ci financial conference aria resort & casino canadian wealth market opportunity in the next...
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CI Financial Conference
Aria Resort & Casino
Canadian Wealth Market Opportunityin the Next Decade
“Change Is the New Normal”
Goshka Folda
Presentation Agenda
• Canadian household financial wallet: A decade of change
Who will be your client?
• Evolving needs will drive product preferences
• Regulators stir while ranks of competitors multiply—Advisors need to be ready!
• Capturing wealth market opportunity in the next decade
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Canadian Household Wallet:
A Decade of Change—
Who Will Be Your Client?
Household Wallet Will Grow but Pace Will ModerateIn billions of dollars
Source: 2013 Household Balance Sheet Report.
44
2013
2013-2022 CAGR
Financial wealth
Residential real estate
Credit
$3,416
$3,602
$1,824
2022
$5,460
$4,266
$2,029
Assets
5.4%
1.2%
1.9%
Financial wealth
Residentialreal estate
Credit
Retirement Will Be the “Word of the Decade” for Customers and Financial Services Providers Alike
% of households
% of financial wealth
Retiree households2012 2022
25%
42% 48%
31%
1.3 million transfer events
(2012-2022)
Source: Household Balance Sheet Report, WealthMine.
55
It's "Risk On" for Canadians Saving for Retirement—As Employers Transfer Risk to IndividualsAssets in billions of dollars
5.4% 9.2%5.7% 2.0% 7.5% 9.3%
Total CPP/QPP DB RRSPsDC RRIFsCAGR 2013-2022
8% 9% 9%
47%44%
33%2%
2%
3%
35%
33%
40%
7%
6%
9%
1%
5%
7%
2007 2013 2022
Other CAP
RRIFs
RRSPs
DC
DB
CPP/QPP
$4,578
$1,974
Individually-controlled$2,854
6
Mass Affluent Segment Will Lead Household Expansion but High-end Clients Will Dominate the Asset Growth Opportunity
Mass affluent
HNW
$100k-$250k
$250k-$1 mil +811K 73%
+500K
Households Financial wealth
3.8 million $1.4 trillion
$1 mil+
54%
+486K 88%
1.1 million $3.7 trillion
Between 2012 and
2022
Source: Household Balance Sheet Report, WealthMine.
77
Evolving Customer NeedsWill Drive Product Preferences
Money on the Sidelines: The Opportunity Cost Rises as Markets Improve and Interest Rates Remain LowDeposit balances, in billions of dollars
2013
1.15%
2007
3.08%
Estimated effective interest rate on interest bearing deposits
Source: Insight Advisory Service.
99
$106 $122 $140 $199
$282 $336 $397 $445 $431 $394 $443
$511 $601
$708 $746
$561
$705 $807 $808
$905
$1,060 $1,169
1993 1996 1999 2002 2005 2008 2011 Jun 2014
Canadian Fund Industry Breaches $1 Trillion in AssetsLong-term investment fund assets in billion of dollars
Source: Insight Advisory Service, Simfund Canada.
5-yr 15%
10-yr 9%
20-yr 12%
Trailing growth to June 2014
10
1-yr 22%
10
Fund Industry Flow Tide on the RiseLong-term investment funds net flows, in billions of dollars
Source: Insight Advisory Service, Simfund Canada.
11
$32
$20
$4
$32
$58
$41
$15
$38
$11 $11 $11
$23$32 $28
$33
-$12
$28 $28 $28
$42 $44$34
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013Jun YTD2014
1993-1999 49.7% 2000-2007 5.9% 2009-2012 5.6% 2013 4.8%
YTD Jun 2014 3.2%
11
Equity Renaissance Underway…But in a Risk-conscious Fashion. Foreign Diversification Back on TrackAverage annual mutual fund net flows in billions of dollars
Source: Insight Advisory Service, Simfund Canada.
12
2%29%
103%48% 39%
19%
35%
37%
20% 15%
5%
33% 16%16% 14%
24%
-11% -34% -17%-2%
9%
9%
7% 16% 9%
41%5%
-29%
17%25%
1993-2000 2001-2007 2008-2012 2013 YTD June 2014
International equityfunds
U.S. equity funds
Canadian equity funds
Equity income funds
Balanced funds
Fixed income funds
$25.7 $19.3
$15.7
$37.4
$31.9
12
Shift to Solutions Underway: Pre-assembled Advice Solutions Resonate with Risk Management ThemeIn billions of dollars
2003-2013 2013-2022All funds 7.4% 5.8%Fund wraps 16.8% 7.9%Stand-alone mutual funds (ex. ETFs) 3.6% 2.6%Funds in fee-based accounts and discretionary programs 15.1% 13.6%
CAGR
80%71%
69% 58% 56%42%
16%
24%25%
33%36%
43%
4%
5%5%
8%8%
15%
$450
$709$556
$789$922
$1,537
2003 2007 2008 2012 2013 2022
Funds in fee-based accounts and discretionaryprograms
Fund wraps
Stand-alone mutual funds (ex. ETFs)
$217
$661
$651
Source: Household Balance Sheet Report, 2013 Edition, Section 2, Exhibit 9.
13
Mutual Fund Business: Three Key Trends
(2) Long-term funds industry MER coming down:
2.13%2.05%
(1) Back-end load funds continue to lose share of total load fund assets:
58%39%
(3) Multi-series assets on the rise, original series assets losing share:
90%86%
2007 2013
2007 2013
2007 2013
2007 2013
14
Mutual Fund Industry Pricing Flexibility on the Rise—Unbundled Approaches Gain GroundTotal assets in unbundled series*, in billions of dollars
Source: Insight Advisory Service September 2014.
*Includes F, F/T, F/HNW, F/T/HNW and all HNW-series which unbundle the management fee.
2007 2013$66.4 Assets $139.59.4% Share of long-term funds 13.7%
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Regulators stirwhile ranks of competitors multiply—
Advisors need to be ready!
Global Focus on Investor Protection Shaping the Regulatory Discussion in Canada—and Worldwide—Will Put Pressure on Traditional Advice-givers
81-102Statutory best
Interest standard
81-407Change in fee
structure
31-103CRM II
81-102Point of sale
disclosure
NOW: Mutual fund manufacturers fee and performance At point of sale and in plain language.
Now to Mid 2016 : Dealers to report performance, all fees paid, service rendered on client statements.
Discussion paper: Proposes end to embedded payments to dealers/advisors—trailers and 5% commission paid on DSC.
Consultation: Proposes fiduciary-like standard on all advisors.
Source: 2013 Household Balance Sheet Report.
1717
More Competition: Direct ≠ No Advice! Will Robo-Advice Take Hold?
Source: Household Balance Sheet Report, 2013 Edition, Section 2, Exhibit 13.
Online brokerage
Full-service brokerage
Private investment counsel
Branch delivery
Direct sellers
adviceDirect
PH&N IS
Do it yourself Get help to do it Get someone to do it for you
Financial advisors
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Deposit-takers Formidable Competitors. Beware of Their Quest for “Customers for Life”
• Foster seamless passage between channels and optimal allocation of corporate resources• Customer retention throughout the customer’s financial lifecycle top priority• Branch direct a critical point of initial customer engagement and discovery
Source: Big Six Banks Comparative Analysis—The Mass Affluent Segment: Sales and Service Models of the Big Six Banks.
Private Wealth
Serv
ice
/ Ad
vice
com
plex
ity
Investable assets
Branch Direct
$50K $100K $250K $500K $1M
Branch Advice Specialized Salesforces
Full-serviceBrokerage
Deposit-takersOnline DirectOpportunity?
IIROC
19
Unfolding Transformation of the Financial Advisor Channel: Less Embedded Compensation, More Unbundled Fee-based ApproachesPercentage of channel assets in unbundled fee-based programs
0
2.5%
18.3%
33.3%
Full-service Brokerage Financial Advisor Financial Advisor
2013 2022
20
Capturing Wealth Market Opportunityin the Next Decade
Sufficient nest egg?
YesYes
- Reverse mortgage
Payout annuity
Outside of registered account?
No
Permanent life insurance loan
GWBs
Principal protection?
- Mutual Funds- Fund wraps
No
Yes
Fixed-term deposits
Market access/ liquidity?
Guaranteed income?
Yes
No
Upside potential?
Yes
No
Yes
No Yes
No
- Corporate class funds- T-class funds
- Principal-protected notes- Fixed income securities
Segregated funds
Upside potential?
Insurance product
Expand Your Retirement Planning ToolkitPayout Phase = Growing Complexity for Advisors
22
Mutual fundse.g. CI G5/20
Retirement Market Jumpball—A 360° View of Payout Phase Product LandscapeIncome product continuum in flux
Source: Household Balance Sheet Report, 2013 Edition, Section 3, Exhibit 8.
23
Principal Protected
Notes (PPNs/PARs)
GICs GIAs Payout annuities
Hybrid payout
products
Guaranteed Withdrawal
Benefit funds (GWBs)
Traditional segregated
funds
Investment funds*
Deposit-based Fund-based
Permanent life insurance
Reverse mortages
Credit-based
Guaranteed income for life
Upside return potential
Upside income potential
Sun Life SunFlex Retirement Income (Jan 2013)
Manulife PensionBuilder (Oct 2011)
CI Investments Guaranteed Cash Flow Series G5|20
(Jul 2013)
Number of MLNs issued2007………………..4852012………………..4672013…........………757
Market-linked GICs2007……………..$18 billion
2013..........…….$40 billion
*Investment funds includes: mutual funds, mutual funds of funds (MFoF) and exchange traded funds (ETFs)
ManulifeRetirementPlus
(Sept 2013)
DesjardinsHelios GWB(Feb 2014)
BMOGuaranted Investment Funds
(Dec 2013)
Wealth Management Landscape Now Stretches Far and Wide
• Adapt to evolving consumer needs by executing a “Growing with Your Customers” strategy and focusing on holistic wealth management
• Deepen expertise in emerging areas, such as risk management, retirement and estate planning
• Crystallize and articulate value of advice to strengthen value proposition and combat competitive challenge
• Address time constraints and rising compliance and technology costs
• Develop practice efficiencies to allow for expansion and new revenue opportunities to strengthen economic model
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