In a letter to advisors obtained by The Insurance Journal, Empire Life says that continued interest rate reductions have forced them to drop their fees. Standard Life also sent a letter to its advisors advising them of the change. The company explains that "on April 21, 2009, the Bank of Canada announced yet another cut to the prime rate, resulting in a decline of short-term rates, which affects all of our Ideal Segregated Money Market Funds."
The goal of this measure is to avoid a negative return for those who have invested in money market funds, which are considered to be the safest fund categories. Standard Life emphasizes that it will keep an eye on fund returns over the next six months, and will make further reductions or increases according to market conditions.
Without officially reducing its management fees, Industrial Alliance has taken other measures to protect its clients against future negative returns. "We will absorb all fees in excess of the fund's return. This will be done on a daily basis," explains Manon Gauthier, Director of Investor Relations. She adds that this adjustment will apply to money market funds held in all individual retirement plans.
Before Empire Life and Standard Life's annoucements, at least one other insurer had already reduced the management fees applied to money market funds. Without specifying the extent of the reduction, a spokesperson at Great-West Life confirmed that the company reduced its fees several months ago.
Jasmine Mangalaseril, media spokesperson at Manulife Financial, says that no changes are expected to their management fees since the management expense ratio (MER) of the company's popular GIF Select Income Plus money market fund is already 0%. She explains that the return of this fund is linked to the Manulife Bank's high interest Advantage Account.
At Desjardins Financial Security, communications officer Isabelle Truchon says that "neither the group nor the individual savings plans intend to reduce their money market management fees at the moment."