In 2009, net sales results data for the segregated fund market show that the companies offering a guaranteed withdrawal benefit (GWB) product continued to gain market share, while the others, with a few exceptions, found themselves in negative sales territory.
Iassen Tonkovski, Associate Consultant with Investor Economics - the financial industry research firm that collected the sales and market share data for the tables accompanying this article - says, "What you find is, overall, the guaranteed withdrawal benefit products remain the driver behind asset growth. All the best selling players have a GWB on their shelf." Note: the term Guaranteed Withdrawal Benefits (GMWB) includes both those that offer guaranteed minimum withdrawal benefits, and guaranteed lifetime withdrawal benefits (GLWB).
The GWB sales trend was so strong in 2009 that of the segregated fund providers who do not yet offer this option, most were in negative sales territory or posted sharp declines. Among this group, however, Standard Life Canada stood out with sales of $71 million in 2009 over sales of $8 million the year before (see tables). Mr. Tonkovski accounts for this growth due to insurer's introduction of a new line up of segregated funds, including three new guaranteed options.
Furthermore, Standard Life, which suspended its plans to enter the GWB market in the fall of 2008, is now studying the possibility of offering a guaranteed lifetime withdrawal benefit product within the next 12 months, Michel Fortin, Vice President, Marketing - Retail Markets, Standard Life told The Insurance and Investment Journal (See Standard Life may introduce GLWB on p. 30).
Although it introduced a GWB in the fall of 2009, Great-West Life experienced a significant sales decline over the year with sales of negative $31 million, a steep drop from positive sales of $221 million the year before. In terms of assets, Great-West gave up its top spot to Manulife Financial and lost 2.9% of its seg fund market share in 2009 over 2008.
"Great-West Life found itself in net redemptions in five of 12 months in 2009. Sales were positive in November and December after the introduction of Great-West's guaranteed lifetime income option, although the increase was not very significant, he added.
Did the freeze of the Great-West Life Real Estate Fund impact sales? It did have some affect, observed Mr. Tonkovski, since it was among their best selling funds. During a few consecutive months in both 2006 and 2007 the Real Estate Fund was even their top selling fund.
Meanwhile, Desjardins Financial Security (DFS) segregated fund sales shot up into the stratosphere with $873 million in sales in 2009 compared to $195 million the year previous. These results brought DFS to the top three position in terms of sales, up from seventh place in 2008. In terms of assets, DFS maintained its ninth place ranking, but its market share grew by 2.3% "This is an example of a company who has as one of its goals to grow its segregated funds business outside of Quebec and develop new distribution partners outside of Quebec," explains Mr. Tonkovski.
Desjardins closed its GMWB option in mid 2009 (See article, page 30). "But its lifetime product continues to be among the best sellers," noted Mr. Tonkovski.
Manulife continues to hold its ranking as the industry's number one segregated fund provider in terms of sales and in 2009 rose to the first place position in assets and market share. In 2008, it was second to Great-West in the asset and market share categories.
However, compared to the record year it had in 2008, Manulife's sales were down significantly in 2009 at $1.782 billion in 2009, compared to $2.773 billion in 2008.
Bob Tillman, Manulife's Vice President, Product & Marketing Services, Individual Wealth Management, says a number of factors impacted sales, including the equity market conditions faced by the entire industry and several changes to Manulife's seg fund line. "2009 was obviously a very interesting year on a number of fronts. We did do a number of product changes through the course of the year. We closed certain products within the segregated fund category and we also retooled some of the offerings that we have out there today," he commented.
Due to these changes, Mr. Tillman says that comparing Manulife's seg fund results year-over-year "is not an apples to apples comparison, because in 2009 there was a lot of transition taking place."
In addition, the increasing number of players in the guaranteed withdrawal benefit market confirms the validity of the need for these products, but also encroached on Manulife's sales in the market it pioneered in Canada in 2006. "Competitors are entering the space because there is a real need out there, but it also tempers your own reality as to what your own share could be as we go forward."
Overall sales drop
As a whole, the segregated fund market saw sales drop $871 million from $5.59 billion in 2008 to $4.72 billion in 2009. Commenting on this overall sales decline, Mr. Tonkovski of Investor Economics noted that segregated funds came out well compared to other sectors such as mutual funds, which saw sales flows "of almost nothing."
In 2009, total industry seg fund assets grew by 25.6% over the year previous. Part of this growth was due to markets recovering following the 2008 market crisis, but Mr. Tonkovski underlines that "twenty-nine per cent of growth in assets was due to positive sales."
Mr. Tillman of Manulife says the relative strength of segregated fund sales compared to the mutual funds sector is not surprising. Because of their guarantees, segregated funds "have insulated, partially at least, investors from some of the negative impacts that the market correction has had on their investments."
While 2009 was a good time to be in the market, "Investor sentiment towards making investments was slow to get going," Mr. Tillman adds. As a result, mutual funds did not have a strong selling year, whereas segregated funds, because they provide protection from certain elements of market risk, had a better year. "Therefore, from an advisor perspective, segregated funds present a compelling case for their investors."
Mr. Tonkovski says that when observing the investment market in Canada, it is important to see "how segregated funds fit into the overall wealth spectrum of what we're experiencing in terms of demographic trends, the effect of what happened in the markets in 2008 and 2009 and increasing needs for tax efficiency and risk management."
One single product cannot fulfill all these needs, he adds, but segregated funds are well positioned to take their place as one product type in holistic financial planning.
On the other hand, Mr. Tonkovski adds, seg funds will see intensifying competition outside of the insurance market as financial institutions compete for "the retirement zone."
Why is the competition intensifying? In 2008, the 65 plus age group controlled 39% of wealth in Canada, Mr. Tonkovski says. Projections for 2018 show that this age group will control 43% of wealth. Income protection and estate planning is what this wealthy segment requires.
Segregated funds are helping to answer this need with 64% of seg fund assets controlled by individuals in the 65 plus age group. But, providing solutions for the retirement market will be part of the long term strategies for all financial institutions. He points to the introduction of guarantees within mutual fund products, such as BMO's LifeStage Plus and IA Clarington's Target Click funds as an example.
Mr. Tillman of Manulife agrees that retiree's need for income products will continue to stay high on his company's development priorities. "I still think that creating sustainable income is an area that will be a focus in our product development going forward. It is such an overarching need in the Canadian market place with the size and age of our Boomer demographics."
Manulife is also looking at serving this need through the development of guarantees in other product lines, such as within its mutual funds line up. "Certainly, within that group, we're looking at that need. So absolutely, if we can come up with ways within our mutual fund family to offer solutions that create comfort and viability for meeting income needs, we're going to try to come up with it...The same would be true on our fixed income side, in our GICs that we offer through the insurance company, and the annuity product, which quite often gets overlooked as a way to meet the income needs of the retirement market place and yet it is a very legitimate product and one that we're seeing gaining traction in 2009."
As clients go into retirement, Mr. Tillman emphasizes that to provide a sustainable, inflation-protected income stream, it is important to consider not one product, but the mix of products.
Manulife began promoting this "product allocation" approach more than a year ago. This strategy doesn't replace the concept of asset allocation, but is aimed at getting investors to look at the combination of product types that they're holding "and how they will create a sustainable income for you, or challenge you to think that maybe I have to readjust my mix," he adds.
Manulife plans to redouble its efforts to educate advisors about product allocation in the months to come, he adds.