(January 14, 2005) Some advisers are forgoing expensive mutual fund licenses in favor of selling more complex but less stringent segregated funds. When doing this, however, it’s worth doing good research to identify the best products available for different customers and what different companies offer in terms of warranties, MER and commissions.
HUB Financial recently presented an analysis of the various products available during the RRSP season and has launched its annual RRSP roadshow for 2005. Part of the service provided to planners is the continuous evaluation of products to determine which products are the best in each category, which are suitable for different clients and what advantages may be useful for various customer scenarios.
The problem with seg funds and the opportunity for HUB is that with a seg fund there is a huge amount of small print and different parts of the product that advisors need to be aware of.
For example, some manual resets can create control and accountability issues if an advisor sells the same product to two clients and triggers a reset for one but not the other, or if there is nothing in writing specifying who is responsible for tracking the fund’s performance and triggering resets.
This isn’t to say that manual reset products are bad for customers; on the contrary, for some this mechanism could be quite useful. “There are bad fits and bad products, but there are no bad products,” says John Lutrin, executive vice president and chief marketing officer at HUB Financial and HUB Capital. “They all serve different purposes.” For automatic balancing options, it recommends select AEGON Transamerica and CI Sunwise products. He says AEGON also stands out for its reduced fees, product options and third-party portfolios vetted by Mercer Investment Consulting.
He says options, load flexibility, performance, fund management if active management suits clients’ goals and sensitivities, guarantees and costs are all good things to look for in a segregated fund.
Guarantees, both contractual and bonded, require special care on the part of the advisor, as this area of ​​fine print can be full of smoke and mirrors. Given the recent press, MERs may also be a concern for clients, as many segmented funds have MERs approximately 80 basis points higher than their mutual fund counterparts.
Shawn Redford, HUB’s Greater Toronto marketing director for investment products, says cost is relative when considering insurance benefits such as death benefit guarantees and creditor protection. For example, if a client purchases a fund to avoid the cost of probate fees, 80 basis points on a $10,000 investment works out to $80 per year. Considering the sheer monetary value of the inheritance, uninsured coverage makes the product quite valuable to the right customer. “Everything is relative,” he says. “What does this 80 basis points mean for the customer? He buys insurance. This is a premium service and you get what you pay for.”
When it comes to death benefit guarantees and MER, several companies stand out. “Manulife offers an amazing death benefit guarantee, if that’s your selling point,” Redford says. He also says the company’s ladder GIC offering is unique in the industry.
For the cost-sensitive, the names that stand out are Canada Life, Standard Life, Equitable Life, and Empire Financial. For conservative clients looking to diversify their fixed-income investments, Lutrin says Standard Life tops the list of recommendations with its retirement managers and a maximum MER of around 3%. “For conservative customers, there is no better company than Standard Life. They have (many) segregated funds that don’t even influence stocks.
Empire Financial is another notable exception. “They have the lowest MER in the industry,” Lutrin says. The company also has no age restrictions on some funds, offers an excellent loan program, and provides no-load fund options. He and Ms. Mackenzie say Empire is the only company that offers corporate RRSPs through its segment fund groups.
For clients sensitive to investment options, Empire Financial, Standard Life and TD Asset Management offer in-house managers and outsource the remainder to external providers. Of the companies for which HUB distributes, only Equitable and Industrial Alliance does not trade on Fundserv.
Finally, the company also analyzed available segmented fund offerings for the best compensation choices, with Empire Financial Funds, Equitable Life Funds, AEGON Transamerica Portfolio Funds and TD Asset Management Portfolio Funds coming out on top.
Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com
(14/01/05)
