RRSP outlook: Fixed income to drive sales

Has there been enough of a recovery for to advisors to get clients to invest in their registered retirement savings plan? That’s seems to be the big question hanging over the upcoming RRSP season.

The industry has to contend with whether clients are finally ready to take their cash off the sidelines and throw them into mutual funds.

Advisors will have to figure out how to take advantage of client cash deployment, opportunities to re-balance portfolios and the extent to which a possible market pullback of between 10-20% could factor into when to re-enter the equities market. Fund company plans can be viewed as responses to the answers to those questions.

Extrapolating trends from Investment Funds Institute of Canada statistics, the picture looks positive with a bias towards fixed income funds, suggests Frank Hracs, chief economist at Credo Consulting, a financial consulting firm.

Hracs projects first quarter 2010 sales, (registered and non-registered), excluding money market funds at $9.9 billion, including $8.1 billion in non-equity funds and $4.8 billion in balanced funds and the remainder in fixed income funds. He projects $1.8 billion in equity fund sales.

“In that sense, things are skewed towards non-equity funds,” he says.

With exceptions, independent investment management companies, bank-owned and non-bank-owned fund companies and some boutique planning firms with proprietary funds, seemingly share the same general view as Hracs. Those projections may be reflected in products recently launched or set for launch later in the RRSP period.

Product initiatives

In December, Quotential managers will have the option of investing in Franklin Templeton Société d’Investissement À Capital Variable (SICAV) Luxembourg based funds. As markets move and new opportunities unfold, accessing pre-existing offshore Franklin Templeton funds where there is no onshore equivalent will allow the Quotential Program to strategically and tactically participate in real time. These initiatives reflect the company’s belief that investors feel conflicted between market gains since March and continued volatility while remaining in a conservative mindset.

Pending approval, CI Investments Inc. plans to launch a new fund called the Signature Diversified Yield Fund designed to achieve returns with fixed income and high-yielding securities but has not set a launch date.

CI sees this fund as fitting its RRSP focus on income solutions and its belief that many Canadians question their suitability for equities, explains Derek Green, President of CI Investments.

Green says the market dropped more than 50% as a result of previous bear markets, leaving individuals moving closer to retirement looking for more predictability.

“When we come out of these significant bear markets people generally are more risk averse and become more conservative,” he says.

At time this article was written, AGF Funds and Fidelity Investments have no new initiatives specifically planned but have road shows scheduled. Mackenzie Financial Services also opted against new initiatives, reflecting a belief that it already covers all fixed income funds requirements.

In the bank-owned category, TD figures its TD Advantage portfolios will produce results in the period, according to Thomas Dyck, president of TD Mutual Funds.

This product contains five wrap portfolios which range from an extremely conservative 80% fixed income to 20% equity asset allocation to a 100% equity version, reflecting TD’s strategy of covering all mindsets.

“Most investors are in very different stages in terms of where they believe the markets are headed and how they think they should participate,” he said. The combination also responds to TD’s belief in a ramping up of risk appetite before the RRSP deadline.

“It may not be right now for most if not all clients but between now and March 10, there will be a significant increase in the number of customers looking (to get ) back into the markets probably in a way that would be more akin to where they were 24 months ago.”

Amongst non-bank-owned companies IA Clarington Funds, wholly owned by Industrial Alliance Financial Services, will highlight its socially responsible mutual fund family recently acquired from Inhance Investment Management Inc, which is still pending approval.

Boutique planning firm Wellington West Capital Inc. will launch a new Principal Protected Notes fund later in the year. According to Charlie Spiring, its chairman, Wellington West sees changed risk attitudes amongst some clients.

“Half the market has come back and gained some confidence that things are going to come back to normal. Half are terrified out there because their neighbour lost their job,” he says. “We’re seeing two economies out there. It’s really important for the advisor to understand which economy their client is dealing in.”

Wellington West also plans to leverage relationships with 23 universities, offering free RRSP’s to alumni and rebating a portion of fund fees to alumni associations.

Al Emid, a Toronto-based financial journalist, covers insurance, investing and banking.