A new study commissioned by Desjardins Financial Security finds that most Canadians don’t have a retirement spending plan, but most wealthy Canadians do.
Approximately 1,500 Canadians participated in the SOM Surveys on behalf of DFS and found that 66% did not have a retirement spending plan in place. As baby boomers rapidly approach retirement, many advisors are shifting much of their practice from asset management to income planning, so these results point to a wealth of hiring opportunities.
A closer look at the statistics shows that those without a plan are mostly lower income earners. Of respondents who earn between $20,000 and $30,000 a year, 73% do not have a retirement savings plan, and 69% of respondents who earn between $30,000 and $50,000 a year also do not have a plan.
The percentage of people without a plan drops significantly in the next income bracket of $50,000 to $70,000 a year, where 50% have a plan, and into the coveted space of the mass affluent earning between $70,000 and $100,000, only a minority (37%) are without a plan.
The survey results appear consistent with a recent study by the Financial Research Corporation in the US, which found that the income planning space for high-net-worth and affluent clients is largely saturated.
This means that if there is an opportunity to plan for revenue, it means serving customers at the lower end of the market. The problem is that, unlike buy-and-hold mutual fund strategies, income planning is time-consuming at the accumulation stage. This makes it difficult to advise large numbers of mass market clients.
The study also found that even wealthy Canadians had serious misconceptions about their retirement.
Claude Paré, senior director of product development and marketing at DFS, says his company was surprised to discover how few Canadians understand the importance of retirement factors such as longevity and inflation, even among the boomer generation.
“Overall, we were surprised that Canadians were not very concerned about financial risk in retirement, coupled with the fact that they generally believe they will live longer than their average life expectancy,” Paré says.
Paré notes that only 38% of people aged 40+ and retirees are concerned about outliving their savings, despite research showing that baby boomers are likely to live longer than any previous generation. Only 48% of respondents are afraid that they will be able to keep the value of their savings and investments at the level of inflation.
Perhaps the most disturbing statistic is that 80% of respondents expect to retire with debt.
Paré says the industry is starting to introduce product solutions that address the income needs of retirees, and many of them can be used to serve both affluent and lower-income customers.
“The time-saving product is definitely an annuity because it guarantees income for life,” says Paré. “Customers will need some liquidity for emergencies and should not invest solely in annuities. With an annuity, there is no need to rebalance the asset class, so this is one product that fits very well.”
Paré says portfolio products are also useful because of their ability to rebalance a mix of assets.
Recognizing the need for advisors to provide comprehensive income solutions across all demographics, Paré says DFS’ recently introduced Guaranteed Minimum Distribution module within its Helios line of segregated funds features the lowest minimum investment in the Canadian market.
“Just invest at least $5,000 in one of our Helios funds to get GMWB, which is the lowest price in the industry,” he says.
Submitted by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com
(11/06/07)
