With financial markets around the world off to their worst-ever start to a year, the RRSP season will represent a significant test of Canada’s financial services sector’s ability to keep its clients on track.
Ordinarily, this time of year is a happy occasion for the sector, as the RRSP tax-related deadline at the end of February (sometimes, early March) serves as a convenient reminder to otherwise indifferent clients to contribute to their retirement accounts. The prospect of a tax break on contributions provides many Canadians with a not so subtle nudge to save and invest.
This year, however, the challenge for the sector to bring in assets looks significantly tougher, given the unfavourable investment climate.
Stock markets around the world have been exceptionally volatile in 2016 amid turmoil in China, a relentlessly weak oil price and increasingly grim global economic sentiment. Equities markets around the world seem to be perfectly correlated to slide. At the same time, with interest rates still at rock-bottom levels, fixed-income returns have been negligible – and thus hardly present an attractive alternative. There are precious few places for an investor to hide.
In Canada, the mood is particularly sour. The loonie has begun plumbing new depths against the U.S. dollar – sending household purchasing power into the dumps and resulting in soaring food prices.
Moreover, the central bank appears to be almost out of ammo, hinting that federal fiscal policy will have to do the job of spurring economic growth. But a federal budget isn’t expected until late March. Even then, any stimulus will take time to work its way through the economy. No help appears to be on the way between now and Feb. 29.
In the meantime, the financial services sector is faced with having to persuade clients to boost their long-term savings. And although that may look like an unappealing task, this is precisely the time for financial advisors to prove their worth. This is the time to hold clients’ hands, keep them focused on the long term and help them navigate battered markets.
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