With the inevitable aging of Canada’s population, the financial industry is increasingly facing up to the added challenges of dealing with senior investors. New guidance from the Investment Industry Association of Canada (IIAC) aims to help advisors deal with these issues.
The IIAC issued a new report Tuesday that provides guidance to firms and advisors on best practices for serving senior clients. It notes that there are often realities of dealing with seniors that distinguish them from younger clients. For example, they have shorter time horizons, which means less time to recover losses; and, they may have less opportunity to generate income to rebuild their portfolios.
The report also notes that seniors may have expectations about their lifestyle in retirement, and investment income potential, which is inconsistent with a low risk tolerance. Indeed, it suggests that this mismatch of expectations and risk tolerance “may be one of the most daunting challenges presented.”
It also stresses that extra caution is required when employing higher-risk strategies, or when clients deplete their capital through withdrawals that exceed returns.
Additionally, seniors are more susceptible to physical and cognitive decline. And, fear about their future financial situation can have an overwhelming influence on their investment decisions, the report indicates.
It then sets out best practices that firms use for handling these, and other, issues. And, it stresses the importance of firms having policies in place to provide for heightened supervision of senior clients and their advisors.
The IIAC based its report on guidance that was issued by the U.S. Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA), and the Financial Industry Regulatory Authority Inc. (FINRA), in 2008, and subsequently updated in 2010.
The Investment Industry Regulatory Organization of Canada (IIROC) is also planning to issue its own guidance on compliance, supervision and other practices when dealing with senior investors later this year (draft guidance is currently scheduled for publication in June).
In the meantime, “The IIAC will continue to capture best practices in this area so they can be shared with the industry at large,” noted Michelle Alexander, vice president at the IIAC.