Skip navigation

Monthly Archives: May 2015

Canada takes a step back on immigration policy

.

It’s becoming harder to become a Canadian — and that’s reason to worry.

.

By: Harald Bauder Ratna Omidvar 

Published on Mon May 25 2015

..

SEAN KILPATRICK / THE CANADIAN PRESS

.

Federal Immigration Minister Chris Alexander has overseen changes to policies on family reunification and access to citizenship that have damaged Canada’s status as a model in immigration, write Harald Bauder and Ratna Omidvar.

.

For decades, Canada has been considered an international leader in integrating newcomers. It’s a proud part of our national narrative. But new data shows this long-established wisdom may no longer hold true.

.

The new data from the Migrant Integration Policy Index, or MIPEX, which will be officially released at Ryerson University on Wednesday, reveal that Canada’s performance has declined. Yes, our score dropped by only one point, but this is Canada’s first dip since it was added to the index in 2008.

.

The one-point drop marks a turning point in our trajectory as a leader among countries that welcome newcomers. And it is likely only the start. It comes at the end of a decade of seismic change in Canadian immigration, the results of which we are only beginning to see.

“Canada’s lower MIPEX score raises serious questions about the intentions and impact of the government’s new turn on immigration policies,” said Thomas Huddleston of the Migration Policy Group in Brussels, which compiles the index scores and has been tracking international performance since 2006.

.

Over the last year, the Ryerson Centre for Immigration and Settlement and the Global Diversity Exchange contributed to the index by collecting information on newcomer integration along a range of social and political dimensions.

We found that, especially on the issues of family reunification and access to citizenship, Canada is moving backwards.

.

Becoming a Canadian is harder now than it was just a few years ago. The MIPEX scores indicate a steady decline in “access to nationality” from 71 points (out of a maximum of 100) in 2010 to 67 points in 2015. On the question of whether Canadian citizenship and status is “secure from state arbitrariness,” Canada scores a meagre 23 points, well below Australia, New Zealand, the United States or the European average.

.

This poor performance reflects recent policy changes. Ottawa has raised the fee for citizenship applications to more than $500 for an adult (a markup of 430 per cent since 2013) and made the citizenship test more difficult to pass. For the first time, Ottawa is now able to revoke Canadian citizenship from dual citizens if they are deemed to have committed certain crimes against the state. The government’s choice of revoking citizenship as opposed to using the existing criminal justice system is an indication of its tendency to view immigrants as something other than Canadians, even when that’s what they are.

.

The consequence of Ottawa’s restrictive policies is that fewer immigrants are becoming Canadian citizens. An estimated 26 per cent of immigrants who landed in Canada in 2008 became Canadian citizens. This figure compares to 79 per cent who landed in 2000. Is that a problem? It is when these non-citizens are paying taxes, sending their children to school, and are committed to Canada, in big ways and small.

.

Although Canada has traditionally scored highly on family reunification, its scores are declining there too. Of particular concern, the score measuring eligibility for sponsoring family members dropped from 79 in 2010 to 64 in 2015.

.

It is now more difficult for immigrants to sponsor their loved ones. In 2013, Canada admitted almost 80,000 newcomers, or 27 per cent of all immigrants to Canada, under the family stream. These immigrants are crucial to a successful settlement and integration experience because they provide social supports ranging from supplementary income to daycare and emotional assistance.

.

Ottawa has made numerous recent changes to family reunification policies. These measures include raising the sponsorship commitment from 10 to 20 years, increasing the income requirement for sponsoring parents and grandparents by 30 per cent, and instituting a longer period during which a sponsor must meet this requirement. These restrictions, according to the MIPEX report, “expect immigrant families to live up to standards that many national families could not.”

.

The younger generation too will find joining their families in Canada more difficult. The federal government reduced the age of dependants from 22 to 19, and exceptions for full-time students or financially dependent children are no longer made.

.

Ottawa has failed in our eyes to provide a convincing justification for these changes. Many dependants and elderly family members seem to be excluded not because they would be eligible for social benefits but simply because they are from low-income families.

.

Canada has a story of exceptionalism to tell and it is widely regarded by others as model in how it manages immigration and succeeds in integrating immigrants. However, the evidence now tells another story, one that is somewhat more tarnished than we know.

.

The new data signals a shift and encourages us to reflect on the most alarming trends and redirect where necessary. But there is good mixed in with the bad. Canada still leads in labour market integration, anti-discrimination and creating a sense of belonging for newcomers. The one-point drop is smoke and not fire.

.

Harald Bauder is academic director of the Ryerson Centre for Immigration and Settlement and a professor at Ryerson University. Ratna Omidvar is executive director of the Global Diversity Exchange and Adjunct Professor at the Ted Rogers School of Business Management, Ryerson University.

 

Advertisements

Ivey’s Executive MBA program

.

UNIVERSITY OF WESTERN AT LONDON, ONTARIO

 .

Snelgrove, Liz

To  ‘danzwicker@rogers.com’ 

CC  Norman, Annaka

May 25 at 8:51 PM

.

Dear Dan,

.

Many thanks for your interest in Ivey’s Executive MBA Program and for submitting your resumé for our review.  It is evident from your resumé that you have developed strong experience in your field.  Based on this experience, and your educational qualifications, I believe that you may be a candidate for Ivey’s Executive MBA program.  

 

Part of our assessment is to determine if you are required to write the GMAT.  I am pleased to inform you that due to your extensive work experience, you are not required to write the GMAT as part of your application to Ivey.

 

We are currently accepting applications for our next intake which begins on August 30th.  We are very happy to assist you in completing your application and I’ve attached a document which outlines the process.  Once you’re ready to begin your online application please visit http://apply.iveyemba.com.   I’ve copied my colleague, Annaka Norman, EMBA Admissions and Marketing Coordinator, on this email.  Annaka is available to assist you in making sure all components of your application are collected prior to submitting your file to the Admissions Committee.

 

To learn more about Ivey’s Executive MBA program, I invite you to attend an upcoming information session.  To register, please visit our website http://www.ivey.uwo.ca/emba/attend-an-event/.

 Liz Snelgrove, MBA

.

A PERSONAL NOTE:

.

55 YEARS AGO WHEN I GRADUATED WITH A BACHELOR OF SCIENCE (HONOURS) IN CIVIL (STRUCTURAL ENGINEERING) AN MBA WAS NOT A FEASIBLE OPTION FOR ME.

I WAS ANXIOUS TO PUT MY TRAINING INTO PRACTICE.

HOWEVER, IT IS A CHALLENGE THAT I AM WEIGHING.

THE MORAL OF THE STORY IS THAT A PURPOSE FILLED LIFE TRUMPS AGE.

the UNOFFICIAL LEADER of the OPPOSITION

Chief Justice Beverley McLachlin may be the most powerful woman in Ottawa, and the biggest thorn in Harper’s side

National Post 

23 May 2015

By Joseph Brean

The courts have to be respectful of Parliament’s role and the executive’s role, and I think you can see this in our decisions

In the hallway that leads to the corner chambers of Canada’s chief justice, Beverley McLachlin, the view to the right is all red velvet dignity.

.

Portraits of chief justices past — Antonio Lamer, Brian Dickson, Bora Laskin — hang in oracular grandeur on stone walls, with an empty spot awaiting the mandatory retirement in 2018 of “McLachlin C.J.,” as she is styled, the first woman and longest-serving chief, whose court is on a roll of momentous rulings about life, death, freedom, and fairness, often against the wishes of government.

The view to the left, however, is a reminder that she and her eight colleagues are not so aloof as they seem, for outside the windows, down in an interior courtyard of the Supreme Court of Canada, there is a badminton court.

Taking in such contrasting views is key to appreciating McLachlin’s career as a judge, which coincides almost exactly with the lifespan of the Charter of Rights & Freedoms, Canada’s foundational statement of values. It is precisely what she does on the bench. To her, judgment is not a coldly neutral evaluation of competing positions, robotically free of passion or perspective. It is an engaged, human act of imagination.

“What you have to try to do as a judge,” she says in an exclusive interview, “whether you’re on charter issues or any other issue, is by an act of the imagination put yourself in the shoes of the different parties, and think about how it looks from their perspective, and really think about it, not just give it lip service.”

.

She describes it as “conscious objectivity,” and it is a major factor in her court’s rise to almost unprecedented levels of public scrutiny, interest, admiration and occasionally resentment.

By a purely quantitative measure, the government wins here more than it loses — about two thirds of the charter cases it fights. Politically, however, it wins small and loses big.

Recent headlines scream out the trend. On prostitution (Bedford), assisted suicide (Carter), mandatory minimum gun crime sentences (Nur), Senate reform and, just this month, whether Omar Khadr deserves an adult sentence, the government has lost on key elements of its party’s platform. The ugliest was its effort last year to elevate Federal Court judge Marc Nadon to the Supreme Court, which the top court struck down because he did not qualify as a Quebec appointee. That led to competing press releases about who did what when, and the revelation that Prime Minister Stephen Harper refused to take a call from McLachlin, whom he called sniffily “a sitting judge,” despite a long tradition of private consultation on such matters.

“Governments have always suffered defeat at the hands of the court,” says Emmett Macfarlane, a political scientist at the University of Waterloo who specializes in the role of the top court. “What is unique about the Conservative government is that there have been a string of highly salient losses in two areas.”

One is the Conservative Party’s law and order agenda, often in the case of criminal appeals. The other is institutional reform, such as the recent ruling against Senate term limits and elections, which Harper criticized as enforcing an unworkable status quo. It also torpedoed a long-standing Tory platform plank.

All this has solidified an image of the court as the government’s nemesis, with McLachlin as its fearless, indomitable leader. In this majority government, she sometimes seems like leader of the opposition.

Tom Mulcair holds the role, technically. Casual observers could be forgiven for thinking it is Justin Trudeau. Senators really ought to keep their heads down at the moment. That leaves the Supreme Court as the most potent democratic challenger to the questing prime minister, the only one that can actually ever stop him. The rest just build the dramatic tension.

The Supreme Court of Canada was not always supreme. Until 1949, its rulings could be appealed to the Judicial Committee of the Privy Council in London. Laskin described it as a “captive court,” with barely any doctrine of its own other than perhaps in criminal law. Most cases were commercial disputes, with interpretation of statute a lesser priority, and overturning the government a rarity. Judges were political appointees.

It was not until the passage of the charter in 1982, and its equality section in 1985, that the court became as prominent and active as it is today. In a way, the charter embodies the judicial independence of Canada. It set out national values, then gave them voice and impact through the court on issues from the decriminalization of abortion in 1988 to the rapid expansion in gay and lesbian equality through the 1990s.

As Macfarlane writes in his book Governing From The Bench, the Supreme Court “has evolved from a largely legal, dispute-resolving body into a policy-making institution whose decisions have far-reaching implications for virtually all areas of Canada’s political, social, cultural and economic life.”

This is the era in which McLachlin rose like a helium balloon through the judicial ranks. In at least one instance, she heard a case in Vancouver, then beat the appeal to the Supreme Court.

It was not an obvious path. Born in 1943, one of five children, she was raised by devout Pentecostal Christians who operated a ranch in Pincher Creek, Alta., a small town between Lethbridge and the Rockies.

She recalls a high school teacher’s appalling advice. “You’ve got the highest reading retention scores we’ve ever seen, but a girl can’t do much with that,” the woman said, adding whatever she did, she should not become a waitress or telephone operator because her attention was poor.

McLachlin became neither, instead studying languages and philosophy, and later law, at the University of Alberta. It was there that she met and married Roderick (Rory) McLachlin, a biologist, and after being called to the Alberta bar in 1969, she moved with him briefly to the northeastern British Columbia town of Fort St. John, where she practised law.

Soon, they moved to Vancouver so she could join a major firm, and in 1975, she started teaching law at the University of British Columbia, focused on rules of evidence.

The next year, their son Angus was born, and with Rory handling much of the child care, her career took off: in 1981, she was appointed to county court in Vancouver, then elevated to the B.C. Supreme Court the same year; in 1985, she became the first woman justice on the B.C. Court of Appeal.

Rory died of cancer in 1988, a few days after she was appointed chief justice of the B.C. Supreme Court. But even that devastating loss did not impede her ascent. The following spring, then-prime minister Brian Mulroney called to offer a seat on the Supreme Court.

In 1992, she married Frank McArdle, a lawyer and executive director of the Canadian Superior Courts Judges Association. She became chief justice in 2000.

It has now been decades since she lived on a ranch, but McLachlin still has a reputation as a farm girl who knows the weight of mud on her boots.

Eugene Meehan, a lawyer at Supreme Advocacy and former executive legal officer at the Supreme Court, describes her character as tough, independent, competent, “the kind of lady who would bag her own groceries.”

But describing her jurisprudence is trickier. Meehan uses terms of art, pointillism and chiaroscuro, to describe the effort as artistic as much as intellectual.

The dominant theme in her career, the interpretation of the charter, reflects this union of principle and imagination. The charter is the human core of Canada’s constitution, famously regarded by judges as a “living tree,” to be interpreted in a way that grows and adapts to changing times.

It is also a mechanism through which courts can decide that a law, duly passed, is “ultra vires,” literally “beyond the powers,” and thus strike it down — either killing it outright, or forcing its legislative improvement.

From the beginning, McLachlin embraced this brave new style of judicial oversight. In one of her last trials in Vancouver, she heard the case of a male teacher accused of sexually assaulting a 13-yearold boy (not his student). The teacher’s defence — that the boy was the aggressor who performed sex acts on him as he remained passive, and had earlier been in a similar situation with other men who were convicted, which put a different spin on the boy’s presence in his apartment — was impossible to argue.

According to the law as it was, the boy was too young to consent to any sex with someone more than three years older, and no alleged victim could be cross-examined about sexual history with other people.

McLachlin struck down both laws. The first discriminated based on age, she found, and the second denied the man a full and fair hearing.

Her ruling was later overturned, and the teacher eventually acquitted, but the revolutionary wheels of charter jurisprudence had been set in motion.

The Supreme Badminton Court of Canada is not often used. Looking out the window behind McLachlin’s desk, however, east toward Parliament Hill, you can almost imagine a great game of legal badminton, in which Parliament lobs a passed vote across the clifftop, only to see a judgment come whizzing back. In democracy, as in badminton, keeping the birdie aloft is competitive and cooperative.

“Democracy is a complex affair,” McLachlin says. “You simply have to have courts there to resolve the various, not only legal issues that arise in the course of applying the law, as would be the case in any democracy, but also the constitutional issues, be they division of powers or interpreting the fundamental rights and obligations set out in the charter. So you could not conceive of a functioning Canadian democracy without the court, and without a strong and independent court.”

Of course, this also allows for cycles of conflict between government and the bench.

Chess theorists of Harper’s strategy see a method here, of legislative over-reach to invite the campaign storyline of judicial activism.

At best, his government seems not to care that its most “spectacular” losses reveal a persistent disregard for the rule of law, says Audrey Macklin, a University of Toronto law professor. At worst, it seems to regard the court as an “arbitrary obstacle” to its agenda.

The government is comfortable in this tense, adversarial relationship because it can then present itself to voters as trying its best and not failing so much as being thwarted, says Carissima Mathen, a law professor at the University of Ottawa. This is new, she says, and the change has been with the government, which takes rigid and uncompromising “all or nothing” stances that are tougher to win in constitutional law, which is based on the dynamic of balancing rights. Compromise rarely seems an overt goal.

“I have to wonder if some of this is very conscious,” she says.

The day before McLachlin’s interview, Justice Minister Peter MacKay slagged off her court in an op-ed for overturning mandatory minimum gun sentences. That ruling, known as Nur, boldly announced that the government’s law and order agenda would not trump actual law and constitutional order, and offered one of the cheekiest hypothet- icals in recent jurisprudence.

In effect, the majority judges kicked the mythical duck hunter of Canadian electoral politics back at the government that loves him so well. Such a person, a “licensed and responsible gun owner,” might make a mistake about where and how he stores his ammunition, with “little or no moral fault and little or no danger too the public,” but he would still be caught by this law. That is “totally out of sync with the norms of criminal sentencing,” the court ruled, and thus unconstitutional.

Mackay criticized this “farfetched hypothetical scenario,” and said he preferred the view of the dissenting minority. Macklin says this kind of thing “shows a lack of respect for the independence of the judiciary.” But McLachlin sees it differently.

“The government of the day or anyone else has the right to say they don’t agree with a court decision,” she says. “What I think should be the case is that this is done in a respectful way.

“The courts have to be respectful of Parliament’s role and the executive’s role, and I think you can see this in our decisions. We’re often giving a measure of deference to ministerial decisions. We often say — and it’s not just lip service — that Parliament has a right to make these and other choices. I think the people in government have to treat the courts with respect, otherwise we will undermine our system and it won’t work very well.”

She thinks this has been successful, and whatever tension exists has no discernible effect on rulings. The next day, for example, the Supreme Court reinstated extradition orders signed by Mackay for two men New Hampshire wants to try for murder. The day after that, it reinstated a Harper judicial appointment in a similar case to the Nadon debacle.

Despite the chief justice’s air of equanimity, there are those who look for a political agenda in her court’s rulings, and see a deliberate pattern in the political losses.

If there is any perceived trend in McLachlin’s legal thinking, it is that she emphasizes access to justice, and individual rights and liberty. She is thought to be slightly to the right of the genial Rosalie Abella, and slightly to the left of the gruff Michael Moldaver — the opposite of their seats on the bench. But for every grasp at an ideological decryption of her work, a counter-example announces itself.

The same is true for her court. Though there are longstanding rumours about voting blocs — in the 1970s, Laskin, Spence and Dickson were know as the LSD Connection for their dissents, and in the 1990s, Lamer, Sopinka, Cory, Iacobucci and Major were known as the “Gang of Five” for their majorities, often in favour of the criminally accused — McLachlin thinks they are an amusing fiction. She even feels disappointed for the press when they cannot discern these patterns, and not for lack of looking, especially now that Harper is about to make his eighth appointment after the resignation of Marshall Rothstein, who was his first.

“I just shake my head, because we aren’t the United States,” she says. “It’s not part of the Canadian tradition, perhaps because we’re slightly less political in our orientation. People here aren’t appointed because they represent a certain point of view.”

.

For example, when human rights hate speech laws came up for review in Whatcott, 20 years after they were upheld as valid limits on free speech, there was speculation McLachlin’s earlier dissent would become the majority view. It did not, and the provincial laws still stand. But when assisted suicide came up again, she led a unanimous court in striking down the ban, just as she advocated in dissent the first time.

Winning is not a judge’s goal, but there is a certain satisfac- tion in this for the chief.

“Only in a secondary sense, you know,” McLachlin says. “As a judge, and I’ve been a judge for a long time, I have always resolved to just try to judge the issues as honestly as I can, and not to think about things in too strategic a manner. My job is simply to listen to what the parties have to say, and to do my best to understand the position, the ramifications of deciding one way or the other, to think about what’s best for Canadian society on this particular problem that’s before us, and give it my best judgment after listening to, also, my eight other colleagues. So there’s a consensual element there.”

“But if at the end of all that dialogue and discussion I still feel (in dissent), as I did for example in Rodriguez, the first case on assisted suicide, I had no regrets. I knew it was a very difficult question, a heartwrenching question, and the process had been excellent. We had had enormously deep and anguished sometimes discussions, and it came out 5-4, and I said the process was good. I decided the way I thought but I respect my colleagues decision the other way. When it came back (in the recent Carter decision), I said I’m going to give it the same process and apply the same approach, and it came out differently.”

This focus on process has been key to recent major rulings, from Senate reform to judicial appointments. While McLachlin is often described as principled, it is usually meant as more pragmatic than visionary.

Matthew Gourlay, a criminal defence lawyer who clerked with her in 2008-09, says the court’s more frequent unanimous judgments are a by-product of her conciliatory leadership style. Gone are the “ugly decisions,” split four ways, with dissents within dissents. Now the court seems to speak with one voice, even when its decisions are split.

This is largely McLachlin’s achievement. It rebuts complaints that she leads an activist or obstructionist court, and it goes some way to explaining why there has been no discernible rightward shift over the last decade, even though she and Abella are the only justices who were not nominated by Harper.

In the future, she foresees “a few tussles” about privacy rights in the digital sphere, but other than this vague prediction, she is clear her court does not seek out topical issues.

“We are totally passive,” she says. “We look at it (a case), and if it’s important, we take it. Sometimes you might wish to duck one. But we can’t.”

They can, however, swat a few back at the government.

When McLachlin joined the Supreme Court in 2000, and photographers asked the three female judges for a photo together, the late Bertha Wilson, the first woman on the top bench, leaned over to her and whispered, “Three down, six to go.” It was a joke that would soon grow stale as McLachlin took the centre chair and the gender imbalance was largely resolved, though a racial one remains.

“I think the court belongs to the Canadian people and it should reflect the Canadian people,” McLachlin says, not only to convey an impression of balance, but to bring in perspectives that were so long absent from the judicial imagination. But she admits to having personally underestimated the symbolic impact of a woman as chief justice. It came as a surprise how much it means to people, especially new Canadians, who bring their daughters to meet her on Canada Day, seeing inspiration in this figure, at once diminutive and towering.”

“They express wonderment and pleasure that they live in a country where this could happen,” she says.”

 

WE ARE MOVING OUT OF TRANSACTIONAL FINANCIAL SALES TO PROFESSIONAL FIDUCIARY ADVICE

https://beyondrisk.wordpress.com/2015/01/27/we-have-moved-out-of-transactional-sales-to-professional-fiduciary-advice/

.

Most consumers want advice when buying insurance

by Andrew Rickard

THE INSURANCE AND INVESTMENT JOURNAL

JANUARY 2016

.

A worldwide survey has found that 93% of consumers want professional advice when buying life insurance.

.

ReMark International, an insurance marketing company owned by the French reinsurer SCOR, surveyed 8,000 consumers in 14 different countries and found that nearly all insurance buyers want to receive some level of advice when they purchase life insurance. The number of people who purchase products entirely on their own remains marginal. In fact, the number of “execution only buyers” has declined slightly, dropping to 7% from the 8% recorded in last year’s survey.

.

ReMark divides the remaining 93% of advice-seeking customers into three categories. There are “professional advice buyers” who select advisors according to their qualifications, independence, or fees (50% of customers, up from 38% last year), “traditional advice buyers” who choose an advisor based on a personal recommendation or referral (30% of customers, down from 43% last year), and “guided direct buyers” who buy direct but need significant support during the process (13% of customers up from 12% last year).

.

“In short, customers value the quality of advice, hence the emphasis on advisors’ qualifications,” reads the report. “Our research suggests customers want to make an informed decision but still prefer someone helping them with the (at times, tedious) process of insurance application.”

 

READY TO RETIRE? ARE YOU SURE? DO YOU HAVE WHAT IT TAKES?

.

IT TAKES $1,000,000 AT 5% PER YEAR TO GENERATE $50,000 PER YEAR INDEFINITLY WITHOUT ENCROACHING ON YOUR $1,000,000 OF CAPITAL.

.

IT TAKES SAVING $7,800 PER MONTH 

COMPOUNDING AT 5% MONTHLY

  FOR 40 YEARS TO ACCUMULATE $1,000,000.

.

DO YOU HAVE WHAT IT TAKES?

News Reports and Commentary from and about 

.

Israel and the Jewish  World

.

Published  by:

.

THE TORONTO  ZIONIST  COUNCIL

We don’t need open relations with the Arabs. We get more behind the scenes than we will ever receive in front of them. And the Palestinians aren’t the key to good relations with the West.  They are  they are the justification for the anti-Semitism.

 .

COMMENTARY:

.

Israel’s Peace Fantasists in Action

By Caroline Glick

.

In a clear vote of no-confidence in US President Barack Obama’s leadership, Saudi King Salman led several Arab leaders in blowing off Obama’s Camp David summit this week. The purpose of the summit is to compensate the Sunni Arabs for Obama’s nuclear deal with Iran.

.

Salman’s decision is further proof that US-Saudi relations have jumped the tracks . For seventy years the Saudis subcontracted their  national  security  to  the  US  military.  Deals  were  closed  with  a wink  and  a nod. That’s all over now.

.

Obama has destroyed Washington’s credibility.

.

Salman views its gentlemen’s agreements as worthless. All he wants now is military hardware. And for that, he can send a stand-in.

.

For seventy years the Saudis have played a double game, maintaining strategic alliances both with the l iberal West and the most reactionary forces in the Islamic world. The Saudis p ocketed petrodollars from America and Europe and transferred them to terrorists andj ihadist preachers in mosques in the US, Europe and worldwide.

.

Although  for outsiders the worldview of the theocracy  governing Saudi Arabia seems all but identical to the worldview of the Muslim Brotherhood, the    Saudis    consider  the Brotherhood  a mortal foe. The Saudis claim that their   tribal ,  top-down   regime   is  the genuine expression  of Islam.

.

The Brotherhood’s populist, grass roots organization rejects their legitimacy. And so, since the Arab revolutionary wave began in late 2010, the Saudis opposed the empowerment of the Muslim Brotherhood. The Saudis are the primary bankrollers of Egyptian President Abdel Fatah al-Sisi’s regime.

.

During Operation Protective Edge last summer, the Saudis sided with al-Sisi and Israel against Hamas – the Palestinian branch of the Muslim Brotherhood and its Turkish and Qatari state sponsors.

.

Although Saudi Arabia had previously been a major funder of Hamas, that backing ended in 2005 when -following Israel’s withdrawal from Gaza – Hamas forged strategic ties with Iran .

.

For the past five years, the Saudis worked against  both  the  Muslim  Brotherhood  and Iran.  But   in   recent   months   they   beo0an reconsidering their two war approach .

.

With the Iranian-backed Houthis’ takeover of Yemen – and the US’s conclusion of its framework nuclear deal with Iran – the Saudis apparently determined that weakening Iran takes precedence over fighting the Brotherhood . With its Houthi proxies in Yemen deployed along the Saudi border abutting Shiite majority order provinces – and fighting for control over the Bab el Mandab – Iran now poses an immediate and existential threat to Saudi Arabia.

.

Moreover, as the Saudis see it, the threat posed by the Brotherhood has severely diminished since al-Sisi began his campaign to destroy its infrastructure  in  Egypt.

.

So long as al-Sisi continues weakening the Brotherhood in Egypt and Libya, the Sauudis feel safe working with the Brotherhood and its state sponsors Turkey and Qatar in Syria and  Yemen .  To  this  end  – much  to Washington ‘s dismay – the Saudis are willing to back a consortium of rebel groups in Syria that include the al-Qaeda linked Jabhat al Nusra.

.

The Muslim Brotherhood and its terrorist offshoots are not the only strange bedfellows the Saudis are willing to work with in their bid to neutralize  Iran.

They have also signaled a willingness to work with Israel. Wh ile Israel should be willing to reciprocate Saudi overtures, there are institutional impediments to constructive cooperation .

.

For more than twenty years, Israel ‘s policymaking community has been intellectually  ensnared  by  the  notion  of peace.

.

As a consequence, the concept of joint action based on shared interests has become almost incomprehensible. Many senior officials believe that the only way for  Israel to collaborate with its Arab neighbors is by first   signing   a   peace   treaty    with  the Pal estinians. So long as such a peace treaty eludes us, no real  cooperation  is possible.

.

This  is the reason  why  Labor  head  Bugie Herzog  and  Yesh  Atid  leader  Yair  Lapid, responded   to   the   stunning  support  Israel received  from  Egypt,  Saudi  Arabia  and  the UAE  during  Operation  Protective  Edge  – not with  a simple nod  and smile – but with the idea that what we all need to do to follow up with a regional peace  conference  where the  Egyptians ,  Saudis  and  the  UAE  could join  the  West  in  condemning   Israel  for failing to cough up Jerusalem.

.

The problem is that the security establishment is committed to the notion that Israel’s international position is a function of the state of our relations with the Palestinians.  lf  we    appease  the Palestinians then people will develop ties with  us. If not, they will blackball us.

.

This  week,  Dr.  Mark  Heller ,  a  principal research associate at the Institute for National Security Studies,  gave  expression   to  this popular assessment in an article he published on the institute’s website including  Saudi  Arabia  – share common interests, and it is possible that due to those joint interests “potential  may exist for expanded ties,” and nothing significant can come from those ties so long as Israel refuses to appease the Palestinians .

.

In his words, ‘Those [who reject making such concessions to the Palestinians ] should at least refrain from indulging in the fantasy that Israeli involvement in a  regional response to Israel’s challenges; – the Iranian threat, Islamist radicalism, American fecklessness , or anything else is a substitute for movement on the Palestinian issue rather than  a consequence  of it.”

.

Not only is this thinking wrong, given the chaos in so much of the Arab world today, IT IS DANGEROUS.  With  all  the  Arab regimes teetering on the edge or seriously threatened by rising jihadist forces, talk of peace treaties, overt ties and normalized relations between Israel and its neighbors is not merely irrelevant, it is dangerous. Going public with ties to Israel could endanger the regimes maintaining them.

.

Israel’s reason for wanting to work with the Saudis and their neighbors is the same as their reason for wanting to work with us. Together we can weaken Iran more than we can separately.

.

If the Saudis oppose open ties with Israel because they are threatened by jihadists, Israel should oppose ties because they are collaborating with jihadists . The greater the expanse of our joint efforts, the greater the threat  of  blowback.   On  the  other  hand,  if limited joint operations are successful, then the bilateral impetus for future cooperation will grow.  As to the  Palestinians;  suffice it to note that the agenda for Obama’s summit with the representatives of the Gulf Cooperation Council makes no mention  of the  Palestinians.

.

If the Palestinians do arise as an issue at Obama ‘s summit this weekend, it will be because the Americans raised it. The Arabs for their part – will cluck their tongues and denounce Israel in unison for a bit, and then clear their throats and move on to a subject that interests them.

.

And  this  brings  us  back  to  the   Israeli diplomatic-security brass and their antiquated notions about what makes our Arab neighbors tick.

.

Israel today is confronted by two strategic threats that have little-to-nothing to do with each other. On the one hand we  have Iran. On the other hand we have the international campaign to delegitimize Israel ‘s right  to exist. Iran is a regional threat.

.

The threat of delegitimization emanates mainly from Western countries acting hand in glove with the PLO. What we learn from arguments like Heller’s is that many  in the top echlons of our diplomatic-security community view them as interconnected. This is a problem because treating them as such only makes things worse.

.

Iran is principally a physical threat. The center  ogravity    of    any strategy   for contending with Iran involves physically blockmg Iran ‘s territorial advance in the region and its acquisition of nuclear bombs.

.

Cooperation  between  Israel  and  the  Gulf states would  consequently take place on the ground – far away from television cameras. The   public dimension of a strategy of blocking Iran’s    regional and  nuclear advances  –  continuously   sounding  the alarm  regarding  the  threat Iran poses  to international security is not an end unto itself. The purpose of these warnings is to develop the political maneuver room to enable actions on the ground.

.

In contrast, a coherent strategy for combatmg the delegitimization threat requires Israel to act almost entirely above ground. To defeat the manifold forces seeing to cast Israel out of the community of nati0ns, Israel must expose and discredit the goals of the campaign, the political forces leading it and their sources of finance.

.

The problem is that in order to adopt a competent strategy for countering the delegitimization campaign, Israel ‘s senior officials first need to understand what is happening. And here the        Palestinians are relevant to the discussion.

.

Ever since the UN ‘s diplomatic pogrom at Durban, South Africa in August 2001  just a year after the peace process blew up at Camp David, the Palestinian conflict with Israel became part and parcel of a broad based campaign to deny Israel’s legitimacy and right to exist.

.

For 14 years Israel has failed to forge coherent and successful policies for contending with this state of affairs because our senior officials refused to acknowledge what had happened and have instead insistently argued that the campaign against us is somehow related to a future peace with the PLO.

.

We saw just how absurd this view has become earlier this  week  when  one  of the principal PLO  negotiators, the terroristturned security bossturned international soccer aficionado Jibril Rajoub, the current head of the Palestinian soccer federation , made real progress in his longstanding bid to get Israel expelled from FIFA.

.

Rajoub  understands  that  any  success  he garners in his operation will  have a cascade effect on the overall campaign to expel Israel from the community of nations.  Rather than open a counteroffensive,  based among other things on exposing Rajoub’s true nature – he is a man whose hands are anything but clean – and making him persona non grata in polite company, Israel chose instead to pretend  he isnt our enemy and deal with this quietly . The same officialdom  that wrongly viewed Rajoub  as  a peace  partner in the  1990s, cannot  accept  that  he  is  our  enemy, hell bent 0n using political warfare as a means of destroying Israel. The officialdom that still believes Israel’s legitimacy is tied to its ability to appease the PLO cannot understand that the PLO has no reason to exist outside the campaign to destroy Israel ‘s legitimacy.

.

The Iranian threat does share two common features with the delegitimization campaign. Both threaten Israel ‘s existence, albeit in different ways. And both require strategic operations that contradict the central guidepost of Isra eli strategic thinking/or the past twenty years.

.

We don’t need open relations with the Arabs. We get more behind the scenes than we will ever receive in front of them. And the Palestinians aren’t the key to good relations with the West. They are the justification  for anti-Semitism.

.

We have the means to handle both threats. But doing so requires that we first put our long held delusions behind us.

( 1 st published in The  Jerusalem Post.)

The debt ‘crisis’ in Canada? If your paycheque is $100,000 plus, that means you

Theresa Tedesco

Financial Post

May 8, 2015

They are professionals with university degrees, living in thriving economic regions like British Columbia, Alberta and Ontario, and earning at least $100,000 a year. They are also in hock for close to two times their annual salaries.

Four myths about Canadian household debt — and a few unpleasant truths

Few financial issues create as much angst in this country as household debt. So how bad is it? BMO crunches the numbers

According to newly released data from Statistics Canada, 71 per cent of all Canadian families carried some form of debt in 2012 — yes, that includes mortgages, but it also includes a growing pile borrowed to buy cars, new kitchens and many of the fashionable material trappings of the modern middle-class lifestyle.

What that means is that the vast majority this debt isn’t due to out-of-control credit cards or the working poor digging a hole just to pay for groceries. The Canadian debt nation is mostly made up of middle and upper earners.

It wasn’t always that way. Canada used to be known as a nation of savers: In 1982, we stockpiled 20 per cent of our annual income. But by 2014 that rate was down to 3.6 per cent – and at the end of last year our combined debt was $1.82-trillion, greater than the total value of what we produced in goods and services.

Today, households with at least $100,000 or more in total income account for 37 per cent of all debt in Canada. Households with income of at least $50,000 but less than $100,000 represent 38 per cent.

Even Americans, who we like to think are more spendthrift than us are managing to save more than Canadians. In fact, we are second only to Greece in the growth rate of household debt.

Not surprisingly this has spurred major international watchdogs like McKinsey, Fitch and Moody’s to call our consumer debt level “unsustainable,” and in “urgent” need of monitoring. But is our new relationship to debt really a crisis – or a new, necessary, normal?

More than ever before, Canadians are socialized into debt at an early age and are living with it longer, sometimes through an entire life cycle. By the time most young people graduate from high school, they’re already taking on student debt to get through college or university, have credit cards, and are responsible for car loans or leases.

And once they move on to mortgages they have so much debt they may carry it through to retirement: Statscan found that the number of families 65 and over carrying debt had jumped from 27 per cent in 1999 to a whopping 43% in 2012.

Craig Alexander, senior economist at Toronto Dominion Bank is matter of fact about that reality: “We made debt almost free,” he says. “We shouldn’t be surprised that debt has risen.”

But a lifetime of easy money isn’t just used for instant gratification. It’s noteworthy that borrowing for short-term spending is actually on the decline ­ personal loans fell more than 16 per cent last year according to a report by the Royal Bank of Canada, and even credit card debt slowed in the last quarter of 2014, rising only 2.7 per cent.

Louise Wallace, who runs a marketing and design business in Salmon Arm, B.C. describes her family as middle class – “Every average that is out there, I’m pretty much right on it,” she says. But after going back to school in her 30s and becoming an entrepreneur she found herself so deep in debt that she ran a blog for a year called 365 Debt Defying Acts, with daily tips to help others (and herself) cut down what she owed.

Canadian culture has shifted to a point where debt is much more acceptable

“I certainly dispute this idea that my debt is a result of bad choices,” she says. “My debt is a result of trying to build a living. I’m not jetting off to Mexico, and buying big screen TV’s.

The vast majority of household debt is actually for what many of us consider the basics of middle class life: education, cars, and most significantly homes. Incomes haven’t gone up much, but prices have, so credit has filled the yawning gap.

The car loan business, for example, ballooned to $64-billion from just $16.2-billion seven years ago. Renovation spending has also been climbing for 15 years – hitting a record $63.4 billion in 2013, 3.7% of total Canadian gross domestic product. And installment loans – now available for everything from skidoos to funerals – have spiked.

Mortgage debt, however, is what is truly driving debt nation. As Jim MacGee, professor of economics at University of Western Ontario in London, explains, “The primary reason that household debt has gone up so much is because housing prices have risen so dramatically. It takes more debt to purchase the same house today than it did in 1999, because housing prices have increased more than the amounts that mortgage rates have declined.”

That’s obviously great news if you own a home ­ particularly if you’re at an age where you can liquidate those assets and downsize in the near future. While some seniors carry debt into retirement, according to a study by the Bank of Montreal others now enjoy nine times more wealth than 25-34 year olds, up from a wealth gap of four times in the 1980s.

For many younger Canadians, the fear is that the gap will only get bigger, and houses more expensive. So they’re stretching their budgets on homes they might not otherwise feel they can afford, says David MacDonald, an economist with the Canadian Centre for Policy Alternatives. “It’s not worth saving up because you’d have to put off home ownership for much longer,” he observes.

Really, the only way for many younger Canadians to finance the middle class life they’ve grown up with is to borrow. “On average, younger Canadians are developing an awareness of debt by necessity, which is a new development that wasn’t there before,” says Paul Kershaw, professor at the University of British Columbia’s School of Population & Public Health.

Of course a life funded on borrowed cash has considerable risks. Consider that between 1976 and 1980, the typical 25- to 34-year-old working full time spent 38 per cent of their annual income on housing. From 2006 to 2010, the same group had to allocate 46 per cent of their annual income to pay the average mortgage, according to a research paper published by Prof. Kershaw.

That leaves a huge proportion of Canadians vulnerable to fluctuations in borrowing rates. Even so, experts do not see U.S.-style foreclosures if interest rates go up. They believe it would slow down the economy as more consumers skip purchases to pay off their houses ­ but not spark a full-blown financial meltdown.

 

RETIRED LIFE

.

NOW WHAT?

.

You spend years preparing your clients for this moment, but what does the next chapter look like for advisors? Deanne Gage found out from  longtime financial industry professional Jim Rogers

.

Jim Rogers, 70

.

Chairman and founder, Rogers Group Financial, Vancouver

.

Years in the Business: 44

.

Retired for : five years

.

Why I retired

.

From age 55 to 65 I spent more than half of my working time as an elected volunteer leader of CAIFA (the Canadian Association of Insurance and Financial Advisors, now Advocis and MDRT.

.

During that time, I put in place an effective leadership group at Rogers Group Financial. They did an excellent job 0f running our company day to day in my  absence.

.

So why come back and get in their way? I had enough money to retire and pursue a host of other volunteer   interests that appealed to my wife, Penny, and me. So, it was time to start chapter three of my life.

What retirement is like for me

.

I define retirement as doing what you really want to do every day. I started out doing exactly that: I was volunteering a lot and picking the work that interested me. But it grew to the point where I had to cut back. I overdid volunteering without  imagining how involved  it would be.

.

I’m on my second three-year term at St. Paul’s Hospital but I’ll finish that commitment next month. Instead, I’ll concentrate more on my volunteer work at two  federal pen­itentiaries. I’m there once a week for the day. I run two book clubs and the selected books are inspirational and motiva­tional because these men have been  convicted of murder and it’s hard for them to see the end of the tunnel. I  also help with the application process if prisoners are interested in a university education.

.

I continue to read a lot about what’s going on in  the industry. When I do see an article of interest, I’ll print it off and give it to Rogers Group Financial managing director Clay Gillespie, in case he hasn’t seen it. We play squash together every couple of weeks.

.

Advice for future retired advisors

.

Many advisors say they’ll work until they die. But doing that leaves many of your clients in the lurch . That’s not fair, it’s not professional. It’s your duty as professionals to plan your exit and do it over time. By that I mean winding down slowly. For me, it was a five-year segue.

.

Philosophically, it’s important that the new advisor have the same general approach to the business and  the same education in the way of dealing with clients. Clients, especially older clients, don’t like radical changes. So you want to make the transition as smooth a possible. To see how well your transition has fared, look at whether the revenue has held up and, ideally, improved.

As for retiring , doing the numbers is the easy part. The hard part is figuring out what you are going to do every day. So that’s why planning your exit is important to do.

.

You’ll work three quarters of the time, half the time, or a quarter of the time, but at the same time you’ll also build the percentage of your day with work that you want to try. Over a five-year period, you’ll figure out what works for you in terms of peer work, getting more exercise, travelling, and  so forth.

.

 Deanne Gage

.

Forum Magazine

.

Advocis

.

Toronto

.

A PERSONAL NOTE:

JIM ROGERS IS A CANADIAN LEADER IN THE DELIVERY OF PROFESSIONAL FIDUCIARY BASED FINANCIAL ADVICE.

.

IT HAS BEEN A PRIVILEGE KNOWING HIM PROFESSIONALLY FOR OVER 38 YEARS.

 .

DAN ZWICKER

.

TORONTO

MORE SENIORS FILING FOR BANKRUPTCY

IN CANADA 

.

Those over the age of 60 have the highest debt of all age groups, report finds

.

MADHAVI  ACHARYA·TOM YEW
BUSINESS REPORTER
TORONTO STAR
05 05 2015

.

Swamped by credit card debt, a growing number of seniors and those approaching retirement are fil­ing for insolvency in Ontario, accord­ing to a new report released on Mon­day.

.

Bankruptcy trustee firm Hoyes, Michalos & Associates Inc. reviewed data from nearly 6,000 personal insolvencies filed in 2013 and 2014. Three in 10 insolvencies were filed by debtors who were 50 or older, the report found. That’s up from 27 per cent in the firm’s previous study, published in 2013.

.

Those over the age of 60 were the most heavily indebted of all age groups, with an average total unse­cured debt of $69,031-nearly half in credit cards, the report said.

.

”It’s the seniors who have the high­est of everything – the highest aver­age debt, credit card debt, tax debt, the  highest  debt-to-income  ratio, and the highest payday loan debt. It’s kind  of  stunning,” trustee  Douglas Hoyes said in an interview.

.

”People think, I get my mortgage paid off and I’ve saved money and by the time l retire l have a pot of money sitting there and a paid-off house. For some people, that’s what hap­pens. But for the people we’re help­ing, it’s been the exact opposite.” More Canadians are carrying years of accumulated debt into retirement, a time when their income drops and they may face income tax bills be­cause of pension withdrawals, the re­port said.

Nine  per  cent of  seniors  owed at least one payday loan at the time  of their insolvency, the study found. On average, seniors had 3.7 outstanding payday loans and owed $3,693.

”Payday loan companies make it easy for seniors to take out a loan as they will lend against pension in­come,” the report said.

An insolvency filing is the first step to either filing for bankruptcy or making a consumer proposal, where the debtor negotiates with creditors to pay back a portion of what is owed. Most insolvent debtors are be­tween the ages of 30 and 49, the study found.

.

The typical debtor, dubbed Joe Debtor in the report, is a 44-year-old male, married with children. He owes on average $56,545 in unsecured debt, more than three times what the average Canadian owes, according to the study. That’s on top of the average $198,000 he still owes on a mortgage.

.

For most debtors, the trigger for filing bankruptcy is often an unex­pected life event such as job loss, illness or relationship breakdown, the study by the Kitchener-based bankruptcy trustee found.

Single parents have less debt than average, but are more likely to strug­gle with student loans, car loans and accounts in collection.

“For many Canadians, day-to-day living expenses are growing faster than their incomes. Many consider credit to be their saving grace,” the report said “Individuals facing se­vere financial problems will do almost anything to retain their access to credit”.

The average owing on credit cards fell for the third consecutive study to $20,776, down l2 per cent from two years ago.

However, about 18 per cent of debt­ors have at least one payday loan, up from 12 per cent two years ago, the study found. The average payday loan debt increased by 12 per cent to $2,749, an amount that equalled 11.3 per cent of their monthly take-home pay, the study found.

.

The typical insolvent debtor is pay­ing a blended rate of 19 per cent or more per year in interest on all his debt, the report said That means Joe Debtor is spending roughly $889 a month on interest, an amount equiv­alent to almost 37 per cent of his take-home pay.

 .

A PERSONAL NOTE:

.

WHY DOES THIS ECONOMIC CONDITION EXIST IN CANADA IN 2015?

.

WHY IS FINANCIAL LITERACY NOT TAUGHT AS A COMPULSORY SUBJECT IN PUBLIC SCHOOL?

.

WHY IS PERSONAL FINANCE A TABOO SUBJECT IN OUR ELEMENTARY SCHOOLS AS IS SEX AND RELIGION?

.

WHO IS RESPONSIBLE BESIDES PARENTS?

.

WHO CARES?

.

NOT A GREAT SOCIO ECONOMIC REPORT CARD FOR A SOPHISTICATED NATION

.

Boosting Retirement Readiness and the Economy Through Financial Advice – Financial Advisors Add to Canada’s GNP

.

The Conference Board of Canada

September 22, 2014, 45 pages,


Report by:

Matthew Stewart

Alicia Macdonald

Pedro Antunes

.

EXECUTIVE SUMMARY

.

Boosting Retirement Readiness and the Economy Through Financial Advice At a Glance

 .

  • Population aging is raising questions regarding retirement readiness and also resulting in slower potential economic output growth.

 .

  • The use of financial advisors can increase household savings.

  • Higher savings would help to alleviate retirement readiness concerns while also boosting potential economic output.

 ‘

  • An increase in domestic savings is found to lower real GDP growth in the short term but leads to economic gains over the longer term.

 ‘

Document Highlights

.

Population aging is raising questions regarding retirement readiness and also resulting in slower potential economic output growth. In the reportFinancing the Future: Economic Benefits of Addressing Retirement Readiness, the Conference Board reviews the literature that examines the link between individuals gaining financial advice and their savings and investment decisions. Based on the information gathered, the report then examines the long-term impacts of increased savings on the economy, using a national economic model to quantify the impact of increased savings on a wide range of economic variables over a long-term forecast horizon.

 .

In conclusion, the Conference Board found that financial advisors can increase individual saving rates; higher savings would help to alleviate retirement readiness concerns while also boosting potential economic output; and while an increase in domestic savings can lower real GDP in the short term, it results in economic gains over the longer term.

 .

Canada is entering an era of population aging. Many challenges face the country as the economy and society adapt to this change. The financial readiness of Canadians entering retirement over the next few decades is a popular topic for politicians and the media in light of ample evidence that suggests many individuals are not saving enough to fund their retirement. Not as popular in the media, but certainly a current topic among economists and policy advisors, is the impact that population aging will have on the country’s economic growth potential, and the ramifications resulting from that slower growth.

 .

This report explores the link between the use of financial advisors and retirement readiness, as well as the less intuitive link between financial advice and the country’s long-term economic growth potential. A great deal of research exists questioning the merits of obtaining financial advice based on the idea that advisors are unable to achieve equal or superior returns after accounting for their fees. But research suggests that this line of inquiry may be missing the point—that is, that the real benefit of having an advisor may not be performance-related at all. It may have more to do with engendering beneficial savings behaviour among clients.1 A literature review suggests that by creating discipline in the ability of individuals to save, a financial advisor is able to increase savings rates, which in turn will lead to better asset allocation. Higher savings rates would also help to alleviate some of the undersaving that is currently occurring, thus better preparing individuals for retirement.

 .

The second part of our literature review examines the link between domestic savings and domestic investment. The relationship between domestic savings and investment has been a popular and often controversial topic in the academic literature for almost 35 years. When the link between domestic savings and investment was first investigated, the hypothesis was that the correlation between them is a sign of low capital mobility between countries. In other words, there was an apparent bias for savings to stay in its home country. As capital mobility improved, different models were used to explore this correlation as a means of showing that the link between domestic savings and investment was declining in lockstep with an increase in capital mobility among developed countries. Yet, despite the fact that the degree of correlation was declining, a relationship was still observed. A new branch in the literature emerged suggesting that savings and investment in a domestic economy could deviate over the short term thanks to a large degree of capital mobility, but that in the long term, savings and investment must be equal in order to satisfy certain theoretical foundations defined in the macroeconomic literature.2 While there is no conclusive agreement to be found in the literature regarding the relationship between domestic savings and investment, there is substantial evidence to support the hypothesis that domestic savings influence domestic investment. Assuming this is the case, an increase in savings would result in a boost to Canada’s potential economic output, as capital investment directly affects a country’s growth potential. To quantify the potential impact of an increase in savings on the economy over the long term, we constructed a hypothetical scenario. Survey data from Montmarquette and Viennot-Briot provided to the Conference Board detailed, by age cohort, average savings, average income, and the presence of a financial advisor. According to the survey and the results produced by Montmarquette and Viennot-Briot, households that retain a financial advisor are more disciplined in their savings behaviour. Our analysis assumes that, over the long term, 10 per cent of individuals who currently do not have a financial advisor (excluding those considered active traders) begin a relationship with a financial advisor and thereby take on the savings patterns of those who have financial advisors. In other words, these individuals are assumed to increase their savings to match the higher rates of those who do receive financial advice. The 10 per cent figure was arbitrarily chosen as a feasible target for the financial advice industry. In essence, a scenario was created where there was increased use of financial advisors and, therefore, higher aggregate savings in the economy. The Conference Board used its national econometric forecasting model to quantify the impact of the increase in savings (which essentially results in a decline in household spending), the increase in investment income earned on those savings when withdrawn to fund retirement, and the increase in business investment spurred by the increase in domestic savings. Results from our hypothetical scenario where savings are increased show the following: • Real GDP is lower for the first few years of the forecast, as the reduction in consumer spending is larger than the increase in private investment. • The near-term decline in economic activity softens price inflation and lowers the value of the Canadian dollar, helping to boost exports over the medium term. • Real GDP impacts are positive in the long term, thanks to increased investment and higher consumption as accumulated savings are withdrawn during retirement. • A large stock of savings is accumulated, resulting in increased investment income available to retirees, thus improving Canadians’ financial readiness for retirement. • Potential output is higher over the long term, representing a permanent increase in income and profits in the economy.

.

CHAPTER 1

Introduction Chapter Summary

 .

  •  Canadians are not saving enough for retirement.
  • Increased use of financial advisors can improve retirement readiness and have a positive impact on our economy

 .

Canada is entering an era of significant population aging. This aging will have an impact on our economy and society in a number of ways, and approaches to cope with this change are prominent in policy discussions. Two often-discussed topics under the umbrella of population aging are retirement readiness and the shrinking of our potential economic output growth, along with the challenges that result from slower growth. At first blush, there is not an intuitive link between financial advice and potential economic growth, but financial advice does have the ability to influence both retirement readiness and potential economic output growth through its ability to increase savings. Exploring the impact of financial advice on retirement readiness and potential economic output growth is the focus of this report. The first link, between financial advice and retirement readiness, is important in the context of an aging population that is not saving enough for retirement. The life-cycle hypothesis suggests that individuals will manage their savings and consumption in an effort to smooth consumption over their lifetime. But research on Canadian savings habits points to the fact that Canadians are not saving enough money for retirement, and are therefore potentially setting themselves up for a drop in consumption during their retirement years. A 2012 report by McKinsey & Company found that almost one-quarter of Canadians are not saving enough for retirement.1 Similar results were found in the Ageon Retirement Readiness Survey 2013.2 The findings from these studies are corroborated by recent data from the Canada Revenue Agency, which show that about 37 per cent of tax-filers who currently make more than $20,000 a year contribute to a pension plan. Excluding those with a pension plan, just 23 per cent contribute to RRSPs. That leaves approximately 40 per cent of those making more than $20,000 without a pension plan and not contributing to an RRSP.3 Even for those who contribute, the average contribution was well below the average contribution to a defined benefit plan. Financial advice can improve financial retirement readiness. In fact, recent research suggests that having a financial advisor is strongly correlated with discipline around savings and has a positive impact on asset accumulation. A 2012 Canadian study by Montmarquette and Viennot-Briot found that after controlling for over 50 potential influencing factors, having financial advice for 15 years or more increased household assets by 173 per cent compared with those households without a financial advisor.4 Even after accounting for factors such as income (which would lead to a selection bias), their research found that one explanation for this increased asset accumulation is more disciplined savings behaviour. Simply put, people with a financial advisor tend to save a higher percentage of their income. A possible reason for this is that when individuals are presented with a financial picture of their retirement under different rates of savings and asset allocations, they are more inclined to save for retirement. From the results of the aforementioned research, we know that some Canadians are not saving enough for retirement and that they would likely save more if they had financial advice. This leads to the question: What would happen if more Canadians received financial advice and therefore saved more? An increase in savings achieved through increased uptake of financial advice would improve retirement readiness in Canada. It would also have a positive impact on the economy.

 ‘

It is expected that Canada will face a number of challenges as we enter an era of population aging. Of pressing concern is the fact that the aging of our population will lead to a reduction in the share of the working-age population. This, in turn, will slow labour force growth and lower our potential economic output growth at a time when demand for government services, such as health care, is increasing. One solution to this issue is to increase our economic growth potential, which is the combination of our labour and capital inputs, as well as the technological efficiency with which capital and labour are transformed into output. Increased savings in the economy can help to increase our potential economic growth by increasing the amount of capital in the economy. The research conducted for this report seeks to quantify the economic impact associated with a potential increase in savings. Chapter 2 contains a two-part literature review. The first part focuses on the link between financial advice and retirement readiness by reviewing the literature on the benefits of financial advice. The second part focuses on exploring the link between domestic savings and domestic investment. Chapter 3 outlines the methodology used to conduct this analysis, as well as the assumptions that have been made. The approach taken in this report has been to build on the work done by Montmarquette and Viennot-Briot in 2012, which found that households with a financial advisor have higher savings rates. A hypothetical scenario was constructed where changes in savings behaviour are based on the incidence of financial advice. The economic impacts of these additional savings were quantified using the Conference Board’s national econometric forecasting model. Simulations were performed over a long time horizon to determine the impact on domestic investment and the resulting impact on potential economic output. Chapter 4 presents the results of the economic impact simulation.

 ‘

CHAPTER 2

 .

Literature Review Chapter Summary

 .

  • Financial advisors add value by encouraging more disciplined saving and investment behaviour; as a result, individuals who receive financial advice save a larger portion of their income.
  • Despite recent increases in capital mobility, evidence suggests that domestic savings influence domestic investment, especially over a long–time horizon. • An increase in investment boosts potential economic output.

Canada’s population is aging and recent research points to the fact that Canadians are not saving enough for retirement. Additional research has shown that by encouraging more disciplined savings behaviour, financial advice can improve asset accumulation. In this chapter, we explore how financial advice can influence savings behaviour, thus making individuals better prepared for retirement. Additional retirement savings also influence domestic investment, which in turn affects the country’s potential economic output—an important consideration given that potential output growth will decelerate as the population ages. The link between savings and domestic investment is explored in the second part of this literature review. Link to Retirement Readiness: Benefits of Financial Advice Any purchased good or service requires an individual to decide if the benefit is greater than the cost. Given that financial advice is a paid service, is such a service worth the cost? Skeptics would argue that it is impossible to consistently outperform the market over the long term and therefore, the cost of obtaining advice is greater than the derived benefit, where performance is defined as the main benefit. Indeed, on this basis alone, a large volume of literature focuses on the notion that the cost of obtaining financial money management advice outweighs the benefit.

 

Del Guerico and Reuter found that actively managed funds sold through brokers underperform relative to an index fund, after accounting for fees.1 They also found that, after accounting for fees, direct-sold actively managed funds perform as well as index funds, therefore suggesting that funds sold through a broker will earn a smaller return compared with an investable index mutual fund. One of the issues examined in a 2012 study using German data was the relative performance of investment accounts that were directed individually against those that were managed by a financial advisor.2 Based on the results from their analysis, the authors suggested that in many cases the fees and commissions collected by financial advisors were more than the value that they added to an investor’s portfolio. Similar results were also found in research by Chalmers and Reuter, which looked at investments based on the presence of financial advice in the Oregon University System’s defined contribution plan.3 This research found that plan members who chose to obtain financial advice earned a lower return compared with those who selected their own investments. While rates of return on managed portfolios are certainly an important metric, the above research assumes that those with an advisor and those without invest the same amount of money. Recent research points to the notion that those with an advisor tend to save and invest more because the advisor not only helps the investor set financial goals, but also creates the discipline for the investor to save in order to achieve those goals. This ability to provide guidance and discipline to savings and investment behaviours is where the value of having a financial advisor appears to be realized. The premise for the research conducted for this report relies on earlier work by Montmarquette and Viennot-Briot, which found that financial advice leads to better asset accumulation through higher savings rates and a greater allocation into non-cash investments. In addition to this finding, the authors note that having a financial advisor increases an individual’s confidence that they will be able to retire comfortably.4 Similar to the results from Montmarquette and Viennot-Briot in Canada, a 2011 report by KPMG using Australian data found that individuals with a financial advisor had higher savings, as the tailored financial plan created by an advisor led to more disciplined savings behaviour. After accounting for other factors that can influence savings behaviour, along with the cost to develop a financial plan, this study estimated that individuals with a financial advisor accumulated greater assets over time compared with those without an advisor. The authors also found that the longer one receives financial advice, the more assets one will accumulate.5 Similar results were found in a recent study in Quebec, which found that Quebecers who had a business relationship with an advisor showed greater retirement readiness compared with those without an advisor.6 In a 2013 research note, Vanguard suggested that the value-added from financial advisors stemed from their ability to act as wealth managers who provide discipline and logic to clients who are often emotional and undisciplined.7 This study went on to say that financial advisors provide value through a number of channels, including the development of an asset allocation strategy based on an individual’s goals and constraints, investment implementation strategies (actively managed or index funds), and tax management strategies. In summary, the study suggested that financial advisors provide value to clients through the experience and stewardship they offer, in light of the fact that individuals often lack the experience and discipline required to achieve investment success.

 ‘

These studies share a similar theme: Financial advisors provide value through their ability to encourage more disciplined savings and investment behaviours. This suggests that those who receive financial advice are likely to save more and better allocate those savings into appropriate investments, because they exhibit more disciplined savings and investment behaviour. An evaluation of these results in the context of a population that is aging and not saving enough for retirement suggests that increased use of financial advisors could result in higher household savings. Higher savings would, in turn, better prepare Canadians for retirement. Link to Potential Output: The Relationship Between Domestic Savings and Investment Is There a Link Between Domestic Savings and Domestic Investment? In 1980, Feldstein and Horioka published a paper that seemingly contradicted open market economic theories with respect to capital flows by finding that a large portion of incremental savings stayed within their country of origin.9 The inherent link between domestic savings and investment has been dubbed the “Feldstein-Horioka puzzle” since it does not fit with standard economic theory of how open market economies should operate, given that capital is mobile. Since this finding goes against what open market economic theory would suggest, it has been a popular topic for international finance and economic academics to pursue. Even though it has been almost 35 years since Feldstein and Horioka published their original paper, there has not been one generally accepted explanation for the observed correlation between domestic savings and investment. Given the large body of literature on the subject, it was decided for this review to focus on studies relevant to Canada and on more current studies that include recent data, since international capital markets have evolved significantly since that original 1980 paper. As part of a 2002 research paper, Industry Canada conducted a simple test to examine the link between domestic savings and investment in Canada. Its results showed a Canadian savings retention ratio10 of between 64 and 73 per cent over the 1961–98 sample period.11 A 2007 study by Fouquau, Hurlin, and Rabaud using data for 24 OECD countries (including Canada) employed a variety of panel method smooth transition regression models to test the impact of different threshold variables on savings retention coefficients.12 A number of different estimates were put forward in this paper for Canada (specific to individual transition variables), with savings retention ratios ranging between 54 and 78.4 per cent. While the authors did not provide timespecific estimates, they did note that the savings retention coefficients declined between 1960 and 2000 for most countries in their sample, which suggests a weakening of the relationship over time. A 2008 working paper published by the European Central Bank attempted to explain the Feldstein-Horioka puzzle using a general equilibrium framework where global shocks were allowed to have heterogeneous impacts on different countries.13 This study found that before 1980, there was significant correlation between domestic savings and investment. But the authors also stated that when savings and investment in each country were allowed to have heterogeneous responses to a global shock (i.e., all countries were not assumed to respond to the shock in the same manner), the savings retention | The Conference Board of Canada Find this and other Conference Board research at http://www.e-library.ca 11 coefficient in OECD countries decreased over time, becoming very small over the last two decades as capital became more mobile. The authors suggested that other studies using current data that found a link may have obtained those results because general equilibrium effects or the heterogeneity of responses were not taken into account. All of this previous research indicates that a relationship between domestic savings and investment exists in Canada, with the latter two studies—by Fouquau, Hurlin, and Rabaud; and the European Central Bank—showing a decline over time in the savings retention ratio among OECD countries, including Canada. This seems to fit with the general knowledge that a reduction in capital controls has increased capital mobility in these countries over the last few decades. With evidence of both an increase in capital mobility and a still-observable relationship between domestic savings and investment, an alternative interpretation of the correlation has emerged in the literature. An interesting study with this alternative interpretation was published by the Bank of Canada.14 The study, which builds on previous work in this area, hypothesized that the correlation between savings and investment over a long period does not reflect a low degree of capital mobility (as suggested by Feldstein and Horioka), but rather a country’s long-term budget constraint. In this interpretation, a country cannot indefinitely amass a current account deficit (or surplus); therefore, the level of savings and investment must be related in the long term.15 Indeed, using a variety of different tests, the authors found that savings and investment rates are co-integrated in the long run. The authors also looked at the degree to which savings and investment are related in the short term and, using a panel error correction model, the speed at which the short-term coefficient converges with the longterm coefficient. The weak short-term correlations between savings and investment as well as the slow convergence between short- and longterm coefficients are interpreted as a sign of capital mobility. The authors tested their results using a rolling sample to determine if the correlation diminished over time—as some studies have suggested—and found that the short-term coefficients declined as capital mobility increased. They also found, however, that the long-term coefficients move closer to 1 as the sample period increases. Their interpretation was that the intertemporal budget constraint becomes more relevant as the sample time frame increases. This study showed a long-range savings coefficient of between 0.82 and 1.02, with short-term coefficients ranging from 0.17 to 0.25. Similar results were also found by Dar and others in their 2005 study of G7 countries. They found that, in the long term, savings and investment are co-integrated and that for all G7 countries except Germany, the current account is stationary—fluctuating around zero.16 The authors concluded that these findings, taken together, imply that in the long term, investments must be self-financed, that is, domestic savings must equal domestic investment. The research reviewed here suggests that empirical evidence points to a link between domestic savings and investment in Canada. It also suggests that this link has been diminishing over time for OECD countries, leaving some to wonder if the correlation exists today. Additional research—which approaches the issue through the lens of an intertemporal budget constraint that says an economy running a string of current account deficits (or surpluses) must eventually offset those with current account surpluses (or deficits)—suggests it is important to separate the short- and long-term relationship between domestic savings and investment. This finding supports the theory that the savings retention ratio would be high in the very long term but lower in the short term, as capital mobility allows a country to run a current account imbalance. Such a theory fits with both the observed increase in capital mobility and the link between domestic savings and investment. As evidenced by the volume of academic literature on the subject, the relationship between domestic savings and investment is complex. Nonetheless, there is enough compelling evidence in the literature to support the assumption that domestic savings do, in fact, influence domestic investment over the long term. How Investment Affects Potential Economic Output All else being equal, any increase in domestic investment that is spurred by domestic savings will boost an economy’s potential economic output, which measures the highest level of economic activity an economy can reach without surpassing its capacity limits and igniting inflation. Potential output determines how fast an economy can grow when all factors of production—namely, labour and capital—are employed at maximum efficiency. In essence, it is simply a function of the available labour force, the level of fixed capital, and the overall technical efficiency with which capital and labour are transformed into output. Increasing the amount of capital accumulated in an economy will lift its potential output. An increase in potential output simply means lifting its productive capacity, which translates into additional profits, wages, and tax revenues. Given the link between domestic savings and investment observed in the literature, an increase in domestic savings can have far-reaching implications for our economy through its ability to lift investment and income.

 .

CHAPTER 3

 .

Methodology Chapter Summary

  • Savings rates differ based on age and the use of financial advice. • Long-term income is projected using average income by age to account for demographic changes that occur over the next few decades.

 .

  • The additional savings resulting from increased use of financial advisors is assumed to be invested and then withdrawn at an increasing rate to supplement retirement incomes as the population ages. • Domestic investment is assumed to increase because of the increase in domestic savings.

 .

In our analysis, we created a hypothetical situation where savings behaviour changes in the presence of financial advice, and then we determined the resulting economic impact from this change in behaviour. It was necessary to produce the analysis over a long time horizon to capture the linkages between these changes and investment and potential output. That said, producing an analysis over a significant period presents challenges. The main challenge in this case is that savings and income are dependent on age, and therefore demographic changes must be factored into the income projections. Prior to running the economic impact scenario, it was necessary to build the data that would be used to shock the Conference Board’s national forecasting model.1 The steps required to build these data can be grouped into four broad categories: evaluating savings and income across age cohorts; creating a profile of long-term income by age and type of saver; calculating the extra savings from a change in savings behaviour; and forming assumptions regarding the rate of return on investments and the link between domestic savings and investment. Evaluating Savings and Income Across Age Cohorts Professor Claude Montmarquette provided the Conference Board with survey data utilized in his analysis. The data containing average income and savings were broken down into three age groups (25–44, 45–54, and 55–64) and three types of savers (those who receive advice [advised] those who do not receive advice but actively trade on their own behalf [traders]; and those who do not receive financial advice [non-advised]). (See Table 1.) A number of clear patterns emerged from the analysis: • Those who seek financial advice have higher incomes as well as higher savings rates. • The savings rates among all three types of savers change between the different age cohorts. • The three types of savers do not have identical shares in the sample: Active traders make up 6 per cent; non-advised savers account for 44 per cent; and advised savers comprise 49 per cent.

 .

Table 1 Income and Savings Characteristics, by Age Cohort Age cohort 25–44 45–54 55–64 Average income ($) Savings rate (%) Average income ($) Savings rate (%) Average income ($) Savings rate (%) With a financial advisor 78,622 10.6 87,862 11.4 88,850 13.7 Non-advised 63,018 8.5 66,129 8.2 65,882 9.2 Non-advised, active trader 77,381 12.6 88,634 14.0 86,653 14.1 Source: Special tabulation of data used in Montmarquette and Viennot-Briot, Econometric Models.

 .

The data clearly show that savings and income are dependent on age. To account for the shift in income and savings that will result from an aging population, the Conference Board needed to create a long-term projection of income by age and then by type of saver. Long-Term Income Projection by Age and Type of Saver The first step was to collect average income by age data from Statistics Canada, then group the data into five age cohorts: 0–24, 25–44, 45–54, 55–64, and 65+.2 The data were then extended forward using our  long-term forecast for wages and salaries per employee. Income growth was assumed to be the same across all age cohorts, given that we did not have alternative information about the evolution of wages by age cohort; this assumption, however, still allowed us to account for the level difference between average incomes across age cohorts. Average income by age cohort was then multiplied by our long-term forecast for population by age. In this way, we were able to derive total income shares by age category over the long term—enabling us to account for the demographic shift that will occur over the next few decades. For example, even though income growth is assumed to be the same over all age cohorts, the share of income accruing to those 65+ will increase from 15 per cent in 2014 to 25 per cent by 2060, as a larger share of the population moves into this age cohort. These income shares were then applied to the Conference Board’s longterm forecast for disposable income to derive estimates of disposable income by age cohort.

.

The next step was to calculate, over the long term, the amount of disposable income that should be allocated to each type of saver (advised, trader, non-advised) in each age cohort covered in Montmarquette’s data set. As a first step, we calculated, by cohort, the share of income in the sample for each type of saver. We then applied these income shares to the long-term forecast for disposable income for each matching age cohort, to derive disposable income by age cohort and type of saver. Calculating the Change in Long-Term Savings The savings rates for each age cohort and type of saver were applied to the corresponding disposable income series in order to derive savings estimates by age cohort. They were then summed to derive an estimate of the national savings rate. With estimates of savings and income by age cohort based on different savings rates for each type of saver, the next stage of the analysis was to ask the hypothetical question: What would be the economic impact if a portion of the currently non-advised sample (excluding traders) were to receive financial advice and therefore start saving at the same rate as those with a financial advisor? This scenario arbitrarily assumes that 10 per cent of the income of non-advised savers (across the three age cohorts spanning 25–64) who are not active traders is now saved at the higher rate of those who do receive financial advice. The 10 per cent of income choice was based on the assumption that this outcome is achievable by the financial advice industry. A new stream of national savings was calculated based on 10 per cent of non-advised savers (excluding traders) increasing their savings rate to equal the rate of advised savers. We applied the percentage difference between this savings rate and the baseline savings rate calculated above to the Conference Board’s long-term savings rate forecast in order to derive a new savings rate consistent with the savings rate definition used in the Board’s forecasting model.3 The difference between household savings with the baseline savings rate and this new savings rate multiplied by our baseline forecast for disposable income provides an estimate of the additional savings that could occur in the economy if 10 per cent of non-advised savers use the services of a financial advisor.

 .

Assumptions Used in Economic Impact Simulation These additional savings create further impacts. In light of the fact that additional savings will presumably be invested, in this scenario, it was assumed that these savings would earn a nominal return of 6 per cent per year, net of management fees. Assuming an average management expense ratio of 1.8 per cent, the return was assumed to be 7.8 per cent per year—which would probably be reinvested. Given an aging population, it is also necessary to make assumptions regarding the drawdown of savings that will occur as people withdraw money from these savings to fund their retirement. Based on previous work done at the Conference Board, the stock of savings is expected to begin to be withdrawn, starting in 2023, with the rate of drawdown accelerating slowly over time. The final assumption in this analysis concerns the link between domestic savings and investment. Given the literature that supports the correlation, especially over the long term, it is assumed in this analysis that 50 per cent of the annual savings in the domestic economy will be used to fund domestic business investment.4 In total, this scenario involved three coinciding shocks to the Conference Board’s national forecasting model: 1. a negative consumption shock equal to the increase in household savings; 2. a positive household investment income shock to account for the drawdown in the stock of savings that is assumed to begin in 2023; 3. a positive shock to private business investment equal to half of the annual increase in domestic savings split across the investment categories based on their respective shares in the baseline scenario.

 .

CHAPTER 4

.

Results Chapter Summary

 .

  • A number of assumptions were made to simulate the impact of increased savings on the national economy.

 

  • The impact on real GDP is negative at first, due to a sharp decline in consumer expenditures because a larger share of income is diverted to savings.

 

  • Business investment is boosted by the increased savings and, as a result, real GDP is higher over much of the forecast period.

 

  • Consumer expenditures turn positive over the second half of the forecast as the stock of accumulated savings is drawn down and used to supplement incomes. • The stock of household savings remains higher over the entire forecast.

 .

This chapter provides details on the results that were obtained from the multivariate economic shock (outlined in chapter 3). The goal of this study is to determine how a change in savings behaviour affects the economy in the medium and long term. As discussed previously, the change in savings behaviour is assumed to result in an increase in savings (modelled as a decline in consumption), an increase in household investment income, and an increase in business investment.

The impact of the change in these three variables—including direct, indirect, and induced impacts1—was modelled over the 2014 to 2060 period using the Conference Board’s national econometric forecasting model. (For more information on how to interpret the results of a model shock, see “What Is a Model Shock?”) Given the extended time frame of the analysis, the medium- and long-term impacts associated with this shock are discussed separately.2 What Is a Model Shock? A model shock is a common econometric tool used to evaluate how a change in one (or many) variables has an impact on an economic forecast. The Conference Board regularly produces economic forecasts, and our most recent applicable forecast serves as the base-case scenario for any model shock we undertake. In this case, the Conference Board’s latest long-term national economic forecast (extended to 2060) serves as the base-case scenario for this analysis. The three variables of interest are changed, (consumption decreased and business investment and household investment income increased) and the model is simulated. The difference between the results of this new simulation and the original base-case scenario are the estimated economic impacts that would occur from the change in the three variables of interest. Results from the Conference Board’s forecasting model are generally linear. That means that if you take the exact same change in each of the variables but reverse the sign (from positive to negative or negative to positive), the results would remain the same but would change signs. In this case, a decrease in savings that results in higher consumption but lower business investment and lower household investment income would have the same overall impacts discussed below but with the opposite sign. (See chart “An Example of Model Linearity.”) Similarly, if the savings and investment impacts were, for example, double what was assumed in this analysis, the final impacts on GDP would also increase twofold.

 .

Medium-Term Impacts The impact of the increase in savings is negative during the first few years of this scenario.3 Real GDP remains below the base-case scenario until 2018, due to the decline in consumer spending as households shift a greater portion of their disposable income away from consumption and toward savings. The decline in real GDP shrinks steadily due to higher investment and an improvement in trade.

 .

The diversion away from consumption toward savings keeps household consumption expenditures below the base-case scenario over the entire medium term. But the positive impacts stemming from higher investment spending and improved trade help lift the overall impact above the basecase relatively quickly. The decline in domestic demand stemming from reduced consumer expenditures results in job losses, with employment below the base-case scenario level throughout 2022. But job losses are relatively small, peaking at 1,905 in 2016. Business investment is positively affected, as this analysis assumes that half of the annual additional flow of domestic savings will be used by businesses domestically for investment purposes. But, as Chart 4 shows, there is a slight dip in the impact during the early years of the scenario, as the decline in domestic demand results in firms scaling back to adjust to this lower demand. In all years, the positive impact from additional savings being funnelled into domestic investment outweighs the negative pressures from a reduction in demand. The government sector expands in real terms, as constant nominal expenditures combined with lower prices allow the government to spend more in inflation-adjusted terms.

 .

The trade sector realizes a positive impact over the medium term due to increased savings in the economy. Monetary policy in the model is guided by a central bank reaction function.4 Softer consumer spending leaves the economy below capacity, helping to ease pressure on inflation. Less pressure from inflation results in the Bank of Canada adopting a more accommodative monetary policy, which in turn leads to a marginal decline in interest rates. These lower interest rates lead to a mild depreciation of the Canadian dollar, which stimulates export demand. At the same time, the depreciation of the dollar leads to higher import prices. Higher prices and softer demand from consumers result in a notable drop in imports. Although part of that decline is alleviated by increased demand for imports from businesses, the impact on imports remains negative during this period.

 .

The impacts by industry vary considerably over the medium term.  Services that cater to household consumers, as opposed to businesses, are harder hit. The reduction in household spending has an impact on a wide range of services, including retail trade, real estate, and credit intermediation. Real output in insurance, financial investment services, and funds increases in light of our assumption that the increase in savings examined in this scenario is a result of increased use of financial advisors.

 .

The goods side of the economy experiences positive impacts even over the medium term, thanks to the increase in business investment spending and the downward pressure on the Canadian dollar. Manufacturing is up by $66 million in 2025, as the lower value of the dollar improves its international competitiveness. Construction is also up significantly, as the increase in domestic savings spurs domestic investment.

Long-Term Impacts Under the increased savings scenario, real GDP surpasses the basecase scenario early on and continues to gain relative to the base-case throughout the long term. By 2060, real GDP is $2.3 billion above the base-case scenario, due to the impacts resulting from increased savings in the economy. A number of factors drive real GDP above the basecase scenario level in this study.

 .

While household consumption remains below the base-case scenario until 2037, the decline in household spending begins to soften in 2023, as the stock of additional savings that has accumulated since 2014 begins to be slowly withdrawn to supplement retirement incomes. An additional smaller boost is provided by an improvement in employment, which turns positive in 2023, as the domestic economy improves. In this scenario, it is assumed that the rate of withdrawal on the stock of accumulated savings accelerates as more people reach retirement age. As more income continues to be drawn from the stock of savings, consumer spending increases. By 2060, real household consumer spending is up by $1.7 billion relative to the base-case scenario. Government consumption spending is also up, as real spending increases in tandem with the overall increase in the economy. Taken together, overall real consumption expenditures are up by $2.1 billion in 2060 relative to the base-case scenario. The increase in economic activity over the long term has a positive impact on government balances. By 2060, the federal government balance is $1.7 billion above the base-case and provincial government balances improve by $1.1 billion.5 Even with the assumption that part of the accumulated stock of savings will be withdrawn to supplement retirement income, higher savings rates significantly alter the path of household savings over the duration of the forecast.  By 2060, nominal household savings are $4.8 billion higher. Despite the drawdown occurring over the forecast period, there is still a substantial stock of additional savings that can be drawn upon by future retirees. Not surprisingly, higher savings rates— which start in 2014—help to better prepare Canadians for retirement: More income becomes available to individuals reaching retirement age during the time frame of the analysis, yet there is still a large accumulated stock of savings left to benefit individuals retiring after the forecast time frame. Exports continue to be higher relative to the base-case scenario throughout the forecast horizon. However, as consumer spending and investment accelerates, there is a corresponding increase in the imports of goods and services to satisfy this additional demand. A stronger domestic economy reverses the depreciation in the dollar observed during the medium term, with the currency beginning to appreciate vis- à-vis the U.S. dollar by 2030. The appreciating currency exerts negative pressure on the export sector, which results in a slowly decelerating gain in exports relative to the base-case scenario. Nonetheless, exports remain positive due to the extra capacity that results from higher investment spending. By 2031, the level difference in imports exceeds that of exports and the contribution from net trade turns negative. Thanks to the additional domestic savings, of which half are assumed to fund domestic business investment, real investment spending increases throughout the forecast horizon. This increase in investment is further augmented as businesses invest in capacity increases to supply the increase in domestic demand. In the medium term, we see reduced consumer spending exert negative downward pressures on investment spending as businesses cut back in the face of reduced demand. But in the long term, we see higher domestic demand, created when the previously saved funds are withdrawn and used to support consumption during retirement—thereby providing the incentive for business investment to supply this increase in demand.

 .

As discussed in Chapter 2, an increase in investment has a direct impact on an economy’s potential economic growth. This is indeed the case in this scenario where potential output increases by $2.6 billion in 2060— equivalent to a 0.07 per cent increase. This lift to potential economic output represents a permanent increase in real income and profits in Canada. The lift to potential output is achieved through improved productivity and an increase in the capital-to-worker ratio. As a result, there is not a large impact on employment in this scenario, with total employment up by only 1,895 in 2060. With the domestic economy faring much better over the long term, all industries have higher output relative to the base-case scenario by 2060. Real construction output is above the baseline forecast thanks to the ongoing domestic investment spurred by the increase in savings, along with the increase in consumer demand that occurs in the second half of the forecast. Increases in consumer demand, as well as increased demand to supply business investment needs, results in an increase in manufacturing output of $50 million relative to the base-case scenario in 2060. The service sector is the largest beneficiary of the increase in domestic demand, with real output in business services up by $1.5 billion by 2060.

 .

CHAPTER 5

.

Conclusion Chapter Summary

.

  • A scenario where savings are increased as more individuals utilize financial advisors leads to higher household savings.

 

  • Higher household savings result in increased household income over the long term.

 

  • A large stock of savings remains at the end of the forecast time frame, which will benefit those retiring after the studied time frame.

 

  • Through its impact on investment, higher savings result in a higher level of potential economic output.

.

In this report, we explored the links between financial advice and increased savings, potential economic output, and retirement readiness. With Canada set to undergo a period of significant population aging, current information indicates that many people are ill prepared financially to enter retirement. Previous research has shown that utilizing a financial advisor results in more disciplined savings behaviour and higher savings rates. By encouraging higher savings rates and better asset allocation, the use of financial advisors provides a means to better prepare Canadians for their retirement. This report also examined the link between domestic savings and investment. Working under the assumption that domestic savings does impact investment, especially over the long term, we created a hypothetical scenario that examined how an increase in savings could affect the economy. Using survey data that contained savings rates specific to those with a financial advisor and those without, long-term income was projected by age and type of saver (advised, non-advised, and traders). A scenario was created where it was assumed that 10 per cent of those without a financial advisor (and who are not active traders) would begin to use a financial advisor and save at the same higher rate as those with an advisor; savings, household investment income, and business investment resulting from these additional savings was estimated. A model simulation using the Conference Board’s long-term national forecasting model was prepared to quantify the economic impact of the increase in savings over the long term. Results from the model simulation suggest that over the first few years of the forecast, the overall impact on the economy is negative. Decreases in consumption outweigh improvements in business investment and exports. Over the longer term, real GDP is positively affected by an increase in savings. Consumption recovers once investment income earned on the accumulated stock of savings is withdrawn in light of accelerated retirements. Business investment remains positive thanks to a steady increase in household savings. Exports also remain positive throughout the long term, but net trade becomes a drag on growth as higher domestic demand fuels growth in imports. Overall, a scenario where savings are increased over the long term results in a large accumulation in savings, which Canadians can use to supplement their retirement incomes. It also has a positive impact on Canada’s potential economic output, which results in a permanent increase in income and profits in the economy.