Canadian Wealth Management and Insurance Business in the Next Decade Growing with Your Customers. Goshka Folda April 8, 2016

Transcription

1 Canadian Wealth Management and Insurance Business in the Next Decade Growing with Your Customers Goshka Folda April 8, 2016

2 State of the Union Change Canadian household wallet: Tectonic shifts in demographics underway Retirement: A new chapter Product shelf: More change on the horizon Distribution: Regulators stir while distributor landscape undergoes (r)evolution The future: Growing with your clients 2

3 Canadian household wallet: Tectonic shifts in demographics underway

4 Retirement Will Be the Word of the Decade for Customers and Financial Services Providers Alike; Next on Deck: Inheritance Credit 1980s 1990s 2000s Wealth accumulation Payout 2011 Retiree households s Wealth transfer 1.2 million transfer events ( ) % of households % of financial wealth 24% 30% 34% 41% Source: 2015 Household Balance Sheet Report. 4

5 Older and Wealthier: Mass Affluent Segment Will Lead Household Expansion but High end Clients Will Dominate the Asset Growth Opportunity; Not All HNW Households Are Created Equal! Between 2014 and 2024 Mass affluent Households 4.1 million Financial wealth $1.7 trillion $100k $250k +564K +$104B $250k $1 mil +908K +$602B HNW 1.2 million $4.5 trillion $1 mil+ +544K +$2,114B Source: Household Balance Sheet Report, WealthMine. 5

6 The Millennials: Where and When Is the Payback? Cultivating the Millennial Cohort Will Require Patience and Efficiency % 30% 3.1 million households Percentage of millennial households 5.3 million households 4% 14% $158 billion in assets Percentage of financial wealth held by millennials $900 billion in assets 6

7 Muted Growth in Household Wallet = Intensified Competition In billions of dollars Assets 2014 Jun Financial wealth $3,605 $3,727 $6,450 Deposits $1,154 $1,171 $1,629 Investments $2,452 $2,555 $4,821 Credit $1,895 $1,933 $2, CAGR 6.0% 3.5% 7.0% 1.2% Source: 2015 Household Balance Sheet Report. 7

8 Retirement: A new chapter

9 Canada s Two tier Retirement System 2012 workplace coverage rates Source: GRS 2014 Report. 9

10 Enter the Age of the Self Guided Retirement Responsibility for Retirement Shifting to Individuals Assets in tax deferred plans in billions of dollars 6% RRSPs 9% RRIFs 6% Total 11% DC 4% DB 13% Other CAP 7% CPP/QPP Insurance Advisory Service, September 2015, Exhibit 4. 10

11 Roll of the Dice Converting Retirement Assets into Retirement Income a Risky Proposition Risks Retirement assets Retirement plan Retirement income Insurance Advisory Service, September 2015, Exhibit 2. 11

12 Insurers and Insurance Advisors Uniquely Positioned to Play to Key Customer Demand Themes flexibility secure investment protected lifetime income safe steady preserve for as long as you live goals choice control Predictability flexible protect you benefit growth you choose income for life security long term guaranteed income versatility sa fe ty Insurance Advisory Service, September 2015, Exhibit 8. 12

13 Retirement Jump ball: A 360⁰ View of Payout Product Continuum Deposit and fund based products Insurance based products GICs* MLNs Mutual funds/ ETFs** GIAs* GWB Segregated funds** Payout annuity Assets: $ yr CAGR: 0.7% Assets: $ yr CAGR: 11.8% Assets: $ yr CAGR: 16.6% Assets: $ yr CAGR: 7.0% Assets: $ yr CAGR: 17.5% Assets: $ yr CAGR: 8.8% Assets: $ yr CAGR: 2.3% $1,039.6 $92.2 $1,131.8 Retail Payout Product Shelf *GIC and GIA data consists of only GICs/GIAs with an original term > 1 year **Mutual fund, ETF and segregated fund data consists of only income oriented fund data. Insurance Advisory Service, September 2015, Exhibit 5. 13

14 Estate Planning and Wealth Transfer Next Frontier for Insurers Insurance Advisory Service, November 2015, Exhibit 6. 14

15 Product shelf: More change on the horizon

16 Canadian Households Were Slow to Depart from Their Liquidity Cushion The Case for Mobilizing These Non earning Assets Gains Resonance with Each Passing Year Liquid deposits in billions of dollars 16

17 Hello from the Other Side : Mutual Fund Sales Momentum Is Waning 12 month rolling gross sales and redemptions Long term mutual funds Year over year change (%) Long term mutual fund net flows in millions of dollars 17

18 Three Big Mutual Fund Industry Trends: Loads, MERs and Multi series Is This a Portent of Things to Come for Segregated Funds? (1) Back end load funds continue to lose share of total load fund assets: 49% 35% (2) Long term funds industry MER coming down: % % (3) Multi series assets on the rise, original series assets losing share of retail: 85% 76% Source: Insight Advisory Service, January 2015, Industry Essay, Exhibit 6 18

19 Mutual Fund Pricing Initiatives Proliferate Insight Advisory Service, January 2016, Exhibit

20 Traditional Segregated Funds on the Comeback Trail: Market Downdraft Provides an Opening In billions of dollars Insurance Advisory Service, November 2015, Exhibit 2. 20

21 Segregated Fund Results By Sponsor In millions of dollars as of 2015 Sponsor Assets YTD growth Manulife Investments $ 35, % Great West Life 29, % Industrial Alliance 12, % Sun Life 12, % Empire Life 7, % Desjardins Financial Security 3, % Primerica* 2, % SSQ Vie 1, % ivari* 1, % Equitable Life % Industry $ 109, % Sponsor Net flows % of beg. assets Great West Life $ % Industrial Alliance % Empire Life % Primerica* % SSQ Vie % RBC Insurance % Assumption Life* % Equitable Life % L'Union Vie % Invesco* (1.4) 18.7% Industry $ % 21

22 Distribution: Regulators stir while distributor landscape undergoes (r)evolution

23 Overarching Structural Shifts in Delivery Landscape Beginning To Unfold: Dominance of Intermediaries Wanes While Direct Investing Gains Traction Share of financial wealth CAGR 9.2% % 7.8% 4.4% % % *Excludes group segregated funds 23

24 Canadian Robo advice Firms Rethink and Expand Online Investment Helps direct offerings span the advice continuum DIY to discretionary Traditional order execution DIY 24

25 A New Age of Client Experience Thinking: Welcome to Decade of the Customer Client preferences/ demographics shifting Technology evolving Client centric wealth management approach Self reliance on the rise Millennials moving towards accumulation Technology pervasive in everyday life Expectations and perceptions around service more demanding Automated processes Focus on simplified user interfaces Investment algorithms growing in complexity Real time analytics Psychographics not demographics Focused on client experience Accessibility/simplicity/ convenience On demand services Transparency 25

26 Robo advisors Have Broken the Buck on Traditional Price Benchmark for Advice givers 0bps Private investment counsel FA unbundled FB program FSB advisor discretionary FSB discretionary wrap Robo advice bps FSB non discretionary 0bps

27 Vanguard Quantifies the Value add of Best Practices in Wealth Management Advisor value is not in the selection of individual securities Vanguard quantifies the value add of best practices in wealth management Value add relative to Module number "average" client experience Vanguard Advisor's Alpha strategy modules (see details on pages following) (in basis points of return) Suitable asset allocation using broadly diversidied funds/etfs I > 0 bps Cost effective implementation (expense ratios) II 45 bps Rebalancing III 35 bps Behavioral coaching IV 150 bps Asset location V 0 to 75 bps Spending strategy (withdrawal order) VI 0 to 70 bps Total return versus income investing VII > 0 bps Potential value added "About 3%" Notes: Return value add for Modules I and VI was deemed significant but too unique for each investor to quantify. See Appendix 1 for detailed descriptions of each module. Also for "Potential value added," we did not sum the values because there can be interactions between the strategies. Source: Vanguard, Putting a Value on Your Value: Quantifying Vanguard Advisor s Alpha. 27

28 Regulatory Discussion Proceeding on Many Fronts CRM2 Just One of the Conversations Point of sale disclosure CRM Change in fee structure Statutory best interest standard NOW: Mutual fund manufacturers fee and performance disclosure at point of sale and in plain language to 2017: Pre trade disclosures (2014), quarterly position cost statements landing early 2016, annual performance and compensation reporting landing early Discussion paper: Proposes end to embedded payments to dealers/advisors trailers and 5% commission paid on DSC. Consultation: Proposed bestinterest standard on all advisors. Identified in OSC's Statement of Priorities. Regulatory changes will shape product shelves and distribution models and practices of dealers and advisors with more to come. Will insurance regulators follow suit? 28

29 CRM2: Strategizing for Success Leveraging CRM2 disclosure to strengthen client relationships CONCEPT 1 Communicate and educate Many people think the advice they are getting is free, because they don t see it being paid; they don t feel it being paid out of their pocket, so, there is a whole adjustment there of helping people to understand that. We must be better communicators than we ve ever been. CONCEPT 2 CONCEPT 3 Articulate your value proposition and execute it! Take time reflect on the services that you provide and all of the ways you add value to your clients lives. Leverage dealer and fund manufacturers tools to articulate the advice value proposition. Potential to elevate client relationships but this may require for advisors to expand their value proposition. Initiate a transition to an unbundled fee based model Transparent fee based models provide relationship pricing flexibility and potential for stronger relationships. Huge opportunity for advisors who provide comprehensive financial planning. It moves clients of all wealth levels towards a truer cost of advice. 29

30 Growing with your clients

31 Translating Change into Opportunity: Anchoring Client Relationships through Holistic Approach to Financial Advice Adapt to evolving consumer needs and regulation by executing a Growing with Your Customers strategy and focusing on holistic wealth management Expand expertise in emerging areas, such as risk management, retirement and estate planning Crystallize your value proposition by articulating core elements of your advice process Address time constraints and rising compliance and technology costs by leveraging investment solutions Develop practice efficiencies to allow for expansion and new revenue opportunities to strengthen economic model 31

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