Archive for June, 2018

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IMF Predicts Slowing Growth for Canada: What Can You Do About It?

The IMF predicts that if Canada and the U.S. fail to reach agreement on NAFTA, Canada’s competitiveness could take a serious hit, resulting in a drop of 0.4 percentage points or more in GDP. Donald Trump’s tweets about Justin Trudeau could further dampen the outlook. But, astute financial advisors can help clients meet their goals in these difficult times by staying on course.

According to CBC, the IMF lists the recent tense trade negotiations and the threat of major correction in the housing market as “significant risks.” Predicting that Canadian economic growth will slow in the near term from 3 percent last year to 2.1 percent in 2018, with another drop to 2 percent in 2019. The news gets worse the longer the forecast period, with potential growth limited to as little as 1.75 percent in the medium term due to “sluggish labour productivity growth and population aging.” Other factors playing into this overall picture are U.S. tax cuts and stronger government spending, as well as other policy changes in the U.S. under the Trump administration.

There are domestic challenges to our competitiveness as well.  As reported in last week’s Knowledge Bureau Report, the Bank of Canada is expected to raise its benchmark interest rate in July, which will put pressure on anyone carrying personal or household debt.  It could also increase the risk of a major correction in the housing market. There have already been significant slowdowns in the once-hot markets of the Greater Toronto Area (GTA) and in Metro Vancouver.  In the GTA, May home sales were down over 22 percent from last year. Metro Vancouver faced a decline of more than 35 percent in the same period.

These are serious challenges to Canada’s competitiveness on the global stage. They signal the need for a review of financial plans by advisors here at home, especially for their nervous clients. Reviewing debt management opportunities and sticking to investment plans, with a good measure of tax efficiency is the key to weathering the storm clouds gathering.

Now more than ever, it’s essential for advisors and clients to keep on top of economic change and to develop strategies to shore up your clients’ wealth. Knee-jerk reactions could secure unwanted tax liabilities or lock in irreversible losses, and strategies must address this economic uncertainty and potential decline of family wealth.

Additional educational resources:

  1. Join Knowledge Bureau in November for this year’s Distinguished Advisor Conference where Dr. Jack Mintz will address Canada’s declining competitiveness. Learn more about this can’t miss speaker session here.
  2. Knowledge Bureau’s Debt and Cash Flow Management course will show you how you can help your clients avoid the erosion of their wealth that comes with debt.
  3. Or, go one step further and learn strategies for building sustainable wealth for your clients with our Elements of Real Wealth Management course, the first step in working towards your Real Wealth Manager Enroll in any of our courses today to save on tuition before the June 15 registration deadline.



Interest and Inflation Rate Hikes Ahead? Time to Manage Real Wealth

After holding interest rates at 1.25 percent since January, the Bank of Canada appears ready for raise the rate in its next announcement, July 11, when many economists expect it to increase to 1.5 percent. This small jump could affect millions of Canadians and is an opportunity for advisors and clients to lean in and plan for change.

Interest rates are one tool at the bank’s disposal to keep inflation in check, around the 2 percent mark. Due to steady growth in the Canadian economy in recent months, plus increases in gasoline prices, inflation is at or above this targeted level.

According to a May 30 Globe and Mail article, “The odds of a July rate hike is now just shy of 80 percent, up from slightly more than 50 percent on Tuesday, according to Bloomberg’s interest rate probability tracker.”

The article goes on to speculate on the nuances of language in the central bank’s May 30 announcement as an indicator of what is to come in the next announcement, but what does all this talk of a probable interest rate hike mean for Canadians? And how can you help your clients manage in the face of rising interest rates?

  1. Your clients will need your help not only to save and plan for home ownership, but also to develop broader strategies for building wealth. An article in the May 30 KBR pointed to real estate ownership as one of the three big secrets to wealth accumulation and financial success. But rising interest rates will mean that home ownership will get tougher for Canadians to achieve, especially with new mortgage stress test rules in effect that require home owners to be able to afford a rate that is the greater of the Bank of Canada’s benchmark mortgage rate (currently 5.34 percent), or the rate negotiated by the buyer with their lender, plus two percent.
  2. Your clients will need your good counsel on debt management strategies to shore up their chances of financial success. In addition to mortgages, any form of debt will become more costly to service. Anyone carrying debt such as student loans, lines of credit, credit card debt and more will be stretched even further than they currently are.
  3. Real Wealth Management requires a solid look at the effect of taxes, inflation and fees on accumulation, growth, preservation and transition of family wealth. This framework will help you have better discussions about lifecycle changes in the context of emerging economic cycles.

Rising interest rates have a very real impact on your clients’ ability to be financially successful. Make appointments now to discuss debt loads, and forward-thinking investment strategies.  Stay tuned to KBR to stay informed and prepare for this developing trend.

Additional educational resources: You can prepare your clients for impending interest rate hikes with the debt management strategies you’ll learn in Knowledge Bureau’s Debt and Cash Flow Management course. And the Real Wealth Manager designation will give you all the tools you need to help them plan for and afford the home of their dreams—a cornerstone in a broader, more holistic approach to building wealth.