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Similiar but Different.

Both Institutional and Individual investors face similar challenges.

The Institutional investor’s ultimate objective is to pay future liabilities (ie. pension payments). The Individual investor aims to provide for retirement income. In essence, both are retirement saving schemes. Both invest in similar capital market environments (the same stock, bond and real estate markets). While Institutional Pension funds are not taxable, neither are Individual registered savings (such as RRSP’s and the like). Indeed, pre-2003, Pension Plans had the same investment restrictions on foreign content as Individual RRSP’s did. Time horizons are both long-term. Pension Plans invest for a generation or more. Individuals should plan to age 80 or 90 and then for inter-generational transfer.

Both Institutional and Individual investors face similar funding level and benefit and investment policy challenges. If an Institutional investor doesn’t have enough assets to pay future liabilities, it has a funding shortfall and may have to ask members for increased contributions. If the Individual investor doesn’t have enough put away for retirement, they have to save more today for tomorrow. If future benefits cannot be paid, the Institution may have to ask retirees to accept a retirement income or benefits cut. The Individual too may have to accept a lower future standard of living. And if the Institution believes a different investment policy will provide a more desirable investment outcome, then the Institution can seek approval for a change in policy. The Individual can do the same by pursuing higher / lower investment returns and/or risk levels by making their investment portfolio more or less aggressive.

So an Individual investors’ investment portfolio can be and ought to be viewed as a de-facto personal pension plan.

But if an Individuals retirement income objectives look so much like an Institutions obligations, and if both investors face a similar investment environment, shouldn’t their portfolios be similar?

This is where Individual and Institutional investors diverge. Implementation. Why?

Surely THE difference is planning and process. While Institutional investors MUST plan (by law), Individual investors (or their Advisors) don’t (or won’t).

In a Benefits Canada 2009 survey of capital accumulation plan members only one-third (34%) of respondents said they have a formal written financial plan (see magazine November 2009). Even in the group of members ages 55 to 64 and with personal income above $100,000, only 45% to 51% of members have a formal written plan.

From the same survey, ‘when the volatility in the financial markets hit last fall, 47% of participants didn’t ask anyone for financial advice’. 76% of participants had poor or no understanding of their plan (if they had one) and 77% had no or poor or no understanding of asset allocation.

In the nearly thirty years of reviewing investment portfolios for hundreds of different investors, I have only once had an Individual produce a family budget. Not one has produced a financial plan or an investment policy. (Sorry, but a brokerage statement is not a plan).


Getting investors engaged in the process and recognizing value from planning remains a major challenge. It doesn’t have to be this way.

Next time?

Planning is easier than you think.

Doug Cronk, CFA is Manager, Investments for a Canadian Pension fund.

You know, there are some experiences in life you will never forget. This will not be one of them.

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