be managing clients. It was like I’d come full circle, from being 10 playing in that field to being a grown man working in it.”
2010
OPENS A NEW BRANCH
2009
GETS PROMOTED After working for a few months as a teller, Dyck was promoted to customer services rep. “It was at the height of the recession when I first started, and that was a really visceral time for us, especially when it came to interacting with customers. . There was a wealth of scenarios during that time that really shaped my experiences as an advisor.”
2008
JOINS CIBC Dyck’s first industry job was as a teller for CIBC. “I decided to work my way up from there and really learn the industry. There are a lot of people who want to take the fast track to success, take some course and become an advisor, but I wanted to really work my way up and learn our business before pretending that I could . . take of care my clients the right way.”
2007
School: Plays bass and turns down UK recording contract “While at school for six years, Dyck helped start a band “Shiver” - and played bass guitar in it. We thought about touring and were offered to come record in London, England, but I decided that lifestyle wasn’t for me.”
2001 STARTS FROM SCRATCH
ENTERS THE WORKFORCE After realizing that he couldn’t stay jobless, Dyck eventually found the financial industry. “It was tough at first. I worked at Canadian Tire for a while and continued to play in the band until I decided to work in the financial industry. I always used to do the online investment tools where you can invest in stocks for fun and see how well you did, so I decided that’s what I wanted to do.” www.wealthprofessional.ca
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PEOPLE
FAVOURITE THINGS
CHRIS NICOLA Co-founder, WealthBar
Craft beer, cooking and ‘80s new wave – these are a few of Chris Nicola’s favourite things Favourite book I’m into science fiction, and the original Foundation Trilogy by Isaac Asimov is definitely a favourite.
Favourite sport I’m not the most athletic person, but my favourite sport is probably skiing and snowboarding. It’s hard to beat being on the mountains around here. Favourite movie This is an odd choice, but Ghostbusters – it’s got to be one of the most fun and entertaining movies of all time and has some of the best comedians at their prime. I’m looking forward to seeing the new remake.
Favourite drink Beer, mostly craft beer. I think that’s a required response if you live in Vancouver these days. My favourite local brewery right now is probably Dageraad.
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Favourite music When I was a lot younger, I was mostly into heavy metal and grunge. Now it’s mostly electronic music of various sorts, and new wave from the ’80s. My favourite artist is The Smiths/Morrissey – there’s something I really like about the slightly dissonant singing mixed with Johnny Mars’ upbeat, poppy guitar sounds.
Favourite vacation spot I really enjoyed the times Tea and I have backpacked through Europe – there were a lot of great experiences there, so it’s hard to pick an absolute favourite. Berlin was probably one of the most interesting places we visited, and we even seriously considered moving there for a time. Favourite thing about being an advisor Well, in my case, I’m not actually an advisor; rather, I design and build technology for advisors and their clients. I suppose my favourite thing about that is developing really compelling online experiences for people. The ability to facilitate the way clients and advisors communicate and integrate that with information and contact about their financial situation – it’s a lot of fun.
Favourite food I cook a lot, and a wide variety of things. Braised lamb shanks is definitely one I do a lot. Slow-cooked BBQ is another.
Favourite place to be alone Usually in the kitchen, cooking something. However, if I lack the energy for that, nothing beats putting on my headphones and playing a new adventure game. I’m really enjoying playing through the Dreamfall Chapters right now.
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ARE YOU? join today|visit nEMaonlinE.ca YOUR INDUSTRY, YOUR VOICE, YOUR FUTURE
FEBRUARY 2015 Assets growing nicely since I moved. Firm values more than my book. I’m respected.
OCTOBER 2014 Started advisor group to support our corporate goals to recruit more female advisors. Like that.
JULY 2014 Helped client through job loss. Put her in touch with a career coach I know. My value is more than just the money part. Feels good.
MAY 2014 Connect often with advisors in my office. We supported each other when we got licensed as Portfolio Managers. Nice.
SEPTEMBER 2013 Made the move to Dundee Goodman. Good people in my life.
FEBRUARY 2013 When I started, no one believed I could do this job. Now Dundee Goodman wants to hire me. Gratifying.
WE FOSTER GROWTH. PORTFOLIOS AND OTHERWISE. When people are given the freedom to act, they grow. When people are trusted and supported, they flourish. When people feel deeply responsible and charged with doing the right thing – you got it – they’re happy. And when they’re happy, their clients tend to be too. If a place that embraces the possible and encourages portfolios to grow by encouraging people to grow first sounds interesting, call John Cucchiella in strictest confidence at 647 428 8225. Dundee Goodman Private Wealth is a division of Dundee Securities Ltd. Member CIPF. Dundee Goodman Private Wealth is a trademark of Dundee Corporation, used under license.