Insurers place bets on wealth management

Canada’s largest insurers are happy to sell insurance through independent advisors, but what they really want is to help those advisors manage their client’s assets.

Executives from Canada’s largest insurers presenting at the Scotia Capital Financials Summit Conference in Toronto emphasized that wealth management, not insurance, has become their most important income stream.

“In the last five years, wealth management has gone from 20% of earnings to 40% of our earnings,” J. Roy Firth, executive vice-president of Manulife and head of its Canadian wealth management division, told the conference. “Insurance has gone from 69% to 41%, and that may very well fall to around 25%.”

In retail wealth management, Manulife’s revenue comes from three separate sub-divisions — Manulife Investments, Manulife Bank and its distribution operations through Manulife Securities and the recently acquired Berkshire.

The independent advisor network is the lynchpin of this model. Firth says that to move product, Manulife must rely on financial advisors. Rather than follow the model of the banks, which sell their products directly to investors, the insurer has specifically designed Manulife Bank to service independent advisors.

“All of our products are sold through intermediaries, so we want to own the independent advisory market for banking services,” Firth says.

Manulife’s performance on the product side has improved. According to the Investment Funds Institute of Canada, Manulife is now the 10th largest fund company in Canada, with fund assets at $30.0 billion. However, only $9.4 billion worth are standard mutual funds, as $20.6 billion of that total is in segregated funds.

Firth says seg funds and guaranteed minimum withdrawal products are a gateway into a larger share of the standard fund market. Demand for insured investment products, which only insurers can offer, is rising since they fulfill the unique investment needs of affluent boomers nearing retirement who need to protect as well as grow their investments.

Insurers are leveraging their success in selling seg-fund products and variable annuities to create brand recognition on the mutual fund side. For this reason, he says, Manulife recently retired its Elliot and Page brand of mutual fund, so that all of its investment products now carry the Manulife brand.

Probably the most drastic change for the insurer is a bulking up of its own advisor distribution networks. Through Berkshire, Manulife has added $12.5 billion of advisor-administered assets to the existing $7 billion that it controls through Manulife Securities.

Firth reaffirmed that there are no plans to make Berkshire a captive sales force but at some of Berkshire’s 235 branches, there will be in-house Manulife banking consultants.

Manulife’s chief competitor, Sun Life, is also putting a much larger emphasis on individual wealth management.

Also presenting to the conference, Donald A. Stewart, Sun Life Financial’s CEO, said that in the past 12 months, 60% of the firm’s revenues came from wealth management. Internationally, the company now has more than $60 billion in retail assets under management.

In Canada a large portion of Sun Life’s sales has come from rolling over exiting group retirement plan customers into retail products, and 71% of its revenue in the U.S. is now earned through annuities.

Unlike Manulife, though, Sun Life says it will try to leverage its captive sales force to increase product sales, which is something it made clear when it dropped the Clarica name in favour of the Sun Life brand.

Sun Life also has a 36.5% stake in CI Financial Income Fund, which controls one of the country’s largest mutual fund companies, CI Investments, and owns advisory firm Assante.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(09/12/07)

Mark Noble