How Canada's changing demographics are shaping the future of wealth

As a result of a number of significant demographic trends, personal wealth in Canada is changing hands at an unprecedented rate. In response, wealth managers will need to consider the priorities, concerns, and goals of multiple wealth-owning segments and evolve their strategies accordingly.

Wealth personas are changing

While personal wealth in Canada is becoming more concentrated among top-earners, who controls it is shifting. Canada’s wealth is increasingly in the hands of more women and seniors, two demographics that have different financial priorities than those who traditionally controlled the country’s wealth.

Canada’s wealth managers need to respond to the changing attitudes and priorities of their clients, including how they make decisions, and who is making those decisions, explained Keith Sjogren, Managing Director of Consulting Services for Strategic Insights. During his presentation at RBC Investor & Treasury Services’ (RBC I&TS) recent Investor Forum in Toronto¹, Sjogren explained how this transfer of wealth is inspiring change within the wealth management industry, and how it will have to continue evolving in lockstep with the country’s ongoing demographic shifts.

Elderly Canadians: pride of place

According to Strategic Insights’ data, the number of Canadian households with members between the ages of 65 and 74 will grow by nearly 800,000 in the next 10 years, while the number of households with members over the age of 75 will increase by nearly a million. At the same time, the wealth held by each of these two groups is expected to increase by nearly a trillion dollars, due in part to liquidity events such as downsizing homes and selling businesses that generate additional investible capital.

“What happens to people when they reach 80?” asked Sjogren. “They change their attitude, they’re not as financially active as they were in their 60s, and so the demands on financial advisors, whether full-service brokers or investment counsellors, is quite different.”

Sjogren adds that as they age, Canadians become less concerned about inflation and rate of return, and more focused on estate planning and preservation of wealth. Strategic Insights’ research also found that charitable giving typically increases with age, appetite for risk typically decreases, and the focus shifts from returns to outcomes.

“In response, we’re seeing some of our clients, who are all financial services firms, beginning to measure their success next to the goals they have set with their clients rather than rate of return,” he said.

The future of Canada’s wealth? Female

Research has found that men and women have different approaches to wealth management, and women are managing an increasing share of the country’s wealth. According to Strategic Insights, in 2016 women controlled around 35 percent or CAD 1.4 trillion of the country’s total wealth. By 2026, women’s share of the nation’s wealth is expected to grow to 48 percent or CAD 3.6 trillion.

Professional advisors, product managers, whatever you do, you’re going to be impacted by this, because women think differently

This transition is a result of the increasing participation of women in the workforce, particularly in high-earning positions, as well as the expected transfer of wealth to females who often out live their male partners. Overall, nearly a trillion dollars is expected to transition over the next decade.

“It is evident that the control of household assets is changing in Canada, and we’re talking about significant change,” said Sjogren. “Professional advisors, product managers, whatever you do, you’re going to be impacted by this, because women think differently.”

Sjogren explains that women tend to take a more planned approach to finances, prioritizing financial security, and stability over prosperity. They are also often more socially responsible investors, using their investments to support causes they feel strongly about.

Demands on the wealth management industry are changing from returns to goals

Canada’s wealth is increasingly in the hands of more women and seniors, two demographics that have different financial priorities than those who traditionally controlled the country’s wealth

According to Sjogren, financial advisors today only have a 50 percent chance of retaining a family as clients following the death of the primary financial decision maker in the household. He suggests the high turnover rate is the result of a rather dated approach where wealth managers build less inclusive relationships that exclude females in financial decisions. In this circumstance, female clients often do not have the same sense of loyalty or confidence that the interests of their entire family will be taken into consideration moving forward.

“We have been saying to individual advisors and counsellors that this is not a one-on-one business, rather it should be a multi-generational approach,” said Sjogren. “We are not seeing 100 percent take-up of that in the advisor community, and that poses a risk. If you’re an advisor and focusing on one individual’s retirement plan instead of a wealth plan for a family, you run the risk of not retaining that business long-term.”

Canada’s new wealth holders prefer a longer-term, goals-based approach

Canada’s wealth is becoming concentrated into fewer hands, which are increasingly elderly and female. Both demographics have unique concerns and priorities. Older Canadians are often more focused on community and family rather than personal wealth. Canadian women are similarly more focused on stability and long-term outcomes than short-term performance. They are also more likely to pursue socially responsible investing.

In the coming years Canadian financial advisors and wealth managers will need to adapt to meet the demands of the country’s new generation of wealth holders.