HUB finds the best and the rest in Canadian seg funds

(January 14, 2005) Some advisors are dropping their costly mutual fund licenses in favour of selling more complicated but less compliance crazy segregated funds. In doing that though, it helps to have good research to identify the best products available for different clients and what the different companies offer when it comes to things like guarantees, MERs and commissions.

HUB Financial recently unveiled analysis of the different products available for the RRSP season and launched their 2005 annual RRSP roadshow. Part of its service to planners is an ongoing evaluation of products to determine which products are best in each category, which are suitable for different clients and the selling points that might be useful in different client scenarios.

The problem with seg funds, and the opportunity for HUB, is the huge amount of fine print that comes with a seg fund and the different parts of the product that advisors need to be knowledgeable about.

Some with manual resets, for instance, could draw scrutiny and liability issues if an advisor sells the same product to two clients and triggers the reset for one, but not the other, or if there is nothing in writing outlining who is responsible for tracking the fund’s performance and triggering the resets.

Not to say manual reset products are bad for clients; on the contrary, the mechanism could be quite useful for some. “There are bad matches and inappropriate 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 provide for different purposes.” For automatic rebalancing options, he recommends select AEGON Transamerica and CI Sunwise products. He says AEGON also stands out for its reduced fees, product options and third-party portfolios reviewed by Mercer Investment Consulting.

He says options, flexibility of load, performance, fund management if active management appeals to the clients objectives and sensibilities, guarantees and costs are all good things to look for in a segregated fund.

Guarantees, both contract-based and deposit-based, particularly require due diligence on the part of the advisor, since this area of the fine print can be full of “smoke and mirrors”. Given recent press, MERs might also be an area of concern for clients, since many seg funds have MERs that are about 80 basis points higher than their mutual fund counterparts.

Shawn Redford, HUB’s Greater Toronto area marketing director, investment products says the cost is relative considering the insurance benefits such as death benefit guarantees and creditor protection. If, for example, the client is buying the fund to avoid the cost of probate fees, 80 basis points on a $10,000 investment works out to $80 each year. Considering the monetary value of probate alone, the coverage without underwriting makes the product quite valuable to the right client. “It’s all relative,” he says. “What does that 80 basis points mean to the client? It buys insurance. It’s a premium and you get what you pay for.”

In death benefit guarantees and MERs, there are several companies that stand out. “Manulife has an incredible death benefit guarantee if that’s your selling feature,” says Redford. He also says the company’s laddered GIC offering is unique in the industry.

For the cost sensitive, Canada Life, Standard Life, Equitable Life and Empire Financial are the names that stand out. For conservative clients who want to diversify their fixed income holdings, Lutrin says Standard Life tops the list of recommendations with its pension managers and maximum MERs around 3%. “For conservative clients there is no better company than Standard Life. They have [a number of] segregated funds that don’t even touch equities.”

Empire Financial is another notable exception. “They have the lowest MERs in the business,” says Lutrin. The company also has no age restrictions on some funds, offers an excellent loan program and provides no-load fund options. Along with MRS Mackenzie, he says Empire is the only other company that offers seg fund group RRSPs for businesses.

For clients sensitive about investment options, Empire Financial, Standard Life and TD Asset Management all offer in house managers while the rest outsource to third party providers. Of the companies HUB distributes for, only Equitable and Industrial Alliance do not trade on Fundserv.

Finally, the company also analyzed available seg fund offerings for their top picks in compensation with Empire Financial, Equitable Life, AEGON Transamerica’s portfolio funds and TD Asset Management’s portfolio funds coming out on top.

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com