Monday, December 26, 2011



The boomers are determined to ''stay alive" in retirement, and many are renewing their engagement with the workplace to do so. You can help your clients plan for that transition

Investment Executive
Mid-November 2011

PETER DRAKE, VICE PRESIDENT of retirement and economic research at Fidelity Investments Canada ULC, is 68 years old and calls himself a "failed retiree." Eight years ago, the fit, energetic, silver-maned Drake retired from his demanding job as chief economist at
Toronto-Dominion Bank.

He was looking forward to working as an independent consultant; and for a year and a half, that's exactly what he did, analyzing economic statistics, compiling reports and making presentations.

But once the novelty wore off, Drake felt bored and underutilized. There was nobody with whom he could spontaneously bounce around ideas or discuss work issues. He had been accustomed to going to a downtown office to work, and felt isolated in his suburban house. Looking for reasons to get up from his desk; too often he'd find himself in the kitchen.

Eager to get back in the saddle, Drake revived his contacts and began his hunt for a job, which culminated in his current position at Fidelity. Now, he travels the country, helping financial advisors and their clients deal with the changing realities of retirement, devising strategies to meet the challenges of the longer lives we are living and the mounting volatility in financial markets.

"There's a great deal of travelling and a lot of variety in my work, which is seriously full-time," says Drake, who conducts seminars across the country. ''I'm doing analysis, writing, presentations and media work. I enjoy the communications, whether it's writing, television or a live audience. Working in retirement is a no-brainer."

Drake is part of a growing wave of people who are reaching or have passed the traditional retirement age but are not retiring.

As baby boomers approach the traditional retirement age, many are feeling uncomfortable with the traditional view of retirement. They are also concerned about their increasingly vulnerable retirement savings. Advisors can play a key role in helping their clients who want to keep working, either full or part-time, exploring their options and mapping out a new path to their "golden years."

"It's important to ask the questions and brainstorm the solutions. And this is where a financial advisor can help, as it all ties into financial life:' says Eileen Chadnick, a certified life coach and principal with Big Cheese Coaching in Toronto. "Do a reality check. Will the client be motivated to work solo, and get out there and generate business? Do they have the marketing and computer skills? By asking the questions, they get the internal reaction. And this can help determine direction and steps that need to be taken."

For many boomers, retirement is like a mirage that is perpetually receding on the horizon. Many Canadians may have thought they would retire at 58, 60 or even 65, but have found it difficult to save enough due to the increasing costs in other life stages, such as buying and maintaining a home and raising and educating children.

A recent poll by Canadiall Imperial Bank of Commerce found the closer Canadians are to retirement, the less confident they become that they have saved enough. Only 21 % of survey respondents aged 55 to 64 felt they could retire on their savings.

In addition, a growing number of Canadians are heading into retirement with debt. They are uncomfortable about the damage wrought on their equities holdings by the financial meltdown of 2008 and the more recent market reaction to the European sovereign-debt crisis and the global economic slowdown. Meanwhile, fixed-income mvestments such as bonds don't pay enough interest to match inflation.

The solution for many is prolonging their working life and delaying the withdrawal of cash from their retirement plans.

Of those who have already retired, many are returning to work, either in a capacity related to their former profession or by embarking on a brand new career. A recent poll by Royal Bank of Canada found that among retirees returning to work, 41 % said it was because they needed the income - up significantly from 32% last year. And the number of those surveyed who are retiring debt-free has shrunk to 56% from 61 % last year.

"Retirement is a journey, not an end point, and people are looking for ways to make it fulfilling," says Jason Round, senior vice president in the financial planning division of RBC in Toronto. "For some, that may mean working in some capacity, whether it's out of financial need or for other reasons."

Sherry Cooper, executive vice president and chief economist at Bank of Montreal in Toronto, published a book called The New Retirement in 2008, in which she wrote about boomers becoming more productive in the final third of their lives. They are redefining retirement as a time of energy and creativity, and working well beyond age 65. Cooper now says this trend has accelerated because of losses suffered in the stock markets.

"To the extent that people contemplating retirement have jobs, they may want to hang on to them - especially if they are good jobs and they enjoy doing them," Cooper says. "There are all kinds of financial and mental reasons for doing so, including purposefulness, activity and the ability to deal with people of all ages. Work provides more than a paycheque, although the paycheque is important."

A BMO poll found a variety of reasons why people are working in retirement, including being mentally active (71 %), keeping in touch with people (73%), earning money (61 %), being physically active (56%), keeping busy (51 %) and avoiding boredom (49%). Cooper says a job later in life might pay less income than had been earned in previous occupations, but if it can delay or reduce dipping into retirement savings, that can make a huge difference in whether those savings can last a lifetime.

Longevity is one of the key reasons why Canadians are rethinking retirement.

Canadians are living longer and healthier lives, which means they need to pIan for a retirement lasting 30 years or longer.

According to Statistics Canada, there is 90 % probability that at least one member of a 65-year-old couple will live to age 80, and a 40 % chance one partner could live to 90. There are currently 6,530. centenarian in Canada, and a 100-year-old man recently completed the Toronto Marathon.

"I look at planning to age 90. as a minimum and if there is a likelihood of longevity, 1 will push it out to 100," says Peter Andreanna, a certified financial plannel with Continuum II Inc. in Mississauga, Ont.

"People need to complete a financial pIan to determine how much they need to save, how much they can take out and when thd can start, and how long it will last."

Rates of return on the non-guarantee portion of investment portfolios are one of the big uncertainties that retirees must contend with, particularly at a time when the number of years they may need to live off their savings is increasing. In formulating financial plans for clients, Andream projects a conservative growth rate for retirement savings of 5%. And once clients are retired, he advises a withdrawal rate of 'no more than 3%-4% annually to avoid the possibility of clients outliving their assets. These estimated rates of return may require clients to work longer and save more to assemble the needed pool of retirement assets, supplementing retirement income in the early years with part-time income or downsizing their lifestyle.

"Some clients have chosen to work longer, while others have gone through a gradual process of reducing the amount of time worked," Andreanna says. "The gradual transition often makes for a healthier retirement lifestyle."

Time in retirement has been extended to the point at which il could make up one-third of your clients' lives, possibly lasting for as many years as the time spent working. This creates a new paradigm in which it is the traditional concept of retirement that is actually being "retired."

"The old retirement was about completion, winding down and stopping; retirement was a resting arena," says Chadnick. "The new retirement is about fresh starts and new life paths.

If people are not active and engaged, if they stop growing and creating, they lose their zest for life. That can lead to feelings of depression, boredom, worthlessness and, ultimately, illness."

Boomers extending their working life may decide to stay in the same career and work less, or they may "recareer," says Chadnick. If these clients are planning to stay in the same career, they may want to think ahead and train an assistant or mentor new talent to make the shift. Or these clients may want to continue to use some of their existing skills and networks but become consultants or start small businesses.

"If it is about meaningful work, it starts with the inner game, asking what needs to be expressed that did not get to be expressed in your previous career," says Chadnick. "Once you know your values, strengths and desires, that becomes the compass or guiding light that illuminates the path of possibilities. Then, you have to look at what the world needs, and find the intersection."

Av Lieberman, president of the Retirement Education Centre Inc. in Waterloo, Ont., launched this retirement and research organization after he was unexpectedly downsized from his sales and marketing job at a midsized insurance company at the age of 50. While Lieberman floundered after the initial shock of the job loss, within two years he had founded the centre and was offering his expertise to corporations in teaching their employees how to navigate the withdrawal from full-time employment.

Now, at age 68, he continues to draw on his personal experience to advise clients. He says he will never retire. He says planning is essential so that clients can "retire to something; not just from something.

"Part-time work in retirement is the wave of the future for many people," Lieberman says. "They may take three to six months to recharge their batteries after retirement, but a growing number are taking up some work for pay or volunteering to meet needs that were formerly filled by work."

Chadnick says there are a host of careers that did not exist a generation ago, and many people are finding opportunities that suit their interests in such areas as web design, healing and therapeutic professions, coaching, pet services, house-sitting and culinary and travel experiences. Your clients may want to start up small businesses or they may prefer to work for someone else.

For many people, it is about creating a diversified portfolio of activities, Chadnick adds, a concept that advisors and their clients are familiar with. That may include a little cat-sitting, a few hours a week working at a local boutique or hardware store and joining a theatre group. It may involve going back to school for a degree or accreditation' or acquiring new skills in accounting or computer technology.

"When you put all your eggs in one basket," Chadnick says, "you are vulnerable if one thing is taken away. Everyone has their own special recipe." I

Investmenr Executive
Mid-November 2011


Ditch the beans and cold-water flat

Changes in latitude, changes in attitude.

Many Canadians long to give up the daily grind and live where flowers bloom year-round, snow doesn't exist and their retirement dollars stretch further than at home. These low cost paradises exist around the world in a variety of locations, including Thailand, Ecuador, Costa Rica and Mexico, and are increasingly being discovered by adventurous retirees.

"Increasingly, retirees from Europe, Britain, Canada and the U.S. are interested in living outside their native country," says Dan Prescher, 57, special projects editor for International Living, a magazine and website that specializes in living abroad. "We do a lot of writing about how people on a fixed income can make their nest egg go as far as possible and still live a good life."

Prescher says a lot of North Americans are finding that with increases in the cost of living, they are being "priced out" of retirement at home. But in a less developed country, retirees call find everything from a tropical abode overlooking the ocean or a mountain retreat with spring-like weather all year to a colonial city brimming with music and art.

"People who once thought they could retire in style are now looking at rice and beans and a cold-water flat if they stay at home," Prescher says. "They are looking for ways to cut the cost of living without giving up quality of life."

There are several factors to consider when choosing a potential retirement location.

In International Livings global retirement index, published every September, the magazine ranks 23 countries in the following categories: real estate prices; special' benefits for retirees; cost of living; culture, entertainment and recreation; health care; infrastructure, including telecommunications; safety and political stability; and climate.

For the past three years, Ecuador has ranked No.1 in this survey. International Living estimates a couple can live there on $600 a month, and extremely well for less than $1,200 a month, including housing. Ecuador is known for its beautiful beaches, rainforest and mountains. It has a high standard of health care and beautiful colonial architecture. It boasts a mild climate; neither heating nor air conditioning is needed. There are many restaurants, outdoor markets and access to fresh, locally grown food. A furnished, two bedroom apartment in an historic centre costs US$220 a month. Or a large condo can be bought for US$66,000.

No matter which country is chosen, the Internet and web-based phone services such as Skype have made it easier to communicate. And that's encouraging some people to take the leap into foreign lands even before retiring. "Any job that can be done online can be done anywhere in the world," says Prescher. "And that includes online trading, editing and consulting." 

Investment Exceutive
Mid-November 2011


Saturday, November 19, 2011


While regulators ponder the complexities of  new rules, investor advocates focus on a quicker solution

IN THE WAKE OF THE GLOBAL financial crisis and assorted financial services-related scandals around the world, the question of imposing fiduciary duties on retail financial advisors has become a hot topic in various countries.

In Canada, the call to hold advisors to a fiduciary duty also has been growing louder. And the Ontario Securities Commission is now studying the issue.

Yet, while requiring advisors to act in the best interests of their clients seems like a logical and appealing concept, actually enshrining this fiduciary duty in law may be no easy task. Experience shows that it often takes years for Canadian securities regulators to agree on seemingly basic reforms; and when this involves possible legislative changes, the process is even more prolonged. So, even though the issue has finally reached the regulators' attention, that doesn't mean such a duty is likely to be imposed soon.

It may be that regulators could effectively achieve the same result as adopting a statutory fiduciary duty by tightening the existing suitability regime without requiring specific statutory change.

Take, for example, the latest effort to tighten suitability rules by the Mutual Fund Dealers Association of Canada. The MFDA has proposed amendments to its "know your client" rules in order to clarify that suitability obligations do apply to strategies involving leverage, and to set minimum standards for firms and reps in assessing the suitability of leveraging.

The proposed amendments raise the bar on suitability with specific requirements that relate to the use of leveraging strategies, including a requirement that leverage suitability must be assessed when certain "trigger events" occur, such as a change in the rep responsible for a client's account or when a client transfers assets acquired with borrowed funds into an account.

This is in line with the latest version of the Investment Industry Regulatory Organization of Canada's proposed client rela!ionship model, which would also require that suitability be reassessed in response to trigger events, and that the obligations apply not just to orders and recommendations but also to overall trading strategies and financing methods.

As regulators take these steps to increase suitability requirements gradually, they are also demanding more from firms.

"Assessing suitability where leverage is involved is more complex," notes Karen McGuinness, vice president of compliance at the MFDA, "as the [dealer] is responsible for not only assessing the suitability of the investment advice but also the suitability of the leverage strategy. This com¬plexity adds additional compliance risk, given the need for additional supervisory requirements."

But the Canadian Foundation for Advancement of Investor Rights argues that regulators should be going even further. FAIR Canada's submission on the MFDA's proposed amendments says the proposed minimum criteria for leverage suitability is still too low. It recommends the amendments he toughened.

The FAIR Canada submission also recommends: there be a pre¬sumption that leverage is unsuit: able for retail investors, and that the onus to prove that leverage is suitable for a particular client be placed on the rep that is recommending it; that investors be required to meet a minimum level of investment knowledge before they are allowed to use leverage to invest, and that both reps and clients be required to certify that the client has a proper understanding of the risks; and added disclosure of any compensation generated by the use of client leverage.

Pushing the envelope of what is required to ensure suitability in this way would enhance investor protection, and drive firms and reps incrementally closer to that holy grail of investor protection - fiduciary duty. FAIR Canada's submission suggests that regulators go one step further and implement what it refers to as a "clients first" model, which would "require that all client recommendations be in the best interests of the client ratter than simply requiring that they be suitable."

As the FAIR Canada submission goes on to explain: "The fundamental principle of the ["clients first"] model would be a general rule Slating thal, in all aspects of their dealings with their retail investor clients, including recommendations, compensation practices. disclosure. management of conflicts of interest and all ongoing aspects of the client relationship (such as performance reporting). financial service providers must put the interests of clients foremost."

Adopting this sort of rule would better protect investors from inappropriate uses of leverage, the submission continues, and it "could be introduced as an element of suitability, which could reduce the amount of time it would take to implement such a standard." As well, this method also would be free of the legal baggage that would come with imposing a statutory fiduciary duty.

Pushing the suitability rules in this direction also could help close the gap between the sort of relationship that many clients believe they have with their advisors and the regulatory reality. FAIR Canada's submission says this sort of change is "essential to remedying the imbalance and misalignment of interests and expectations in current registrant/client relationships."

Resetting that balance by statute could be very demanding. But regulators may find it's possible to accomplish it by stealth. IE


November 2011

Wednesday, November 16, 2011


Only 58% of Canadians are either preparing, or are currently prepared financially in case they get sick

Despite making the connection between health and personal finances, many Canadians are unprepared financially to deal with a serious illness, according to a recent study from Sun Life Financial Inc.

The second annual Sun Life Canadian Health Index found that 90% Canadians anticipate a financial impact if they were to experience a major or chronic illness, with 53% saying that impact would be significant or perhaps permanent.

Despite these high awareness levels, only 58% of Canadians are either preparing, or are currently prepared financially in case they get sick. And only eight per cent of Canadians have a written financial plan that includes insurance and risk management — two elements that address the economic impact that could come with a major health issue.

"Canadians' understanding of the connections between health and personal finances are hard-earned," says Kevin Strain, senior vice president, individual insurance and investments, Sun Life Financial Canada. "We found the majority of Canadians have either personally experienced or have had someone close to them suffer a serious health issue. However, fewer than one in five said they had evaluated or re-visited their finances following the experience."

Overall, many Canadians expect a long life. The average respondent anticipates living 81.5 years, almost a year more than the Statistics Canada reported average of 80.7 years1. Eighty-six per cent of Canadians agree that they will need to purchase health insurance to help fund their health care needs, as the public system will not be able to maintain current funding levels as the population ages and costs rise. Seven out of 10 respondents think they will probably need some form of long-term care as they age.

The 2011 Sun Life Canadian Health Index™ measures the attitudes, perceptions and behaviours of Canadians relating to their personal health. It's based on an Ipsos Reid poll conducted between July 27 and September 12 on behalf of Sun Life Financial. For this survey, a sample of 3,233 Canadians aged 18 to 80 years old from Ipsos' Canadian online panel was interviewed online.

By IE Staff

Nov 16, 2011

Monday, November 7, 2011


In these unsettled economic times, investors may be legitimately asking themselves about the value that a financial advisor brings to the table or, conversely, whether they would be better off trying to invest on their own.

"We have been looking at that very question for a couple of years now," says Joanne De Laurentiis, president and CEO of the Investment Funds Institute of Canada (IFIC).

To find out whether people indeed do better with an advisor than they do without, IFIC consulted an existing Ipsos Reid study of 3,000 households that proved conclusively that yes, you are better off financially when you seek out and heed professional investing advice.

"In terms of experience of those households with advisors, they were in a better financial situation, they had a higher level of savings and investible assets;' she says.

"It basically cut across all demographic levels: If you were young, under 25 or over 65, if the household had an advisor they were in a better financial position:' she explains.

The same advisor-led improvement was found regardless of the , original income or wealth position of those using advisors to guide their savings and investments.

The study also found that advisor guided households also typically had more money saved in RRSPs, RESPs and even new investment vehicles such as the TFSA.

"These millions of advisor-client conversations, whether they be short or long, are really helping with the creation of a savings culture;' Ms. De Laurentiis says.

The IFIC study conducted by Ipsos Reid in 2010 also found that households with advisors were more confident about the future and more comfortable about investing generally. "So the conclusion from that study was that advised households do better than non-advised households:'

Financial advisors are proving more valuable to Canadians as in¬vestment products get more complicated and markets seem even more unpredictable than in prior years.

"The complexity of products, the fact that you are making financial decisions really throughout your life, [means investment strategy] is not just about retirement or buying a house;' says the IFIC president. "You pretty much make financial decisions all your life. When you are making those decisions you have to have thought about whether you are going to use credit or savings, whether you are overextending yourself, and it isn't something that most of us are really trained to do."

The decisions people are faced with and would do better making every day include whether to get in the market and what investment products to buy, what types of insurance to buy and how much to save for retirement to ensure that you do not outlive your savings.

IFIC statistics show that more than 85% of mutual funds are purchased through advisors, and annual surveys conducted for IFIC show that invest¬ors prefer to buy such funds through an advisor rather than selecting the best funds on their own.

IFIC's 2011 Canadian Investors' Perceptions of Mutual Funds and the Mutual Fund Industry 2011 study found that the accumulation of wealth does not precede the process of seeking out professional financial ad¬vice. More than one half of respondents had less than $25,000 to invest when they first sought out advice, and fully one-third had less than $10,000.

The survey also found that once mutual fund investors started working with an advisor, that relationship typically lasted 18 years and the relationship grew to including consultation in other financial areas such as budgeting and planning for the future.

Ian Russell, president and CEO of the Investment Industry Association of Canada, says that the upheavals in the markets and the deep and lasting recession in parts of the developed world have made it tougher on investors and made financial advisors and the advice they provide more valuable than ever.

''You really see the value of something when you really need it," Mr. Russell says. "We are in an environment where there is a great deal of uncertainty, investor angst and stress among all investors:'

"Investors have been impacted by low interest rates, stock markets that are far more turbulent and unpredictable than ever before and which have affected portfolio values. The ... unsettled environment is hitting Baby Boomers particularly hard as they are nearing retirement and are seeking safe and stable returns - exactly the opposite of what markets are delivering," Mr. Russell says.

"People traditionally would turn to things like government bonds and annuities, which are safe and secure and provide an income stream for them," he says.

"Of course, the returns on those products have really evaporated and that provides a challenge for them in finding adequate investment products.

"So people are being challenged to compensate for these lower returns by adjusting either their portfolio asset mix to generate higher returns or change your standard of living," he adds.

"These factors are all putting more pressure on Canadians and more and more people are turning to their financial advisors to cope with these unprecedented pressures."

Paul Brent
National Post

Sunday, October 23, 2011


When a financial services professional moves from professional product sales to professional financial advice the financial advisory role becomes that of a fiduciary.

As a fiduciary, a track record of professional competence which includes character, integrity of purpose, ethical choice in every facet of financial decision making, unbiased client advice and a framework of practice management within an client centric focus is the de facto standard of professional practice. This standard is essential in ‘Raising The Bar’ from a transactional to a fiduciary level of practice..

In Great Britain, Australia and the US the financial services regulatory bodies are at various stages of implementing the legislation which will make a professional financial advisor’s fiduciary role a professionally legal responsibility.

Canada will follow.

It will have a profound impact on the delivery of professional financial services to the Canadian public.

When we seek advice on highly personal matters such as health, the law and finance the advisor/client relationship is one of mutual trust. It is values based. Trust is earned – not sold.

Whether a client wishes to acquire products or advice or both is a personal decision – for each client to make.

The financial services professional must be professionally prepared to deliver what each client needs, wants and expects.

14,000,000 boomers who are going through various stages of retirement for the next 18 years will need and expect nothing less than full confidence in the trust relationship they develop with their professional financial advisors.

Canadian financial professionals are quite capable of delivering.

Dan Zwicker
Toronto, Canada

Tuesday, October 11, 2011


Daniel H. Zwicker, Principal
B.Sc. (Hons.) P.Eng. CFP CLU CH.F.C. CFSB

Certified Financial Planner
Chartered Life Underwriter
Chartered Financial Consultant
Chartered Financial Services Broker
Professional Engineers Ontario

Bus: 416-726-2427

First Financial Consulting Group, Blog:
Daniel H. Zwicker, CFP Blog:
Beyond Risk, Blog:

Daniel H. Zwicker, Principal
4261 Highway Seven
Suite 238
Markham, Ontario L3R 9W6

Chartered Financial Consultant
Lifetime Sustainable Income
Strategic Wealth Management
Specialists in Advanced Life Insurance Applications and
Lifetime Sustainable Retirement Planning Solutions
New clients are accepted by referral only

Financial Practitioner Designations

CLU - Chartered Life Underwriter

For more than 80 years, the CLU designation has been widely recognized as a mark of excellence in the industry. The Chartered Life Underwriter is a professional financial advisor specializing in developing effective solutions for individuals, business owners and professionals in the areas of income replacement, risk management, estate planning, and wealth transfer.

CH.F.C - Chartered Financial Consultant

A Chartered Financial Consultant is a financial advisor with advanced knowledge in wealth accumulation and retirement planning. An advisor with a CH.F.C. is an expert in retirement planning and capital accumulation strategies.

CFP - Certified Financial Planner

The Certified Financial Planner designation is an internationally recognized standard for financial planning. It is granted by the Financial Planners Standards Council (FPSC). An advisor with a CFP may help you with personal financial planning and offer advice on investment products and strategies.

ONLINE REFERENCES: (Advocis), (The Institute for Advanced Financial Education) (Financial Planners Standards Council) (Independent Financial Brokers of Canada) Engineers Ontario)

Capital Risk Management
‘Raising The Bar’

Sunday, October 9, 2011

BEYOND RISK - FREEDOM AT 45 - 55 - 65 - 75 - 85 - 95?? - AT ALL OF THE ABOVE AGES - TO AGE 95 & BEYOND

Money is about freedom.

The criteria for freedom are:

  • Lifetime sustainable Health

  • Lifetime sustainable income
Everthing else is negotiable.

Beyond Risk is about people and their views on money....borne of over 30 years of front line experience and engagement in the arena of exponential corporate growth through financial practice building under 'fire' in a lifetime passion......the assuring of the financial value of our allow for the completion of our personal and business financial objectives. It is about character, integrity, people and their often complex and conflicting attitudes towards money.....its accumulation.....its preservation and its utility. It is about the leadership of high performance professionals who are committed to managing the capital risk and the lifetime financial well being of their families, business associates and clients. It is about coaching 'Olympian' class high performance empowerment. Above all it is about ethical choice in every facet of decision making and execution. It is remarkable that of all the basic life skill related subjects that we include in our children's early curriculum financial literacy is not one of them.......given that we live in a money economy.

It is said that we each have a "Money Personality".

Nothing could be more accurate and more life defining.

Dan Zwicker

Saturday, September 24, 2011


Figuring out your income-replacement rate is no easy task

BOSTON (MarketWatch) — It is the mother of unanswerable questions in the world of retirement planning. How much of your current salary will you need after you retire?

The replacement ratio rule of thumb suggests you might need 75% of your current salary from a variety of sources — be it Social Security, personal assets (a 401(k) and IRA, for instance), earned income (yes, you’ll likely be working in retirement), and the like — to enjoy the same standard of living while in retirement as before.

How to haggle on medical bills

But according to research conducted by Dan Ariely, people need 135% of their final income to live the way they want in retirement. The reason for this astounding difference has to do largely with the way Ariely, a professor of economics and behavioral finance at Duke University, did his research.

Instead of asking people to ballpark how much of their final salary they will need, he asked the following questions: How do you want to live in retirement? Where do you want to live? What activities do you want to engage in? And similar questions geared to assess the quality of life that people expect in retirement.

Ariely then took the answers and “itemized them, pricing out their retirement based on the things that people said they’d want to do and have in their retirement.” Using those calculations, he found that people want to retire to a standard of living beyond what they currently enjoy. (Who wouldn’t if money were no object?) Read Ariely's blog post on the topic here.

Ariely didn’t respond to emailed questions about his blog post. But I am fond of Ariely’s body of work and have quoted him often.

Needless to say, Ariely’s blog has the financial-advice community up in arms. For one, he suggested in his blog that financial advisers are getting paid far too much (1% of assets under management) to help people build a nest egg that’s “60% too low in its estimation.”  

Two, he criticized the use of those ubiquitous risk-tolerance questionnaires that label investors as aggressive, moderate or conservative. His research showed that people cannot accurately describe their attitude toward risk and as a result, questionnaires about risk attitude are essentially useless.

From my perch, however, the questions that Ariely’s research raises have to do with the current salary replacement ratio. How much of your current salary do you really need to replace in retirement? Is the salary replacement ratio a good or bad rule of thumb? If it’s a bad rule of thumb, what’s a better way to determine how much you need in retirement? And, what are the pros and cons of that “better” method?

How much is enough?

Experts say it’s very hard to estimate with any precision how much income you’ll really need in retirement.

“In some ways, life after retirement is relatively inexpensive,” said David Laibson, an economics professor at Harvard University. For one, the expenses associated with working, raising a family and maintaining a home prior to retirement are typically much less after you retire.

“On the other hand, life after retirement is also a time when expenses might be high,” he said. For instance, costs associated with travel, leisure and health care might rise.

“At the moment we don’t know which argument wins the day. Do we need more income in retirement or less? It’s really hard to say,” Laibson said.

Some — including Stephen Utkus, a principal with the Vanguard Center for Retirement Research — say that 75% is as good a number as there is.

A good reference on this, he said, is a series of studies produced by Aon Consulting and Georgia State University, which put the replacement ratio at 81% for those with a final salary of $50,000 and 84% for those with a final salary of $150,000.

“They make the rational point that when you are retired, you aren’t making large 401(k) contributions, aren’t paying payroll taxes ... and living expenses are lower,” said Utkus. “Hence 75%, or thereabouts.” Read the 2008 Replacement Ratio study (PDF).

Adjustments are needed

But the oft-quoted 75% replacement ratio — while good — needs to be tweaked based on one’s income, said Peng Chen, CFA charter holder and president of Morningstar’s global investment-management division.

The typical amount of money one needs to maintain the same standard of living in retirement as before is roughly 100% of one’s income after taxes and 401(k) contributions, Chen said.

“This make sense, as that is pretty much how much one is spending today in the U.S.,” Chen said.

But that’s the average. The salary replacement ratio is closer to 100% or even higher for lower income households (as they get subsidies) while the ratio could be 80% (or lower) for higher income households, as wealthier people do not spend all of their income, Chen said, citing government survey data.

Looking for a ballpark estimate? “My personal view is that households should generate enough retirement income to replace about 75% to 100% of their pre-retirement income,” said Laibson. “This estimate is as much art as science.”

A good or bad rule?

Experts say the salary replacement ratio is neither a good nor bad rule of thumb. “It’s a quick way to come up with a ballpark estimate,” Chen said.

Like every rule of thumb, it has pros and cons. On the pro side, it is easy and everyone understands it, he said. On the con side, Chen said, it’s not very accurate, especially at the individual level.

Others agree. “Replacement-rate calculations are overly simplistic and potentially inaccurate because they often are based on methodologies limited to replacement of preretirement cash flow after adjustment for taxes, savings, and age and/or work-related expenses,” wrote Jack VanDerhei, a Temple University professor, fellow at the Employee Benefits Research Institute, and author of a 2006 research report on the subject.

“One of the biggest weaknesses of replacement-rate models is that one or more of the most important retirement risks is ignored: investment risk, longevity risk, and risk of potentially catastrophic health-care costs.” Read VanDerhei’s report, "Measuring Retirement Income Adequacy" (PDF).

Consider, for instance, just the risk of outliving your assets. Saving to replace your salary for life based on life expectancy is very different from saving to replace your salary to age 95. In the living-to-life-expectancy scenario, you might need to accumulate a nest egg of, say, $500,000 while in the living-to-age-95 scenario, you might need a nest egg of three times that or $1.5 million.

135% isn’t the number

While the experts quibble over whether the replacement rate is 75%, 100% or somewhere in between, they generally agree that 135% is not the right number.

“As for Ariely’s survey, one of the principles of behavioral economics is there is a difference between what people say and what they do,” Utkus said. “I don’t buy his study’s conclusions at all. I’d be curious to know: Were all of the people who wanted to retire at 135% of income saving 30% of their income each order to achieve that goal? Probably not. So it’s just a wish list, nothing more.”

Others are of the same mind-set. “One shouldn’t glibly reject Ariely’s 135% number, but there are quite a few reasons to be skeptical of that calculation,” Laibson said.

“When economists do their best to work through these issues, we generally conclude that your annual income in retirement should be a bit lower than your annual income before retirement,” he said. “I use the word ‘should’ in the sense that an optimizing household would save enough during their working life so their income in retirement is a bit lower than their income before retirement.”

Another expert said it’s not reasonable to try to replace 135% of your current salary. One couldn’t cut spending and save enough now to generate that sort of income later, said Wade Pfau, an economics professor at the National Graduate Institute for Policy Studies in Japan.

“There are just too many trade-offs in getting to the point where a 135% replacement rate is feasible,” said Pfau, who wrote a blog and a paper on the subject.

No magic number

There is no single, correct replacement rate, VanDerhei and others said. In fact, there’s really no substitute for doing precisely what Ariely did: crunching the numbers. It’s not quick, but it’s more accurate than any rule of thumb. According to Chen, individuals should look at their own spending habits to decide how much of their salary they’ll need to replace.

This is easier said than done. “Most people do not start to think about how they would live in retirement until they are close” to it, Chen said, “and this type of financial planning has to be done a number of years before that.”

Others criticize the use of salary replacement ratios altogether. “Ariely’s calculation is as bad as what he’s criticizing,” said Larry Kotlikoff, an economics professor at Boston University and president of ESPlanner, a financial-planning software company that uses the economic concept of consumption smoothing in its calculations.

“What people want or need is irrelevant. The only issue of relevance is what they can afford to spend on a sustainable basis. The goal is not a number,” he said. “The goal is a smooth living standard through time. If financial planners haven’t gotten this straight by this point, they should hang it up. They are disserving their clients using a methodology that not a single trained economist would endorse.”

Ariely raised another point in his blog that is at the crux all things money. In essence, he asked: How do we use our money to maximize our current and long-term happiness? And that of course prompts the question: Just how the heck is one supposed to do that?

“This is definitely the crux of the question,” Chen said. “I am not sure anyone knows for sure, just like everything in life. This not only touches on how much you should save for tomorrow or spend for today, but also on how much you should work to generate more income, or relax and enjoy life.”

For his part, Utkus said the key to striking a balance between saving more now to spend more later, and spending more now to spend less later is this: One, “we need some amount to make us feel secure (in other words, happy), and it’s not unreasonable that that is something like a 75% replacement ratio as a starting point.”

Second, we know that many affluent individuals want a more active lifestyle when they first retire. “If they aren’t willing to shift their consumption patterns — from Westin Resorts to the Ramada, from [first class] to flights in economy on Tuesday — then, yes, they’ll need 100% or more,” Utkus said. “But few actually seem to act on this desire by saving the requisite amount.”

Three, at the other extreme, it’s probable that many individuals can be just as happy with less (except for those with low incomes) because they can make choices about living on less.

Said Utkus: “Happiness is broadly tied to intangible elements beyond financial security...such as family and social relationships, purpose of life, spirituality, and so on.”

Robert Powell,
09 23 2011

Robert Powell is editor of Retirement Weekly, published by MarketWatch.
Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.

Wednesday, August 31, 2011


The boomer demographic has been conditioned to acquire whatever it wants - today.

Debt is the prevalent tool.

A sad part of the denial is the belief that markets move only up and to the right. ("I have time to pay it off").

"Paying it off" and saving concurrently are not likely. Health and economic contingencies get in the way.

As we know markets drop down and to the right unpredictably and precipitously

If you are a 47 - 65 year old and 40% of your lifetime accumulation disappears overnight the irreplaceable resource is time.

14,000,000 Canadians are in this demograhic age range - our boomers.

"I have enough time to make it up" is simply not true - certainly not if your focus is "Freedom at 55". Freedom at 70 is more likely.

The good news is that there are solutions and professional financial advisors who can help.

The difficult news is that they are in very short supply and most boomers do not have direct real time access to them.

For more details read...

Dan Zwicker
Toronto, Canada.

Monday, August 22, 2011


Today with the passing of Jack Layton, Canada lost a major contributor to its compassionate and generous soul.

Dan Zwicker
Toronto, Canada

Saturday, July 9, 2011


Enforceable proficiency requirements and ethical principles for anyone providing financial planning services are being established

Financial planning is a rare pocket within the financial services industry in that it lacks national supervision. But momentum is gathering behind efforts to create professional standards and oversight for financial planners across the country.

In an unprecedented level of co-operation among industry sectors, five organizations have teamed up to create the Coalition for Professional Standards for Financial Planners. The coalition is aiming to establish enforceable proficiency requirements and ethical principles for anyone providing financial planning services.

“We think that we really need to get together and agree on some fundamental principles and values that any future oversight or regulation of financial planning should be based on,” says Cary List, president and CEO of the Toronto-based Financial Planning Standards Council, one of the five member organizations.

The other members are the Canadian Institute of Financial Planners, Advocis (both also based in Toronto), the Delta, B.C.-based Institute of Advanced Financial Planners and the Verdun, Que.based Institut québécois de planification financière.

These five organizations share the common goal of providing investors with clarity and better protection when working with financial planners. Currently, List says, investors have no reliable way of identifying financial planners who are qualified, competent and held to an ethical standard: “There’s insufficient consumer protection. We have piecemeal regulation.”

Throughout most of Canada, anyone can claim to be a financial planner without meeting requirements for qualifications or professional oversight. One exception is British Columbia, where advisors holding themselves out as financial planners must hold either the certified financial planner designation or another financial services industry designation, such as chartered financial analyst, registered financial planner or chartered life underwriter.

Quebec boasts the strictest requirements in Canada: financial planners must earn a diploma from the IQPF, obtain a permit from the Autorité des marchés financiers and meet continuing education requirements. “[The financial planning sector in Quebec],” says Jocelyne HouleLeSarge, president and CEO of IQPF, “is better regulated than in the rest of Canada.”

But even Quebec’s model doesn’t go far enough, she argues, because the rules are not properly enforced: “It doesn’t prevent people from calling themselves financial planners or financial advisors or offering services pretending to be financial planners. So, our concerns are the same all across the country.”

Outside of Quebec, the only financial planners subject to oversight and professional standards are those who hold professional designations, such as the CFP or RFP; the bodies administering these designations hold their members accountable to specific practice standards and codes of ethics. Designation-holders who fail to meet the standards are typically stripped of their designation — but are not prevented from continuing to practice without the designation.

This leaves a substantial proportion of financial planners who are not subject to any oversight, says List: “For every one person who holds the CFP who’s calling themselves a financial planner, there are at least two others who don’t hold the CFP.”

List adds that six of every 10 complaints that the FPSC receives pertain to industry practitioners who do not hold the CFP designation and thus do not fall under the authority of the FPSC.

The coalition is pushing for rules that would force all financial planners to be held accountable to a professional oversight body. This is one of four key principles that the coalition’s member organizations have agreed upon as the foundation for their work.

The other principles stipulate that those holding themselves out as“financial planners” must: meet certain proficiency requirements, including specific levels of education and experience, and passing a financial planning examination; meet prescribed continuing education requirements; and agree to be held accountable to a code of ethics, practice standards, and the rules and regulations of a professional body.

The proposed principles also include a requirement for planners to meet a minimum professional duty of care by: putting their clients’ interests ahead of their own, avoiding conflicts of interest; and fully disclosing and fairly managing any unavoidable conflicts of interest.

Many financial planners applaud the establishment of the coalition. “It’s nice to have a uniform set of standards and proficiency,” says Kevan Herod, a financial planner and owner of Peterborough, Ont. based Herod Financial Services, which is licensed by the Investment Industry Regulatory Organization of Canada and operates under the umbrella of Burlington, Ont.-based Manulife Securities Inc. “There has to be a level of standard to make it fair. What bothers me is that somebody can open up a shop and call themselves a ‘planner’ and not have to take any courses.”

Having multiple sets of standards only creates confusion among the public, Herod says. He adds that most clients are unfamiliar with the various industry designations and the factors that differentiate them: “As a consumer, you’d probably feel more comfortable knowing that there’s one body instead of multiple bodies. I think it improves the perception [by] the public, in the sense that it’s one voice or one set of rules.”

Financial services firms have also expressed support for the coalition.Winnipeg-based Investors Group Inc. supports new national standards, provided that they don’t limit methods used to compensate financial planners or impose onerous new requirements on financial planners who already hold credentials such as the CFP.

“Investors Group strongly supports the development and education of advisors,” says Debbie Ammeter, vice president of advanced financial planning at Investors Group. “We support incremental evolution and development of standards that serve clients well but also don’t destroy the fabric of a system that today is delivering value.”

Regulators also support the coalition’s efforts, says List: “We’ve had very positive feedback.”

Megan Harman
Investment Executive
July 2011


There is yet more proof, for those still in denial, that professional financial advice paves the way for a fulfilling retirement.

The latest TD Waterhouse Canadians and Retirement Report found Canadian retirees who are getting help from financial advisors are feeling confident about their retirement savings. The pan-Canadian survey of retirees, aged 55-70, also showed that 76% of retired Canadians are using an advisor to manage their investments.

“The good news is that Canadians are not only aware of the need to plan for retirement, but they’re taking the right steps to get there,” says Patricia Lovett-Reid, senior vice-president, TD Waterhouse.

Almost three quarters of respondents working with a financial advisor feel their retirement savings are on track compared to those without professional help. Respondents working with an advisor were found by the survey to be more likely to have a financial plan (52% versus 7% without an advisor).

And financial advice appears to be widespread among the survey cohort, with 76% of retired Canadians using an advisor to manage their savings and investments.

“There’s no such thing as a tried-and-true retirement plan that is a perfect fit for everyone; it’s essential to develop and maintain a financial plan that is right for you,” said Lovett-Reid. “When it comes to money, emotions can run high. When you are trying to find an advisor, I suggest looking for someone that can help you assess your situation, both emotionally and financially.”

Read entire article on

Vikram Barhat, editor
July 7, 2011

Sunday, June 26, 2011


Good genes can be a curse

There is a financial solution to the need for lifetime sustainable income

The Annuity

Plan to live to 100?
There are 6,000 centenarians in Canada, projected to hit 20,000 by 2035.

But improved longevity and low investment returns pose a vexing problem for healthy people with good genes. If worried about outliving your money, consider taking out some longevity insurance, better known as annuities.
Life annuities purchased from life insurance firms provide streams of guaranteed income for as long as you live. Those in employer-provided defined benefit (DB) pensions have extensive annuity protection, as do those collect-
ing Canada Pension Plan or Old Age Security.

But if most of your wealth is exposed to stocks through defined-contribution pensions, RRSPs, TFSAs or non-registered investments, you may need some annuities or newfangled "finsurance" products finance professor Moshe Milevsky describes in How to Pensionize Your Nest Egg.
"If you have the insurance from your employment or job (e.g. DB pension), there is no need to buy more." But those lacking such insurance or worried about longevity risk may need to at least partly annuitize.
Annuities are as old as the hills but are being rediscovered by a new generation of investors scarred by stock-market losses in 2008. The current Barron's profiles a recent retiree, now 67, who bought annuities in 2007, in time to dodge the crash. He no longer frets about outliving his money.
Annuities are more popular in the United States because variable annuities - which add a stock-market kicker - are better and cheaper. With interest rates near historic lows, most Canadian advisors view age 67 as too young to buy life annuities. They suggest waiting until rates rise, when the interest component will be lower and the mortality premium makes up a bigger chunk of the return.

Milevsky doesn't worry that insurance firms can foot the bill if too many reach 100 because they are also. on the other side of the bet, through life insurance. "They will perform handsomely if we all live forever."

In The Only Guide to Alternative Investments You'll Ever Need, Larry Swedroe rates fixed annuities as"good" but variable annuities as "flawed." In an interview in Toronto this week, he warned you need a very long lifetime for variable annuities to pay off.

He's keener on payout annuities or SPIAs (single premium immediate annuities), especially for those in their seventies. ''It's the only asset class that can get you in effect equity-like returns without taking equity risk."

Annuity critics don't like the loss of control or the fact they leave little for heirs. But that applies only if you die young, Swedroe says. "If you live longer than you expect, You're saving the estate's money."

In Canada, Some variable annuities are called segregated funds.
Clay Gillespie, managing director of Vancouver's Rogers Group Financial, prefers fixed annuities but suggests clients wait until 78 or 79 before buying.

At 60 or 65, the pickup in yield over regular bonds is only 0.5% or so. but by your late seventies mortality credits make up 80% of the return so low interest rates are less of a concern.

Michel Fortin, vice-president of Standard Life, says the lower interest rates are, the more expensive fixed annuities are, and the younger you are, the higher their cost. Most annuity buyers are between 60 and 70.
The annuitization question often arises at 71, when RRSPs must be deregistered. You can also annuitize non-registered assets with tax-efficient "prescribed" annuities. Gillespie is not a fan of another type of variable annuity known as GMWB (guaranteed minimum withdrawal benefit). As structured in Canada, I don't believe they're the soluton:' Gillespie says, ''but I would use them in the U.S."

Asher Tward, vice-president of Toronto's Tridelta Financial, says GMWB fees are "way too high" at 3% or 4%, with the funds mostly balanced or fixed incQme. With SPIAs, you know what you get and can arrange for inflation indexing or term guarantees by accepting lower payouts. He suggests investing conservatively for a few years, then laddering into annuities as interest rates start to rise.

Not all annuities provide longevity insurance. Vancouver advisor Diane McCurdy uses five-year term-certain annuities to bridge clients to retirement. Some may require just five years of income while waiting for employer or public pensions to kick in at 55, 60 or 65. By the time the term is up (terms can also be 10 or 20 years), the rest of your portfolio may have grown.
These are purchased with non-registered funds: One reason McCurdy recommends clients build up non-registered savings.
Jonathan Chevreau

Wealthy Boomer
Financial Post
June 26, 2011

Sunday, May 15, 2011


Proposed changes to CFP code of ethics

The changes would bring the Canadian CFP practice standards and code of ethics in line with the global CFP principles

CERTIFIED FINANCIAL PLANNERS will face an explicit expectation to put their clients' interests first at all times under proposed changes to the CFP designation's code of ethics.

The Toronto-based Financial Planning Standards Council is seeking comments on updated versions of the CFP practice standards and code of ethics. The proposed changes aim to bring the FPSC's standards in line with global CFP principles and standards, which were updated a year and a half ago by Denver-based Financial Planning Standards Board Ltd. The FPSB works with member organizations in 24 territories to develop international competency, ethics and practice standards for CFP professionals.

"The changes' are relatively small," says John Wickett, senior vice president of standards and certification at the FPSC. "In a few places, we wanted to clean up the language a little bit, tighten it up, make sure it was very dire'ctive to CFP professionals but also very clearly protecting of clients."

The most significant change is the addition of a new "client first" principle to the code of ethics, which states that "a CFP professional shall always place the client's interest first" and must "place the dient's'interests ahead of their own."

Although the code of ethics has always been implicitly client centric, this addition would make the principle explicit, Wickett says: "[There was] a desire to hit that issue head-on. Instead of not speaking to it directly, it's time to just say it outright."

The Toronto-based Canadian Foundation for Advanceme'nt of Investor Rights (a.k.a. FAIR Canada), which has called for regulations that would require all financial advisors to put their clients' interests first when providing investment advice, lauds the proposed principle.

"We think it's a step in the right direction," says Marian Passmore, FAIR Canada's associate director. "We will be interested to see how it will be enforced in practice."

FAIR Canada would like to see the FPSC add even more clarification to its code of ethics on the importance of putting clients first. Specifically, Passmore says, the principle should explicitly state that CFP professionals must not only place the client's interests ahead of their own, but also ahead of the interests of.the firm with which the CFP is associated. FAIR Canada plans to make this recommendation in the comments that it will submit as part of the consultation process.

Canada is one of many countries that recently have been engaged in a debate around the prospect of imposing a fiduciary duty on financial advisors as a way of enhancing investor protection. The proposed "client first" principle would bring CFPs in Canada one step closer to facing this type of standard.

"Really, we're not asking anything more of a CFP professional than is asked of a lawyer or a physician or anyone else put in that kind of position," says Wickett. "If you're a professional, you're a professional- and this is how you have to conduct yourself,"

Another of the FPSC's proposed changes would make the CFP code of ethics enforceable in all professional dealings by a CFP - not just in situations in which a CFP is providing financial' planning servi,ces. For instance, when a CFP is engaged in the sale of a financial product or another activity that's not, strictly speaking, financial planning, the CFP would still be expected to adhere to the ethical principles.

"That's just to make sure," says Wickett, "that there's no avoiding being held accountable to the code of ethics based on what may be a technicality."

"Conduct that contravenes these principles "may be subject to disciplinary action by [the] FPSC's enforcment department," the proposed code of ethics says.

Meanwhile, the CFP practice standards have been tweaked only modestly. Introduced in 2003, these standards outline the process that CFPs are obliged to follow when engaged in comprehensive financia! planning. For instance, the standards stipulate that financial planners must provide clients with a letter of engagement that dearly articulates the scope of services.

The proposed changes include primarily minor adjustments to the language in order to add clarity, Wickett says: "There's no shift in what is expected of a CFP professional."

Wickctt doesn't expect that the proposcd changes to either document would have much of an impact on the day-to-day activities of most CFPs; most CFPs, he says, already conduct themselves in a compliant manner.

"I don't think it's going to have a major effect on most," he says. "But I think it sends a very important message to industry, to CFP professionals and to the public that this is what's expected."

The FPSC's code of ethics and practice standards are reviewed by the council every five to eight years, and usually the changes are minor.

"You don't expect ethical principles to change that much over time," says Wickett. "But how you describe them can shift a bit as the landscape changes."

The process of revising the current standards was conducted by two task forces composed of FPSC staff, CFPs and representatives from the FPSC's seven member organizations. This last group includes the Montreal-based Institut quebecois de planification financiere, which is currently reviewing its own code of ethics. The FPSC and the IQPF aim to keep their ethical standards as consistent as possible.

The deadline for feedback on the FPSC's proposed changes by financial services industry members and the public is May 16.

Megan Harman
Investment Executive 
May 2011