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Advisor’s EdgE rEport junE 2007 13

Keep Thy Assets Safe
guEST Column by ThAnE STEnnER, Rod bowER And RoRy o’ConnoR

reasonable period of time.

How to help your HNW clients see protecting wealth as their number-one goal
there is still much work to be done. With that in mind, here are some ideas that should help you move your HNW clients toward viewing protection as a more important goal than growth. about the next hot stock.

The 2007 Spectrem Group Affluent Market Insights survey contained a variety of useful findings and observations for advisors working with the high-net-worth (HNW) population. For example, it highlighted the shifting attitude of wealthy Americans when it comes to wealth preservation. When asked in 2003 whether their primary investment strategy was to build wealth rather than preserve it, 68% of respondents answered yes. In 2005, that number had dipped slightly to 65%. In 2006, the number dropped again, this time to 59%. This is welcome news indeed. The more HNW individuals recognize that the need to secure what they already have must take precedence over the desire to get even richer, the better off these individuals – and the professionals who work with them – will be. Clients who think preservation first and growth second are less inclined to take big risks. They’re less likely to mistake hot tips for a sound investment strategy. And there’s less of a chance they’ll blame their professionals the next time the stock market takes a turn for the worse. That said, the fact that 41% of HNW individuals don’t agree with this line of thinking suggests that

As a professional, you know the benefits of diversification, not only for clients, but for POSITION YOURSELF AS your practice. A diversified THE STEWARD OF portfolio means there’s CLIENT WEALTH less chance that a “market Stenner We see a lot of advisors bombshell” (like the inwho position themselves come trust ruling back in as a professional who can October) will affect your help clients build and attain clients, and by extension, their wealth. There’s nothing your business. wrong with that. But if you’re But we still see many adbower looking to deal with HNW visors who believe in diverindividuals, a far more effecsified portfolios in private, tive strategy is to cast yourself while in public they quietas a steward of client wealth. ly accept clients with heavMake prospects underily concentrated positions stand that people come to or big bets in a particular o’Connor you for one reason and one market sector. reason only: to secure a high quality This is dangerous. You cannot of life for themselves (and for their wax poetic about diversification family) for decades to come. For only to allow HNW executives and those who already have “enough,” business owners to retain highly this is a very attractive value propo- concentrated portfolios. sition. Of course, the definition If a wealthy business owner or of “enough” is somewhat open to executive comes to our practice interpretation – but that’s a discus- with a large, concentrated position, sion for another time. we immediately formulate a stratWith our clients, we are clear egy to diversify it, either immediabout our role right from the start: ately or incrementally over the next our primary job is to protect and five to seven years. preserve wealth. Growth is nice, but Sometimes this can be done easit’s secondary. By defining ourselves ily; sometimes we need to employ this way, we set the tone for all con- equity collars, pre-paid forward versations and recommendations transactions and other complex to follow. We also screen out those strategies. Most clients are more prospects who are simply looking than happy to employ such stratefor someone to give them ideas gies, if not immediately, then over a corporate pension will make up a larger proportion of their retirement income, Benn says. In most other areas, though, 30year-olds have aspirations similar to those of older generations. They place a high importance on family; a majority want to retire before age 65; and – contrary to many assumptions – they would like to work with the same employer for their entire career. Also, if they had their preference, most would like to have a guaranteed income at retirement provided by their employer, and the vast majority would like health benefits extended into retirement. “We talk about the generation that encompasses 30-year-olds as if they’re a new breed and their expectations are completely different,” Benn says. “[The study shows] all generations seem to want the same thing, although they may have very different reasons for it.”

When it comes time to recommend specific products to a given client, try to present those products in terms of what they do to protect the client’s wealth. Even when a product is considered a performance enhancer, it makes good strategic sense to position it in terms of the security it brings to the overall portfolio. For example, equities aren’t just vehicles for growth, they’re a way to stay ahead of inflation. Alternative assets aren’t simply a way to boost portfolio returns, they’re a way of protecting the portfolio from the downturns that affect traditional asset classes now and again. We take pains to explain the benefits of any investment in terms of how it protects the client’s longterm financial position, and by extension, their quality of life. By explaining something abstract and financial (a stock, a bond, a hedge fund) in personal and emotional terms (protection, security, peace of mind), we subtly influence the way clients perceive our value.

perous practice. Because their motivation is strictly performance, they will leave when performance doesn’t live up to their preconceived definition (with the gambler, it’s only a matter of time). In our practice, we have a simple rule: if a prospect expresses apathy or disdain for our “protection first” attitude, we politely decline to do business with them. That means turning down an account now and again – and there have been many occasions where we have turned down multimillion-dollar accounts because of this rule. But our practice has prospered because of this straightforward approach. As professionals know, the gap between building wealth and preserving wealth can be as wide as the Grand Canyon, and just as treacherous. It is our job to teach our clients to see the danger of a “growth first” policy, and to spell out its consequences in no uncertain terms. We may encounter some resistance along the way, and that’s something one can expect in this business. But when the next market bubble forms: Private equity? Residential real estate? Resources?, we’re confident our clients will thank us AER for it. Thane Stenner, Rod Bower and Rory O’Connor are senior investment advisors with Stenner Investment Partners of GMP Private Client, a private family office group. The views of the authors do not necessarily reflect those of GMP Private Client and its affiliates. This article is for information only. GMP Private Client is an affiliate of GMP Securities and a subsidiary of GMP Capital Trust and Member CIPF. That same skepticism has created a cautious generation of investors that recognize a need for financial planning advice. Sixty per cent of the respondents said that the most important feature their company could provide in managing pension assets would be access to professional financial planning advice. It’s a lucrative opportunity for employers and advisors to take advantage of this knowledge now, Bisch says, because eventually it will be this group that takes over the largest share of wealth from the soon-to-be-retired boomer generation. “Thirty-year-olds represent the first wave of Generation Y. They are the folks who are going to shape the future,” he says. “With the baby boomers retiring and impending labour shortages, it’s really going to be Generation Y calling the shots,” AER he says.

Every now and again, you’ll come across a wealthy prospect whose goal is to become significantly wealthier. These individuals don’t view investing as a means to an end, but as a kind of game in which the more money you make, the higher your score. These gamblers may offer significant revenue in the short term, but present a significant risk to those looking to build a long-lived, prosDon Bisch, editor of BENEFITS CANADA, speculates that their divergence in savings habits from other generations may stem purely from the fact that they are skeptical of their own ability to save. “I think the younger generations have grown up with the notion that Canada Pension Plan is not going to be there for them, and they shouldn’t expect the government to fund their retirement,” he says. “There is a bit of an attitude of if I’m going to do this myself, I have to start saving now, and I think that this shows itself also in one of the other figures, which shows that 80% of the 30-year-olds surveyed have either started saving for retirement or are thinking about it.” Bisch says this skepticism has not fostered a more knowledgeable group of investors, though, as 25% don’t even know what type of pension plan their employer offers.

Retirement Planning big Priority for 30-year-olds
by mARK noblE

Contrary to stereotypes of an apathetic and directionless generation, 30-year-olds harbour many of the same employment and health aspirations of their parents, and actually surpass their parents in placing greater importance on saving for retirement. These were the findings of a new study featured in the 30th anniversary edition of BENEFITS CANADA magazine. (BENEFITS CANADA, like Advisor. ca, is owned by Rogers Publishing Limited.) Five hundred 30-year-old Canadians were asked about their employment, health and retirement aspirations. Most surprisingly, the study

found that 30-year-olds are more concerned about saving for retirement than previous generations; the vast majority of respondents say they’re already thinking about or have already started to save for retirement. In addition, they predict that their most important source of retirement income will come from personal savings. “Forty per cent of their retirement income will come from personal savings,” notes Tricia Benn, director of research for Rogers Business and Professional Publishing and lead author of the study. That is much higher than members of defined contribution pension plans, who expect that their

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