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October 26, 2022

Maximize retirement income

Episode 20 of the Financial Checkup podcast explains how getting a second opinion on your investments can help you unlock more retirement wealth. This episode features special guests, Yash Khubchandani, an Advantages Retirement Plan™ Specialist and Alex Mazer, co-CEO of Common Wealth Retirement - plan administrator of the Advantages Retirement Plan™.



Otniel Trejo: Hello, everyone! Thank you for joining us today. I'm Otniel Trevor, manager of our insurance adviser team here at OMA Insurance. I'm your host for this afternoon's webinar on this very important topic: maximize your retirement income. The value of a second opinion.

We have a very busy agenda, and some of the topics that we'll be covering today are : What is the Advantages Retirement Plan? The plan's investment approach, and securing guarantee lifetime income with annuities. Why a consult with OMA Insurance can unlock greater retirement savings. And of course, at the end of the presentation, we will have time for some Q and A.

Quick disclaimer that the information that you're about to hear is for educational purposes only. Our comments today are based on our experience supporting physicians with their retirement planning. But it is not meant to be used as financial advice.

With me today, I have two special guests. Yash Khubchandani, who is an OMA Insurance adviser, and Alex Mazer, co-founder, and co-CEO of Common Wealth. Thank you both for being here. Yash is a satisfied financial planner, with nearly 10 years of experience working with insurance companies and for not for profit.

Yash has also completed his CLU and CHS designation, which makes him a great asset in assisting physicians with building their wealth in ways that are unique to their needs and future goals. Alex is the co-founder and co-CEO of Common Wealth. The plan administrator for the Advantages Retirement Plan. Before co-founding commonwealth, Alex served as a management consultant at Mckinsey and Company and in various public service roles and including Director of Policy to the Ontario Minister of Finance during the global financial crisis. In that role, Alex helped deliver major reforms to Ontario's retirement system helping to lay the groundwork for the recent expansion of the Canada pension plan. So welcome, Yash, and welcome, Alex, and thank you once more for being here today. So let's dive into our first topic.

What is the Advantages retirement plan? Well, the Advantages Retirement Plan, truly, is a first-of-a-kind award-winning group retirement savings plan offered by OMA Insurance. It includes RRSPs, TFSAs, RRIFs, and annuities. And when thinking of the purpose of why the Advantages Retirement Plan was created, its sole purpose was to use these registered accounts to provide or help our physicians build a foundational level of savings, so that they can achieve retirement readiness. This plan is exclusive to OMA members and spouses and common-law partners and is not available in the retail market. It uses a simplified cost-effective research-driven investment approach designed to maximize retirement wealth and we will get into this in a bit. But first, when we built the Advantages Retirement Plan, we wanted to build an online platform that's easy to use. And inside these platforms, we have built-in digital retirement, planning tools. And some of these tools- what you can do is first of all, create a plan, see if you're on track to achieve your financial goals or see if maybe you need to tweak it a little bit and make some more contributions. There are many things that you can do inside of this online tool. But our main feature really is the auto-escalation feature. This feature is extremely important to help our members optimize their savings by increasing automatically their monthly contributions on an annual basis to keep up with annual inflation and your income growth.

More exciting news is our first Advantages Retirement Plan mobile app. We just recently launched this so extremely excited to see what you can do with these inside this app, and some of the things that you can do with your retirement plan is monitor investment performance, view recent transactions, make transfer-ins, or make one-time lump sum contributions or simply, if you want to chat with someone and you need help we have a scheduled a client check-in feature inside of this mobile app. This app is available to all of our members. So once you enroll in the plan, please make sure I encourage you all to download this app.

Our research, when building or creating the Advantages Retirement Plan was really focused on what drives value- retirement security. And throughout the research, we found that there are five main factors. The first one is governance. The second one is investment performance, fees, income, and savings. And so, as we go through the presentation, Yash and Alex will be able to explain more about what this entails.

So with that being said, I would like to invite my first guest Yash. Yash will be able to provide us with more insights into the Advantages Retirement Plan's investment approach.

Yash Khubchandani: Thank you Otniel and thank you everyone for being here this afternoon to learn about the Advantages Retirement Plan. So first things first as Otniel mentioned, this is a plan that was created for members, and, as we all know The Ontario Medical Association does not have investment background knowledge or asset management, experience. So, in order to be able to make this program a possibility, the OMA went ahead and created an expert-led committee that forms the Investment Committee for the OMA's Advantages Retirement Plan.

As you can see, there are 5 individuals on this particular committee. I'm going to start off by introducing them to you. So we have Mr. Bernard Morency, who is a former global retirement practice leader from Mercer as well as a former public pension fund Vice President. We have Dr. Paul Healey, who is an emergency physician, a member physician of the OMA, as well as the founder of the Physician's Financial Independence Online Canada Community. We have a member physician, Dr. Audrey Karlinski. We have Deborah Lekman, who is a former Ontario Securities Commissioner, and a public pension fund Executive Vice President, and lastly Mr. Morgan Matthew, who is a former investment executive for the Ontario Teachers Pension Plan. So, as you can see, the OMA did research into getting in a committee here to help us with making these decisions. This Investment Committee reviews the statements of policies and procedures on an annual basis. They even monitor the investment options in annuity products offered within the plan and provide any recommended changes to the OMA on a quarterly basis.

Now that we've been ahead and created the Investment Committee. Let me take your focus towards a little bit of the Canadian economic cycle from the past, and how performance is looked at. so if you were to take a look at the screen here, you'll notice that in Canada, if we were to take a look at the last 5 years.

94 of the funds are Canadian equity funds that have underperformed the S and P and TSX composite. Now that is a huge number of funds that are underperforming the index that Toronto is tracking in general, that actually translates to 5.6, 8 of funds only barely outperforming a simple passive ATF or a passive investment strategy. If we were to broaden this horizon into a 15-year perspective, 83% of the funds underperformed the S and P and TSX index.

Now, if we can focus our attention on the United States in the last 10 years, you'll notice that almost 90 of the funds have underperformed the S and P 500, only 10% have managed to outperform the S and P.500. Now I understand that some of this information might not be making so much sense. But I think the reason we're trying to look into this is, we'd really need to be asking the right questions here with regard to our investments and those questions are essentially: why are we paying the fees that we pay to hold investments that we hold that can barely outperform a simple passive ETF or an investment strategy? And I think this is the question that the Advantages Retirement Plan has been released to answer.

I would like to start off by talking to you a little bit about the funds that are available within this plan. So what we do is we offer target-dated funds. As part of this program. A target-date fund is a fund portfolio that comprises mainly of exchange-traded funds within our plan. It exchanges sharing funds that actually track stocks or bond indexes, such as the S and P 500 and TSX help them reduce volatility in your investment by not trying to beat the index, but rather tracking it. These funds are designed specifically for retirement, and they use a strategic slide-path approach to reduce risk as you approach your retirement age. All in all, these ETFs operate like mutual funds, but since they track an index, they use more of a passive investment strategy which makes them more convenient, transparent, cost-efficient, and diverse my portfolio; and, as mentioned by reducing that volatility for you, they create better risk management within your portfolio. The reason we decided to move forward with target-dated funds is again based on research.

Now that you're aware of that one study by Morningstar found that bad market timing and fun selection mistakes made by investors cost them almost 1.99% per year in investment mistakes and keep in mind this isn't even considering the bad asset allocation decisions that they could have made while making these decisions along with that, another research from Warden school of business showed us that target dated funds higher, lower cost, and based on the 5 principles that we've outlined any from that following. Those prior principles have been eating their non-target dated peers by around 2 points, 3 in terms of performance year after year. That really makes a big difference to a portfolio like yours when you're looking into a retirement situation.

Let's take a look at one of the examples. Funds that BlackRock will be performing, are provided within this platform. So just to introduce you first off our investment partner within the Advantages Retirement Plan is Black Rock. They provide us with the target-date funds that you have access to within this plan. For those in the crowd that may be aware of who BlackRock is, and for those who aren't- BlackRock is actually currently the world's largest asset manager, and they handle almost 10 trillion U.S. dollars in the world economy. So obviously their management experience is one of the reasons we've chosen to partner with them. But apart from that, in 1993 BlackRock introduced target date funds to the market and since then they've been pioneering and leading in the market of retirement pension planning by providing these funds to existing pension plans all over Canada. So it's their expertise in the retirement planning side along with our management experience that gave us the opportunity to partner with them.

The idea here is a target date fund takes a member's current age into consideration and based on the timeline, they have to retire. It optimizes their investment by managing the risk over that time. In this case on the screen. Right now we're going to take a look at a member physician who's currently at age, 50 and intends on retiring at 868, as you can see on the screen year after year the member will start off with an aggressive portfolio, but as they get closer to retirement the portfolio will be balanced for them, and asset allocations will make them a more conservative investor as they get closer to retirement. This way- the plan helps create risk-adjusted returns through an efficiency frontier for a member.

Now again, I understand that it might be something you may have not understood, so I'd like to get your attention to the Canadian economic cycle to let you know a little bit about what that means. If we were to take a look at the Canadian economic cycle all the way from the 1950s. The current year, you will notice that there are certain peaks and valleys on your screen here, and what those represent are the recession periods and the expansion periods of our economy. If you take a closer look, you will notice that we have gone through a few recessions in the past couple of years, but at the same time, in comparison, recessions are mostly painful, but last for a shorter time, like, as you can see, on an average of 10 months. But expansions are very powerful. They last for over five years on an average period and outperform your recession days, which helps you make these peaks optimize your portfolio and make those values less and less painful. Now most physicians are at different points in their careers and this plan is made for physicians at any point in their careers. As you can see, a starting physician has a heavy investment in stocks and this is because of the fact that they have a longer timeline toward retirement. The idea is that they could start in a more risky scenario, and can make a more conservative decision as they get closer and closer to retirement. Similarly, a physician who's already currently established and has savings to go ahead will be more in a moderately aggressive portfolio to start off. Someone approaching retirement might start off in a balanced portfolio, and someone who's actually in retirement is mostly in a conservative portfolio to adjust their risks based on their paths.

Now these unique institutional portfolios are only available to you through this growth plan or an existing pension plan. They're not available to you in the market, and they are unique and is specifically designed for retirement as an option.

Now that we've had a chance to look at what the plan can do and what these funds are. We have come to a very important part in this conversation is the fee associated with these investments being offered to you. So the Advantages Retirement Plan fee comprises of two components. The components are 0.6 of a fee on the assets under management within the plan and our monthly admin fee to recover costs, and the portal is provided to you. This is usually about one-third of the typical investment fund charges that you would be paying your advisor, or, if not trying to do it on your own to save some money.

Savings is a huge feature. Their savings on fees is a key opportunity for most members to maximize their retirement wealth. Now we will be coming back to this in a few minutes. But in the meantime, I think we're going to move forward with another aspect of this plan.

Otniel Trejo: Thank you. Thank you, Yash, for taking us through the Advantages Retirement Plan investment approach. Now I'd like to invite Alex to cover our third topic, securing guaranteed lifetime income with an annuity. Alex.

Alex Mazer: Thank you very much. Otniel. So one thing that we heard from physicians when the program was originally being designed was that, in addition to getting access to an efficient low-cost way of investing for retirement, which Yash outlined- a significant number of members were also interested in a way of securing that retirement income so that they could guarantee a greater portion of their retirement income in a way that's similar to a pension. So the events for the plan includes a unique Canadian annuity solution, which is provided by Brookfield Annuity Company, and I'm going to talk a little bit about what annuities are and how the program works, and some of the benefits of it, as well as the kinds of folks for whom an annuity a solution might be appropriate so if you just go back to the previous slide on what annuities are, this is really a way of managing two key risks in retirement. One is a risk that a lot of retirees worry about, which is the risk of outliving your savings. Obviously none of us - physicians know this better than anybody, knows how long we're going to live. And so an annuity gives you a way of getting a guaranteed stream of income that lasts as long as you live to help mitigate that risk of outliving your money. Just as you're entering the retirement period, which is one of the worst times to experience a market downturn. A lot of retirees in the last year have experienced that, with the market correction last year of 150 and so interest in equities has been increasing due to this period of market volatility. But it's another way of basically helping to protect yourself against one of the key risks to your retirement income, and ultimately, what that means is not just potentially a financial benefit. But also a kind of peace of mind that you can help experience. So the program believes that annuities have an important role to play as part of physicians' retirement portfolios.

So you know on the next page the annuities may not be right for everybody. They may not be right for you- it's part of the reason why it makes sense to have a consultation with an OMA Insurance adviser to explore this option, and this slide kind of outlines, you know, who might be the candidate to use an annuity for part of their retirement income and who might not be so just to give you a couple of examples. If you have relatively little guaranteed income as part of your retirement income, which is the case for a lot of physicians. In other words, most of your retirement income is subject to market risk. You might be a candidate for part of your portfolio.

If you're concerned about outliving your money. If that's one of your top concerns. Then, looking at annuity again for part of your retirement income, probably not all of it is potentially a good solution for some of the folks that may not want to consider an annuity. If you know you have a short life expectancy. If you already have considerable retirement income. For example, if you happen to have a defined benefit pension plan, it's rare for physicians, but it may be if your spouse has a significant one it may not be as interesting for you; and if you want to use some of your retirement money for request, it's better not to use that money to purchase an annuity because it is an irrevocable purchase. So just on the next page. The way to think about an annuity is not necessarily as an alternative to investing in the stock market, but more as an alternative to investing in bonds. So this is an analysis that we did, together with our partners at Brookfield about if somebody were to contribute to a bond portfolio from age 50 to 71 versus contributing to an annuity, which is something that the program allows you to do. And basically, the bottom line from this is the person in both scenarios contributes about $250,000 to either a bond or an annuity. If they live to their life expectancy it's roughly equivalent in terms of the amount of retirement income they get for both of those sources but with the guaranteed lifetime income, you also have the benefit of the peace of mind aspect that we spoke about. But if they outlive their life expectancy. This is an example of someone that reaches the 25% probability age they have a chance of reaching for a physician that might be age 94 they come out significantly ahead. So this works best. Obviously, if you don't live your life expectancy, but it's really an insurance product to help protect against that risk of outliving your money. So just on the next page.

How the program works. This illustrates that there are really two ways to participate. One is, you can actually purchase annuities in small monthly amounts, so you can kind of come up with a split between investing in the target date fund, Yash described, and investing in annuity. Come up with a split. That's right for you depending on your own risk, tolerance, and goals. You can also do a lump sum purchase. but in either case that helps build up a guaranteed stream of payments that lasts as long as you live, and that you can start any time between ages 60 and 71.

To get this a little bit more concrete detail. This is an example based on the current rates. You can always see as a plan and remember what the current rates are, and model what an annuity purchase might look like. So this is an example of a 52-year-old that purchases $100,000 worth of annuities and wants to start those payments at age 71, and so basically that $100,000 would in today's rates, turn into about $15,000 of guaranteed income for life. If that physician spends 25 years in retirement lives to 96, it turns into almost $400,000 of total annuity income. So just an example of how it works in this scenario.

Rising interest rates are bad news for a lot of financial reasons. You know your mortgage costs are going up but one good thing is that it actually results in higher payouts for annuities. So in our program. We've seen as much of a 17% increase. How much payout you get for every dollar of premium that you put in. So it's that the interest rates are starting to make annuities more attractive as products. And that's why you know, interest in annuities, and the annuity market has been growing, and is expected to continue to grow over the next couple of years. As I mentioned, we have a partnership with Brookfield annuity. They're a fully owned subsidiary of Brookfield asset management, which is one of the world's largest and most respected alternative asset managers with nearly a trillion dollars of assets under management. The company has been around for over 100 years and it's backed by Assurance, which means that in the very unlikely event that the insurer goes out of business. There's a backup provided by another form of insurance to protect your benefit. As I mentioned earlier because annuities do provide a guarantee, the purchases are irrevocable and can't be cashed out, which is why it's important to have a consult with an advisor to understand if an annuity is right for you. This just gives an example of how you can come up with your own mix of annuities and investments. And this is an example of a physician that's contributing $1,500 a month to the plan. Most of that is going into the target date funds that Yash described. But they're allocating $300 a month to the annuity, and that's translating into a certain amount of retirement income, and on the online platform a physician can adjust this over time as they get more comfortable. They may want to purchase more, or they may want to dial it down if they're less comfortable and more comfortable investing in markets. But it's really about choosing your own. Mix based on your own risk, profile, and goals.

I don't want to go through all these. There are some decisions that you need to make this purchasing annuity. We made the program as simple as we could and digitally enabled it. But we still highly recommend a consultation with an OMA Insurance advisor to help you understand if annuities are right for you, and if they are, how much to purchase and how to navigate some of these other key decisions. So you really understand what you're doing, and you're making the right choices for your own retirement income.

Otniel Trejo: Thank you, Alex for taking us through annuities. And for my last topic, I want to focus really quickly, on the value of having a consultation with someone from our Advantages Retirement Plan specialist team and see how a second opinion can unlock greater retirement wealth. Before we dive in quickly into it. Let me introduce our retirement specialists. Our Advantages Retirement Plan specialist team we have first- Yash Khubchandani. We have Firas Hamdan. So Yash if a member were to book a consultation whether it's in person or virtual what can they expect?

Yash Khubchandani: Perfect so first things to start off just similar to our insurance branch. I want to point out to all members that we are non commissioned with regards to the retirement plan as well, so we do provide unbiased advice from our end with regard to the plan. One of the reasons to request an in-person or virtual consult from our members is, as Alex mentioned, and yourself as well, we have an amazing digital tool, and we would like to take our members through a personalized demo of the plan to see how they can optimize that plan for themselves. The plan is meant to be self-service of nature. So again, if a member requires our assistance, we're here to assist them every step of the way. But if they do decide to go on their own, we would like to make sure that they're aware of everything they're dealing with. With regard to the platform. Most members currently already invest towards their retirement or towards their registered retirement plans. So we do offer them a free analysis of their current investment performance to actually see whether this program fits well for them, or if they're already on the right path for retirement and at the same time most members don't get a chance to go through a lot of their statements, which means we also help them uncover certain hidden fees that they may or may not be aware of paying on their portfolios. And lastly, as Alex mentioned, one of the most important parts is the annuity within the plan, and any discussions related to the annuity would be recommended to be had with us because there are certain caveats about the program that we would like to take the time to walk every member through.

Otniel Trejo: Excellent, and I guess due to time. I'm just gonna ask you my last question here. Regarding fees, we understand the importance of the impact fees has especially the value of your investment over time. What do lower investment fees mean for members?

Yash Khubchandani: That's a great question. As I said, it is one way to maximize your retirement savings. This is where that comes into play. As mentioned, the Advantages fee itself is point 6% plus a $10 monthly, which you see outlined is $120 and fees. That is typically one-third of what the member might be paying in the market. If we were to assume a starting member at age 40, putting in approximately 12% of their earnings as savings every year from that age until 70, there will be a difference of approximately 1.3 million dollars in their retirement portfolio based on the fees and the compounding power that they just lost over that time. In my opinion, 1.3 million dollars is good for anyone to actually retire, to be honest. So that's a retirement fund in itself, and that's the power of what fees can generate for a member over a lifespan like 30 years to retirement.

Otniel Trejo: Wow! That's a that's excellent. And yeah, just really quickly to kind of summarize some of the questions that I've asked you right now. Is there a story or a quick experience that you can share with us where you personally were able to help a member or physician maximize their retirement savings?

Yash Khubchandani: Yeah, definitely. I have had the luxury and good foresight of having to deal with a member like that. We recently have been speaking to a lot of members with regards to these virtual demos and during one of them we had a 64-year-old member who's just five years away from retirement and currently had almost 1 million dollars in assets divided between two institutions. And during our session, we offered him a free analysis to analyze his current investments, just to see if this compares or not, and based on that we found out that he hadn't been reviewing his investments for the last four years, and over the last 10 years while paying a fee of 1.8. He had only made an average return of 2 in the last 10 years.

Now, in my opinion, looking at that statement really made, it hurt for me, because I can see that over the years that inflation has gone up that is no earnings, especially on a portfolio that size uncovering those costs are able to show our member what our plan could do for them, and at the same time, even though they didn't have a long timeline between now and retirement. It's purely just over the next 5 years. On half his assets we were able to save him approximately $50,000 in fees. That's 10 of his portfolio that he brought up, or to the plan. So I think, in general depending on his scenario. This was a great transition for him. And again, I think the value of that second consult or opinion is to find out whether this program would really take you that far or not.

Otniel Trejo: That's fantastic. And again, maybe just due to time, we'll probably just answer one of the questions that was submitted ahead of time. Alex can help us out with this question. One of the members asked us. I'm interested in annuities but what happens if I change my mind after I purchase it?

Alex Mazer: So typically, the way annuities work is that once you make a purchase decision, it's an irrevocable decision and that ultimately is the way that the annuity program works for this program, however, we have heard from some members that they would like the opportunity to have almost like a cooling off period. If they change their mind within a relatively short period of time, like a 10-day period. So that's something we're working on. It's an improvement. We're working on the plan. It's not quite ready yet but it's coming in early 2023, where members will have a chance to basically change their minds within a short period after making a major annuity purchase.

Otniel Trejo: Thank you. Thank you, Alex and that's really all the time that we have for today. However, if you have questions please reach out to us via email at, and we'll make sure that someone from our specialist team follows up with you. I would like to say thank you to Yash. Thank you to Alex for being our guest speakers today. You guys did a fantastic job! Thank you. And also, if you would like to learn more about the Advantages Retirement Plan. Please visit our website at slash forward retire. It's easy to enroll on your own. But you don't have to book a consultation and someone from our team will be able to help you enroll online or answer any questions, or inquiries that you may have. Thank you so much and have a wonderful afternoon.

Yash Khubchandani: Thank you. Everyone take care.