Insurers fight to keep retiring group assets

(September 2007) The country’s largest insurers are making a concerted effort to bring together their distribution networks for group and individual retirement products before the baby boomers exit the workforce.

Upon retirement, millions of boomers will leave behind their employee benefit plans. And their group plan providers hope they will simply “rollover” into another distribution network owned by them.

This is primarily an issue for pension plan providers who will have to make up hundreds of thousands of dollars in assets under management for each departing plan member.

“Right now if you add up defined benefit pension plans, group RRSPs and similar accumulation plans in Canada you’ve got about $80 billion dollars. The industry is seeing about 10 to 12% of that leaving every year,” says Tom Reid, vice-president of rollover markets for Sun Life’s Group Retirement Services. “From employees leaving their companies, either through job change or retirement, the money in motion is probably around $8 billion to $10 billion every year.”

Rollover was one of the key factors in the rebranding of Clarica into Sun Life. At the time, Kevin Dougherty, the president of Sun Life Financial Canada, noted that part of Clarica’s rebranding of its salesforce was to leverage Sun Life’s group brand in anticipation of its retiring group plan members. Now, the company has created an entire sector within its pension division devoted to retaining group plan members in their investment products.

“We look at the client money that is leaving our Sun Life administered pension plans and then we look at our retention rate,” Reid explains. “Our retention rate has been in the mid-20s, and it has crept over the last several quarters so it’s probably now moved up over 30%.”

While 30% may seem like a modest retention rate for a large plan provider like Sun Life, the moderate increase in retention has translated into massive sales.

“Last year, we did about $545 million in sales in our rollover business and the rest of the pension business in aggregate did about $300 million approximately,” Reid says. “The expectation is our rollover business is going to grow in the 15% to 20% range over the next few years.”

He attributes part of this success to a call centre the company set up last December. The call centre has 12 licensed financial advisors who contact plan members and offer advice on their retirement plans. (These advisors are paid a salary.)

Reid says members can choose to use the call centre service for basic advice on retirement assets or they can opt for a face-to-face relationship with one of their career sales force or an independent advisor. Advisors are compensated by Sun Life if the member remains in the group products.

Sun Life has also tried to build relationships with advisors and exiting plan members by making their group products easily portable for a single investor. Reid believes transferable group investment products will meet the specific asset mix of 85% of the plan members so they can continue with the group retirement plan. The only difference would be a slight increase in the MER to account for their advisor’s compensation.

Mike Collins, vice-president of marketing of Manulife Financial’s group savings and retirement solutions, says his company has also been effectively using transferable group investment product, particularly through the use of a group RRIF that they market to the independent financial advisor’s of their group plan members.

“We introduced a group RRIF the fall of 2005 and it’s been growing at a very quick 150% semi-annually,” Collins says. “It has a generally lower MER higher on the investments, slightly higher than what they were on the accumulation on the payout. It’s definitely lower than the MER you would see in the retail environment.”

Part of the way Manulife has tapped into the group RRIFs and their other transferable group products is by developing relationships with independent retail advisors, who already work with plan sponsors.

Maintaining a relationship with group clients and following them into retirement can have a substantial pay-off, Collins points out. After all, retirees are living longer and much of the wealth that leaves the group plans upon retirement will be re-invested in order to provide for a longer life-span.

“According to StatCan, as of 2005, individuals between the ages of 45 and 64, have about $360 billion in pension assets in Canada. It doesn’t all get paid out; instead it moves over into different types of investment vehicles,” Collins says. “A lot of that money keeps growing.”

He admits the boomers represent a huge transfer into the retail network, but he believes pensions are not only going to be able to facilitate the boomer payout but are going to continue to grow, making the group distribution network increasingly the most lucrative for wealth management.

Collins notes a U.S. study from the National Bureau of Economic Research that shows pension assets will grow ten-fold from 2000 until 2040. In 2000, the average 65 year-old in the U.S. had $29,000 in pension assets, in constant U.S. 2000 dollars, that average figure will be in the range of $269,000 to $425,000.

“There is a real misconception that group retirement plans are going to disappear. But it’s going to be business as usual, except when the boomers flow through it’s going to be a lot busier,” he says.

And that busyness may also extend to group benefits plans. Rob Hoskins, assistant vice-president of group benefits marketing for Manulife Financial, says group benefit plans dominate the benefits category, particularly in the largest growth area for boomers which is health care. He notes that 97% of the country’s health care coverage belongs to group plans versus 3% to individual providers.

Currently, there isn’t a lot of growth for retail agents to capitalize on retiring group plan members, since their life insurance coverage is convertible, and the need for some of the lucrative living benefits such as disability and critical illness are generally not geared towards retirees, Hoskins says.

But he believes there may be a huge market opening for long-term care insurance, a growing retirement product that virtually no group plans are currently providing.

“We’ve had a handful of current plan sponsors wondering if they’re going to terminate their health care for retiring employees, is there anything else they can provide?” Hoskins notes. “It’s certainly a question that’s out on the table right now but I don’t think we’ve developed any solid answers. Usually it’s means using an individual product.”

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

(09/18/07)

Mark Noble