2. InvestmentRisk

3. Market Risk Interest Rate Risk Credit Risk Manager Risk Inflation Risk Currency Risk Small Capitalization Equity Risk Derivative Risk International Investment Risk Sector Risk Securities Lending Risk Substantial Security Holder Risk Income Trust Risk Liquidity Risk

5. What level of risk are you comfortable with? Low risk Moderate risk High risk What does it mean?

6. Advisor Interpretation Client Interpretation Gap

7. What maximum drop in value over a one-year period are you comfortable with? 0% -5% -10% -15% -20% Other You, as well as your clients, will now know how big of a drop in value they can accept.

8. How can you determine which funds respect your clients’ risk tolerance? By using the standard deviation and the mean return.

9. Measure of variance that defines the risk of an investment by indicating by how much the actual return has varied from the mean return. The higher the standard deviation, the higher the volatility. For example: Money Market Fund0,05 Fixed Income Fund2,93 Balanced Fund7,11 Canadian Equity Fund11,87 How can you tell if the standard deviation is too high for a client? We need to know what is the mean return.

10. Mean return

11. What maximum drop in value over a one-year period are you comfortable with? 0% -5% -10% -15% -20% Autre

12. Source: « La relation entre risque et rendement », Objectif Conseiller, juin 2010 Investment Mean Return Standard Deviation One standard deviation = 68% of annual returns (approx. 2 years out of 3) Two standard deviations = 95% of annual returns (approx. 19 years out of 20) A4.0%5.0%-1.0%9.0%-6.0%14.0% B6.0%10.0%-4.0%16.0%-14.0%26.0% C8.5%15.0%-6.5%23.5%-21.5%38.5% D10.0%20.0%-10.0%30.0%-30.0%50.0%

13. Funds Standard deviation last 5 years Average of rolling one- year returns for the last 5 years Minimum and maximum annual return based on 2 standard deviations (95% of the data) MinimumMaximum Fixed Income 3.074.96-1.1811.10 Harbour Growth & Income 12.15-1.03-25.3323.27 Monthly Income 9.255.20-13.3023.70 Small Cap. Canadian Equity 22.858.29-37.4153.99 Source: PalTrak, Morningstar Canada, July 2012 Edition

14. Funds Standard deviation last 10 years Average of rolling one- year returns for the last 10 years Minimum and maximum annual return based on 2 standard deviations (95% of the data) MinimumMaximum Fixed Income 3.234.00-2.4610.46 Harbour Growth & Income 9.634.94-14.3224.20 Small Cap. Canadian Equity 18.0213.95-22.0949.99 Source: PalTrak, Morningstar Canada, July 2012 Edition

15. Such information is available on company websites or on public sites such as www.globefund.com www.globefund.com

16. Two funds in the same category with similar volatility but a different return.

18. Two funds from different categories with a similar past performance but a different volatility level.

20. The use of the standard deviation and mean return helps in the selection of appropriate funds with regards to a client’s risk tolerance. Gives the clients a clearer picture of the potential drops in value and helps prevent selecting investment options that exceed their risk tolerance. We recommend that you use at least two standard deviations in your analysis. Past performance may not repeat itself. In reality, the distribution of rolling one-year returns do not follow a normal distribution.

21. Possibility of losing money Possibility of not reaching their financial objective

22. Starting Point Objective Objective not attained

23. Investor’s Goal Investor’s Risk Tolerance To reach the goal at a specific date, the annual return must be 7%. The fund that matches the client’s risk tolerance has an expected annual return of 4%. GAP

24. You should address the gap before making an investment recommendation. What does your client prefer? A combination of these solutions can be applied. STEW Save more Take less (smaller goal) Earn more (return) Wait (reach goal later)

25. EMOTIONS

26. They don’t mix well!

28. Group A Group B Group C Group D Group E Most frequent transactions Less frequent transactions On average, Group A underperformed Group E by 7% per year. The Terrance Odean study

29. PROCRASTINATION

30. A story about two investors…

31. Similarities Average annual return of 6.00% Total amount invested over time: $36,000

32. Differences Investor A: – Investment period from age 30 to age 60 – Monthly investment = $100 Investor B: – Investment period from age 45 to age 60 – Monthly investment = $200

33. A) - Both investors end up with the same market value at age 60. B) - Investor A will have more money at age 60 than investor B. C) - Investor A will have more money at age 60 than investor B.

34. The Big Difference Investor A: – Market value at age 60 = $100,451.50 Investor B: – Market value at age 60 = $58,163.74 – To get the same end result as his friend, Investor B would have to invest $345.41 per month for a total of $62,173.80

35. Another example with a 6% annual return Investor AInvestor B Investment PeriodFrom age 30 to 45From age 45 to 60 Monthly Investment$200.00 Total Investment$36,000.00 Market Value at 60$139,392.79$58,163.75$ Required Investment to Match Investor A ---$479.31

36. INFLATION

37. The more the goal is long-term, the more impact inflation will have in the plan to reach that goal. For retirement plans, since retirement can last many years, inflation can have a devastating effect if it wasn’t taken into account in the plan. Source: Viewpoint, Lifetime income planning, Fidelity Investments

38. Indexes1 year3 years5 years10 years CPI1.5%1.8%1,7%2.0% Average Money Market Funds 0.4%0.3%0.9%1.5% Average one-year GIC1.0%0.8%1.2%1.6% Average five-year GIC1.7%1.9%2.2%2.7% It is true that “secure” investments such as those shown in the table above do not have market risk and very low, or no, volatility (i.e. negative returns). However, if the investment return is lower than the inflation rate, it results in a negative net return. Inflation is a type of risk that must be accounted for when determining an investment strategy to reach a financial goal. *Source: PalTrak, Morningstar, July 2012 Edition

39. There are many investment risks: some technical, others behavioural in nature. It is important to clearly establish clients’ risk tolerance before recommending and implementing an investment strategy. Determine if there is a gap between the risk tolerance and the financial goal and help clients make choices that will eliminate this gap.