1. PERSONAL INVESTMENTS HELPING YOUR CLIENTS REACH THEIR GOALS
Session 3 ∙ Know Your Client

2. Basic Rule in Financial Planning
KNOW YOUR CLIENT
Regardless of the aspect of financial planning you’re dealing with – insurance, investments, debt management, etc. – it is essential to know your client in order to make appropriate recommendations and establish a strong business relationship based on trust.
By getting to know your client first, before talking about products, you demonstrate that you are working in their best interest and not just trying to sell a product. Getting to know your client is about finding out what their needs are. Only then will you be able to recommend a strategy and product to address those needs. The client will be much more committed to your recommendations when they are made to address their objectives, keeping in mind their financial situation and profile.

3. KNOW YOUR CLIENT What are their goals? What’s important to them?
When there are many goals, ask which one is more important, what are the priorities.
What does retirement mean to them?
How much are they willing to contribute to achieve their goals?
Most of the seg funds you’ll work with will contain one or a combination of these asset classes.
There are of course many other investment instruments that can be used such as derivatives, real estate, etc.
For the purpose of this presentation, we’ll stick with these major three asset classes.
Cash and liquidities
Ideal for very short term goals (2 to 3 years or less) and an emergency fund, which requires safe liquid assets. Not good for long term goals because of the risk of having a negative net return (inflation higher than investment return).
In a diversified portfolio, it will act as a cushion during down markets.
Fixed Income / Bonds
Used for conservative investors who still want the earn a better return than the rate of inflation. In a diversified portfolio, it will often act as the counter part to the equity portion since generally, bond funds perform well when equity funds don’t, and vice versa. However, it does happen that both types of funds have negative return at the same time or positive return at the same time.
Although not guaranteed, this asset class is less volatile than equities.
Equities
Among the three asset classes, it is still considered as the one with the best potential return over the long term. However, investors must be ready to accept the short-term volatility that comes with it.
The majority of investors, especially for retirement savings, will use a combination of the three asset classes in a balanced approach. The weight of each asset class will differ from one person to the next.
Other than the investments they have with you, what other sources do they have in place to achieve their goals?
KNOW YOUR CLIENT

4. KNOW YOUR CLIENT What types of investment are they comfortable with?
Once a list of priorities is set, select the goal you want to address and take the first step to building a recommendation.
INVESTOR PROFILE QUESTIONNAIRE
What types of investment are they comfortable with?
Different options carry different levels of volatility.
The Investor Profile questionnaire will help you and your client in this regard.
A very useful tool is the Investor Profile Questionnaire. It will help determine the types of investments and the asset mix that the client will be comfortable with. In the world of mutual funds, it is mandatory. While the SROs in the insurance industry hasn’t made it mandatory yet, it is clearly a tool that fits in the “Best Pract
The Investor Profile Questionnaire consists of simple multiple choice questions. Each answer is worth a certain amount of points. The total amount of points will correspond to an investor profile on which you can base your investment asset mix.
Depending on the financial goal you focus on, the answers to the same questions may vary. That is why we recommend that a profile be done for one financial goal only, for example retirement.
Let’s have a look at the questions in the Investor Profile Questionnaire.
ices” approach. Let’s look at an example of an investor profile questionnaire.

5. The first question is straight forward and determines the time horizon a client has before he needs to start withdrawing money from his portfolio. Time horizon is important because after a period of negative returns, you want enough time to recoup the value of your investment.
The second question is to help you understand how your client sees his investment. Is it purely a savings mecanism with minimum risk and return or is he looking for growth.
The third question deals with investment knowledge. Basically, people who have little investment knowledge will be more worried when the market value of their portfolio lowers. It will also help you adjust how you speak to them about their investment options. Someone with little investment knowledge will not grasp the meaning of certain investment terms and industry jargon.

6. Question 4 is very straight forward
Question 4 is very straight forward. The reason for this question is that a client with a higher income is typically better suited to withstand the short-term volatility of the markets because it is less likely they’ll need to withdraw money at an undesirable time (when market value is down) in case of an emergency. Lower income clients may be more dependent on their investment portfolio in case of emergency, even if their goal for said-portfolio is not to withdraw money anytime soon.
Question 5 is along the same lines as question 4: evaluating the client’s current financial situation. You may have a client that has high income but that has difficulty saving money nonetheless. This question can easily lead to a discussion of cash flow management and making choices regarding daily expenses. For example, a self-employed individual with a good income but with no savings because of a high debt level will have to look hard at his spending habits and commit to lowering his debt level if he is to accumulate money for retirement.

7. The final 4 questions (2 on this screen, 2 on the next) are all there to evaluate the client’s risk tolerance. If you see that the answers vary from one question to the next – a few answers indicating that the client is risk-averse, and the others showing a high level of comfort with risk – you’ll want to discuss this further to make sure the client and yourself understand how comfortable they are with volatility. Otherwise, it will be more difficult to manage their expectations.
Example
“Mr. X, you’ve indicated in question 6 that you would sell your investment if it fell 25% in value, yet on the next question, you indicate that you are comfortable with a potential minimum value of $15,000 for an original investment of $20,000. Can you help me understand why that is?”
Never assume what the client is thinking or how they interpret short-term risk. Ask them and let them tell you what they think.

9. After all the questions have been answered, add up the total score and you will see which investor profile applies to the client. Ask them if they recognize themselves in the description given for their corresponding profile.

10. Once your client’s investor profile has been established, you can base your investment recommendation on the guidelines indicated on this page.
Option 1: If you and your client prefer a simpler, more “hands-off” approach, you may want to consider using the fund portfolio that corresponds to the client’s profile.
The portfolio manager chooses the funds within the portfolio and rebalances the portfolio to respect the target asset mix.
Option 2 : You also have the option of a more customized approach where you and your client select the funds you want. You will have to follow the evolution of the portfolio and in order to rebalance when the actual asset mix is different than the target asset mix.

12. FINAL NOTES ON INVESTOR PROFILE QUESTIONNAIRE
Have the client sign the questionnaire and keep a copy in your files.
A client’s investor profile may change over time. Review your client’s profile periodically by completing a new questionnaire with them every few years or after a major life event (i.e. marriage, birth of a child, new job, loss of job, etc.)
More than a tool to establish a score. Pay attention to your clients’ answers as they may be door openers for discussions on their expectations and financial challenges.

13. INVESTOR EXPECTATIONS
GAPS
INVESTOR EXPECTATIONS
INVESTOR PROFILE
PLAN / STRATEGY
FINANCIAL GOAL

14. SOURCES OF GAPS BUDGET INVESTMENT RETURN INVESTMENT VOLATILITY
Gap between what the client can contribute and the amount used in the illustration. To avoid this gap, address the budget element early on.
“So Mr. X, how much of your monthly budget were you thinking of dedicating towards attaining your retirement goal?”
INVESTMENT RETURN
Is the client’s expectation realistic?
Ask your client what average annual return they are expecting on their investments.
Most of the seg funds you’ll work with will contain one or a combination of these asset classes.
There are of course many other investment instruments that can be used such as derivatives, real estate, etc.
For the purpose of this presentation, we’ll stick with these major three asset classes.
Cash and liquidities
Ideal for very short term goals (2 to 3 years or less) and an emergency fund, which requires safe liquid assets. Not good for long term goals because of the risk of having a negative net return (inflation higher than investment return).
In a diversified portfolio, it will act as a cushion during down markets.
Fixed Income / Bonds
Used for conservative investors who still want the earn a better return than the rate of inflation. In a diversified portfolio, it will often act as the counter part to the equity portion since generally, bond funds perform well when equity funds don’t, and vice versa. However, it does happen that both types of funds have negative return at the same time or positive return at the same time.
Although not guaranteed, this asset class is less volatile than equities.
Equities
Among the three asset classes, it is still considered as the one with the best potential return over the long term. However, investors must be ready to accept the short-term volatility that comes with it.
The majority of investors, especially for retirement savings, will use a combination of the three asset classes in a balanced approach. The weight of each asset class will differ from one person to the next.
INVESTMENT VOLATILITY
Does the client understand the potential short-term ups and downs of his investment portfolio?

15. INVESTOR EXPECTATIONS
SOURCES OF GAPS
INVESTOR EXPECTATIONS
INVESTOR PROFILE
To attain specific goal at a certain date, needs average annual return of 7%
Investor Profile is “conservative”. Expected rate of return is 4% annually.
GAPS

16. Gap should be resolved before implementing investment strategy
EXAMPLE OF GAP
Possible solutions:
Stick with the investor profile risk level and accept to reach the goal at a later date.
Stick with the investor profile risk level and accept to increase the amounts being invested to reach the goal in time.
Accept more short term risk and adopt an investment strategy that will potentially generate the required rate of return to reach the goal in time.
What does the client prefer?
A combination of solutions can also be applied.
Gap should be resolved before implementing investment strategy
Managing your clients expectations by addressing the gaps early on will prevent frustration and dissatisfaction.

17. INVESTMENT RECOMMENDATION
Look at the suggested investment solution corresponding to the client’s investor profile.
Address any gaps between the profile and the investor’s expectation, and see if the investment recommendation will change to address the gaps or if other solutions will be elected (i.e. invest more, extended the goal deadline).
Choose between a “ready-made” solution – portfolios of funds – or use a customized approach by selecting a combination of funds.

18. Cash and liquidities (includes money market, GICs, Canada Savings Bonds)
Lowest volatility, low potential return.
Risk of the return being lower than inflation
Fixed Income / Bonds
Some volatility, potential long term return higher than inflation, but typically lower than equities.
Bond funds tend to do well when stock markets drop.
Most of the seg funds you’ll work with will contain one or a combination of these asset classes.
There are of course many other investment instruments that can be used such as derivatives, real estate, etc.
For the purpose of this presentation, we’ll stick with these major three asset classes.
Cash and liquidities
Ideal for very short term goals (2 to 3 years or less) and an emergency fund, which requires safe liquid assets. Not good for long term goals because of the risk of having a negative net return (inflation higher than investment return).
In a diversified portfolio, it will act as a cushion during down markets.
Fixed Income / Bonds
Used for conservative investors who still want the earn a better return than the rate of inflation. In a diversified portfolio, it will often act as the counter part to the equity portion since generally, bond funds perform well when equity funds don’t, and vice versa. However, it does happen that both types of funds have negative return at the same time or positive return at the same time.
Although not guaranteed, this asset class is less volatile than equities.
Equities
Among the three asset classes, it is still considered as the one with the best potential return over the long term. However, investors must be ready to accept the short-term volatility that comes with it.
The majority of investors, especially for retirement savings, will use a combination of the three asset classes in a balanced approach. The weight of each asset class will differ from one person to the next.
Equities
High short term volatility, higher potential long term return for growth compared with fixed income and cash.
MAJOR ASSET CLASSES

19. DIVERSIFICATION WHERE IS THE BEST PLACE TO INVEST MY MONEY?
Except for the recommendations made for people at the ends of the investor profile spectrum (i.e. maximum security or maximum growth), all recommendations are a mix of different asset classes.
It is impossible to predict which asset class will perform better from one year to the next.

20. DIVERSIFICATION WHERE IS THE BEST PLACE TO INVEST MY MONEY?
By diversifying, you lower the volatility of the portfolio.
The weight of each asset class will depend greatly on the investor profile.
Establish the investment strategy based on the investor profile and expectations/goals, not on short term market predictions.

21. Performance varies year to year
Calendar year returns of Canadian & international markets
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Emerging Markets: 32.1%
Emerging Markets: 18.6%
Canadian Bonds: 6.4%
Canadian Small Cap: 68.9%
Canadian Small Cap: 35.2%
Canadian Bonds: 9.7%
Emerging Markets: 16.4%
U.S. Small Cap: 48.1%
U.S. Equity: 23.9%
U.S. Equity: 21.6%
Canadian Small Cap: 31.9%
Emerging Markets: 28.7%
Foreign Equity: 26.4%
Canadian Equity: 9.8%
U.S. Small Cap: -17.2%
Emerging Markets: 52.0%
U.S. Small Cap: 20.2%
U.S. Equity: 4.6%
Foreign Equity: 15.3%
U.S. Equity: 41.3%
Global Equity: 15.0%
Global Equity: 19.5%
Canadian Equity: 21.1%
Foreign Equity: 17.4%
Global Equity: 21.0%
Canadian Bonds: 3.7%
U.S. Equity: -21.2%
Canadian Equity: 35.1%
Canadian Equity: 17.6%
U.S. Small Cap: -1.8%
Global Equity: 14.0%
Global Equity: 35.9%
U.S. Small Cap: 14.3%
Foreign Equity: 19.5%
U.S. Small Cap: 17.1%
U.S. Small Cap: 17.9%
Canadian Small Cap: -1.2%
Global Equity: -26.9%
Global Equity: 13.0%
Emerging Markets: 13.0%
Global Equity: -2.7%
U.S. Small Cap: 13.8%
Foreign Equity:
31.6%
Canadian Equity: 10.6%
U.S. Small Cap: 14.6%
U.S. Equity: 8.1%
U.S. Equity: 13.8%
Canadian Equity: 17.4%
Foreign Equity: -5.3%
Foreign Equity: -28.8%
Foreign Equity: 12.5%
U.S. Equity: 9.1%
Canadian Equity: -8.7%
U.S. Equity: 13.4%
Canadian Equity: 13.0%
Canadian Bonds: 8.8%
Canadian Bonds: 3.5%
Emerging Markets: 7.7%
Canadian Equity: 9.1%
U.S. Equity: 16.1%
Global Equity: -6.6%
Canadian Equity: -33.0%
U.S. Equity: 9.3%
Canadian Bonds: 6.7%
Foreign Equity: -9.6%
Canadian Equity: 7.2%
Emerging Markets: 4.7%
Emerging Markets: 7.0%
Emerging Markets: 2.4%
Global Equity: 4.4%
U.S.
Small Cap: 7.1%
Canadian Small Cap: 13.6%
U.S. Equity: -10.1%
Emerging Markets: -41.4%
U.S. Small Cap: 8.0%
Global Equity: 6.6%
Canadian Small Cap: -14.2%
Canadian Bonds: 3.6%
Canadian Small Cap: 4.3%
Foreign Equity: 4.1%
Canadian Equity: -8.3%
Canadian Bonds: 1.7%
Canadian Small Cap: 4.0%
Canadian Bonds: 3.8%
U.S. Small Cap: -16.5%
Canadian Small Cap: -48.6%
Canadian Bonds: 5.4%
Foreign Equity: 2.6%
Emerging Markets: -16.2%
Canadian Small Cap: -0.5%
Canadian Bonds: -1.2%
Canadian Small Cap: -2.8%
Canadian Small Cap: -16.3%
Foreign Equity: -2.0%
Canadian Bonds: 2.5%
Top-performing asset class
Worst-performing asset class
04/30/2014:
Historically, over the past 10 years, emerging markets have given good positive returns. However, in 2013, U.S. equities performed well as the U.S. Federal Reserve continued with its easy monetary policies for most part of the year.
Sources: Fidelity Investments Canada ULC, Datastream. Total returns in CDN$. Note: It is not possible to invest directly in an index. Asset class performance represented by: foreign equity: MSCI EAFE Index; global equities: MSCI World index; emerging markets equity: MSCI Emerging Markets Investable Market Index ; U.S. equity: S&P 500 Index; U.S. Small Cap: Russell 2000 Index; Canadian equities: S&P/TSX Composite Index; Canadian small cap: BMO Small Cap Blended Weighted Index (Price Return); Canadian bonds: FTSE TMX Canada Universe Bond Index. As at December 31, 2017.

22. OTHER TYPES OF DIVERSIFICATION
Geography
Economic sector
Management style (growth, value, mix)
Managers
Duration / Terms (for those investing only in GICs or bonds)
So even for an investor who invests in only one type of asset class, for example equities, he can still diversify in different ways.
One of the main reasons mutual funds and seg funds were created were to offer diversification of investments to the masses. A Canadian equity fund will be diversified across different economic sectors. A global equity fund will be diversified across different regions of the world and different economic sectors.

23. UNDERSTANDING VOLATILITY
The concept of volatility or risk relating to specific funds is a bit vague and can be interpreted in different ways by different people.
Your interpretation of “mild risk” when talking about a balanced fund can be totally different than your client’s interpretation.
The “How risky is it?” graphic is an excerpt form the Fund Fact Statements.
It is not immediately clear what the difference is between “Low”, “Moderate” and “High” risks.

24. SUGGESTION FOR CLEAR VIEW OF VOLATILITY
Compare a fund’s average return with its annual calendar return.
Excerpt from the Investment Return table on Assumption Life’s website.
When we look at the annual average return for the Canadian equity funds shown in the table, it’s all positive.

25. SUGGESTION FOR CLEAR VIEW OF VOLATILITY
Compare a fund’s average return with its annual calendar return.
Look at the yearly return of the funds.
Are your clients ready to take such down periods as the one we saw in 2008 and 2011?
You can also click on the PDF icon for each fund. In the one-pager information sheet, the 3-year standard deviation (risk measure) is indicated for those who like statistics.

26. KNOW YOUR CLIENT
Keys to establishing a strong business Relationship with your investment clients:
Get to know their goals, priorities and expectations
Establish their investor profile
Bridge the gaps between their expectations and their profile
Establish an investment strategy
Be as clear as possible about the volatility associated with the funds you recommend by using the tools and information at your disposal.

27. FINDING INFORMATION ON OUR FUNDS

29. All of our funds will appear in one table
All of our funds will appear in one table. To consult a specific category of funds, choose the category above and click on it. Only the funds from the selected category will appear making it easier to find the funds you are looking for.
The table has different tabs that you may choose from depending on the information you are looking for: short-term returns, long-term returns, annual returns, key facts, quartile ranking, etc.
In addition to that, to the right of each fund, you will see little icons. The first one is a graph that takes you to the following screen.

30. This page offers a visual look of the return of the fund chosen
This page offers a visual look of the return of the fund chosen. You can determine the time frame you want to view and you can also compare to a specific benchmark.

31. If you click on the PDF icon, here’s what you’ll get.

32. A one-page summary of the fund with key information such as investment returns, top holdings, geographic allocation, asset allocation and economic sector allocation. This one-page summary is updated monthly and since it’s a PDF document, you can print it, save it or it. It is a great information tool.

33. WHY CHOOSE ASSUMPTION LIFE?
Competitive performance
Reduced administration fees
Sound advice
Innovative products
Diversified selection of investments
Skilled, professional managers

34. ? ?
QUESTIONS ?