CI Financial Conference Aria Resort & Casino Canadian Wealth Market Opportunity in the Next Decade “Change Is the New Normal” Goshka Folda

CI Financial Conference

Aria Resort & Casino

Canadian Wealth Market Opportunityin the Next Decade

“Change Is the New Normal”

Goshka Folda

Presentation Agenda

• Canadian household financial wallet: A decade of change

Who will be your client?

• Evolving needs will drive product preferences

• Regulators stir while ranks of competitors multiply—Advisors need to be ready!

• Capturing wealth market opportunity in the next decade

2

Canadian Household Wallet:

A Decade of Change—

Who Will Be Your Client?

Household Wallet Will Grow but Pace Will ModerateIn billions of dollars

Source: 2013 Household Balance Sheet Report.

44

2013

2013-2022 CAGR

Financial wealth

Residential real estate

Credit

$3,416

$3,602

$1,824

2022

$5,460

$4,266

$2,029

Assets

5.4%

1.2%

1.9%

Financial wealth

Residentialreal estate

Credit

Retirement Will Be the “Word of the Decade” for Customers and Financial Services Providers Alike

% of households

% of financial wealth

Retiree households2012 2022

25%

42% 48%

31%

1.3 million transfer events

(2012-2022)

Source: Household Balance Sheet Report, WealthMine.

55

It's "Risk On" for Canadians Saving for Retirement—As Employers Transfer Risk to IndividualsAssets in billions of dollars

5.4% 9.2%5.7% 2.0% 7.5% 9.3%

Total CPP/QPP DB RRSPsDC RRIFsCAGR 2013-2022

8% 9% 9%

47%44%

33%2%

2%

3%

35%

33%

40%

7%

6%

9%

1%

5%

7%

2007 2013 2022

Other CAP

RRIFs

RRSPs

DC

DB

CPP/QPP

$4,578

$1,974

Individually-controlled$2,854

6

Mass Affluent Segment Will Lead Household Expansion but High-end Clients Will Dominate the Asset Growth Opportunity

Mass affluent

HNW

$100k-$250k

$250k-$1 mil +811K 73%

+500K

Households Financial wealth

3.8 million $1.4 trillion

$1 mil+

54%

+486K 88%

1.1 million $3.7 trillion

Between 2012 and

2022

Source: Household Balance Sheet Report, WealthMine.

77

Evolving Customer NeedsWill Drive Product Preferences

Money on the Sidelines: The Opportunity Cost Rises as Markets Improve and Interest Rates Remain LowDeposit balances, in billions of dollars

2013

1.15%

2007

3.08%

Estimated effective interest rate on interest bearing deposits

Source: Insight Advisory Service.

99

$106 $122 $140 $199

$282 $336 $397 $445 $431 $394 $443

$511 $601

$708 $746

$561

$705 $807 $808

$905

$1,060 $1,169

1993 1996 1999 2002 2005 2008 2011 Jun 2014

Canadian Fund Industry Breaches $1 Trillion in AssetsLong-term investment fund assets in billion of dollars

Source: Insight Advisory Service, Simfund Canada.

5-yr 15%

10-yr 9%

20-yr 12%

Trailing growth to June 2014

10

1-yr 22%

10

Fund Industry Flow Tide on the RiseLong-term investment funds net flows, in billions of dollars


11

$32

$20

$4

$32

$58

$41

$15

$38

$11 $11 $11

$23$32 $28

$33

-$12

$28 $28 $28

$42 $44$34

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013Jun YTD2014

1993-1999 49.7% 2000-2007 5.9% 2009-2012 5.6% 2013 4.8%

YTD Jun 2014 3.2%

11

Equity Renaissance Underway…But in a Risk-conscious Fashion. Foreign Diversification Back on TrackAverage annual mutual fund net flows in billions of dollars


12

2%29%

103%48% 39%

19%

35%

37%

20% 15%

5%

33% 16%16% 14%

24%

-11% -34% -17%-2%

9%

9%

7% 16% 9%

41%5%

-29%

17%25%

1993-2000 2001-2007 2008-2012 2013 YTD June 2014

International equityfunds

U.S. equity funds

Canadian equity funds

Equity income funds

Balanced funds

Fixed income funds

$25.7 $19.3

$15.7

$37.4

$31.9

12

Shift to Solutions Underway: Pre-assembled Advice Solutions Resonate with Risk Management ThemeIn billions of dollars

2003-2013 2013-2022All funds 7.4% 5.8%Fund wraps 16.8% 7.9%Stand-alone mutual funds (ex. ETFs) 3.6% 2.6%Funds in fee-based accounts and discretionary programs 15.1% 13.6%

CAGR

80%71%

69% 58% 56%42%

16%

24%25%

33%36%

43%

4%

5%5%

8%8%

15%

$450

$709$556

$789$922

$1,537

2003 2007 2008 2012 2013 2022

Funds in fee-based accounts and discretionaryprograms

Fund wraps

Stand-alone mutual funds (ex. ETFs)

$217

$661

$651

Source: Household Balance Sheet Report, 2013 Edition, Section 2, Exhibit 9.

13

Mutual Fund Business: Three Key Trends

(2) Long-term funds industry MER coming down:

2.13%2.05%

(1) Back-end load funds continue to lose share of total load fund assets:

58%39%

(3) Multi-series assets on the rise, original series assets losing share:

90%86%

2007 2013

2007 2013

2007 2013

2007 2013

14

Mutual Fund Industry Pricing Flexibility on the Rise—Unbundled Approaches Gain GroundTotal assets in unbundled series*, in billions of dollars

Source: Insight Advisory Service September 2014.

*Includes F, F/T, F/HNW, F/T/HNW and all HNW-series which unbundle the management fee.

2007 2013$66.4 Assets $139.59.4% Share of long-term funds 13.7%

15

Regulators stirwhile ranks of competitors multiply—

Advisors need to be ready!

Global Focus on Investor Protection Shaping the Regulatory Discussion in Canada—and Worldwide—Will Put Pressure on Traditional Advice-givers

81-102Statutory best

Interest standard

81-407Change in fee

structure

31-103CRM II

81-102Point of sale

disclosure

NOW: Mutual fund manufacturers fee and performance At point of sale and in plain language.

Now to Mid 2016 : Dealers to report performance, all fees paid, service rendered on client statements.

Discussion paper: Proposes end to embedded payments to dealers/advisors—trailers and 5% commission paid on DSC.

Consultation: Proposes fiduciary-like standard on all advisors.

Source: 2013 Household Balance Sheet Report.

1717

More Competition: Direct ≠ No Advice! Will Robo-Advice Take Hold?


Online brokerage

Full-service brokerage

Private investment counsel

Branch delivery

Direct sellers

adviceDirect

PH&N IS

Do it yourself Get help to do it Get someone to do it for you

Financial advisors

18

Deposit-takers Formidable Competitors. Beware of Their Quest for “Customers for Life”

• Foster seamless passage between channels and optimal allocation of corporate resources• Customer retention throughout the customer’s financial lifecycle top priority• Branch direct a critical point of initial customer engagement and discovery

Source: Big Six Banks Comparative Analysis—The Mass Affluent Segment: Sales and Service Models of the Big Six Banks.

Private Wealth

Serv

ice

/ Ad

vice

com

plex

ity

Investable assets

Branch Direct

$50K $100K $250K $500K $1M

Branch Advice Specialized Salesforces

Full-serviceBrokerage

Deposit-takersOnline DirectOpportunity?

IIROC

19

Unfolding Transformation of the Financial Advisor Channel: Less Embedded Compensation, More Unbundled Fee-based ApproachesPercentage of channel assets in unbundled fee-based programs

0

2.5%

18.3%

33.3%

Full-service Brokerage Financial Advisor Financial Advisor

2013 2022

20

Capturing Wealth Market Opportunityin the Next Decade

Sufficient nest egg?

YesYes

- Reverse mortgage

Payout annuity

Outside of registered account?

No

Permanent life insurance loan

GWBs

Principal protection?

- Mutual Funds- Fund wraps

No

Yes

Fixed-term deposits

Market access/ liquidity?

Guaranteed income?

Yes

No

Upside potential?

Yes

No

Yes

No Yes

No

- Corporate class funds- T-class funds

- Principal-protected notes- Fixed income securities

Segregated funds

Upside potential?

Insurance product

Expand Your Retirement Planning ToolkitPayout Phase = Growing Complexity for Advisors

22

Mutual fundse.g. CI G5/20

Retirement Market Jumpball—A 360° View of Payout Phase Product LandscapeIncome product continuum in flux


23

Principal Protected

Notes (PPNs/PARs)

GICs GIAs Payout annuities

Hybrid payout

products

Guaranteed Withdrawal

Benefit funds (GWBs)

Traditional segregated

funds

Investment funds*

Deposit-based Fund-based

Permanent life insurance

Reverse mortages

Credit-based

Guaranteed income for life

Upside return potential

Upside income potential

Sun Life SunFlex Retirement Income (Jan 2013)

Manulife PensionBuilder (Oct 2011)

CI Investments Guaranteed Cash Flow Series G5|20

(Jul 2013)

Number of MLNs issued2007………………..4852012………………..4672013…........………757

Market-linked GICs2007……………..$18 billion

2013..........…….$40 billion

*Investment funds includes: mutual funds, mutual funds of funds (MFoF) and exchange traded funds (ETFs)

ManulifeRetirementPlus

(Sept 2013)

DesjardinsHelios GWB(Feb 2014)

BMOGuaranted Investment Funds

(Dec 2013)

Wealth Management Landscape Now Stretches Far and Wide

• Adapt to evolving consumer needs by executing a “Growing with Your Customers” strategy and focusing on holistic wealth management

• Deepen expertise in emerging areas, such as risk management, retirement and estate planning

• Crystallize and articulate value of advice to strengthen value proposition and combat competitive challenge

• Address time constraints and rising compliance and technology costs

• Develop practice efficiencies to allow for expansion and new revenue opportunities to strengthen economic model

24

[email protected]

visit our website at www.InvestorEconomics.com

mailto:[email protected]

Documents

CI Financial Conference Aria Resort & Casino Canadian Wealth Market Opportunity in the Next Decade “Change Is the New Normal” Goshka Folda