Q: What industry trends are impacting advisors and their practices?

Heidi MacDonald: Volatile markets are impacting client investment strategies, which impacts Assets Under Management (AUM) and subsequent trailer fees for advisors. High interest rates mean clients are diverting available cash to debt servicing/reduction strategies and placing available funds in alternate or low commission savings vehicles or solutions like high interest savings accounts and GICs. In the wealth space, specifically segregated funds, advisors can experience significant strain on revenue resulting from the DSC ban and shift to no-load funds, including uptake of advisor chargeback funds. This is in addition to the impact of additional deposit options (ADO) on first-year commission (FYC), and recurring revenue from insurance sales.

“We help advisors accelerate their growth, no matter where they’re at in their business, by providing the right tools, technology, resources and expertise when they need them.”

Meanwhile, advisors are feeling the pressure to digitize their practices. COVID helped move the industry forward with updated technologies. Now an advisor’s business must be easily accessible from anywhere—at any time. And the client expectation is a one-stop shop.

That’s why the value of advice goes far beyond knowing your product and sales today. It’s about understanding the industry and being prepared for where things are going. This is where we partner with our advisors, so they can support their clients through that journey.

Q: How does working with the right MGA partner help advisors sustain their practice and success?

HM: Success looks different for everyone. At Financial Horizons, our commitment is to help advisors accelerate their vision of success. We distinguish ourselves as industry leaders in this space through distinct programs, access to industry-leading experts, best-in-class education, and proven approaches that work.

We can say that confidently because we listen to our advisors’ feedback, and continuously search out new solutions so that we can enhance the tools and services that drive their success.

We also have local teams across Canada. So, whether an advisor needs support in leadership, sales, operations, compliance, or back office, our experts are available to understand the local perspective, unique needs and, most importantly, the advisor’s definition of success with a path to get them there.

Q: How are you advocating with regulators on behalf of advisors?

HM: We have a proactive team of compliance experts that work side-by-side with advisors to help them safeguard their practice and provide best practices to navigate through the various challenges they’re having within a compliance or regulatory space.

Not only that, but we’re on various industry committees also ensuring we are at the table when regulators are shaping policy. We advocate for advisors, we are on industry boards that represent MGAs and independent advisors, and we partner with the Canadian Life and Health Insurance Association (CLHIA). Through that, we represent all of our advisors – their needs and the needs of their clients – and the industry.

Regulators may not understand a day in the life of an advisor and what their clients expect. We provide education and information to regulators on the impact of some of the policy decisions they’re looking to implement.

Q: What other support do you provide advisors?

HM: We help advisors accelerate their growth, no matter where they’re at in their business, by providing the right tools, technology, resources and expertise when they need them. We listen to our advisors, follow industry trends, and then act by creating new programs and solutions that keep their businesses ahead of the curve.

For advisors working in advanced markets, our complex case support includes a proactive operations team, and the expert advice of insurance and investment strategists who can act as an extension of the advisor’s team to help identify new opportunities and deliver better solutions to their clients. We’re also constantly modernizing the advisor experience. Our innovative Accelerator programs are a fully immersive experience designed to help advisors gain clarity on what success means to them, setting them on a path to get the business, clients and life they want.

Those are just some of the ways Financial Horizons helps advisors accelerate their success today and amplify it tomorrow.

As the federal government pushes to boost clean electricity capacity by two to three times to achieve a 100% clean electricity grid by 2035 and meet net-zero targets by 2050, it continues to provide incentives to clean energy developers and producers. At the same time, renewables are now the cheapest source of power, allowing the industry’s success to become self-sustaining, according to Rob Stein, President of Skyline Clean Energy Fund, a Canadian private investment trust specializing in clean energy assets such as solar and biogas.

“The renewable industry has already seen tremendous growth and we expect this to continue — not because they are clean, or the right thing to do, although both are true — but because they’re the cheapest [source from which] we can generate power right now,” Stein says. “So, if you’re going to put a dollar in — whether it’s federally, provincially, or privately — it might as well go toward the cheapest form of power; the clean energy and carbon incentive aspects are icing on the cake.”

Stein oversees the Skyline Clean Energy Fund portfolio, which comprises rooftop and ground-mounted solar, as well as biogas facilities, across Canada. “The industry is driving positive social and environmental change, while also fostering emerging clean energy markets across Canada and the world; that’s what makes the space very exciting,” he says.

Positive momentum within the clean energy industry has paid off for Skyline Clean Energy Fund’s investors. To July 1, 2023, the fund’s one-year annualized return was 9.84%, and its three-year annualized return was 9.45%.^[1] As at June 30, 2023, the fund had over $293 million in total assets under management.

A focus on solar and biogas

When Skyline Clean Energy Fund launched in May 2018, generating strong, predictable cash flow was priority. Ontario’s solar market was one of the best-positioned to deliver that cash flow, as many solar assets in the province are backed by 20-year Feed-in Tariff (FIT) contracts with the provincial government, and as a result, those assets have become a foundational investment for the fund. By the end of 2020, Stein and his team had acquired 65 solar assets, all with long-term contracts, when an investor approached them with an offer to tour his biogas facility in Elmira, Ontario. The team purchased a majority stake in the facility in 2021 and retained the previous owner (and developer) as partner.

“Prior to our offer to purchase the Elmira biogas facility, the operational-heavy nature of biogas had made us reluctant to invest in that class of renewables. We were able to get comfortable through partnering with a strong operating team that had many years of experience, along with keeping the original owner and developer in the business as a minority stakeholder,” Stein says.

The closed-loop nature of biogas’ renewable cycle was an attractive feature for the Skyline Clean Energy Fund team. The loop starts with farmers who grow food and send it to cities, where it’s consumed. Since there is a large government push to divert organic waste from landfills, many municipalities pay biogas owners to take it. At the Elmira biogas facility, the organic waste is broken down, creating a gas through a process called anaerobic digestion. This gas is used to power a combined heat and power system that generates electricity, which is then sold back to the grid under a long-term contract.

“The renewable industry has already seen tremendous growth and we expect this to continue — not because they are clean, or the right thing to do, although both are true — but because they’re the cheapest [source from which] we can generate power right now.”

“We’re paid to take the waste. We’re paid to generate and deliver the electricity. And we’re left with this rich organic fertilizer called digestate, which we sell back to the farmers. They replant and fertilize their fields and grow the food, and the cycle starts all over again,” Stein explains.

Additionally, in 2023, Skyline Clean Energy Fund acquired a majority stake in a large biogas facility in Alberta that combines cattle manure from farmers, as well as organic waste from grocery store chains and other sources, to refine into renewable natural gas (RNG), rather than electricity. The renewable natural gas is then sold through a 20-year offtake contact and delivered onto the natural gas grid.

“The federal government is putting a lot of emphasis on biogas because it looks to solve both a waste problem and an energy problem,” says Stein.

Optimizing performance

The fund typically favours stabilized medium to large-scale operating assets that have historically produced reliable cash flows and have a reasonable maintenance history. However, it may also acquire underperforming assets at a discount. The fund’s asset manager, Skyline Energy (also led by Stein), has expertise in improving system operating plans and dispatching technicians for corrective maintenance, so that these assets can be upgraded and optimized for maximum energy generation. Skyline Energy works with technicians to facilitate 24/7 asset monitoring and performance tracking, so the team can take corrective action quickly whenever equipment fails, and power generation slows.

With Canada now being a global leader in clean energy infrastructure — and the federal government signalling through programs such as the clean energy investment tax credit that it intends to further incentivize the deployment of renewable energy capacity across the country — Stein believes the clean energy sector will continue to thrive.

“We have a strong understanding of the Canadian clean energy market, and believe Skyline Clean Energy Fund is well positioned to navigate new opportunities and federal incentives that can help our unitholders benefit from Canada’s shift toward electrification and net-zero targets,” he says.

¹ Skyline Clean Energy Fund’s annualized returns including other periods are: 9.84% 1-year, 9.45% 3-year, 9.17% 5-year, and 9.01% since inception on May 3, 2018. All of Skyline Clean Energy Fund’s numbers are as at July 1, 2023.

Canada set new records for immigration in 2021 and 2022, with a goal to add 465,000 permanent residents in 2023; 485,000 in 2024; and 500,000 in 2025. While the government says this is meeting nearly all of Canada’s growing labour needs, housing capacity isn’t keeping up — and high demand for housing is boosting investor interest in multi-residential investment opportunities.

“We’re about 500,000 homes short in Ontario alone,” says Matthew Organ, President of Skyline Apartment REIT, a Canadian private investment trust specializing in multi-residential real estate. “A report from a research company based at the University of Ottawa projects we will need 1.5 million homes constructed by 2031 to meet Ontario’s housing demand. So, the reality is that over the next decade, we’re going to remain in a housing shortage in this country, and that is fuelling the demand for any form of housing — but especially multi-residential, because it’s generally the most affordable.”

The 244 properties owned by Skyline Apartment REIT have a fair market value of $4.83 billion as at June 30, 2023. In total, they comprise 22,436 units diversified across 60 communities in seven provinces with an average monthly rent of $1,330. The REIT, which boasts a 14.51% three-year annualized return as at June 30, 2023,¹ focuses on secondary and tertiary markets and holds a mix of established properties and new developments. Its historical performance record shows stability, with consistent monthly revenue and increasing rents leading to a steady flow of distributions to investors.

On the construction front, Organ favours partnerships with development-friendly municipal governments. “The longer you have a piece of land tied up to get through zoning requirements, you’re sitting on something that isn’t producing any income, and, at the end of the day, the cost of the whole project increases,” he says “We’re generally looking for municipalities that are willing to work with us to get that development across the line faster.”

For Organ, successfully maintaining a positive relationship with a municipality means Skyline Apartment REIT has a higher likelihood of engaging in additional new development opportunities there. While it evaluates opportunities to enhance its presence in markets where it is established, the REIT also looks to enter new markets.

“Our shopping centres are full of tenants that are relevant and vibrant and successful.”

Buy what you know

For Organ, it makes sense to buy and build in secondary and tertiary markets, in part because there’s less competition from public REITs in those communities.

In addition, as experienced specialists in these markets, the Skyline Apartment REIT team draws from a deep knowledge base that enables them to identify the best opportunities. For example, they’re attuned to the trend of retired farmers planning to move to small towns but seeking an alternative to decades-old apartments. In larger secondary cities such as Windsor, Ontario, Organ says it’s equally critical to understand each particular market and know what’s fuelling demand in order to add what’s needed to the supply.

When considering a property acquisition, the typical “sweet spot” for the REIT is around four storeys, with anywhere between 50 and 500 units.

“We have a fairly extensive CapEx program,” says Organ. “When we purchase a property, we go through a comprehensive evaluation. For an older property, in addition to hallway or common-area renovations, it may need other aspects like the balconies, the roof, or the elevator.”

The REIT continues ongoing investment in its existing real estate holdings — for example, by adding EV chargers to many of its buildings.

“We’re looking five to 10 years down the road, thinking, if we can’t offer electric charging for vehicles, our tenants will move on to the next place that will,” Organ explains.

The goal is to get everything up to a modern-day standard to attract the next tenant, generating income and value growth for unitholders.

Prepared for further rate hikes

According to Organ, the multi-residential housing market’s predictability, consistency, and stability—due to its strong demand projected well into the future—are likely its primary attractors for investors. Rising interest rates further support demand for apartments by making it more difficult for homebuyers to purchase property — and variable mortgage rates are up from a low of 1.26% in December 2021 to more than 6% in August 2023.

Of course, rising interest rates affect Skyline Apartment REIT, too. However, Organ notes the portfolio’s mortgages are staggered, positioning the REIT to avoid having a significant portion of the debt mature in any one year.

“From an investment standpoint, the demand for apartments is not going away,” he says. “We see that in our mark-to-market rent gap. Every time we turn over a suite, we’re able to capture more rent and still stay within what would be considered a reasonably affordable living accommodation in Canada.”

¹ The performance quoted represents the 3-year annualized return. Skyline Apartment REIT’s annualized returns including other periods are 10.46% 1-year, 14.51% 3-year, 17.74% 5-year, 14.69% 10-year, and 14.40% since inception on June 1, 2006. All of Skyline Apartment REIT’s numbers are as at June 30, 2023.

Disclaimer:

Skyline Wealth Management Inc. (“Skyline Wealth”) is an Exempt Market Dealer registered in all the provinces of Canada and the territory of Nunavut. The information provided herein is for general information purposes only and does not constitute an offer of securities. Sales of interests in any investments offered by Skyline Wealth are only made to certain eligible investors pursuant to regulatory requirements and available exemptions.

Commissions, trailing commissions, management fees and expenses all may be associated with investments in exempt market products. Please read the confidential offering documents before investing. There is no active market through which the securities may be sold, and redemption requests may be subject to monthly redemption limits. Exempt market products are not guaranteed, their values change frequently, and past performance may not be repeated. Nothing in this email should be construed as investment, legal, tax, regulatory or accounting advice. Prospective investors must make an independent assessment of such matters in consultation with their own professional advisors.

Some of the investment products offered by Skyline Wealth are from related issuers. A full list of issuers related to Skyline Wealth and details of the relationship between them is available upon request.

The information contained within is disseminated by Skyline Wealth Management Inc. (“Skyline Wealth”) on behalf of the Issuer as at the date of publication and Skyline Wealth does not undertake to advise the reader of any changes. The opinions and statements expressed within are of those of the Issuer and do not necessarily reflect those of Skyline Wealth. Skyline Wealth has not taken any steps to verify the accuracy or completeness of the information provided herein.

PAID CONTENT

The past few years have been tough on many types of retail real estate — but not the open-air strips in secondary markets full of stores selling everyday essentials that are the focus of Skyline Retail REIT.

Since its launch in 2013, this REIT has been building a portfolio of resilient properties anchored by grocery and/or pharmacy tenants and filled out with banks, medical offices, dollar stores, and quick-service restaurants. As at March 31, 2023, the portfolio’s value was $1.65 billion spread across 5.46 million square feet with 96.7% occupancy.

Gordon Driedger, President, Skyline Retail REIT, says that secondary markets have the same well-known tenants offering the same financial covenant that you’d find in a primary market, but the assets are available at a significantly lower cost.

“Although the quality of the income is the same, there’s a greater potential for return on investment in the secondary markets because of the differential in the cap rate — the value that’s paid,” he explains.

The portfolio’s emphasis on long-term (as long as seven- or 10-year) fixed-rate mortgages — some renewed early to sidestep the recent rise in interest rates — has reinforced that financial strength and demonstrated stability. Meanwhile, being a private REIT means the unit price correlates directly to the value of the real estate in the portfolio — rather than to market sentiment, which can cause public REIT unit prices to experience wild fluctuations.

“Our focus is to provide stable returns to our investors,” says Driedger. “Our unit prices have remained consistent and have shown a historical upward trend, [and] our tenants are stable and doing well.”

“Our shopping centres are full of tenants that are relevant and vibrant and successful.”

Markets waiting for consumer spending to slow

A PwC Canada survey published in March 2023 found that 47% of Canadian consumers were very or extremely concerned about their personal finances, and 70% were responding to that by cutting back on non-essential purchases. That hasn’t yet been reflected in retail sales numbers, which remained robust in Statistics Canada’s latest report, rising 1.1% in April 2023 and increasing in eight out of nine subsectors.

However, if and when the anticipated spending slowdown comes, Driedger is confident it will have far less impact on everyday essentials. He believes Skyline Retail REIT is well positioned to thrive as long as people continue to buy food and medications, do their banking, and attend medical appointments. Business may even pick up for quick-service restaurants as people scale back on fine dining.

While over 80% of the portfolio comprises everyday essentials, even the more discretionary retail tenants of the REIT’s properties tend to be relatively resistant to the impact of e-commerce. As Driedger points out, it’s pretty hard to get a haircut or work out at a fitness centre online. Meanwhile, grocery stores in secondary markets tend to fulfill from a retail store, offering online ordering with in-store pickup.

“In the industrial distribution sector, they talk about the last mile … that is often the most expensive,” he says. “What’s interesting about these food-anchored shopping centres is that they become a very efficient last-mile solution … Goods can be brought to the location in a relatively profitable way.”

Building strong relationships with tenants

Driedger sees relationships with the tenants who rent space in Skyline Retail REIT’s properties as partnerships. He says it’s very important to be a good landlord, reinvesting to make locations the best possible place to operate a successful business so tenants don’t even think about leaving when their lease comes up for renewal.

Those reinvestments pay off in more than tenant stability. They also allow the REIT to grow top-line rent faster because it’s delivering to tenants the most desirable opportunity in any given market. Higher income will be an important hedge against potentially higher interest costs when the REIT’s long-term mortgages eventually come due.

Meanwhile, tenant quality ultimately drives up the value of the REIT’s underlying assets.

“Our shopping centres are full of tenants that are relevant and vibrant and successful,” Driedger says. “If you have relevant, full, highly occupied, stable, and growing income from really successful companies, that’s what people want to buy … and our advancement has showcased all of these attributes, positioning us to surpass our predefined objectives even in times of increasing interest rates and a somewhat uncertain [economic] future.”

Gordon Driedger President, Skyline Retail REIT

PAID CONTENT

Countries across the globe realize that climate change is a systemic risk for economies, markets, and communities. By 2025, the impact of climate change will slow Canada’s economic growth by $25 billion annually, according to the Canadian Climate Institute. That’s equal to 50% of the country’s projected GDP growth.

To mitigate the impacts of climate change, Canada is working to achieve net-zero emissions by 2050. And the investment industry has a huge role to play to drive the transition.

But how can clients invest in the climate transition?

“As investors, there are three strategies we can put in place to contribute to the fight against climate change and working toward net-zero targets,” says Deborah Debas, Responsible Investment Specialist with Desjardins Group. “We can divest to minimize exposure to climate-related risks. We can invest in companies creating solution to decarbonize of the economy. And we can engage with the companies we have in our portfolios to influence them to set net-zero targets.”

While divesting from high green-house gas (GHG) emitters can make an investor feel good about avoiding “bad companies” and protecting their portfolio from some climate-related risks, it does little to actually mitigate those risks in the real world, she says. Investing and engaging are much stronger levers to bring about change in the real world.

And there are many investment opportunities in energy transition. Typically, clients will link the reduction of GHG emissions to renewable electricity. “There is a range of diversified investment opportunities, for example, in energy efficiency, transportation and agriculture,” notes Debas.

In fact, despite the inflation and supply chain disruptions, there was a 31% increase in investment toward many sectors related to energy transition in 2022, according to Bloomberg, tying the $1 trillion green energy investment with that of fossil fuels.

“Companies that market solutions to global issues are just the types of businesses your clients want to invest in.”

On top of that, government incentives are also fueling the energy transition, and creating tailwinds for many sectors. For instance, there are federal tax incentives in Canada for installing battery storage solutions, or solar or wind power sources at home or at the office.

“These solutions are paying for themselves,” she says. “Heat pumps, efficient motors or software that help optimize product design make business operations more cost-efficient in the long run, especially with the higher energy costs we’ve seen in 2022. Tax incentives also contribute to the growing demand. Companies that market solutions to global issues are just the types of businesses your clients want to invest in.”

Debas notes that Desjardins Investments is also putting a strong emphasis on engagement to achieve real emissions reductions as part of their support for the Net Zero Asset Managers initiative (NZAMI).

“What this means for our portfolios is that we aim to reduce our financed emissions as close to zero as possible by 2050, in line with global efforts to limit warming to 1.5°C above pre-industrial levels,” she says. “Engaging with portfolio companies to influence them towards setting their own Net Zero target and making the necessary investments to meet those targets will be crucial, as most companies must reduce emissions by more than 90%.”

She adds, “Our initial NZAMI implementation scope will be all of the SocieTerra fund lineup, and both the core and thematic funds will play a part.”

Desjardins is currently establishing interim targets to ensure progress is being made toward the long-term ambition, she notes.

Debas reminds advisors that clients who want to be part of the solution can benefit from the tailwinds that are being created by the global transition toward a more sustainable economy.

“Companies that are well positioned to thrive in this new environment may offer attractive investment opportunities,” she says.

Learn more about how to systemize your responsible investment approach at Desjardins’ webcast on Oct. 24, 2023.

Deborah Debas Responsible Investment Specialist with Desjardins Group

The Desjardins Funds are not guaranteed, their value fluctuates frequently, and their past performance is not indicative of their future returns. The indicated rates of return are the historical annual compounded total returns of the date of the present document including changes in securities value and reinvestment of all distributions and do not consider sales, redemption, distribution or other optional charges, or income taxes payable by any securityholder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The Desjardins Funds are offered by registered dealers.

Desjardins®, all trademarks containing the word Desjardins, as well as related logos are trademarks of the Fédération des caisses Desjardins du Québec, used under licence.

PAID CONTENT

Advisors may be worried they don’t have all the answers when it comes to environmental, social, and governance (ESG) investing. But the key to explaining ESG to clients is to understand the fund and its intention.

“It’s not about understanding all of these companies within the fund,” says Deborah Debas, Responsible Investment Specialist with Desjardins Group. “It’s about understanding what the fund wants to do and what financial role it plays within a portfolio.”

The first step is to find out whether it’s a core or thematic fund. What’s the difference?

A core ESG fund is representative of the economy where it invests, explains Debas. For instance, it could be a U.S. equity fund or an emerging market fund. “These funds are diversified in all different sectors, they help you optimize returns over time, and they’ll have an ESG overlay, which is ESG integration that will orient security valuation and selection.”

She adds the intention of a core ESG fund is to identify companies of all sectors that are best equipped to manage ESG risks, and that work at making their operations more sustainable. For example, the company could be reducing its own waste, or source materials that are deforestation-free.

“We are also active shareholders and we aim to influence companies to improve their disclosure and practices,” she says. “All sectors need to improve their ESG practices. If we were to invest only in the solution, we’d only influence a small portion of the market.”

Meanwhile, many thematic funds are globally diversified but are focused on specific sectors. “The intention is to have a higher concentration of companies developing solutions to ESG issues, such as energy efficiency or precision agriculture solutions. They are seizing opportunities tied to the evolution towards a more sustainable economy,” she says.

As much as clients are usually very excited about thematic funds, it’s important to have both core and thematic funds in portfolios. “We’re protecting ourselves from risks through diversification with core ESG funds, and we’re working toward the solution with thematic funds.”

“We’re protecting ourselves from risks through diversification with core ESG funds, and we’re working toward the solution with thematic funds.”

Debas uses a metaphor to further explain the importance. Let’s say you’re selling a car and there are several buyers who are interested, she explains. You may stress different features to different types of buyers. For instance, for a family with three young children, you may point out that the back has room for three car seats. For an older couple, you may stress the security features. Still, each of these potential buyers would be leaving with the same car.

Advisors may be faced with high-conviction investors who want 100% thematic funds, but Debas cautions against that. “Advisors know it’s not recommended from a risk management perspective because the trade-offs in terms of diversification would be too heavy, and it would likely be unsuitable for most investors.”

Part of an advisor’s role is also to educate clients and manage their expectations.

“Clients want the feature and, in that case, it’s the thematic fund. But they still need the four wheels, brakes, and engine, which is the core. And that’s why both core and thematic funds are important. They’re all part of a well-diversified portfolio.”

Also, when analyzing companies to be included in a core or thematic fund, it’s important to know that there is no such thing as a solely ESG company or non-ESG company.

“It’s never black or white,” she adds. “It’s 50 shades of green. It’s about understanding that no company is perfect. All companies have somewhat of an impact on the environment and communities. The key is to invest in those companies that are positioned to try and minimize the negative impact, and work on improving the positive impact.”

Learn more about how to systemize your RI approach with Desjardins’ webcast series.

Deborah Debas Responsible Investment Specialist with Desjardins Group

The Desjardins Funds are not guaranteed, their value fluctuates frequently, and their past performance is not indicative of their future returns. The indicated rates of return are the historical annual compounded total returns of the date of the present document including changes in securities value and reinvestment of all distributions and do not consider sales, redemption, distribution or other optional charges, or income taxes payable by any securityholder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The Desjardins Funds are offered by registered dealers.

Desjardins®, all trademarks containing the word Desjardins, as well as related logos are trademarks of the Fédération des caisses Desjardins du Québec, used under licence.

PAID CONTENT

While it’s been a few years since the Canadian Securities Administrators (CSA) reformed client-focused strategies, some advisors are still confused about how to incorporate Know Your Product (KYP) into their processes when it comes to environmental, social, and governance (ESG) investing. 

CSA’s guidance on KYP is designed to ensure that advisors have a thorough understanding of the products they recommend to their clients, explains Deborah Debas, Responsible Investment Specialist with Desjardins Group. “The KYP process is intended to help advisors identify the features and risks associated with a particular product, and determine whether it is suitable for their clients,” she says.

“There are no specific requirements in the KYP guidelines that tie that to ESG products. It really is the investment core of any type of investment and, in essence, Responsible Investment (RI) is just that — a type of investment.”

So whether it’s a guaranteed product, mutual fund, or exchange-traded fund, Debas says advisors must understand the objective, strategy, structure, features, and returns of each investment product they recommend.

All of these details and questions are answered in Desjardins’ updated mutual fund KYP documentation, which will be available throughout August. “In addition, to help advisors with their research and client conversations, we identify the ESG approaches used in each fund of our RI line-up on our KYP documentation,” she says.

The key to KYP is to ensure the product you’re offering to your clients answers their financial objectives, she adds.

But the first step of the client discovery process is to get to Know Your Client (KYC). And when it comes to ESG investing, there are some nuances for KYC. 

“If you’re actually able to connect KYC, KYP, and ESG, this is how you’re going to build more trust with your clients.”

“Remember, the question about ESG investing is unlikely to come from the client,” Debas says. “You should not confuse lack of questions for a lack of interest toward ESG because your client might not know this is available to them, or that you’re an advisor who’s qualified to offer these sorts of products to them.”

So advisors should mention the potential to invest in ESG to their clients during KYC. By taking the initiative of the conversation and asking more questions, she says that advisors show interest in their clients, and who they really are above and beyond their portfolios.

“You might want to ask them if they volunteer anywhere, or if they offer donations to some non-profit organizations in their region or in their community,” suggests Debas. “This is a good way to understand what’s important to them, and show them how their investment can actually work in the same direction.”

Once you have a better understanding of your client and their goals, including how RI products can help them meet those goals, then focus on KYP and discussing products that are suited for them. 

“KYC and KYP are two sides of the same coin,” says Debas. “You need to understand what your client wants, and their objectives and risk tolerance. Then, you’ll be able to offer them a product that’s suitable and addresses both their financial needs and their convictions.”

She adds, “If you’re actually able to connect KYC, KYP, and ESG, this is how you’re going to build more trust with your clients. And you’re also going to be able to increase your client retention and ability to be referred because you’re going the extra step. You’re offering new ideas and value, you’re including the investor in the choice of their investments, and you’re showing them how everything works together.”

Learn more about how to systemize your RI approach at Desjardins’ webcast on Oct. 24, 2023 and on DesjardinsFunds.com.

Deborah Debas Responsible Investment Specialist with Desjardins Group

The past year has been challenging for investors, shadowed by economic uncertainty and market volatility. Many are looking for simple reassurance that their portfolios will continue to remain strong. Yet how an advisor delivers that reassurance matters a lot, and support from the advisor’s firm is critical.

Shawn Sinclair, financial advisor with Edward Jones, identifies two factors that give advisors a clear advantage in this environment: market facts explained in simple terms at advisors’ fingertips and having autonomy to offer financial solutions tailored to each client.

“Every time there’s a downturn in the markets, a client’s perspective is that it has never been this bad. Truth is, it usually has. In fact, it may have been worse…and over time, the markets have typically rebounded and the returns improved,” Sinclair says.

Besides demonstrating to clients that, even at market lows, their portfolios are designed to generate sufficient income beyond age 90, Sinclair leans on the detailed market updates his firm provides every Friday. He appreciates that they’re written so clearly that he can forward them directly to clients.

“A lot of the publicly available materials can be really valuable to someone well versed in financial concepts, but they may be hard to understand for someone who doesn’t know all of our jargon,” he says. “At Edward Jones, what we deliver is straightforward and easy for our clients to understand, and ultimately designed to be beneficial to them.”

Data demonstrating where we are now and how markets have invariably recovered from dips in the past is essential when clients face anxiety-provoking headlines—and Sinclair emphasizes that data-driven examples are critical to show clients why they should trust you. Actions speak louder than words, and clients want to be reassured—not talked down to.

Also critical for Sinclair is the ability to customize solutions for clients, selecting suitable options from the firm’s wide product shelf, to help navigate through volatility. Having no proprietary products and therefore the freedom to construct portfolios that are tailored to each client is, in Sinclair’s words, ”very refreshing.”

In fact, that flexibility was the primary reason he decided to join Edward Jones. He knows that as long as he is compliant and ethical, he’s free to concentrate wholeheartedly on helping achieve each client’s financial goals through personalized solutions.

Perhaps the most important firm resource Sinclair draws on to help clients navigate difficult times is his experienced colleagues across the country. He previously worked in competitive environments, where canvassing for opinions was seen as weakness and other advisors were guarded about sharing information and strategies. Edward Jones isn’t anything like that.

“If I email my regional branch network with a question, I’d receive at least 10 emails back within 15 minutes. All that peer-to-peer support is something I really enjoy. It’s very much a culture that [encourages us] to support one another and help build one another up. We want to help everyone succeed,” Sinclair says.

“I’ve been doing this for over 20 years and having a group of people that can still support and educate me is really comforting. Some of the people I met here in the very beginning have become some of my best friends now.”

“At Edward Jones it’s a culture of mutual support. We want to help everyone succeed”

It isn’t an easy time to be an investor. Stock and bond markets are choppy. Inflation is pinching budgets. As interest rates rise, there’s talk of recession. But, as advisors know, there are risks associated with avoiding investing, investing too conservatively or pulling out of the market, too.

If your clients have accumulated surplus savings but are nervous about what to do with those savings, convey to them that investing appropriately depends a lot on how long someone has to invest. Money clients need to use in the next six months should stay liquid. But money clients don’t plan to touch for 10 years has an opportunity to grow through volatile markets and create a bigger nest egg than if it stays on the sidelines.

It also helps to put the current situation in perspective, suggests Kevin McCreadie, CEO and chief investment officer of AGF Management Ltd. He points out that while many investors want to return to “normal,” they often don’t realize that March 2020—immediately before the impact of the pandemic hit markets—wasn’t normal. Ever since the 2008 global financial crisis, interest rates have been abnormally low in Canada, the U.S., and Europe, and the big fear in the years following 2008 was deflation, not inflation.

“It’s not that the absolute level of interest rates is high. They’re actually fairly normal relative to history,” McCreadie says. “It’s the pace at which we’ve gotten there that’s the problem. We went from near zero in the spring in Canada and the U.S. to now when we’re approaching 4%.”

While it’s been difficult for everyone to adjust to the very quick rise in interest rates, McCreadie says markets have already priced in a return to conditions more similar to the more accurately described “normal” of 2005 and 2006. In fact, for clients with enough runway before they need to access their money, this is an attractive time to invest. After all, many stocks have already declined in anticipation of a recession, and many bonds are finally providing income thanks to higher interest rates.

“Now is not the time to sit in cash or move to cash,” McCreadie says.

A portfolio approach can provide comfort

Portfolios geared toward different investor profiles can be reassuring for investors because they deliver discipline, diversification, and automatic rebalancing. McCreadie oversees the five AGF Elements Portfolios, which pre-emptively positioned themselves for the pivot to increasing rates.

“We were more cash based and underweight fixed income by a large amount, and then we used alternatives in our portfolios—liquid alternatives that gave us ways to be defensive [and] would actually go up when the market went down. [In addition,] we thought inflation was going to be around for a while, so we used real assets in our portfolios—things that would be inflation beneficiaries,” he explains.

Now that interest increases are expected to top out at 4% or perhaps 5%, McCreadie and his team are starting to reduce the portfolio underweights in equities and fixed income, while keeping inflation hedges and alternatives in place.

Professional oversight that investors know will proactively respond to market conditions can provide the reassurance clients need to keep investing their savings through all market conditions. That, in turn, makes it much more likely they’ll achieve their financial goals.

“The value of advice has never been greater for people,” McCreadie adds. “It’s never been more important to have an advisor.”

If there was ever a time for advisors to reach out to clients and make sure they’re invested appropriately for their investor profile, it’s now. There is an investment solution for everyone—you just have to help your clients find theirs.

PAID CONTENT

Inflation is increasing the price of almost everything in your clients’ budget, but the need to save for the future hasn’t gone away. Now is the time for advisors to step in with strategies that make spent dollars go further and open up space for saving. It’s the only way to keep long-term plans on track.

The challenge advisors face is that when clients have a comfortable margin between income and expenses, they often don’t pay as much attention to their budget. Spending a little more here and there doesn’t matter as much because they know they’ll be able to make ends meet.

However, in the current environment, many clients are covering higher costs with the same income and some may even be facing a shortfall. As a result, they’re starting to question every discretionary cost – and, for some, saving will fall into that category.

Unless advisors take action and help clients cut costs in other areas, saving may go on hiatus. When that happens, it obviously affects a client’s ability to meet long-term financial goals. It can also become an uphill battle to re-establish a commitment to saving even after conditions improve.

Tips to generate a surplus

Better cash flow management can often make significantly more room in a budget for saving. Quick tips you can share with your clients include:

• Track expenses for a month to see exactly where money is going
• Evaluate every cost to see if there’s a way to pay less for the same or similar value
• Prioritize expenses and consider trimming costs in lower-priority areas
• List needs and wants separately, and make sure saving makes the “needs” list
• Bundle services together with one provider and negotiate a discount
• Consolidate debt at a lower interest rate, and make paying off debt a “need,” too
• Establish an emergency fund so clients don’t have to dip into savings to cover unexpected costs
• Remember that budgeting is an ongoing process that must stay flexible to adjust to changing circumstances

It’s also important to let clients know that anytime they run into a cash flow crunch, you’re available to talk them through it and offer suggestions. Emphasize that making the best decisions in tough times helps to minimize the impact on the longer-term plans you’ve built together.

The fact is that, today, the most relevant financial education you can offer to clients relates to budgeting. It’s top of mind. It’s immediately impactful. It demonstrates the value you offer in a very concrete way, which solidifies client relationships.

It also opens the door to motivating conversations about saving any surplus. Encourage your clients to imagine a very specific picture of what they’re saving for. Steer them towards the experiences they’re dreaming of—for example, barbequing on a new deck steps away from a rippling koi pond, or sinking hands into clay in a pottery studio set up in the shed. Ask clients to describe the many aspects of their vision for the future in as much detail as possible. Then you can work together to save and invest towards them.

And where should you invest your clients’ savings in an environment of volatile markets and with a potential recession on the horizon? That’s the focus of the second article in this series.