Senior investment advisor walks through the economic and market challenges that are causing concern
With a focus on financial education and holistic planning, Kathy Sager has built a solid book of business with high-net-worth clientele. And as an advisor who takes pride in connecting with people, she knows that even with healthier-than-average financial cushions, HNW families still harbour their fair share of worries.
“There are a lot of concerns that still keep my clients up at night,” Sager, senior investment advisor at CG Wealth Management, told Wealth Professional in a recent interview.
Inflation and rate woes
“This is a time when we've seen a quick change from very low inflation for an extended period, to all of a sudden a surge last year,” she says. “It reached 8.1% in June last year. The latest May inflation figure was 3.4%, so it's coming down.”
Inflationary pressures may have eased significantly since last year, but the May CPI print from Statistics Canada is still not at the Bank of Canada’s 2% neutral target as wages and other pockets of the CPI basket prove stickier than hoped. Amid mixed signals on inflation and the economy, the BoC stepped back from its wait-and-see policy stance in June with a 25-basis-point hike to raise its policy rate to 4.75%.
Central banks have continued to temper expectations, saying they may have to keep rates higher for longer. While the surprise hike can understandably raise concerns among clients, Sager says it shouldn’t warrant immediate worry or alarm for clients at her practice.
“It's important to approach [the BoC’s] decision with a balanced perspective,” she says. “The Bank of Canada's move to raise rates reflects their commitment to maintaining price stability and managing inflationary pressures. It signifies their confidence in the Canadian economy and their proactive approach to ensuring sustainable growth.”
Compared to the United States where around 55 million borrowers have 30-year fixed-rate mortgages, Sager argues borrowers in Canada are more sensitive to the direction of interest rates. With a significant chunk of the population carrying floating-rate mortgages, the Office of the Superintendent of Financial Institutions has called on lenders to address risks from mortgage extensions at the “earliest opportunity.”
“A lot of my retired clients are on a fixed income. Hopefully they don't have any debt, but some of them do,” she says. “Those clients are concerned their income will be eroded because of what it costs them just to service that debt.”
In Sager’s hometown of Vancouver, the average home price has ballooned past a million dollars; the British Columbia Real Estate Association (BCREA) says homes in Greater Vancouver were $1.3 million on average in May. As young aspiring homeowners in hot markets face an uphill climb, she says older Canadians may feel a need to help their adult children get their own dwelling like an apartment or a house.
“That can put quite a lot of stress on them, really, when rates are this high,” she says.
Turbulence and taxes take a toll
Market volatility has been yet another stressor for Sager’s clients, particularly last year as investors digested the impacts of record inflation and surging interest rates. While the turbulence has eased somewhat, there’s still a considerable amount of trepidation among clients looking to protect their wealth. The recent rally in equity markets may have made for good headlines, but a look under the hood reveals only a few pistons firing in the engine.
“If you tell people that the S&P has jumped, and they see their investments haven’t risen as much or not at all, it's important that they understand this is not acting like a very broad-based market,” she says.
Geopolitical tensions are weighing on clients’ minds too, she says, as they consider how the potential knock-on effects on the global economy could impact their investments, businesses, and job security. Those on the older side of her book and in retirement, she says, are particularly on edge.
“You've planned for a certain amount of money to support you through retirement. Now you’re thinking about how inflation and all these macroeconomic factors are eroding it,” she says. “Perhaps you’re also concerned about your pension plan. If you've been with a corporation for decades, and you’re relying on it, how secure is that pension?”
Analysts have been on the lookout for an economic slowdown, though given tight labour-market figures and stronger-than-expected GDP figures, warnings of a downturn have quieted somewhat. Still, Sager says, many clients are worried about their job prospects as the tail risk of recession and the expanding cloud of artificial intelligence raise question marks over the security of some workers’ jobs in the years to come.
With federal and provincial governments alike revisiting their fiscal policies post-pandemic, taxes are another ongoing concern. Currently, BC has an NDP government, which Sager says can pose certain challenges on the tax front.
“A lot of cars are selling for over $100,000. And if you buy anything that’s over $100,000, you have to pay an extra 20% in this province,” she says. “You’ve worked hard to earn your money, and you want a nice car, and they say ‘you can, but you have to give us $20,000’ … We don’t mind paying a reasonable rate of taxation, but when they get over the 50% mark, it’s hard for people.”
Despite all the changes and uncertainty, Sager says her team has anticipated and prepared for various market scenarios. Using investment strategies designed to consider a diverse range of factors and potential market fluctuations, she says they continue to monitor market conditions and adapt their strategies accordingly, and encourages schedule regular meetings for clients to review their financial plan.
“I want to assure our clients that we are here to provide guidance and support during this period of change. Our focus is on long-term financial success, and we have the expertise to navigate these market developments effectively,” she says. “Our goal is to provide peace of mind and assist clients in making informed decisions aligned with their unique financial objectives.”
