The Renaissance Advisor by renaissancemag

The Renaissance QUARTERLY FUND PROFILES / PRACTICE MANAGEMENT / OUTLOOK / OPINION

Q2 â&#x20AC;&#x201C; JUN. 30, 2015

The Future is Friendlier Than You Think Why robo-advisors can be more allies than adversaries ALSO INSIDE:

The Five Explicit Needs of the Investor Interest Rates: Ready, Set, Crawl

For Advisor Use Only

Distribution Yield (%) 5 4 3 2 1

14 Ju

20 vNo

13 20 vNo

11 No

20 vNo

09 -2 0 No v

08 v20 No

Renaissance Optimal Income Portfolio Distribution Yield – Class A units

Learn how Renaissance Optimal Income Portfolio meets real client needs at

realoutcomes.ca

*Distribution yield of the Class A units of the fund for the period November 13, 2007 (inception) to June 30, 2015. The distribution yield at a given time is calculated by dividing the distributions made over the 12-month period prior to that time by the market value at that time. The fund intends to distribute monthly. The monthly distribution rate is expected to be 1/12th of approximately 4% per annum for Class A units. Distributions for other classes may vary. The monthly distribution rates may be adjusted from time to time at our discretion. The payment of distributions is not guaranteed and may fluctuate. If the annual amount distributed exceeds the portfolio’s net income and net realized capital gains, such excess will constitute a return of capital. 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 trademark of CIBC Asset Management Inc.

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In this issue

Q&A with David Scandiffio

Economic Outlook The Many Faces of the Canadian Housing Market

Back of the Napkin The Five Explicit Needs of the Investor

Tax and Estate Doubling of TFSA Annual Limit

Global Market Perspectives Interest Rates: Ready, Set, Crawl

The Future is Friendlier Than You Think

Solution Highlight Think Global for Growth The Evolution and Future of Wearable Technology

10 13

Thanks to Our Supporters Do All the Little Things Right

Brain Calisthenics

From the Managing Director of the Renaissance Sales Team

On the Road Again… Welcome to the summer edition of The Renaissance Advisor. Summer is often the time for our much-anticipated holidays when we can abandon our routine for a few days and set out to recharge our batteries. It’s hard to be on-the-go all the time. Perhaps that’s why the topic of robo-advisors has become quite prevalent. It seems that many people want to understand and weigh-in on these new self-sufficient electronic portfolio platforms. Inside this issue, we take a look at the new reality of robo-advisors in our feature article, The Future is Friendlier Than You Think. The article delves further into the world of robo-advisors and discusses how to manage as a “human” advisor. Summer for us also means that it’s planning time for the upcoming season of The Renaissance Advisor Live & Interactive roadshow. Once again, we’re travelling across Canada to help further connect you with industry experts and investment professionals. Our roadshows offer topical insights, networking opportunities and the chance to earn CE credits. Debuting this year is The Renaissance Advisor Live & Interactive Mobile Event App. Our custom-built app provides all the information you need throughout the conference including: the daily schedule, speaker bios, presentations and interactive tools. You will be able to access it all from your personal laptop or tablet. Also in this edition, we hear from our experts: Jamie Golombek, Ben Tal and Grant Shorten. Additionally, we feature a Q&A with new CIBC Asset Management President and CEO, David Scandiffio. We thank you for your business and welcome your feedback.

Shelly McLean Managing Director, National Sales Renaissance Investments

Q&A with David Scandiffio President and CEO, CIBC Asset Management

• Joined CIBC Asset Management in April 2015 • Previously President of IA Clarington Funds and Executive Vice President, Wealth Management – Industrial Alliance

QUICK FACTS

• Holds a BSc in Actuarial Science and Economics and is a CFA charterholder • Chair of Young People’s Theatre Board of Directors and Honourary Co-Chair, Road Hockey to Conquer Cancer • Co-captain of National Championship U of T Varsity Blues (1994); drafted by the CFL’s Toronto Argonauts

How does bank asset management differ from your previous roles? CIBC Asset Management has a significantly broader set of client needs to meet. We also have more significant scale and a broader set of channels to meet those needs.

involvement of our dedicated Investment Management Research team ensures we bring forward the best solutions. The power of open architecture stands out in offerings like Renaissance Optimal Income Portfolio, with its underlying sub-advisors specialized in: listed infrastructure, global bonds, floating-rate loans and Canadian dividends.

For any asset management firm, business is driven through success in three relatively controllable factors: investment performance, product segmentation and pricing, and sales and service alpha. Our challenge is to develop more granular strategies leveraging our key strengths, to create competitive advantages within each distinct channel – then execute and excel.

What about the changing regulatory landscape and how the industry must adapt?

How will you grow relationships with advisors? By continuing to focus on superior investment performance and product innovation supporting client needs. We’ll partner with advisors to evolve our products and pricing structures. For example, we’ll leverage insights from advisors, to help us understand and anticipate the most relevant product mandates and structures.

We need to embrace transparency and focus on value to end investors. The shift to unbundled or fee-based programs is well under way in Canada, and the impact of regulatory initiatives won’t be as dramatic for advisors here as similar shifts in other jurisdictions. The pressure is on asset managers to add value – either through ‘differentiated alpha’, or ‘low-cost beta’. There will be a greater need to be well capitalized and offer access to unique investment capabilities. Asset managers need to adapt product structures to remain competitive and simplify distribution to make it easier to work with us.

What makes Renaissance Investments stand out? Our open architecture approach – we’re committed to offering access to specialized expertise of money managers from around the globe. The

The Many Faces of the Canadian Housing Market ECONOMIC OUTLOOK

Demographics: Dangerous or Dependable? We are often asked to make a brief statement regarding real estate in Canada. It is a multi-dimensional market and a blanket statement will not do. Let’s examine the market in absolute terms.

Geography: Truths, Lies and Averages Trends are occurring within local housing markets that make a national average useless. As commodity-producing provinces are hit by lower oil prices, housing sales and prices decline. But, aided by lower interest rates, major housing markets aren’t seeing any sort of landing. Annual house price growth in Vancouver and Toronto has accelerated this year. Outside of major markets, price growth has slowed and is aligned with target inflation. Outside of Toronto, Calgary and Vancouver, prices are around 2% higher than last year. Earlier figures were closer to 4%. So these markets prove there is a soft landing in real estate. Also, it appears that other Canadian housing markets aren’t impacted by the bigger markets. Robust increases in cities with above-average prices will still boost the average national house price. The ratio of the simple average price measure and the weighted price measure is at an eight-year high. A Tale of Two Markets – Weighted Average Price 14

Some markets have more aggressive construction activity, with B.C., Ontario and Alberta’s rates of homebuilding above what demographics would dictate. However, immigration has limited dramatic overbuilding in each province’s major cities. The three-largest cities benefit from a demographic boost by taking in half of Canada’s new immigrants. Immigration has recently accounted for three-quarters of population growth nationwide, and those immigrants have increasingly been of home-buying age. Canada is also home to more than 770,000 non-permanent residents (NPRs). This category accounted for all the population growth in 25-44 year-olds since 2006. And the number of NPRs could be under-represented in Statistics Canada’s projections by 200,000.1 Composition: Does the Mix Need a Fix? High-rise condos are substituting for single and semi-detached homes in Toronto, where the latter’s new starts have remained extremely low since 2008. Due to lack of availability, the prices of expensive homes have been rising faster than low- and mid-range houses,2 limiting the ability of homeowners to move up. It’s also turned first-time buyers to condos, which are acting as a stabilizing, rather than destabilizing, force. Is this too much of a good thing? The answer lies within the rental market.

y/y % change, 3-month moving average

Rent: If You Build It Will They Come?

In recent years, the proportion of condos for rent has steadily increased. This helped offset a very subdued trend in apartment buildings. In the GTA, almost all growth in available rental units from 2007-2014 came from condos.

10 8 6 4

Given rising house prices, the propensity to rent rather than own has increased across age bands. And the influence of new immigrants on population growth has helped to ensure strong demand since the recession.

2 0 2011 2012 2013 All CMAs less Toronto, Calgary and Vancouver Toronto and Vancouver Source: CREA, CIBC

It’s unwise to compare today’s Canadian housing market to the pre-recession U.S. because there isn’t as much overbuilding. The ratio of housing starts to household formation is not far from its long-run average of 1.03.

2014

2015

However, demand for rental units in Toronto may be moderating after peaking in 2012, while supply is rising. We estimate that demand for rental units in the GTA will average 12,000 a year in 2015 and 2016, while supply tops 14,000 units. And

we see rent inflation falling to almost zero on a year-over-year basis. The moderation in rent and increase in vacancies could continue throughout 2015 and 2016. Investors: What Are They Thinking? CMHC estimates that just under 20% of condo units in Toronto and Vancouver are owned by investors, but we estimate that roughly 70% of pre-sales and 50% of final sales are to investors. Foreign-investor activity is much smaller than perceived. The more significant portion sees money coming from abroad while the family lives here. This requires a much larger down payment, while the family living in the house suggests a higher level of commitment. In terms of risk, this market segment is relatively safe. In the past, domestic investors bought condos as speculators, but not now. Capital preservation and rent income are the main motivations for investment activity. We estimate that roughly half of the rental units in cities belong to this vulnerable category. If higher rates and/or low rent inflation challenge the economics of rent, we might see a wave of condo resales competing with new units. What might limit the damage is that affordability will increase condo buying by young families as well as the propensity to rent. The understated impact of NPRs on rental demand might also be an offsetting factor. Until now, condos were the only player in the rental market, but this is changing. With some condos reaching $3 per square foot, institutional players are slowly entering the purpose-built apartment space. Given this, we might see a notable increase in rental apartment supply starting in 2017. Credit Risk: Quality as Well as Quantity The real test will come when interest rates start to rise. But even that may not be painful, due to steps taken by Canadian households in recent years. An estimated 30-40% of households with mortgages accelerate payments to shorten their amortization. Even at the margin, there’s little evidence of impending weakness. The share of mortgages with loan-to-value larger than 80% has fallen since 2009. The proportion of households allocating more than 40% of their income to debt financing has remained relatively stable at 6% and the average credit score has increased over the past five years.3 Nevertheless, the system is not perfect. Increased regulatory requirements on

major lenders are leading to increased activity in the less/non-regulated segment of the market, as we see increased transfer of risk from large financial institutions to alternative lenders. This is not a zero-sum game – the risk profile in the entire industry is rising. No matter how you measure it, alternative/non-prime lending is still an extremely small portion of total mortgage activity. That is not to suggest that the system is risk free. Increased regulations on major financial institutions, combined with even lower mortgage rates, may work to widen those shadowy margins.4 Summing Up Even a multidimensional market can overshoot, and Canada’s has not been tested yet. Higher interest rates will expose some well-hidden weaknesses. Higher interest rates probably will not lead to a wave of defaults, but could act as a major drag on economic activity via consumer spending and the potentially significant impact on job creation in real-estate-related sectors. The market will adjust, but the adjustment will not be uniform. It will impact different segments differently, be smoother overall and take longer to fully unload. Non-Permanent Residents – A Major Demographic Force (Economic Insights, CIBC World Markets, April 29, 2015). 2 Staying Put (In Focus, CIBC World Markets, September 8, 2014). 3 Resisting Temptation (Economic Insights, CIBC World Markets, October 15, 2014). 4 How Shadowy is Mortgage Lending in Canada? (In Focus, CIBC World Markets, February 18, 2015). 1

Benjamin Tal is Deputy Chief Economist for CIBC. Described as one of Canada’s leading experts on the real estate market by the International Monetary Fund, he is responsible for analyzing economic developments and their implications for North American fixed income, equity, foreign exchange and commodities markets. www.renaissanceinvestments.ca/en/economy/ www.renaissanceinvestments.ca/en/economy/

The Five Explicit Needs of the Investor Cracking the Emotional Code

BACK OF THE NAPKIN

If best-selling author, John Gray, ever decided to analyze the financial services industry, he’d probably have a field day. In fact, it would take very little time for his “Venus and Mars” analogy to take on a whole new life, and for many of us to be fun-lovingly teased for attempting to communicate with our clients in a completely different language. The fact is, we have a tendency to complicate things.

Another group of advisors may successfully avoid the self-promotion bias, but make a similar mistake by focusing their discussion on things like: modern portfolio theory, asset allocation, macro-economics or specific investment platforms. Although both of these approaches may still result in the signing of a new client, they will usually fail to truly capitalize on the emotional code of the investor and to permanently seal the relationship. Ultimately, people buy for emotional reasons and then justify with logic after the fact. Yet we often find ourselves locked into surface-level communication with a logical bias.

All too often, an investment professional will arrive at a prospect meeting with a set of pre-conceived notions, values and beliefs – along with a shortlist of desired outcomes for the meeting. Not surprisingly, the prospect also brings their own set of (very different) pre-conceptions, values and beliefs, and their own list of desired outcomes for their hard-earned wealth.

Despite the fact that our clients come from a wide range of economic circumstances, diverse life experiences, and a mosaic of cultural backgrounds, they are fundamentally the same in one important way. They all show up to an advisor’s office with a set of unanswered questions.

The challenge arises when these two parties meet face-to-face, and the advisor fails to connect with the prospect on their level.

While we are busy promoting ourselves, our capabilities, and our investment knowledge, the prospect sitting across the table is unconsciously asking just three simple questions:

In my experience, this critical disconnect occurs easily and often in our business. Here’s why:

The Three Implied Investor Questions

1. What’s in it for me? 2. What makes you different?

The Self-promotion Bias A crucial mistake made by too many advisors – during the introductory phase of a client relationship – is the tendency to boldly promote themselves in an effort to win the business. For example, an advisor may start the session by introducing their team, showcasing their credentials and years of experience, and then finish off by explaining how great their firm is. As intuitive as this approach might seem on the surface, it often results in a missed opportunity to create lasting rapport.

3. Why should I do business with you? Once we understand this, we can begin to focus our entire message around answering these three questions. Keep in mind, that the selfpromotion stuff will typically fail to provide satisfactory answers. One way to avoid the self-promotion bias, and to address investors’ primary questions, is to proactively focus all of your attention immediately on the investor and to methodically uncover their most important explicit needs.

The Five Explicit Needs The vast majority of your prospects will be dealing with one or more explicit need, issue or concern. And these can almost always be found within one of the following five categories: 1. RISK

The potential for loss or drawdown in their wealth

2. RETURN

The money they get to keep after inflation, taxes and fees

Carefully expand the discussion by walking them through each of the needs, while drawing a distinct contrast between the surface meaning and the real emotional need. As you do so, clearly explain how you and your team consistently address each of these emotional needs head-on, and describe how your wealth management process works to accomplish just that. Here’s a sample script around the first explicit need of risk:

3. REPORTING Their investment statements and other documentation 4. SERVICE

Their advisor’s service level agreement

5. FEES

The cost of their combined investments

Consider avoiding all self-promotion, at least initially, and dive right into an introduction of the five explicit needs. Explain to your prospect that these are the most common issues and concerns confronting investors, and describe each of them briefly. Once the five needs have been explained, ask your prospect to share with you the most important issues and concerns for them and their family. Tell them that you want to make sure that your conversation remains focused only on what’s most important to them! Once your prospect begins to open up and provide you with some important insight into their needs, you can quickly take the discussion deeper in the following way.

“When you tell me that you’re concerned about risk, I doubt very much that you’re talking about things like standard deviation or volatility rankings. In fact, when you talk about risk, what you’re really telling me is: “I’m scared to death about losing my hard earned wealth,” or “I’m afraid of not having enough money to retire in comfort.” Isn’t that true? Well, I want you to know that our wealth management process is designed to eliminate that fear by building common sense portfolios with capital preservation as the primary objective. This is how it works...” (Then incorporate the logical elements into your discussion.)

Simply continue through the other four explicit needs and systematically expose and address the real emotional needs behind them. As you incorporate this simple process into your meeting format, you’ll quickly discover its power to build rapid rapport and to capitalize on the emotional code of investors.

Repeat the five explicit needs to them again, but this time explain that there’s something much more important than the explicit needs – the real (implied) emotional needs behind them:

EXPLICIT NEED

SURFACE MEANING

REAL EMOTIONAL NEED!

Risk

Loss or drawdown

I’m scared of losing my wealth!

Return

Money I get to keep

I want more of what I’ve got!

Reporting

Investment statements

I need to understand!

Service

Service standards

Take care of me!

Fees

Cost

Don’t take advantage of me!

Grant Shorten is Director of Strategic Insights at Renaissance Investments. He offers insights and approaches that will work with your clients and have an immediate impact on your practice. www.advisor.ca/togo Podcast > How to Talk to Clients About Volatility www.renaissanceinvestments.ca/en/practicemanagement/

Doubling of TFSA Annual Limit Great News for All Clients

TAX AND ESTATE

The near doubling of the Tax-Free Savings Account’s (TFSA) annual contribution limit to $10,000 from $5,500 for 2015 may be of tremendous benefit to your clients, regardless of their income levels and age. From age 18, right through the income-earning years and into retirement, contributing to a TFSA allows individuals to earn tax-free income to maximize the after-tax value of their investments. While some have argued that the increased TFSA limit will primarily benefit the rich, who presumably can afford to contribute the full $10,000 in 2015, statistics released in the 2015 federal budget document indicate that the TFSA is a popular savings vehicle for Canadians at all income levels and for all ages. As of the end of 2013, almost 11 million individuals had opened a TFSA with a total fair market value of almost $120 billion. Of the 1.9 million individuals who contributed the maximum amount to their TFSAs in 2013, about 46% were seniors, with 70% older than 55. About 60% of individuals contributing the maximum amount to their TFSAs in 2013 had an annual income below $60,000. The TFSA is an ideal savings vehicle for clients who are in the lowest tax bracket. That’s because, as the C.D. Howe Institute wrote in a 2003 commentary, “for many lower-income Canadians, RRSPs are a terrible investment” since many government benefits, credits and programs are based on net income and are substantially or even totally reduced as income, including RRSP/RRIF withdrawals, increases. Since withdrawals from a TFSA are not considered to be “income,” they have no impact on these benefits. A second study released by C.D. Howe in 2010 explored Canadians’ marginal effective tax rates (METRs) upon retirement. The METR reflects not only the tax rate on an incremental dollar of income but also takes into account the potential loss of federal and provincial income-tested benefits

and credits. The study concluded that for many people, METRs upon retirement will actually be higher than working METRs, suggesting that these individuals, given limited funds, may be better off saving in a TFSA rather than contributing to an RRSP. Clients with higher incomes may not have bothered setting up a TFSA in 2009 when the contribution limit was only $5,000. But for individuals who were at least 18 in 2009 and have never contributed to a TFSA, the cumulative limit now stands at $41,000 – and will rise by $10,000 annually – so it makes sense to talk to your clients today about the advantages of the new, increased TFSA contribution limit and the ability to catch up on any outstanding contribution room from prior years. Bottom line – if your clients have any non-registered investments and they haven’t maximized their cumulative TFSA contributions, what are they waiting for?

Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC Private Wealth Management. He works closely with advisors to help them provide integrated financial planning solutions for their high-net-worth clients. Jamie is frequently quoted in the media as an expert on taxation. Follow @JamieGolombek

www.renaissanceinvestments.ca/en/jamie_golombek/

Interest Rates: Ready, Set, Crawl GLOBAL MARKET PERSPECTIVES

The investment community is laser-focused on when the U.S. Federal Reserve (Fed) should start raising interest rates. We believe this obsession misses the bigger picture. The widely-used term lift-off is the wrong way to characterize the Fed’s policy approach – crawling is probably more appropriate.

The federal funds rate has stayed at zero for almost seven years. In the coming months, a self-proclaimed “data dependent” Fed may find enough evidence in U.S. economic activity to implement its first interest-rate hike before year-end. However, low inflation and ample economic slack in Europe, Japan and China will leave those central banks on the sidelines for the next 12 months. We expect the Bank of Canada to trail the Fed, as the Canadian economy continues to adjust to the oil shock, a still highly indebted consumer and a fragile real estate market. In China, it is too early to determine if the easing efforts of the Chinese Central Bank will succeed in reversing its economic slowdown. Housing prices are showing signs of stability and home price increases are more frequent in a number of cities. But economic activity is not expected to rebound yet, as growth in construction remains negative and the trade sector continues to be sluggish. The European quantitative easing experiment is still in its early stage and the jury is still out regarding its effectiveness. Recurring altercations between Greece and its creditors could impact consumer and business confidence and further delay the European economic recovery.

monetary policy authorities to conduct a prudent renormalization of their interest-rate policy.

Many fixed income, equity and currency markets remain undervalued relative to developed markets. We also believe that fears of a broad-based shock to emerging markets from Fed renormalization may be overstated. Emerging market assets do not appear stretched from a valuation perspective. Many fixed income, equity and currency markets remain undervalued relative to developed markets. While there are a number of vulnerable economies with large current account deficits, political instability and low interest rates that may be affected, they do not constitute the majority. Unless U.S. economic data comes in much stronger than expected, we doubt that the anticipated first rate hike, if it occurs, will spoil the party. After all, why would the Fed spoil its own party?

Luc de la Durantaye is Head of Asset Allocation and Currency Management with CIBC Asset Management. He is responsible for strategic and tactical asset allocation, currency management, absolute return strategies and index management.

Perspectives For the period beginning July 1, 2015

Current Asset Allocation as at July 1, 2015 Underweight Significant Moderate

Overweight Moderate Significant

Equity Relative to Fixed Income

The investment community is laser laser-focused on estimating when the U.S. Federal Reserve (Fed) should start raising interest rates. W e believe this We obsession misses the bigger picture. The widely-used term lift-of lift-offf is the wrong way to characterize the Fed’ Fed’ss policy approach— crawling is probably more approach—crawling appropriate.

A number of Fed speakers have emphasized the importance of international economic conditions when assessing U.S. policymaking. On that front, continued weakness and excess capacity abroad should motivate U.S.

Neutral

Asset Class

INTEREST RATES: RATES: READY,, SET, READY SET, CRA CRAWL WL

The second half of 2015 looks more promising than the first, judging by the improved economic momentum in the quarter. The global economy is second quarter. counting on the impact of continued easy monetary policies in Europe, Japan and China, as well as the benefit of lower energy prices. These factors should support the consumer sector over the coming months.

Fixed Income Canadian Money Market

Canadian Government Bond

Canadian Corporate Bond

International Government Bond Equity

3 3

Canadian Equity U.S. Equity

3 3

International Equity (Developed Markets) Emerging Markets

Underweight

Neutral

Go to RenaissanceInvestments.ca to read the full Perspectives report

Overweight

Currency (versus U.S. Dollar) Currency Significant Moderate

Canadian Dollar Euro Japanese Yen Yen British Pound Swiss Franc Australian Dollar Emerging Markets

Moderate Significant

3 3 3 3

3 | 1

www.renaissanceinvestments.ca/en

the future

is friendlier than you think

WHY ROBO-ADVISORS CAN BE MORE ALLIES THAN ADVERSARIES While they are not actually robots, and cannot really be considered advisors in the traditional sense, the term seems to have stuck. Robo-advisor refers to an online platform that builds custom portfolios for clients and rebalances them automatically, typically with low-cost ETFs. In the United States, Vanguard’s online platform has grown to over $17 billion USD in assets under management – which is still just a tiny slice of the American $5-trillion managed-money pie. In Canada, the robo-advisors that have sprung up since last year are still minor players; but that has not stopped the fear from spreading. A recent webinar for advisors, “How to robo-proof your practice1,” came with a rather ominous invite. “Advisors can't get away from robo-advisors,” it began, adding “electronic investment platforms are everywhere.” It further encouraged advisors to sign up, with the promise of learning “how to robo-proof your practice and beat them at their own game.” Ultimately, the webinar panel suggested that advisors should incorporate automated services into their practice to offer the ideal combination of “best-in-class technology and best-in-class advice.” Not Just for the Younger Generation

Robo-advisors are not just for millennials, either. Shawn Brayman, President and CEO of financial-planning software provider PlanPlus Inc., points out that, “Answering some risk tolerance questions and being mapped to a low-cost portfolio is not more difficult because I have more money; if anything, the benefits become more dramatic.” The Price of Change Robo-advisors can be significantly cheaper for clients. For someone with over $500-thousand in investable assets, there is a big difference between paying 80 to 100 basis points (bps) to an advisor and paying 40 dollars a month for a robo-advisor – which works out to less than 10 bps on a $500,000 portfolio. But beware the hidden fees. Industry consultant Gordon Gibson, who recently retired as Vice-President, Market Intelligence, Strategy and Communication – Wealth Management of National Bank, says that, “There’s an underlying charge on ETFs or pools that are used. The underlying fee could be 6 to 50 bps based on the ETF.” So while “some offerings sound very cheap, once you take into account underlying fees, they start getting closer to the fees charged by an advisor.”

A robo-advice platform can allow advisory firms to reach a larger market by profitably servicing smaller accounts, namely the tech-savvy millennial generation, which shouldn’t be written off as underemployed and overly indebted. California-based robo-advisor Wealthfront’s clients have an average account size of $90,000 USD. Of course, they are right in the heart of Silicon Valley…

Embracing the new technology may force advisors to revisit their fee structure. They might have multiple tiers of clients, with the lowest paying a monthly fee for robo-advice, while the upper tier would continue to pay a percentage of AUM for high-touch service. Or certain parts of an advisor’s client offering could have specific costs. As Gibson notes, “Advisors currently provide highvalue items like a financial plan free of charge, but recoup costs with fees for assets managed. Ten years from now, they might not be able to do that.”

“The process will be different, the communication will be different and the needs will be different.” That’s where the new technology comes in.

You Can Beat ‘em, but Should You Still Join ‘em?

Human advisors should be actively looking for ways to service millennials, according to Julie Littlechild, founder of If Not Now Research, a firm that studies top-producing financial advisors. “Simple math suggests that the value of the book of business will decline if clients are aging and those assets are not being actively replaced,” she says. To do this, advisors need a different strategy. “The process will be different, the communication will be different and the needs will be different.” That’s where the new technology comes in.

Grant Shorten, Director of Strategic Insights at Renaissance Investments, says robo-advisors should be a “wake-up call” for full-service advisors. He says advisors “will certainly need to find creative ways to differentiate themselves and highlight the contrast between their own offering and that of the robo-firms.” Personalized advice is one differentiator, but there is also the emotional element that an automated service can’t offer. As Gibson states, “A machine is never going to ask the client how his wife’s operation went or congratulate him on his kids graduating from college.”

Shorten feels that robo-advisors aren’t as well-positioned to service highnet-worth clients. “In many cases, the wealthy are seeking holistic advice on a myriad of other financial issues, outside of asset allocation and portfolio construction,” he says. “The robo-advisor simply can’t deliver that.” Not on its own, anyway. Brayman says many PlanPlus clients have been using “robos” for years. “A robo-advisor is just an automation of many of the steps a good advisor should go though in generating a recommendation for a client on a consistent and efficient basis.” Brayman believes “firms need to find the proper mix of efficiency, which will reduce costs, and value from more sophisticated advisory services that will maintain the ability for advisors to be compensated as they deserve.” Many U.S. firms are already pairing robo-advisors with their human counterparts. “For proof that the two can – and should – co-exist, we need to look no further than the major U.S. custodians,” says Littlechild. “Every large custodian (including Schwab, Fidelity, Pershing and TD Ameritrade) has bought or built a robo offering. These are clearly not to compete with the advisors they serve, but to support them in adding greater value to their clients.” Made in Canada Some Canadian asset managers, such as Assante and Richardson, are developing their own automated platforms. And WealthBar, one of the first robo-advisors in Canada, was founded by the same family as Nicola Wealth Management. Gibson sees WealthBar as a “farm team” for Nicola, whose clients should move to Nicola’s higher-touch service once they accumulate more assets. There might be a problem with this approach, however. “What if the client on the automated platform likes the experience? You might not be able to convert them when the time comes if the consequence is a significant jump in price.”

“those advisors who embrace technology will have more opportunities to deliver value to clients...” David Scandiffio, President and CEO, CIBC Asset Management, says Canada is less of a “do-it-yourself” market than the U.S. when it comes to investing. He does think that “those advisors who embrace technology will have more opportunities to deliver value to clients. As technology becomes more intuitive and accessible, wealth managers that adeptly utilize these tools will be increasingly connected and better positioned to surface and deliver against previously unidentified client needs.” Technology is not the only change that could affect client fees in the coming months. As Gibson recalls, “I was involved in the introduction of fee-based accounts in the early ‘90s. Brokers were saying ‘you’re trying to put us on salary, it’s the end of the business.’ Now everybody’s trying to change their business to fee-based before CRM 2 hits in 2016.” 1 hosted by InvestmentNews, http://www.investmentnews.com/dcce/20150616/18/18/ACTIVE_WEBCAST/3267812

How to add robo-advice to your practice Here are a few thoughts from the experts on how advisory firms can incorporate an automated platform into their business. “Both the firm and the advisors have to accept that technology can be more effective and efficient than humans. A firm has to define what are the lower-value things that can be done more efficiently and effectively by a machine? By putting the machine in charge, this leaves more time for higher-value, higher-touch activities.” – Gordon Gibson

“A full-service advisor may find robo-advisors are a great tool to use for off-loading smaller clients, or releasing clients that would be better served elsewhere.” – Grant Shorten

“This technology can streamline the investment process substantially for advisors. For some it’s a way to create greater efficiencies – to ‘outsource to technology’ if you will. For others, robo-advisors might provide perfect turnkey solutions for clients with lower net worth and/or more simplified needs.” – Julie Littlechild

“Many robo-advisors are actually hybrids of automation and human expertise. Let the consumer do some of the basic things themselves, but then have an easy way for them to engage with an advisor when they need more sophisticated assistance. I believe the challenge is the evolution of the business model, not the technology.” – Shawn Brayman

Think Global for Growth SOLUTION HIGHLIGHT: GLOBAL INVESTING

Returns of Major Market Indices In today’s economic environment, some

FTSE UK All Cap TR LCL

of the world’s most dynamic investment

MSCI AC Asia Ex Japan GR LCL

opportunities exist outside Canada and the United States. More than half of the

MSCI EAFE GR LCL

is defined as international equity.

MSCI EM GR LCL

S&P 500 Index returned just 1.23% and

MSCI Europe GR LCL MSCI Japan GR LCL

returned over 16% and European equities

6.27 14.80 9.19 5.80 4.60

MSCI EM Latin America GR LCL

the S&P/TSX Composite Index a meager 0.91%. Meanwhile, Japanese equities

2.76

MSCI China GR LCL

world’s total stock market capitalization

Over the first six months of 2015, the

YTD – June 30, 2015

7.72 16.13 1.23

S&P 500 TR USD

0.91

S&P/TSX Composite TR

a steady 7%.

Source: Morningstar Direct

10%

15%

20%

Renaissance Investments offers a broad array of investment options that provide international exposure to diversify your clients’ portfolios. HIGHLIGHTS

• Renaissance Optimal Suite of Portfolios

• Renaissance Global Growth Fund

• Renaissance International Equity Fund

• Renaissance Global Focus Fund

ADVISOR ToGo Access to the experts when you need them

Access the Experts When You Need Them

Listen to short podcasts from our experts on global opportunities. www.advisor.ca/togo

Luc de la Durantaye, CIBC Asset Management Inc.

Podcast > Look Outside Canada for Better Returns

Nick Langley, RARE Infrastructure

Podcast > Where to Find Infrastructure Opportunities

Michael Reynal, RS Investments

Podcast > 4 Ways Cheap Oil Helps Emerging Markets

THE EVOLUTION AND FUTURE OF

WEARABLE TECHNOLOGY

â&#x201E;Ś The combination of smaller hardware and faster software set the stage for a fresh landscape of technological advancements. Cell phones literally cut the cord and opened the door to a world of portable devices. Access to wireless Internet made laptop

computers a popular accessory. And, when we became comfortable with carrying our devices, we were primed to welcome the next generation â&#x20AC;&#x201C; products we wear. Like electronic caretakers, new wearable tech is keeping us healthy, safe and connected.

TECH-CCESSORIES

A PREVIEW

After mass press on a slew of new wearable-tech products, these brave-new-world developments probably won’t surprise many fitness enthusiasts. Wearable tech has come a long way since Agent Maxwell Smart used a shoe phone, and the pace of new releases continues to accelerate. The Las Vegas Consumer Electronics Show (CES), a yearly trade show mecca for new tech products, has become increasingly populated with tech-ccessories. Some industry experts predict that the number of wearable tech devices will increase five-fold by 2017. This is happening so quickly that once-a-year shows like CES may not be able to keep pace; some believe the market could easily support several CES events a year, especially during this time of rapid product expansion.

Imagine waking up on a beautiful day and deciding to go for a run. Your trusty smart socks are still looking fresh after several washings. Just last week, your socks told you (based on pressure signals from your foot) that your running technique on some rocky terrain was dangerously close to causing a sprained ankle. You changed your route to avoid injury and your socks approve of your new choice.

A DAY IN THE LIFE

YOUR NEW LIFE

The new route, however, is a little unfamiliar. Not to worry – your jacket’s embedded GPS alerts you when you’re about to turn downwards instead of heading up. Back on track, you notice your jacket is creating a little bubble of warmth around you to compensate for the chilly morning air. But don’t let the overcast day fool you. Your sports bracelet alerts you the sun is throwing off some nasty UV rays and you stop to apply more sunscreen. Quickly, you glance at the bracelet again for a heart rate reading, and realize that you should stop somewhere for water. A fast swipe of the bracelet as you pay at the checkout and you’re back on your way.

While wearable tech seems a natural complement to sports activities, this isn’t the only area where it is changing the landscape. Witness the evolution of body cameras that began with their introduction in 2004. Body cameras are lightweight, rugged, high-definition, wearable devices that can document your afternoon of sky diving or water skiing. Attach the camera to your dog’s collar and you can see a day in the life of your dog – from their point of view, of course. By strapping it to a drone you can rival Hollywood movie studios with a fabulous home movie featuring aerial views of your neighbourhood. This technology meshes nicely with the subliminal message from reality TV and social media – there is very little in your life that is not worth documenting! Wearable video diaries may evolve to become more necessity than luxury, with recent incidents of law enforcement behaviour now under scrutiny.

FORGET ME NOT Did you know that we only remember 0.001% of our lives? Why not document and store 100% of our time on Earth? It’s a real thing – technology that allows you to save your daily video diaries to the cloud and tag them with searchable text, speech and facial recognition. Later, you can re-watch (see what you missed the first time) or present it as a keepsake to your children, who can explore using their own search criteria (e.g. dad’s epic fails).

HEY FOUR EYES! Some of the most interesting repercussions of wearable tech come from the ways it influences relationships. Internet glasses are probably the most obvious, possibly controversial, example of wearable technology that impinges on interpersonal interactions. This is partly because Internet glasses are worn on the face, sitting above the eyes with a screen that lights up whenever it’s activated (obviously rendering it inappropriate as spyware). The device can record its surroundings or connect to the Internet and is activated by voice or touch commands. Some U.S. bars and restaurants have banned Internet glasses, believing it compromises the privacy of other patrons. Some think the device could inhibit human interaction, largely because a wearer vaguely resembles a Robocop impersonator. But as Internet glasses join mainstream technology and more people wear them, we’ll likely become more comfortable with both the look and the concept. At that point, its benefits could emerge. Paired with facial recognition software, Internet glasses could remind you of the name of that vaguely familiar co-worker at the company picnic. It could allow news reporters to film interviews without the intrusion of a separate camera. Gamers could interact using real-world landscapes, and kids could continue to play their favourite video games for hours on end and still get some fresh air!

LOST AND FOUND Navigation/location devices are another large arena of wearable tech development and commercialization. These gadgets are particularly useful in locating valuable missing objects. Tracking devices, usually employing GPS technology, can be embedded in expensive jewelry, clothing, handbags and tech gadgets (of course). The technology can locate the expensive item if it’s stolen or find the owner if he/she goes missing while wearing or carrying said item. When inserted into a pet collar, a GPS chip can facilitate recovery of a lost or stolen pet in much the same way it can help recover a stolen car. For now however, those subcutaneous, implantable GPS chips often present in science fiction films will remain in the movies.

THE NEXT GENERATION Of course, when we tire of wearing our technology on our sleeve, the next wave of products will be waiting. And maybe by then, those implantable devices won’t seem so fictitious after all.

Do All the Little Things Right THANKS TO OUR SUPPORTERS

Without the support of advisors like you, Renaissance Investments would not enjoy the privilege of helping so many Canadians realize their investment goals. Here is one of the outstanding professionals we are so very proud to work with.

What do you love about the business?

Best tip for gaining new clients:

So many things. The ability to have an entrepreneurial mind, as you set your own schedule. Your pay is a reflection of your activity and success. I also enjoy the autonomy.

If you do all the little things right, it adds up to one big thing.

What is your personal formula for building strong client relationships? I come from a financial planning background. I believe in asking tons of questions to better understand clients. The more you understand, the better you’ll be able to help them.

What are the most common client concerns you hear and how do you address them? We ran a survey, and the top three concerns are: retirement, tax and estate planning. Those answers have not changed. Depending on the client, you’re either focusing on retirement, or when they get to be 75-80 years old, it’s tax and estates.

Are there areas or themes of financial or investment planning that you plan to focus on more in the future? We’ve been asking clients when their wedding anniversary is, we then send out congratulations at milestone anniversaries. We ask about charities, to learn more about what’s important to them. Over the last two years, we’ve been having a lot of fun with this and it builds a deeper relationship.

Favourite hobbies: Right now, I’m training for an Ironman Triathalon. I hit 40 this year, so I’m trying to challenge myself. When I’m not training, I’m playing a lot of soccer.

One item I can’t be without: My family.

Eric Davis Firm: The Davis Wealth Management Team, TD Wealth Location: Kamloops, BC Years in Business: 15 Team Members: 4

brain calisthenics Word scramble – Unscramble the following letters to spell words from the article on pages 10-12:

Sudoku – Complete the Sudoku puzzle so that each and every row, column and 3x3 box contains the numbers one through nine only once.

1. iseall

2. rpfolmta

3. deetdnbi

4. glieynurdn

5. uoatatmed

6 2

1 2

5 9

8 8

6. dymria

7. numah 8. auamclceut 9. uitniviet

7 9

10. tuaonccs

6 9

9 1

2 Source: 4puz.com

Spot the difference – Can you spot the five differences between the pictures below?

Check your answers at www.renaissanceinvestments.ca/magazine/answers/

To learn more about how Renaissance Investments can help you and your clients,visit renaissanceinvestments.ca or call 1-888-888-FUND (3863).

FOR ADVISOR USE ONLY Renaissance Investments and the Axiom Portfolios are offered by CIBC Asset Management Inc. This material was prepared for investment professionals only and is not for public distribution. It is for informational purposes only and is not intended to convey investment, legal or tax advice. The material and/or its contents may not be reproduced or distributed without the express written consent of CIBC Asset Management Inc. 速 Axiom, Axiom Portfolios and Renaissance Investments are registered trademarks of CIBC Asset Management Inc.

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67521* &211(&7,216 $5(1¶7 0$'( %< 7+26( :+2 *2 +$/):$<

/,9( ,17(5$&7,9( )520 &2$67 72 &2$67 You need an investment partner that understands success doesn’t demand half-measures – it demands going the full distance. Join our experts at Renaissance Advisor Live & Interactive 2015 for timely insights that will help you go the extra mile for your clients.

Reserve your seat today: 1-888-888-FUND (3863) or renaissanceroadshow.ca

Keynote Speakers:

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Benjamin Tal

Grant Shorten

Tax & Estate Planning

The Economy

Practice Management

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