Mutual Funds

Enhance Your Client’s Retirement with USD Yield

Stewart Reid explains how to proactively customize a USD solution as a way to enhance clients’ long-term plan – and support their retirement aspirations.
November 2019

Stewart Reid

Director, Intermediary Distribution, Western Canada

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How do you help clients achieve their goals, and grow your AUM? Stewart Reid, BMO Director, Intermediary Distribution, Western Canada, BMO Global Asset Management, highlights the importance of proactively educating Canadians about their US dollar (USD) liabilities, and how to customize a USD solution for their unique needs as a way to enhance their long-term plan – and support their retirement aspirations.

The Need for USD Yield Cannot Be Ignored

The U.S. consistently ranks as one of the top destinations in the world for foreign direct investments, with Canadian residents contributing a significant portion: they made 27.7 million trips to the U.S. last year, spending $20.2 billion in 2018.1 Snowbirds, frequent travellers, and property investors are just a few of the Canadian groups vying for access to USD to settle regular purchases and expenses south of the border.

As an Advisor with a holistic view of client wealth management, including proactive retirement planning, you’re privy to conversations that include travel and lifestyle. Whether your clients take an annual vacation to Maui or Mexico; are Snowbirds wintering in Florida; make frequent trips to a recreational property; or simply live close to a U.S. border, they all plan time away from their primary residence – and have a recurring need for USD.

While many of your clients have invariably set up USD bank accounts, how much cash remains relatively idle, and how much actually generates a return in this low rate environment? The challenge is to find the most effective – and efficient – way to put your clients’ greenback to work through a solution that fits their specific needs. Remember, even for clients who have simply expressed an interest in owning US property in the future, starting early with USD investments can make it easier for them to achieve those goals, and avoid purchasing power erosion.

Having a Game Plan: Marketing an Attractive USD Yield

When you’re sitting with your clients and planning the big picture, it’s imperative to understand their retirement goals and the priorities around their bucket list – beyond how to ensure their basic costs are covered. It’s not enough to input a static Canadian dollar (CAD) cost for vacations into your budgeting software. Instead, think of – and discuss – the issues your clients will face: from currency volatility, to conversion costs and the need to match cash flow to their expenses. For most Canadians, the source of income in retirement will be relatively fixed, and in CAD (as shown below), which can cause financial stress as fixed U.S. expenses become more variable once currency fluctuations are taken into consideration.

Remember, the cost of $10,000 USD (in CAD terms) is:

  • Low (at $1.10) – $9,100
  • High (at $0.62) – $16,000

Source: BMO Global Asset Management, August 31, 2019.

 

Currency fluctuations can be stressful for retirees who have USD expenses, and largely CAD income:

Hypothetical sources of income in retirement - canada

The best practice here is to have a plan of action, and a conversation starter that gets your clients’ attention. While estate planning is important, it can be a difficult subject to broach, whereas a casual discussion about funding an annual trip to Arizona will be sure to illicit excitement – and engagement.

As a starting point, I’ve included a practical – and proactive – tool here that may prove helpful to initiate this subject annually with both clients and prospects, educating them about their USD liabilities, and building awareness for considering USD exposure as part of their long-term plan. Ideally, it’s wise to send this letter in October/November, right before any planned holidays.

To further drive the point home, the table below features some examples of different client profiles and their potential USD yield: it’s important to consider that Canadians have unique needs and cashflow requirements that should be analyzed accordingly to enhance their individual plans, ensuring tax efficiency. Getting your clients started early will provide them with ample USD cashflow during their golden years, allowing them to fund the “peak travel” period from ages 65-80 – with ease.

Client Age US $ Initial Investment US $ Monthly Contribution US $ Total Investment by Age 65 Annual USD Cash Flow/Yr. from Age 65 to 80 Total US $ Spending
40 $10,000 $250 $85,000 $17,000 $225,000
50 $25,000 $500 $115,000 $17,000 $255,000
55 $100,000 $1,000 $220,000 $30,000 $510,000

Source: BMO Global Asset Management. August 31, 2019. For illustrative purposes only. Assumes a 6% annual rate of return.

To learn more about enhancing your clients’ retirement plan with USD yield – and other ways to add value – register to attend The Essential US Dollar Workshop on Wednesday, November 27, 4:15 PM EST, 1:15 PM PST at 1-866-386-7641, 438334#

A USD Solution to Enhance Retirement

To start them on this path, having a solution set at hand for your clients can demonstrate a solid track record for providing consistent USD cashflow – and can go a long way to engender trust in your relationship. One unique tactic to address your clients’ recurring need for greenback is BMO US Dollar Monthly Income Fund. This potential core component of your clients’ investing portfolio is a balanced, diversified strategy that invests across U.S. dividend-paying equities, investment-grade bonds, high-yield bonds, and real estate investment trusts, to generate enhanced USD returns that exceed short-term interest rates.

BMO US Dollar Monthly Income Fund:

  • Pure USD exposure
  • Consistent US$0.036/unit monthly distribution,2 typically yielding 4%+ depending upon daily NAV to help clients fund USD liabilities
  • Diversification by asset class to provide stable USD in ALL market conditions
  • A track record of robust performance, with 5-star Morningstar rating3
  • Accessible purchase options to meet unique client needs

Whether your client is high-net-worth, with significant non-registered assets and/or savings potential, or is a middle-aged, medium-to-high income earner with a small mortgage, consider a USD yield portfolio with BMO U.S. Dollar Monthly Income Fund as the main anchor – together with the complementary and income-enhancing ETFs, BMO US Dividend ETF (US Dollar Units) and BMO US High Dividend Covered Call ETF (US Dollar Units). The latter also offer pure USD exposure, and are Canadian-domiciled trusts that are traded, and maintained, in USD, avoiding currency conversion costs that can impact long-term performance. For affluent clients, these solutions also mean they can invest without any U.S. Estate Tax liabilities.

For a better grasp of the USD earnings potential to support your client conversations – and help you grow your AUM – consider the income illustrator for the BMO U.S. Dollar Monthly Income Fund below, which shows the substantial growth of US$100,000 invested since 2009:

BMO Global Asset Management’s USD solutions provide unparalleled access to both active and passive investment strategies, helping you construct a diversified USD portfolio for your clients across asset class and risk, while controlling costs and maximizing risk-adjusted returns.

For further information on BMO US Dollar Monthly Income Fund, or other BMO USD solutions, contact your BMO Regional Sales Representative, or click here to access the latest sales aid.

 

Also in the November 2019 issue of Insights:

1Statistics Canada, May 28, 2019.

3 Morningstar Rating as of September 30, 2019. Overall Rating of 5 stars. The Fund received a Morningstar rating of 5 stars over 3 years (1,198 funds rated) and 5 stars over 5 years (861 funds). Past performance is no guarantee of future results. Morningstar Rating is for the F Series only; other classes may have different performance characteristics. © Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

 

Return for Series F shares of BMO US Dollar Monthly Income Fund as of October 31, 2019, are: 1 year, 11.23%; 3 years, 7.74%; 5 years, 9.65% and 11.62% since inception on September 23, 2013.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

Commissions, management fees and expenses all may be associated with investments in BMO ETFs and ETF Series of the BMO Mutual Funds.  Please read the ETF facts or prospectus of the relevant BMO ETF or ETF Series before investing.  The indicated rates of return are the historical compounded total returns including changes in share or unit value and the reinvestment of all dividends or distributions and do not take into account the sales, redemption, distribution, optional charges or income tax payable by the unitholder that would have reduced returns BMO ETFs and ETF Series are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO ETFs or ETF Series of the BMO Mutual Funds, please see the specific risks set out in the prospectus.  BMO ETFs and ETF Series trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. 

BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal. ETF Series of the BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

®/™Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

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