January 3, 2018 06:45
A trend started in the industry of segregated funds : insurers reduce the costs.
From January 2016, five insurers have followed the current and have lowered the cost of several of their products, segregated funds, according to data published by the centre de vigie AssuranceINTEL, a sister company of the Journal of the insurance. It is, ofLife Insurance, Equitable, Great-West life, RBC Insurance, SSQ financial Group, and iA financial Group.
Why insurers to surf on this wave ? It is all a question of positioning, » says Marie-Claude Poulin, director, savings and retirement, at iA. «For us, we do an annual review of our positioning. It is this revision that has led us to proceed with the reduction for our products 75/100. We felt a certain need of the customers. «
Jean Salvadore, director general, insurance heritage, RBC Insurance offers a similar explanation. «We look at what is on the market and what makes sense. It is a very competitive market. We want to accelerate our growth. Also, RBC Insurance wants to provide to its customers some added value. The reduction of costs is one of the ways to do this. «
However, this trend is not unique to segregated funds, » says Poulin. «We note in the fund market in general. With the coming disclosure of fees to customers with the entry into force of the second phase of the client relationship Model-adviser (MRCC2) and MRCC3, it is a about a little more sensitive, which explains what we observe. «»The fee reductions in several investment products are the result of a pressure that they have suffered because of the competition in the market,» adds Ms. Salvadore.
For Gino Savard, chairman of the cabinet, MICA financial Services, this movement on the part of insurers testifies to a willingness to bear the expenses of the segregated fund at the same level as those of mutual funds. «The gap in charges between the mutual funds and segregated funds continue to shrink. The insurers come out of new solutions portfolio segregated fund products which offer management fees comparable to those of mutual funds. «
By contrast, Marie-Claude Poulin did not dare to justify the decision to iA only on the basis of this determination. «For us, it is the interest to remain competitive, above all, which has led us to take this decision. «
The arrival of exchange-traded funds (ETF) has also contributed to the launch of the trend of reduction of costs, in addition to the efforts of disclosure. «Segregated funds have their features and benefits of their own. These have a cost. Insurers have realized that the fees were a little high compared to other products. For the portfolios, fixed income, due to low interest rates and taking into account the management fee and compensation of the advisor, there remained very little to the investor. The ratio between the fee and the benefit was not a benefit to the customer, » explains Francis Sabourin, director, wealth management and portfolio manager chez Sabourin Deraspe wealth Management.
If for some, the high costs have put off exploring the market for segregated funds, many investors do not know even the existence. A survey conducted by RBC Insurance at the beginning of the year reveals that, of the 87 % of Canadians aged 55 years and over who wish to have an investment product offering warranties on the capital, 60 % were not aware of the segregated fund. In addition, only 17 % of respondents said they consider the separate funds in their retirement plan. What’s more, 33 % of them said they did not see disadvantages to what the costs are higher.
In the Face of this observation, Marie-Claude Poulin says that it is the responsibility of the advisor to speak to clients. «The solution is that the financial advisor educates his clients. For them, mutual funds, segregated funds guarantee 75 % of the capital, it’s chinese. The counselor must help them to achieve their financial goals. Segregated funds are an excellent alternative for customers who want to be cautious, thanks to the collateral. They have a cost. Bringing too much of the discourse on the costs, we forget the value provided by the advisors. It may put off some clients to opt for the separate funds in their savings strategy. «
Francis Sabourin argues that the fact that they are distributed only by financial security advisors certified contributes to the public’s lack of knowledge. «If the segregated fund were also sold by advisers with the same certification as for those who sell mutual funds, it would be more known. «
Gino Savard concedes that the segregated funds are not sufficiently used. At MICA financial services, they only account for 10 % of new sales, the remaining 90% being dedicated to mutual funds.