Today life expectancy is 10 years longer than it was 50 years ago and for the first time in Canada’s history, there are now more people aged 65 and older than there are children under 14. Given the stats, some advocacy groups say its time for a National Senior’s Strategy.
The Canadian Medical Associations (CMA) is warning that hospitals cannot be seen as the safety net for long-term care of the elderly. Polls suggest most prefer to stay in the comfort of their own home. However, maintaining that independence comes at a financial cost and therefore a new approach towards investing by seniors is now required.
With age expectancy on the rise, financial advisors have an opportunity to be part of the solution. Helping to build up a nest egg is one thing but advising a senior to strategically invest and withdraw money over their remaining years is even more valuable.
Seniors and old models of investing
Traditionally, bonds were seen as safe, low risk investments and the principal means of preserving wealth. As clients approached retirement age, bonds like GICs, Canada Savings Bonds and money market funds were recommended over equities because of their financial stability. This was a great approach when interest rates were 18 per cent in the early 80s but in today’s markets with GIC rates less than 3 per cent, seniors run the risk of falling into the red when you consider inflation, fees and taxes.
“With today’s GICs rates, it is difficult to generate the kind of income that seniors expect and need to maintain their independent lifestyle,” says Ryan Kirke, a Chartered Financial Planner with Provisus Wealth Management and Transcend.ca. “When you think of the long-term costs associated with increased life expectancy, activities like transportation and meal preparation will become more challenging over time, especially if there is no family nearby.”
“With the added costs that are necessary for seniors, they need to make sure their investment returns keep pace for a longer period of time,” advises Kirke.
Taking action for your clients
While bonds in the near future are not likely to be wealth builders, they do need to be part of an individual’s portfolio. The not quite million dollar question is, how much? We know bonds and GICs can act as a form of insurance when things turn ugly in the market and are excellent sources of liquidity. But the reality is that many seniors would be satisfied if they could get a decent return on such investments and live off the interest while protecting their capital.
“Most of my senior clients, aren’t interested in exciting anymore,” says Lise Allin of Lise Allin Insurance and Estate Planning Services in Belleville Ontario. “They want predictable, steady returns, and to work with an advisor who is knowledgeable.”
Allin knows that older clients want something safe and reasonable. “Some have lost their life-long partner, and don’t have that soundboard to run decisions by anymore.” she says. “They need assurances about what will guarantee them comfort in their later years.”
This can be tricky for financial advisors who want a steady income for clients without eroding their capital. Allin vividly remembers one case involving a senior, now her client, who in a 10 year time span with an investment bank, saw his wealth at retirement go from $1.2 M to $750,000.
This person had worked for 40 years to accumulate his wealth. Now a widower and with his kids living far away, he was concerned. “As our seniors age, the last thing we want to add is financial worry. Many still want to be able to leave their kids an inheritance, but they have to be on the right investment trajectory,” Allin asserts.
Since that time, Allin, working with Provisus Wealth Management, has been able to stabilize her client’s investments around the $750,000 mark, while he is still able to withdraw the $40,000 he needs on a yearly basis. “We were able to do this largely with the help of our investment partner Provisus who is able to meet our targets while charging much lower fees,” says Allin.
New fund model
With this type of situation becoming more frequent for many investors, one firm offering a solution is Provisus Wealth Management. The firm recently celebrated its 10 year anniversary and its fourth year on the Profit 500 list. This September, a year after opening a new arm to its business called Transcend.ca, the company launched the Multi-Strategy High Yield Fixed Income Fund which is designed to target the risk of short term bonds and generate greater performance.
“It attempts to provide an attractive cash yield and stable returns, while investing in a broad range of non-equity assets,” says Chris Ambridge, President of Provisus Wealth Management and Transcend.ca.
The fund is made up of corporate bonds, convertible bonds, preferred shares, incomes trusts, REITS, mortgages, secured real estate backed lending, infrastructure products and alternative strategies. It also uses Transcend’s trademarked Pay-for-Performance™ fee model with a fixed annual management fee of 0.25 percent. A performance fee is charged only if the fund outperforms a pre-set industry benchmark – a fee philosophy that Ambridge argues is a very strong incentive for the fund to achieve positive results for clients.
“I’ve been working with Chris’s team for the last ten years,” says Lise Allin. “The company has some of the best money managers around and its service provides me with peace of mind. Most importantly, it has produced stable results for my clients.”
Advisors part of the solution
The new fund is part of Provisus’ ongoing movement in rethinking how advisors can plan for a client’s retirement but also how we can help our seniors responsibly. The new investment landscape means playing it safe for seniors can do more harm than good. They face the unknown danger of outliving their savings and simply cannot afford not to take a level of risk with their investments.
Advisors need to explain why a new approach is necessary and also provide better investment options. Doing so will ease the burden of financial worries that many seniors face on a daily basis.