Prepare clients for retirement amid the pandemic

Canada Life Risk Managed Portfolios offers a managed solution for a smoother investor experience.

The global pandemic has caused significant market volatility and impacted many clients’ retirement plans.

About a quarter of consumers with less than $500,000 in investable assets are thinking about delaying retirement due to Covid-19, according to a Canada Life survey. Moreover, approximately 15% of this group’s clients may lower their expectations regarding their retirement lifestyle.

“We have all watched economic uncertainty, tremendous market volatility and a significant rebound,” says Paul Orlander, vice president of consumer practice at Canada Life. Advisors must help clients think in new and different ways about their portfolios. They must protect customers from unexpected events while helping them achieve their goals.

“You will either be the primary advisor helping the client with consolidated assets, or you will be one of the advisors clients are leaving.”

– Paul Orlander, Vice President, Consumer Client, Canada Life

Advisors must also be prepared to deal with the changing retirement landscape.

Orlander says some clients may be late in achieving financial success. For example, they could buy a house, get married, or have children later in life. “They will likely need to work longer hours to support adult children who will be staying at home longer. It cuts down on the free time they could have.”

Meanwhile, according to Orlander, a growing number of customers over the age of 60 may have complex families and finances. Perhaps they have gone through a divorce or are caring for elderly relatives.

He notes that there is also a more traditional type of retiree. These clients are characterized by a comfortable level of wealth, spend time with their families and lead an active lifestyle.

However, we expect this financially stress-free group to shrink over time, notes Orlander. “Advisers need to be prepared to have very different conversations about retirement readiness.”

Solution

The pandemic, along with the changing retirement landscape, has also resulted in an increase in loss aversion, or the tendency for investors to prioritize avoiding losses over gaining profits.

“One of the challenges with loss aversion is that it can cause investors to behave in suboptimal ways,” Orlander says. “Advisors can help investors focus on the long term and gain confidence in their financial plan, regardless of market volatility.”

One option is Canada Life Risk Managed Portfolios.

“It is designed as a single-fund solution, carefully designed to balance risk and return and help manage some of the downside risk,” says Ian Filderman, vice president of product development for Wealth Solutions at Canada Life.

He notes that portfolio managers use four different risk management levers to help deal with the volatility in these portfolios.

1. Canadian Life Risk Reduction Pool: The fund employs a collar options strategy, which uses derivatives to reduce stock volatility. This acts as the central defense system of the portfolio. The strategy focuses on buying puts and selling calls, which creates an upper and lower bound on returns to capital. Stock returns typically fluctuate within this protected range, reducing the risk of extreme market volatility.
2. Global equity exposure: Equity exposure is invested primarily in lower volatility strategies, which typically focus on higher quality companies that have the potential to offer better risk-adjusted returns than the market.
3. Canada Life Global Tactical Fund: This strategy monitors bullish and bear signals in the market. It adjusts your stock exposure accordingly, reducing the amount you invest in stocks and increasing the amount in cash when the stock market is more likely to decline.
4. Liquid alternatives: These can be accessed through a multi-strategy absolute return fund that aims to provide a positive absolute return regardless of market conditions. It can provide additional portfolio diversification benefits through uncorrelated sources of return.

“Canada Life’s risk-managed portfolios go beyond the traditional diversification typical of most balanced funds.”

– Ian Filderman, Vice President, Product Development, Wealth Solutions, Canada Life

There are three different offerings within Canada Life’s risk-managed portfolios. According to Filderman, each portfolio is designed to provide a different level of growth and risk management, so advisors can offer a solution based on their clients’ unique risk tolerance.

• Conservative income portfolio: 60% fixed income; 35% of shares; 5% alternatives. This portfolio may be suitable for clients who want downside protection and more modest upside potential.
• Balanced portfolio: 40% fixed income; 55% of shares; 5% alternatives. This portfolio may be suitable for clients who want a balance between risk and return.
• Growth Portfolio: 20% fixed income; 75% of shares; 5% alternatives. This portfolio may be suitable for clients who want greater upside potential and are willing to take more risk while retaining some downside protection.

“These portfolios combine risk management strategies, traditional and non-traditional investments, and an award-winning team of knowledgeable, experienced professionals who handle day-to-day investment management and monitor and align the portfolio into a unified portfolio solution,” says Filderman.

“Canada Life’s risk-managed portfolios go beyond the traditional diversification typical of most balanced funds. The risk management techniques used are intended to ensure smoother investing.”

Orlander adds: “Customers want to simplify their lives by putting more of their financial assets in one place. You will either be the lead advisor helping the client with their consolidated assets, or you will be one of the advisors that clients are leaving. “So this is an important opportunity for advisors to step forward and actively support clients as they prepare for retirement.”

Canada Life Risk Managed Portfolios are available under a segregated funds policy issued by Canada Life or as a mutual fund managed by Canada Life Investment Management Ltd. offered exclusively through Quadrus Investment Services Ltd. Make smart investment decisions. Important information about mutual funds can be found in the Fund Facts document. Read carefully before investing. Commissions, trailing commissions, management fees and expenses can all be associated with mutual fund investments. Investment funds are not guaranteed, their value changes frequently, and past performance cannot be repeated. A description of the most important features of the segregated funds policy can be found in the information folder. Any amount allocated to a segregated fund is invested at the policyholder’s risk and may increase or decrease its value.

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