Will a financial advisor help me build more savings?

Highlights
Recent research shows that:

• Having a financial advisor helps people increase their level of wealth.
• This positive effect of advice on wealth is not simply a result of asset performance.
• The greater savings discipline acquired through advice plays an important role.
• Advice positively impacts retirement readiness.

Key Findings
The research found that having a financial advisor for more than four years contributes positively and significantly to a household’s level of assets when the impact of all other variables have been factored out. The longer the advice relationship, the greater the impact.
This chart shows financial assets of households that received advice over various time periods, as a multiple of the financial assets of households that did not receive advice1. The researchers removed the influence of close to 50 other factors that could have an impact on savings, such as age, education level, income level, and marital status. As a result, the differences in the chart reflect the impact of advice on households that are otherwise similar. The chart show that a household that has worked with a financial advisor for four to six years accumulates 1.58 times more assets than a household that does not have an advisor and is otherwise virtually the same. Similarly, a household with a financial advisor for seven to 14 years accumulates 1.99 times more assets than a virtually identical household without an advisor. After 15 years or more with a financial advisor, the household with an advisor accumulates 2.73 times more assets than an otherwise household that does not have an advisor.
_{1 In this analysis, “households that do not receive advice” excludes those who choose not to receive advice because they consider themselves capable of managing their own investments.}  
Why do households with advisors have more assets than households without advisors?
The researchers examined whether the selection of specific assets (such as particular stocks and bonds) was a factor in these results. Their analysis shows that, even if asset selection increased returns by 3% (compounded) annually, this would not fully explain the difference.
As the chart below illustrates, it would take over 15 years for a 3% advantage to increase assets by 58%; whereas the households with advisors achieve this differential in 4 to 6 years. Clearly, the increase in assets of households with advisors, relative to households without advisors, cannot be explained by asset selection alone.

Advised Households have Higher Savings Rates The researchers found important differences in the savings rates of advised and non- advised households. As the table below shows, advised households save at twice the rate of non-advised households (8.6% compared to 4.3%).

	Savings Rate
Households with advisors	8.6%
Households without advisors	4.3%

A sophisticated mathematical analysis revealed that financial advice increases the probability that a respondent saves and, among those who do save, it increases the rate of saving.
All evidence points to improved savings behaviour as the key to the relative success that households with advisors have in accumulating assets, and the important role of the financial advisor in encouraging this behaviour.
Retirement Readiness
On a scale of one to 10, a total of 56.4% of households with advisors indicate with a score of six or higher that they feel confident they will have enough money to retire comfortably. Only 40.8% of households without advisors feel the same way. The researchers examined what caused these differences. They found that having a financial advisor has a strong and significantly positive effect on the level of retirement readiness. They also found that 13% more people with advisors were confident that they would have a comfortable retirement, compared to people without advisors.
Other important characteristics that gave people confidence about retirement were high incomes, availability of workplace pensions, and employment in the public sector. Respondents who are older and, therefore, closer to retirement, are less likely to feel confident that they will have enough money to retire comfortably.
Research Background
The research is based on a study of 3,610 Canadian households by researchers Professor Claude Montmarquette, Ph.D. and Ms. Nathalie Viennot-Briot from the Montreal-based Center for Interuniversity Research and Analysis on Organizations (CIRANO). Dr. Montmarquette is the President and Chief Executive Officer, and Vice- President Public Polices at CIRANO.  He has a Ph.D. in economics from the University of Chicago, and is a full professor in the Department of Economics at the University of Montreal.   He is well known as a specialist in the economics and econometrics of education and labour and in the economics of public choice.
CIRANO (www.cirano.qc.ca) brings together over 180 professor-researchers from eight Québec academic institutions and more than 10 institutions from other parts of Canada, the United States and Europe. More than 20 of these academics hold research chairs. Recognized internationally, these experts produce high-calibre scientific work and publish in leading international journals.
About The Investment Funds Institute of Canada
This summary of the CIRANO research is published by The Investment Funds Institute of Canada (www.ific.ca)—the voice of Canada’s investment funds industry. IFIC brings together 150 organizations, including fund managers and distributors, to foster a strong, stable investment sector where investors can realize their financial goals. The organization is proud to have served Canada’s mutual fund industry and its investors for more than 50 years.

To view our complete blog please visit our website at: www.yourplan.ca.

Are you an emotional investor? Consider a turn-key portfolio fund

Written by: Preet Banerjee
Special to the Globe and Mail
Published November 9, 2012
A lot of investors have backed completely out of the stock markets for fear of heightened volatility. But reacting with emotion is the last thing an investor should do.

Many studies have shown that an inability to stick to an investment strategy during the bad times is a bigger drag on portfolio performance than the dreaded Management Expense Ratio. That goes for both active and passive strategies.

Studies of fund flows between equity and fixed income funds show that investors are constantly one step behind the game. They wait for stocks to do well before shifting money to stocks. After stocks have faired poorly, they sell them and pile into fixed income.

Buy low, sell high. It sounds easy to do in theory, but practice indicates it’s much easier to do the opposite.
For investors who have trouble keeping the emotion out of their investments, portfolio funds offer a simple, turn-key solution. Portfolio funds are managed collections of underlying funds designed to follow the principles of prudent portfolio construction: they are diversified, they allocate assets across equities and fixed income around the world, and they rebalance automatically.

The benefit of systematic rebalancing is that it keeps the portfolio aligned with its intended risk profile while helping to take the emotion out of rebalancing.

In sideways, choppy markets, systematic rebalancing can also help to eke out gains in your portfolio. While we’ve seen correlations between asset classes approach one during severe market events, correlations vary over time. It’s possible to have a 50/50 portfolio of stocks and bonds generate a positive return, even though they individually trend sideways over time.

Consider this chart:

	Start	Q1	Q2	Q3	Q4
Stock fund	100.00	110.00	107.00	98.00	100.00
Bond fund	100.00	95.00	99.00	102.00	100.00
50/50 Portfolio	100.00	102.50	103.26	100.48	100.52

Individually, the asset classes of stocks and bonds both generated flat returns over the entire time series, yet they were volatile along the way. Rebalancing nonetheless helped to capture a positive return for the portfolio.

If you’re having trouble rebalancing your portfolio yourself, consider a turn-key portfolio fund. They are available with active or passive investment management and can help prevent reduce the emotional interference your brain might run on your investments. By taking it partly out of your hands.

Avoid nightmare on retirement street: Pay off your mortgage

Just a few decades back, many thought it unthinkable to still be paying a mortgage during retirement. But a growing minority are now doing just that.

Whereas our parents paid off their mortgage in roughly 12 years on average, abou one in four homeowners are now carrying a mortgage into retirement. In fact, retirees are accumulating debt at three times the average pace.

Aversion to debt has clearly waned. Almost one-quarter of baby boomers say paying off their mortgage by retirement is “not very important” or “not at all important.” And more than half of Canadians expect to carry a mortgage into their golden years.

“My philosophy is to not carry any debt into retirement,” says retirement expert Gordon Pape. “But people today have a very casual attitude about it.”

So, just how big of a problem are mortgages in retirement? After all, places like Switzerland – which rivals Canada for the world’s strongest banking system – have 100-year “generational” mortgages. (What a way to get back at your kids!) And in a number of other prosperous European countries, interest-only mortgages – with theoretically infinite amortizations – are commonplace.

The threat posed by having a mortgage in retirement depends, not surprisingly, on the borrower’s income, savings, debt and other living expenses.

Statistically speaking, if you’re a typical married couple over 65, the latest government figures show that you take home about $46,000;combined each year. The median retiree’s mortgage is about $87,000. That implies a $411 monthly payment on a standard five-year fixed rate mortgage. That’s about 11 per cent of the typical retiree’s after-tax income, something that is easily tolerable.

On average, mortgages in retirement aren’t sending people to the poor house. Where it could get dicey, Mr. Pape says, is when interest rates rise. For a sizable minority without financial breathing room, “There is potential for real trouble down the road.”

For many single or lower income seniors, carrying a mortgage can be like walking in a minefield. All it takes is one misstep or personal crisis to explode your budget and fall behind on debt payments.

A couple relying 100 per cent on Old Age Security, for example, will earn a maximum of $26,800 annually in Ontario. In this case, that “typical” $411 mortgage payment would account for 18 per cent of their income. While unlikely anytime soon, a three percentage point interest rate hike would bump that to 25 per cent. Then you have to add in the property taxes, maintenance and all the other home ownership costs.

It’s bad enough assuming they just have the average-sized retiree mortgage. If they’re closer to the average Canadian mortgage of $170,000 and their income is in the lower third of the population, then well over half of their income would be consumed by home ownership costs. That is simply unmanageable and unfortunately there is no data on how many people are in this boat.

Apart from the cost, it’s often tougher to get approved for a decent mortgage in retirement. If your earning power has waned and you’re carrying even an average debt load, your ability to tap home equity for cash could be limited. Qualification challenges could even reduce your options to switch lenders or port your mortgage to a different house.

Even the “mortgage of last resort,” a reverse mortgage, could be off the table if you’re not old enough and/or you have an existing mortgage that’s more than 25-40 per cent of your home value.
So that brings us to the next question: what solutions do seniors have?

One is to work longer. Our neighbourhood butcher is still employed at 89 and that may not be so unusual going forward. Many Canadians expect to work past 65. They’re working 3.5 years longer than a decade ago and only 30 per cent anticipate being fully retired at age 66.

“If you have to work a few years past your retirement target date, do it and get rid of debt,” says Mr. Pape.
Another option for mortgage-holders is to get a fixed rate with a five-year term or longer. That protects those on fixed incomes from payment hikes. If you’re facing an underfunded retirement and you have a mortgage, “I would lock in a low rate while you still can,” he recommends.

You could also extend your amortization to 30 years. That maximizes cash flow in retirement and lets you make extra payments when you’re able. Couple this strategy with a home equity line of credit (HELOC) and you’ll get an emergency source of cash for unforeseen events like medical expenses or income loss. A “readvanceable” HELOC also lets you re-borrow any extra pre-payments if absolutely necessary, which lessens the cash flow risk of making them.

Despite these tips, the goal isn’t to manage a mortgage in retirement. It’s to avoid a retirement mortgage altogether. And to do that, you’ll need to start young.

The chilling truth is that there are just over 9.3 million Canadians age 55 and over and 43 per cent of them say they haven’t saved enough for retirement. But by 55, time is running out. A Statistics Canada study in 2009 found that people in their 70s spend only five per cent less than they did in their 40s. It takes years of saving to replace that kind of income and dispose of a mortgage.

By now, you’ve probably sensed that being pro-active is key. But many people haven’t been. As many as one in three say they plan to live off the equity in their homes. That’s a gamble in any real estate market. But if you’re retiring in the next decade and relying on uncertain home price appreciation, it’s especially risky. You need diversified savings and you need that mortgage out of the way.

Robert McLister is the editor of CanadianMortgageTrends .com and a mortgage planner at Mortgage Architects. You can also follow him on twitter.
© 2012 The Globe and Mail Inc. All Rights Reserved.

IPG Completes its 2012 Annual Education Conference for Financial Advisors

The 2012 IPG Annual Education Conference was held during the weekend of October 11th to 14th in the beautiful Park Hyatt Hotel in downtown Toronto, Ontario, Canada. The event had about 220 people in attendance with a strong educational content for IPG financial advisors. As in previous years, all IPG financial advisors must pay for their own travel and accommodation expenses to attend our conference.

Each year, our tight weekend schedule includes approximately 20 hours of superior educational content that is structured around financial planning mandates, compliance matters, asset management and new technology tools that will help IPG financial advisors in providing more value to their clients. This year was no exception!

We were proud to announce the following award winners this year: Associate of the Year Award was presented to Bona Savone, the branch office of the year was presented to our Sault Ste.Marie office and the administrator of the year was presented to Wendy Molinaro in our Sault Ste.Marie branch office. Congratulations to everyone.

For many years, our conference has been considered one of the best in the industry from an educational and networking point of view. We are extremely fortunate that our sponsors go out of their way to support us by having their top level experts speak on many relevant and timely topics.

Financial Planning for Seniors

Financial planning for seniors doesn't have to be complicated, and it's one of the wisest financial choices a person can do in his or her lifetime. The easy part is sitting down and coming up with your retirement goals. This can be done by sitting down and simply picturing the life you want to live and by deciding what's important to you. Important things to take into consideration are: family, health, and life-style.

One the right side you have people who are more interested in stability and willing to live more frugal later on in live. This group of people usually does not save as much money as the first group. They also don't seem to place as much importance on their retirement goals. This is their choice. For the average person they can either sacrifice some things now and reap later, or reap now and pay later.I've come to find that there are two groups of seniors with different retirement goals and plans. On left side you have people who want to save enough money to live the end of their life in luxury, maybe even better than they live now. This group of people is willing to sacrifice now to reap the rewards in luxury later on in life.

The hardest part of financial planning for seniors is trying to figure out much it will cost! The cost will vary on a number of factors. One of them depends on the amount of luxuries you would like to be able to afford.

Another factor (one that you can't control) is how long you will live. It's an unpleasant fact, but most of us have no idea how much life we have left. This needs to be taken into consideration. Don't plan your finances to last you until your 90 because you could live to be 105! It's important that you leave room for surplus. This money can always be passed down to your children or grandchildren (Having a legal will is another important part of financial planning for seniors).

You might want to look into hiring someone who specializes in financial planning for seniors. Often they work will you in creating a plan of action. This isn't for everyone, but it is worth taking into consideration. All in all, if you start planning your retirement now (no matter how old you are) you'll be in a much better position later on in life.

Housing market correction 'appears to be under way'

These are stories Report on Business is following Tuesday, Sept. 17, 2012.

By: Michael Babad

Housing correction likely 'under way'A correction in Canada’s housing market “appears to be under way,” led by Vancouver but destined to spread after the government’s new mortgage restrictions, Toronto-Dominion Bank warns today.

“We expect the slowdown will become more broad-based following a fourth round of mortgage insurance regulation tightening by the federal government in July,” economists Craig Alexander, Derek Burleton and Diana Petramala said in a new report that also warns Canada’s economy is “stuck in a soft patch” this year.

This housing correction will weigh on Canada’s over all economic growth, the TD economists added
“For some time now, TD Economics has been warning that the Canadian housing market was overpriced and overbuilt, setting the stage for a gradual correction to take place over the medium term,” they said.

“The tide seems to have finally turned. The combination of market fatigue, stricter lending guidelines for insured mortgages and a deterioration in housing affordability is helping to put the brakes on housing activity.”

They cited the fact that sales and prices in Vancouver have slumped by 31 per cent and 7 per cent, respectively, over the past year.

Of course, Canadian interest rates are expected to remain low well into 2014, so there’s only so far that prices can fall. TD said it still estimates the market is overvalued by 10 per cent.
“The adjustment is expected to occur gradually over the next two to three yars, which should be quite manageable for most Canadian households,” they said.

The market has cooled noticeably. Just yesterday, the Canadian Real Estate Association said home sales slipped 5.8 per cent in August in July. That was the steepest drop since mid-June 2010. And average prices now sit just 0.3 per cent above the levels of a year ago.

There’s mounting evidence that prospective first-time homebuyers in Canada are deciding to keep renting, amid the new mortgage rules and a softer market.

As The Globe and Mail’s Tara Perkins reports, real estate agents and observers are seeing it play out in the market in the wake of the new restrictions.

Financial Planning is a great career for Women

Please take a moment to view the attached link. Julia Chapman explains why the business of providing financial planning advice is a great career for women.

http://www.youtube.com/watch?v=K10G339cb5Y&feature=related