Client needs dictate investment choices

It’s different for every client. Respondents at our 2009 Dollars & Sense roundtable discussion say client response to investment products is all over the map, although there’s still some favour shown to capital preservation – at least for now.

“Some of the senior clients are looking for security and capital preservation,” says Eva Froese, PFP, Investment & Retirement Planner, RBC Wealth Management, Calgary. “Regular GICs are not able to give them this type of return and keep up with inflation, so we look at products such as market-linked GICs or varied portfolios that consist mainly of fixed incomes.”

She says a lot of clients are still in cash accounts and only now beginning to come back to the market. “For them, we start off with dollar-cost averaging, or something a little bit more secure,” she says.

Doug Gleed, VP & Regional Sales Manager, Invesco Trimark, also sees clients leaning more toward guaranteed products, although they aren’t thrilled with the lower interest rates. “For many higher-end advisors in the last 12 months, I’ve noticed a flight toward fund-of-funds offerings,” he says.

Unless an advisor was prescient, James R. Taylor, CLU, Financial Health Management, Toronto, noted attempts at capital preservation would have been a case of too little, too late – as clients saw 10 years worth of returns get carved off the top.

“The reality is, we take an approach of early intervention in regards to the rehabilitation of those values. As new money has come in, we’re actually viewing daily dollar cost averaging because of the volatility that took place in the marketplace,” he says. “We also looked at the corporate high yield bond market; we went to pretty much all of our portfolios and allocated 20%-to-25% as a part of the early-stage intervention.”

A lot of investors focused on insurance products during the credit crisis, notes Barbara Foy-Pilchner, VP, Business Development, Invesco Trimark. She cites conversations she’s had with advisors over the past year during which many said insurance was their main focus, and that clients primarily expressed interest in guaranteed products.

“There’s a trillion dollars sitting in the sidelines, and if you take out the term deposits, it’s still $635 billion dollars, waiting to be allocated,” she says. “We’re also seeing an uptake in the dollar-cost averaging and other safer ways to get back in – we saw an uptake on the high yield bond category, with credit spreads the way they were, this was an attractive asset class for people to get back into the market.”

In such environments, notes Cynthia Kett, CA, CGA, RFP, CFP, Stewart & Kett Financial Advisors Inc., Toronto, being an advise-only operation has its advantages. “We don’t make any investment recommendations,” she says, “but we do look at asset-mix and have a good idea as to what their cash flow needs are.”

The goal is to protect clients’ cash flow over a five- to-seven-year period at minimum, and also look at what their requirements will be over the rest of their lifetimes. Kett is seeing clients who have always had balanced portfolios become willing to increase their fixed-income portfolios, but at the same time move up on the risk scale.

“In the equity scenario, they’re moving down the risk scale. A lot of clients are also choosing to hire discretionary portfolio managers,” she says. “When the markets were buoyant, everybody was a genius and could make money; now clients are becoming more realistic about their abilities, especially those nearing retirement.”

Nicole St. Denis, Investment Associate, ScotiaMcLeod, London, Ont., is also finding clients are leaning toward fixed income. The hard part right now is that yields are so low for these investors.

“Trying to manage that part of the portfolio for clients and provide them a decent rate of return is difficult,” she says. “At the same time [clients] also wanted to take advantage of the blue chip stocks when they were trending down.”

Her colleague Rob Kelland notes half of the assets at his practice are on the discretionary platform and that they’re simply trying to build portfolios that meet client objectives. “We skew ourselves on the conservative side of the ledger. If we’re dealing with preferred shares we’ll be dealing with P1 or P2. If we’re dealing with common shares we’ll be dealing with the more conservative stocks, bonds more conservative,” he says. “We don’t chase the latest fad and it has worked for us over the years.”

Indeed, these days a managed portfolio or pension plan style philosophy is resonating with investors. Kathleen Peace, CFA, CFP, Bennett March of IPC Investment Corp., Toronto, notes new clients coming on board are made aware that the approach to investing won’t be sexy.

“The only thing that changed last year for our clients on the cusp of retirement was their wanting GMWBs,” she says. “That was brand new for our practice, and we only did it for clients who seemed okay with the cost and who didn’t have any type of defined benefits coming to them besides CPP and OAS.”