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Segregated funds will have to prove their value in the face of the fund at a reduced fee


Alain Thériault

February 9, 2018 07:00

Benjamin Reed-Hurwitz and Alain Desbiens

In the Face of the rise of exchange-traded funds (ETFS), series F, and those without costs, the segregated fund will have to clearly demonstrate their added value if they want to carve out a place in the hearts of investors more sensitive to costs.

According to data from Strategic Insight, segregated fund assets rose by 110.7 billion dollars (G$) 116,8 G$ between June 2016 and June 2017, a growth rate of 5.5 %.

The market trends of the coming years will push the costs of investment products to decline. «Management fees become the center of attention,» says Benjamin Reed-Hurwitz, associate consultant and senior analyst of Strategic Insight, in an interview to the Journal of the insurance. The growing adoption of the practice fee will continue to stimulate discussion around investment products at a low cost. This could lead to exchange-traded funds (ETFS), easy to include in management programs-fee «, he adds.

The mutual funds have reacted well to these trends, said Mr Reed-Hurwitz. «We see that several fund companies have responded very aggressively in terms of cost, particularly with their fund-series F for management fees. The fund F-series have largely been created to be embedded in the practices fees. The ETFS are in a good position to compete in a world of management fees. The mutual funds are also better equipped to do so «, believes the analyst.

The trend of the fund at a reduced fee intensifies in the mutual funds, under the pressure of the ETFS, and to disclose fees, » said Alain Huard, vice-president and regional sales director ofInvesco Canada. «Sales in the funds of the F series have increased sharply, both in the network of securities dealers that it is in that of financial planners. There are less and less in deferred sales charges. For us, the proportion of sales attributable to such funds became minimal. The fund charges remain a good proportion of our sales. «

Fees : to be a real issue

The work fee is a real issue, » added Alain Desbiens, vice-president of sales for the region of eastern canada , BMO global asset Management Canada. «Investors want to have the choice and that the model should be transparent. The use of ETFS in the firms securities is growing. Their use is mostly in fee-based accounts, both discretionary and non-discretionary «, he explains. Mr. Desbiens also notes the greater use of mutual funds of series F compounds of ETFS, including underlying fund within the segregated funds.

In front of the growing pressure on costs, what will there be separate funds, all of which add to their cost of insurance ? Their challenge will be depending on him to justify this additional cost. «So that the segregated fund will have to justify their offer, both to those of mutual funds and ETFS, focus on their component of insurance. The question will be : is the additional cost of the warranty provides an added value compared to the mutual funds, or even ETFS ? «, believes Mr. Reed-Hurwitz.

In this cost, that of investment and that of the board, each of these components to catch the attention, thinks Mr. Reed-Hurwitz. To reduce the cost of the insurance element, the suppliers might then be tempted to incorporate ETFS in their funds separate, because they believe they can reduce the cost of this component, within the expense ratio of the segregated fund, » he adds.

However, all take place in what is looking the investor as a value added. «Research does it the personal touch that the mutual funds with managers recognized, the active part of an ETF, or simply an exposure to the market at the least possible cost ? The real challenge will be for suppliers to define the value of each of their products, and the rapid adoption of the practice, fee will intensify this discussion, » said Mr. Reed-Hurwitz.

BMO said the challenge. «Our products ETFS are among the cheapest in the industry. Since two years we also offer guaranteed investment funds (segregated funds) ETFS for independent financial advisors, » recalled Alain Desbiens.

Come in 2015 in the market segregated fund, through its network of advisors, BMO has experienced a marked growth in the investment fund sector. Its assets grew by 107 % between 31 October 2016 and 31 October 2017, to wear 312.5 M$, for his part, revealed his vice-president of sales for eastern Canada, Leon Jackson Garneau. «The strong growth of our fund of guaranteed investments is explained by the fact that we are new entrants in this sector, and that our assets are in development for less than four years,» said Mr. Jackson Garneau. In comparison, BMO was an asset of 56.4 G$ as at October 31, 2017, representing a growth of 8 % compared to October 31, 2016.

Access to the middle class

The middle class investors can gain access to segregated funds able to offer cost reasonable basis index important. This last includes also strategies of beta-wise, including individual strategies of covered options and low volatility, insists his side Alain Desbiens.

«We offer solutions for segregated funds portfolio of ETFS for initial deposits of $ 500. The entire range of automatic deposit, and reinvestment is also available starting at $ 50 per month. All consultants can find solutions that will allow them to cover 70 % of Canadians with investable assets of $ 50,000 and less, » he argues.

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