It’s Not Always About Growth

By Mark Barnicutt on December 19, 2010


The past few years in the asset management business have been very interesting.  Compared to much of the 1990s and first 1/2 decade of the 21st century, investors of all types are now very sensitive to the various global economic risks that now exist;  this has been evidenced by the increased volatility of capital markets over the past few years.

Simultaneously, though, in the developed economies, such as Canada, there’s a demographic shift that has been occuring for the past few years in which the front-end of the Baby Boomers are now over 60 years of age and rapdly approaching 65.  These realities are starting to play out in professional relationships between investor clients and their financial advisors, especially for affluent families.

Affluent Family Financial Attitudes: Past, Present & Future:

While the past few decades have been about the accumulation of wealth through either direct participation/savings into capital markets, or through the creation of private businesses, it is our experience working with affluent families, that they are becoming increasingly focused on preserving the wealth that they’ve created.

Recent studies by the leading Canadian wealth management research organization, Investor Economics, supports this view that the attitudes of affluent families are shifting towards the management of their financial affairs.  Specifically, whereas in the past, asset management, accumulation, growth and relative investment returns (ie: measured against various market indices such as the TSX or S&P)  were important drivers for affluent families, the new attitudes are becoming focused on risk management, de-accumulation (ie: spending) and preservation of capital/absolute returns.

Because of this, we believe that the challenge for many Financial Advisors in the coming decade, will be to adapt their historical belief system that client portfolios should have a disproportionate amount of equities, given their long-term performance track record.  Our recent experiences with affluent families is that they realize that in the long-term, equities should ideally outperform bonds; it’s just that they’re not prepared to live with the higher levels of equity volatility relative to say, short-medium term bonds.  As one new client recently said to us,

Although I continue to believe in the long-term advantages of equities, my wife and I are at a stage in our life where we’re not prepared to live through another period like 2008/2009 when our equity portfolio declined by almost 50%. We just can’t take that type of ride any more!”

Implications For Financial Advisors:

This does NOT mean that affluent clients are looking to invest entirely in bonds….as with most things in life, they’re looking for some balance.  While on one hand, they want to preserve what they’ve worked so hard to accumulate, on the other hand, they don’t want to see the purchasing power of their investments deteriorate.  For this reason, many such affluent families are increasingly embracing more balanced portfolios that have an allocation to both fixed income instruments and equities.

For many “growth oriented” Financial Advisors, the notion of including bonds in clients’ portfolios can be a professionally challenging concept.  The reality, though, is that fixed income instruments continue to have a role in client portfolios. My partner, Dan Hallett, recently wrote a blog post on this topic, which can be read by clicking here.

The HighView Solution:

When working with our clients – Advisory Firms, Affluent Families or Institutions such as pension funds, foundations and endowments — HighView applies these types of solutions to client accounts through our unique process known as “The HighView Wealth Sustainability Process“.  For more information on this approach, please click here to watch a video or click here to read an article.

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