August 17, 2019

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Opinion

Brave new world of investing

Tech-savvy young adults lead wave of change in money-management industry

MIKE DEAL / WINNIPEG FREE PRESS</p><p>Winnipegger Jordan Maas blogs about investing in a high-tech fund-management world.</p>

MIKE DEAL / WINNIPEG FREE PRESS

Winnipegger Jordan Maas blogs about investing in a high-tech fund-management world.

Jordan Maas admits he is a bit of an “anomaly” among his peer group.

The married 35-year-old, who works in marketing, may not be all that different from a lot of other millennials raising young children. But he does stand out when it comes to his financial knowledge.

Maas blogs about finances in his spare time at Moneymaaster.com, and he even took the Canadian Securities Course that industry professionals take to provide advice to clients.

“I got my certificate just for the hell of it because it was interesting.”

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Jordan Maas admits he is a bit of an "anomaly" among his peer group.

The married 35-year-old, who works in marketing, may not be all that different from a lot of other millennials raising young children. But he does stand out when it comes to his financial knowledge.

Maas blogs about finances in his spare time at Moneymaaster.com, and he even took the Canadian Securities Course that industry professionals take to provide advice to clients.

"I got my certificate just for the hell of it because it was interesting."

Even Maas realizes his high level financial literacy is unusual compared with his friends.

"I have so many friends that have literally zero investments, and they are always asking me how they can invest and make money," he says.

"Everyone wants a quick answer, but you just have to start."

His comments are very much on point, according to a recent survey.

Commissioned by RBC, it found almost two-thirds of Canadians aren’t comfortable with their savings levels, while a similar number indicated they know they need to invest but don’t know where to start.

Of those Canadians, one-quarter indicated feeling overwhelmed with information, while 24 per cent stated they didn’t know what to invest in, and one in five noted they didn’t think they even had the money to invest.

"There’s a general feeling among many Canadians that they have to get serious about investing," says Rebecca Peacock, RBC InvestEase’s senior director of strategy. This is particularly the case with millennials and generation Xers, but it’s even an issue with boomers too, she adds.

And it’s not all that much of a surprise, Peacock says.

People are busy and often struggling to keep pace with the day-to-day challenges of paying the bills, holding down a job and raising a family. So, going to the bank or an investment firm to chat with an adviser about investments is often at the bottom of the chore list. (And it does feel like "a chore" for many.)

What’s more, the industry is experiencing a wave of change — generationally speaking — where, increasingly, young and middle-aged adults are more comfortable, and find it more convenient, to conduct their financial lives online via mobile phone.

The industry recognizes this, especially after the early success of robo-advisers — automated online investment-management services — that allow individuals to save for retirement among other important goals. Wealthsimple — whose parent company owns Investors Group and Great-West Lifeco — is the best known among robo-advisers. It’s likely you’ve seen advertising on cable TV — if you still have cable TV (another generational shift).

Canada’s largest banks have jumped into the fray, too, including RBC with InvestEase, which launched this year.

"The convenience factor for sure jumps out in terms of what our clients like," Peacock says of RBC’s new robo-advice product. "Within a few minutes, you get a portfolio that’s recommended to you that’s well-diversified and constructed in a way that fits your risk profile, and then we take care of all the rest."

The offering from Canada’s largest bank illustrates the growth of financial technology — or fintech — and its decentralizing effect on investing and investment advice.

Many of the advances are making it easier for Canadians to invest quickly, at low cost, conveniently and in many cases without an adviser. These innovations are indisputedly disrupting the old models of the industry, which include sitting down with an adviser selling mutual funds or taking calls from your broker suggesting the next hot stock.

"There is a behavioural shift going on in society," says Daniel Straus, vice-president of ETFs and financial products research at National Bank of Canada Financial Markets.

"Older generations don’t bat an eyelash at picking up a phone and talking to someone, but it seems that younger people text someone first before calling, because it seems like less of an interruption."

The trend doesn’t negate the benefits of talking to a real person — by phone, text or in person — but the rise of online brokerages for do-it-yourself investing, robo-advisers, mobile banking, online insurance quotes and exchange-traded funds (ETFs) shows where the industry is ultimately headed.

"The landscape is shifting everywhere, and ETFs certainly play a part of it because we like to think of them as the original fintech — the original financial technology — because they are basically funds with a heavy dose of technology," Straus says about the financial products, which charge a fraction of the cost of mutual funds. "And they fit very neatly into these new, growing models for asset management, including fee-based accounts, self-directed investing and one-stop-shop multi-asset portfolios."

Today, Canadians can choose from more than 800 ETFs from 36 providers, traded in Canada alone. And product innovation continues to mushroom, including most recently asset-allocation ETFs that provide a one-stop-shop portfolio in just one trade. The beauty of these investments is they automatically rebalance your holdings, meaning if your balanced (50 per cent bonds and 50 per cent stocks) fund of ETFs grows to a 40 per cent 60 per cent bond/stock split, it will automatically sell stocks and buy more bonds to get back to 50-50. Similar to robo-advisers, asset allocation ETFs are even cheaper and arguably involve less hassle.

One caveat is access to ETFs: you must have an adviser who trades them, or open an online brokerage account to buy them on your own.

Alternatively, you can go with a robo-advisory firm. ETFs are the bread and butter of this segment of the industry too, and they offer ready-built portfolios of ETFs with a dash of financial-planning services thrown in for a little extra cost.

More broadly speaking, ETFs have thrown the advice industry into flux. Their low costs have forced much of the industry to shift from a commission (or trailer fees for mutual funds) model to a fee-for-service model. ETFs have facilitated this fee-based model because they keep costs down for advisers, too. And ETF providers have created plenty of new products designed for advisers — like factor-based and multi-factor ETFs. (Don’t have a clue what those are? See the fact box.)

Long story short, all the recent innovation means it’s getting easier to invest quickly in a diversified low-cost way, and the options are growing by the day.

Now, if you’re one of those folks who are still procrastinating, it’s best you get started.

Maas suggests keeping it simple.

"For the average person, Wealthsimple (or any robo-adviser) or even (investing in) a mutual fund are better than doing nothing."

He adds, over time — as your money grows — you can move toward managing it on your own and buy lower-cost ETFs. Or you can go the traditional route, working with an adviser to build you a portfolio along with a financial plan.

But as Maas notes, it’s never been easier to take control of your money and learn how to invest.

"You can go on Twitter and find the 10 best, low-cost ETFs that would be good for basically anyone," he says. "There is just so much more information available to our generation."

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