The Role of Financial Intermediaries:  Retirement Planning

According to the Summary Report on Retirement Income Adequacy Research, recently released by the Department of Finance and authored by John M. Mintz, Research Director and Palmer Chair in Public Policy, The University of Calgary, financial intermediaries have some work to do in helping investors reduce risk. Here are highlights from the report, released December 18, 2009:

• The role of financial intermediaries is to help investors reduce risk and information costs as well as provide liquidity to investors when they need it. The objective is not to eliminate risk but to use it wisely and better distribute it in a sensible way. Some individuals may simply need government support and CPP/QPP benefits in retirement and the house they purchased during their working lives.

• Given the complexities involved in investment and estate-planning decisions, Canadians often pay for asset management and advice, with the most expensive fees associated with retail mutual funds (about 200 basis points). This comes at a cost to the income they earn on their investments. These costs are acceptable to the extent that they improve returns on their saving.

• The research suggests that active management does not provide returns on a persistent basis any better than passive management for both pension plans and mutual funds.

• Once taking into account active management costs, passive managed assets would provide superior returns.

• Individual investors do not seem to be advised sufficiently to invest in indexed and exchange-traded funds to improve fund performance. Nor is it clear as to why pension fund managers invest in active managed funds for the same reason. The research that has been undertaken to date does not explain why pension and retirement accounts are not invested more heavily in passively managed funds.

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Educational Resources: Now is a good time to look at retirement income plans, family succession and estate plans in an attempt to better understand financial needs for a future which could certainly include tax increases on both income and capital. To learn more consider the following Educational Resources available from The Knowledge Bureau:

► Tax Efficient Retirement Income Planning

► Master Your Retirement

► Master Your Taxes

► Tax Efficient Investment Income Planning

► Master Your Real Wealth

► Master Your Investment in the Family Business

Additional Educational Resource: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA.