Preet Banerjee and the Value of Advice

 

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Photo by Jamie Templeton on Unsplash

Television host and personal finance blogger Preet Banerjee has launched a new survey on the value of financial advice. He’s been researching the subject since 2015. “I’m in the fifth and hopefully final year of this research,” he says. “My supervisor seems to be under the impression that I’ll submit my thesis before summer, and hopefully I can defend before the end of the year.”

Banerjee has chosen a difficult subject. A lot of people believe their financial advisor delivers value. Those who don’t often shop for a new one, which is another kind of belief statement. But actually quantifying what an advisor relationship is worth over a number of years has proven difficult.

“You’ll often see studies that say ‘people with advisors have more money.’ But generally speaking, financial advisors tend to only go after people with money, and people who have already accumulated some wealth or have high incomes are more active in seeking advice,” says Banerjee. “Who is really responsible for the client being in the good position that they are?”

The survey is designed to dig into causation. It asks respondents to disclose who made first contact (them or the advisor), how much money they had saved at the beginning of the relationship and what areas of financial planning they are being advised on.

“The conversation on the cost of financial advice and products is more well defined than the other big part of that equation: value,” says Banerjee. “To understand what represents a good trade off between what one pays and what one receives, is a very personal thing. There are some people who pay a lot and get poor value. But there are some people who pay a lot and get fair value in exchange.”

Banerjee says the research program will deliver insights to consumers, industry, regulators, and policy makers. “I would be very appreciative if people could take the survey. The only requirement is that you are 18 or older and live in Canada.”

The survey is easy to complete, and runs 5-10 minutes. You can access it here, on your computer or mobile device.

Kevin Press

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The New Retirement

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One of the programs I’m most proud of from my time at Sun Life Financial is the Unretirement Index. Dean Connor, who at the time led the Canadian organization, asked my team and me to develop a study that dug into people’s plans and expectations for retirement.

We went in with a simple hypothesis. Baby boomers would transform retirement, just as they had so many social conventions over the years. Given how many Canadians in that demographic identify so personally with their work, why wouldn’t white-collar professionals keep doing what they do after 65? Hence the term, unretirement.

My team prepared the first annual survey over the summer of 2008. Little did we know that the worst financial crisis since the Great Depression would coincide with its fielding. There we were, asking Canadians about what age they expected to retire at the same time televisions across the country screamed about a financial apocalypse.

What seemed a disaster at the time, turned out to be an extraordinary research opportunity. In the years that followed, we tracked the evolving views of Canadians about retirement in light of the crisis. By 2011, the average adult expected not to fully retire until 69.

While our hypothesis held up, it was clear that economic factors were also driving unretirement. Among Canadians who said they expected to be working at 66, 61% said they’d do so because they need to and 39% because they want to.

New research from Aon confirms that while the anxiety so prevalent in the years immediately following the crisis has largely subsided, there remains a kind of low-grade angst among a lot of Canadians about their financial future.

The firm’s Global DC and Financial Wellbeing Employee Survey delivers useful insights into the views of Canadians who are lucky enough to have employer-sponsored defined contribution (DC) retirement plans. While not a representative sample of the broader working population, it’s not a bad proxy.

A few highlights from this year’s edition:

  • 30% “expect to continue working forever in some capacity.”
  • 29% “do not feel they are saving enough for long term needs.”
  • Nearly half say “their outstanding debts prevent them from saving for retirement.”
  • Two-thirds contribute less than 10% of pay to their DC retirement plan.

“The reality is that for most people, retirement will be different than in previous generations – likely starting at older ages and incorporating phased or flexible arrangements,” according to the report. “Our research shows that retiring in your 70s – or not at all – will become increasingly common.”

Two takeaways.

First that debt stat is neither surprising nor necessarily bad news. While I’m not a fan of delaying retirement savings until your home mortgage is paid off, it’s hard to argue against clearing credit card and other high-interest debt before saving for long-term goals.

Second, if you do have a retirement plan at work, take full advantage of whatever employer-match it offers. Aon found that only 78% of respondents have signed up for the plan their employer sponsors. And 41% of those who have access to an employer-match don’t take full advantage. If your boss is prepared to match the first $100 you save for retirement each month, take it. Take all of it. Save more if you can. Just don’t miss out on free money.

Kevin Press

Wiggle Room

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Photo by Nadine Shaabana on Unsplash

HBO’s Bill Maher was on-point in the New Rules segment of this past weekend’s season premiere. “To me,” he said, “the real lesson of this government shutdown is that we found out that federal workers – quintessential middle-class jobs – can’t afford to miss one paycheque.”

No doubt that line resonated with more than a few Canadians. New data from the MNP Consumer Debt Index, a quarterly study conducted by Ipsos, shows that almost half (46%) of adult Canadians are $200 or less from insolvency at the end of the month. Almost a third (31%) say they can’t pay their bills.

Both results are up significantly over the September report. At that time, 40% said they were that close to going broke at month-end and 24% reported having difficulties paying their bills.

“Many have so little wiggle room that any increase in living costs or interest payments can tip them over the edge,” says MNP Ltd.’s president Grant Bazian. “For most, the cause of trouble appears to be long-term accumulated debt. … They just can’t carry it any longer at higher interest rates.”

Much has been written about the value of an emergency fund. Recommendations vary, but it’s not uncommon to hear professionals suggest three to six months in savings for a rainy day. What’s most important is that you make decisions based on your own ability to save and your current financial situation.

If you might lose your job this year, factor that in. How much severance are you likely to receive? The standard benchmark is one month of pay for every year you’ve been with the company, but you can’t count on that.

How much money do you need to get through the month and how long do you think it will take you to find a new job. It’s not uncommon for middle-managers and executives to be out of work for six months, a year or even more.

If consumer debt is piling up, pay that down as quickly as you can. Identify the rate of interest you’re being charged by each of your lenders, and pay down the highest interest rate debt first.

Kevin Press

Welcome to Today’s Economy

image 2019-01-09 at 6.18 pmHere’s a promise.

I’m going to do my best to help Canadians understand what’s happening in the economy – at home and around the world. I’m not here to sell you anything. I have no agenda beyond wanting to help readers understand the world just a little bit better so that they can take care of the ones they love.

A bit about me. I’ve been writing about economics, household finances and retirement planning since the mid-1990s. I was a journalist initially, and then joined one of the country’s top insurance companies as a marketing/communications leader. Both experiences taught me the value of learning and the feeling of confidence that comes from having even a rudimentary understanding of how money works.

You’re going to see a few key themes covered in this space:

  • Expect a recession sometime soon. This year marks the 10th consecutive year of economic growth in Canada. Yes, we’ve been mired in an extended period of slow growth since the financial crisis. Just the same, we’ve seen positive numbers every year since 2009. That’s not normal. The C.D. Howe Institute reports that economic expansions have averaged about half a dozen years each since The Great Depression.
  • Interest rates matter more than ever. Low rates began to emerge as an issue for long-term investors in the 1990s. But that was nothing compared to the super-low rates implemented by central banks around the world to spur growth after the financial crisis. The Bank of Canada announced today that it will maintain its target for the overnight rate at 1.75%. Like other central banks, they’ve been working to inch that rate up. (Canada’s key rate hit a low of 0.5% in 2009.) But they have to tread carefully. Rising rates slow economic growth, so of course the risk is that they will tip the economy into recession. But if/when a recession does occur, central banks need to have room to lower rates in order to help the economy recover. You can’t do a lot of cutting when your starting point is less than 2%.
  • Navigating all this means understanding risk. That goes beyond traditional investment risk. Canadians are living longer than ever. That means longevity risk, which is to say that you might outlive your savings. In a connected world where government decisions often have global implications, political risk is significant. Canadians who invest in the U.S. market are well aware of currency risk. There is much to consider.
  • All of this is affecting how Canadians plan for the future. That’s especially true for long-term savings goals like retirement. Don’t be surprised if you’re still working at 70. And don’t be put off by that. It may be the best thing for you.
  • More than ever, it’s up to you and me. Employers have been stepping back from the old-school, paternalistic approach they’ve historically taken with retirement, life and health insurance benefits. Much has been written about the move from defined benefit to defined contribution pensions for example, which puts the onus on individuals to make investment decisions. The discontinuation of retiree benefits is another big story. It’s not clear how this will play out as baby boomers continue to enter retirement. Few expect governments to fill the gap, but it’s too early to make bold predictions on that. Obviously though, we have to be prepared to take care of ourselves to an extent that our parents weren’t required to.

If you’d like to see something covered, please shoot me a note. And if you know someone who will value Today’s Economy, please share.

Kevin Press