It is our pleasure to inform you that the 2009 edition of Investor Economics’ Household Balance Sheet Report will be available within the next two weeks. This study builds on a tradition first established in our inaugural 1992 edition. That report introduced the notion of the household balance sheet as an analytical framework that would permit providers of financial services in every major corner of the marketplace to consider the entire playing field of retail financial services by tracking the aggregate of all households through time and into the future. Ongoing seismic shifts in worldwide economic activity and financial markets have certainly heightened the need for an analytical compass such as the household balance sheet.
The marketplace projections and industry assessment set forth in the forthcoming report underscore our belief that the financial preferences and priorities of Canadian households are in the throes of a profound and lasting change. In the coming years, the ripple effects of these changes will cascade through all sectors of the financial services business and reshape its landscape.
The basic underlying approach set out in the early work has been extended to each and every one of the nine reports produced over the past 17 years. But, like the industry itself, the content and analytical detail has evolved and grown with every edition. There is always something new and special in every report. There are four new features in the forthcoming edition:
• HBS scenarios: In addition to our detailed base case, we present two high-level alternate balance sheet outcomes. One is a goldilocks environment in which macroeconomic conditions support a more vigorous and sustained equity market environment. At the other extreme, the “doomsday” scenario quantifies future balance sheets in an accelerating inflation environment.
• Inheritance and wealth transfer estimates: Based on a new methodology, we quantify prospective inheritance flows arising from financial wealth and residential real estate over the coming decade.
• Projections for tax-free savings accounts: We present our five- and 10-year forecasts for number of accounts and dollars by age and asset threshold for this newly-created category of registered accounts.
• Provincial balance sheet forecasts: The 2009 report introduces our new provincial forecast methodology and the resulting household balance sheet forecasts for British Columbia, Alberta, Saskatchewan/Manitoba, Ontario, Quebec, and the Atlantic Provinces.
In addition to the above mentioned new dimensions, the report provides the customary sizing, historical trends and growth outlook for all key balance sheet lenses: asset mix, products, delivery channels, segments, and lines of business. But the Household Balance Sheet Report is much more that a set of projections. It is fundamentally about identifying and tracking the ideas and emerging themes that will help to uncover opportunities and challenges for providers of financial services. Here, we identify some of the overarching themes that will be etched into the future industry landscape. Assessing and quantifying the future risk orientation of Canadian households is an issue of utmost priority to industry participants. The aggressive accumulation of very liquid and relatively low-risk financial wealth has been a natural outcome of the recent financial market and economic instability. Choices around the future deployment of these liquid assets are not as predictable as was the case in the pre-mid-2008 setting. The extent to which households choose to accept risk will not only govern the types of products that will succeed, but will also influence the degree to which households will want or need advice. The prognosis for advice-giving as a driving force of growth and opportunity is not as clear cut as it once was. Even if households are compelled to accept more risk, it is not entirely clear if they will seek the guidance and support of traditional advice-givers. This leads to another key idea that emerges in the forthcoming report—the idea that self-reliance and self-directed investment decision-making will achieve greater traction than heretofore realized.
In our 2007 report we presented separate think pieces—one on high net worth and the other on retirement. We revisit both of these in the forthcoming report, but the perspective has changed. In the High Net Worth section, we focus attention on how the new reality of downshifting growth, diminished enthusiasm for equities, and the changing competitive landscape will influence the evolution of this segment.
In the Retirement section, we move beyond the liquidation phase to extend our analysis and discussion to factor in our projections on inheritance and intergenerational wealth transfer. How big will it be? Who receives it? How will it be deployed? We introduce the notion that the retiree generation, having absorbed the recent shrinkage of wealth and facing slower recovery in the coming years, will also have to confront a widening inheritance gap—the new reality that will impact both those looking to leave a legacy as well as the generations following in their footsteps.
The release of the Household Balance Sheet Report occurs biennially, but the gathering and compilation of data is a continuous exercise. National and provincial balance sheets are updated throughout the course of each year. In mid-2010 all subscribers will receive a complete package of updated numbers and rebased projections using actual year-end 2009 numbers as the base period.