Outrage in the advisory community forced one of the country’s largest investment firms to withdraw from transferring assets from one fund manager to another.
CI Investments and Sun Life Financial rejected the plan, which would have moved about $400 million at SunWise and the SunWise Elite funds split from Fidelity Investments to newly established CI subsidiary, Cambridge Funds.
In a letter dated February 1, CI and Sun Life indicated that the investment mandates of each of the Cambridge funds were “substantially similar to that of the Fidelity fund it replaces,” and reminded advisers that Cambridge was the new home of Alan Radlo, a popular fund manager who left Fidelity in early 2007.
Essentially, investors would be kicked out of Fidelity NorthStar, True North and Canadian Asset Allocation funds without consultation.
Sources told Advisor.ca that CI announced during a conference call Tuesday evening that it would no longer pursue the plan. CI and Sun Life issued a letter to advisors today explaining this decision.
“We have been discussing this change with advisors over the last week and many have told us they want to have a choice of both Cambridge and Fidelity funds at SunWise warehouses,” we read in the letter. “We listened and, after careful consideration, selected a solution that will provide you and your customers with more options. We have elected to retain Fidelity funds in SunWise and the SunWise Elite Policy when launching a new version of SunWise Elite segregated funds that will invest in Cambridge’s underlying mutual funds.
“The changes that were to come into force on February 28, 2008 will not be implemented. Fidelity True North Fund, Fidelity Canadian Asset Allocation Fund and Fidelity NorthStar Fund will remain part of SunWise and the SunWise Elite and platforms will continue to be available for sale to new Sun customersWise Elite.”
Some commentators believe what the company should have done was offer Cambridge Funds with Fidelity in the first place.
“This is about our customers and this was the wrong approach. That was completely wrong,” says Alan Filer, CFP at Lifetime Financial Planning Group in Niagara Falls, Ontario.
In addition to being kicked out of the investment decision-making process, Filer was angered by an ominous warning at the end of his letter to advisors: “Please remember that if you realize capital gains or losses on the segregated funds, they may be allocated (distributed) to clients at the end of the 2008 tax year ”
“According to the prospectus, CI has the right to change its money managers, but there is a moral and ethical issue here,” says Filer. “I fired the wholesaler. He’s a really nice guy, but the most important thing is that he’s banned from our office.”
Since the decision was overturned, Filer says he has reconciled with his wholesaler, who called him Tuesday evening to tell him the news.
“I told him he could come back,” Filer laughs. “The problem is that right now I think SunWise is the best product in Canada for our customers. The proof is that we made $40 million in business in four years.”
“I have never had such happy customers as I do now,” he says.
The initial reaction to the planned asset change was not much better within the CI corporate family. Heather Ferber, CFP and branch manager of Assante Capital Management Ltd. in Cambridge, Ontario, says she also had a “pretty heated discussion” with her CI representative.
“We weren’t particularly happy about it. I’ve talked to a few customers about this and they’re not very happy either,” says Ferber. “One of the reasons I chose Fidelity was because it gave us some diversity.”
The ability to offer third-party funding was likely a welcome option for Assante Advisors as the company is owned by CI. If the SunWise offered exposure only to funds managed by CI, clients could perceive the products as their own and question the advisor’s motives.
“Sometimes you have to stand up for what you believe in. If you are struggling with something you think is wrong, you can fix it. I think they listened,” Ferber says. “I’m really happy for my clients now that there will be no more capital gains issues.”
The proposal came as a surprise to both industry observers and advisors.
“I don’t blame advisors for getting angry because this isn’t closure where discretion is handed over to the oversight committee,” says Dan Hallett, president of Dan Hallett & Associates Inc. “It just seemed like a blatant attempt to transfer assets in the home. (Doing so) regardless of the tax consequences for clients is a complete conflict of interest.
Hallett says he’s still a “huge fan” of Radlo, even going so far as to recommend investors follow him to Cambridge first, but says it would be “unfair” to move CI’s assets.
“Everyone’s reasons for buying a particular fund are different. For some, Radło was not like that the reason to buy these funds. In fact, in True North’s case, he hasn’t been in charge for about six years anyway, so it doesn’t make much sense in terms of following a manager.
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Submitted by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com
(13/02/08)
