Week in review: February 9-13, 2009

Welcome to the weekly roundup of news affecting you, as covered by Advisor.ca and our sister website, Conseiller.ca. Read this section every week to catch up on the news you missed, or click here and subscribe to get regular updates sent to your inbox or BlackBerry.

Skip to: Investing, industry news, products, RRSP reminders and news from Quebec. Quick links, stories this week. Or click here to get regular updates sent to your inbox or BlackBerry.

Client relationships

January’s employment numbers are out and it ain’t pretty. Statistics Canada reported January 2009 as the worst month on record for job losses. The Canadian economy shed 129,000 jobs in January, and the unemployment rate now stands at 7.2%, this is not as high as in the United States, where unemployment hit 7.6%. South of the border, consumer confidence is now at an all-time low.

But as the saying goes, with any downturn comes benefits. Investment policy statements written in layman’s terms are more important than ever since these documents can help protect advisors with disgruntled clients.

Advisors also have a huge role to play in helping clients sort out their severance planning issues. While most clients haven’t lost their jobs, their salaries have likely been frozen at 2008 levels. The equity in their homes has dropped. Meanwhile, the price of everything from groceries to property taxes has increased, meaning less money available for leisure items or retirement savings. More than half of Canadians plan to hold the line on RRSP contributions this year. It may be time to help clients revisit their finances with a household balance sheet.

Update on Registered Disability Savings Plans In less than a month the deadline for receiving any government contributions on the new registered disablility savings plan (RDSP) will expire for the 2008 tax year. Yet only two financial institutions are offering RDSPs: RBC (as of this Monday) and BMO. Created in the 2007 federal budget, RDSPs came into effect in December 2008. They allow a family to contribute up to $200,000 for a disabled beneficiary until that beneficiary is 59 years of age. The plan is not tax deductible but grows tax-free. Any contributions to an RDSP are eligible for matching Canada Disability Savings Grants up to $3,500 for beneficiaries’ families earning less than $75,769. Families that earn more than that are eligible for $1 to $1 matching on the first $1,000 annually. The money in an RDSP can be used for any purpose, as long as it is for the benefit of the plan’s beneficiary. The beneficiary must be a resident of Canada, under age 60, have a social insurance number and be eligible for the disability tax credit (DTC) as defined in the Income Tax Act. The problem is Canadians have only until March 2, 2009, to contribute if they want to be eligible for the Canadian government contributions. Because accounts are available only through advisors affiliated with BMO and RBC, most advisors will likely not be able to take advantage of this year’s credits for their clients, unless they refer their clients to those institutions. Read more.

Investing news

Jeff Rubin, CIBC World Markets’ chief economist and strategist, believes the U.S. stimulus plan will drive inflation. The bull market for bonds may be on its last legs already as governments the world over will soon tap the debt markets to fund stimulus packages aimed at shortening the global recession. To safeguard against the predicted retreat from fixed income, Rubin is adjusting the weighting of his model portfolio, shifting 1% out of bonds into cash. Rubin further predicts two more quarters of desperately bad economic data before the trillions of dollars of global government stimulus eventually finds its way into the economy.

In alternative investment news, top New York-based hedge fund manager Nandu Narayanan says unfortunately you can’t regulate good judgment for hedge funds. While he concedes the hedge fund industry grew too large, too fast and too stupid, he doesn’t believe regulators will be able to solve the underlying issue: the competence, morality and ethics of some people in the industry.

While Alan Greenspan, former U.S. Federal Reserve chairman, is often cited as the fall guy for the credit crisis, one industry observer believes the U.S. Congress and regulators are responsible. Barry Allen, president of Marrett Asset Management, a bond-yield shop, notes that the irony with the banks is they are the most heavily regulated entities in the economy… the only people that had watchdogs everywhere took the most risks.

In related news, John Hull, the Maple Financial Group Professor of Derivatives at the University of Toronto’s Rotman School of Management believes while the securitization market at the heart of the subprime fiasco may be dormant, it will reawaken. He believes reforms are needed to tame the risks it exposed. Loan standards in the U.S. were relaxed starting around the year 2000, with increasing recourse to subprime mortgages. Before then, subprime mortgages had been primarily the domain of second mortgages. What was crucial, however, was that the mortgage companies did not keep the loans on their books.

In pension news, sharp increases in the number of U.K. corporate insolvencies emphasize the need for pension fund trustees to assess companies’ ability to meet their long-term pension commitments, according to Watson Wyatt. Figures from the Insolvency Service reveal that 4,607 companies were liquidated in the fourth quarter of 2008, a 12% increase from the previous quarter and a 52% increase from the year prior. There were 2,428 other corporate insolvencies (administrations, receiverships and company voluntary arrangements) in the fourth quarter of 2008, up 68% from the previous quarter and a 220% increase compared with the fourth quarter of 2007.

Industry news

In industry news this week, Sun Life, Manulife and Great-West Lifeco still managed to eke out full-year profits, though these were substantially reduced. Sun Life Financial recorded a Q4 profit of $129 million, down from $555 million a year ago. The sale of its 37% stake in CI Financial to Bank of Nova Scotia netted the insurer $825 million. Excluding the proceeds of that sale, Sun Life posted an operating loss of $696 million for the quarter. Manulife Financial posted a loss of $1.8 billion for Q4, which trimmed its full-year profit to just $517 million, down from $4.3 billion in 2007. Great-West Lifeco reported a loss of $907 million in the final quarter of 2008, but managed to pull out a profit of $1.4 billion on the full year.

Turning to the Canadian economy, the head of the Bank of Canada has defended his assessment of the situation but cautioned that domestic growth would be heavily reliant on government stimulus south of the border. “In our base-case projection, real GDP is expected to rebound in 2010, growing by 3.8%,” bank governor Mark Carney told the House of Commons Standing Committee on Finance. “Though seemingly impressive when viewed from the depths of a recession, such a recovery is actually more muted than usual.”

There’s finally some good news concerning Portus Alternative Asset Management. KPMG, the bankruptcy trustee, has begun mailing out cheques to about 19,000 investors.

Sun Life Financial has named James H. Sutcliffe to its board of directors, effective immediately.

CIBC Mellon has been appointed custodian in the restructuring plans for $32 billion in illiquid non-bank sponsored asset-backed commerical paper (ABCP).

Canaccord Capital posted its second loss in as many quarters due to writedowns and a bailout of ABCP.

Product news

In product news this week, IA Clarington Investments has announced plans to merge the Sarbit Money Market Trust and Sarbit Canadian Bond Trust into its overall IA Clarington fund family.

Mackenzie Financial has launched a new series of Saxon Mutual Funds, managed by Howson Tattersall Investment Counsel. The new A-series is available for nine funds in the existing Saxon line.

Catapult Financial Management, a subsidiary of asset manager Aston Hill Financial has inked a deal to actively manage the Preferred Share Investment Trust portfolio for First Asset Investment Management.

The Bank of Montreal has launched a new five-year variable rate closed mortgage product that gives the flexibility to lock into a fixed-rate closed mortgage at any time.

Scotiabank has launched a new insurance brand, ScotiaLife Financial, offering comprehensive creditor, travel and life and health coverage.

BetaPro Management has announced the filing of a preliminary prospectus for four new Horizons BetaPro ETFs unleveraged inverse exposure to four of Canada’s most important equity sub-indices.

Finally, Jovian Capital Corp. is seeking shareholder approval for a share consolidation, at a ratio of up to 20-to-one. A special shareholder meeting will be held on March 5, 2009, to vote on the transaction.

RRSP reminders

If some of your clients still have room for an RRSP contribution, here are a few reminders that you may want to pass along:

• The deadline for contributions to be applied against the 2008 tax year is March 2.
• The maximum RRSP contribution limit for 2008 is $20,000.
• Investors can exceed their personal contribution limit by up to $2,000 without being subject to a penalty tax.
• Clients who reached 71 years of age in 2008 must convert their RRSPs into a retirement income vehicle before the end of 2009 to avoid being taxed at fair market value on their RRSPs.
• Send your clients our template letter on RRSP season.

News from Quebec

From La Belle Province, the board of directors of the Caisse de dépôt et placement du Québec is denying media reports that the Quebec government is poised to fire seven of the pension fund’s managers and has expressed confidence in its executive team.Conseiller.ca reports that Quebec Finance Minister Monique Jérôme-Forget recommends a deputy minister sit again on the Caisse’s board. This was the caseuntil a few years ago, but it was changed to emphasize the Caisse’s independence (arm’s length) from the provincial government. Declining stocks and writedowns related to asset-backed commercial paper (ABCP) resulted in a record $38-billion loss for the Caisse de dépôt et placement du Québec last year, reports La Presse. The figures are not final and will be clarified upon release of the pension fund manager’s results toward the end of the month.

Yvon Charest, the president and CEO of Industrial Alliance, has been named the 2008 Quebec Financial Person of the Year. It is the second time he has received this honour, with the first time coming in 2004.

For more news from Conseiller, our sister publication, click here/cliquez ici, to subscribe to Conseiller.ca or sign up for our French-language e-mail service.

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Quick links: Advisor.ca news, February 9-13, 2009.

Industry feels impact of job losses Job cuts crush U.S. consumer confidence Clarity is key to investment policy statements Jobless clients need advisors’ help Dealing with dropping home equity Roughly half will hold the line on RRSP contributions A downloadable household balance sheet RDSP choices remain limited, despite new entries Stimulus plans to drive inflation: Rubin “Can’t regulate good judgment” for hedge funds Regulators, not Greenspan, to blame Preventing structured product crises Spike in insolvencies a warning to pension trustees Equity markets pummel insurers’ earnings

Expect recovery in 2010: BoC More Portus money to flow IA Clarington closing two Sarbit funds Mackenzie offers advisor series on Saxon funds First Asset names preferred share manager BMO launches new variable rate mortgage Scotia debuts new insurance brand BetaPro to offer four new ETFs Jovian proposes share consolidation Caisse fends off rumours of government intervention Caisse lost $38 billion in 2008: La Presse IA’s Charest honoured in Quebec Sun Life nominates director CIBC Mellon named ABCP custodian

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New columns this week:

Chris Paterson: Many of you had suggestions and questions on last month’s case study about the Worskis, a couple in their late 50s who had recently found themselves out of work due to economic challenges. Read more.

Michelle Munro: If you dig deep into this year’s federal budget, you will find some measures that could have a positive impact on your clients’ ability to invest. Chief among these is the budget’s extension of income tax relief. Read more.

New features this week:

Running on empty: Avoiding debt in today’s troubled times: If there was ever a time for advisors to be on top of their clients’ affairs, it’s right now. With more Canadians losing jobs, the markets regularly bouncing around and home prices more volatile than ever, advisors have a perfect opportunity to show their value by helping clients deal with all this uncertainty. With that in mind, we’ve put together an in-depth debt package to help you and your clients navigate these turbulent times. Read more. Doctors’ retirement plans on life support: While few Canadian physicians have a totem of the financial collapse right outside their door, they do have vivid reminders of it as close as their nearest investment statement. According to Manfred Purtzki, a Vancouver financial advisor, the average physician-held portfolio has shrunk by approximately 30% in the last year. Read more.

(02/13/09)