In terms of net segregated fund sales, Sun Life Financial’s sales results for the first nine months of 2011 plunged dramatically to $16 million from $555 million for the same period in 2010. Gross sales for Sun Life during the first nine months were $790 million compared to $1.16 billion during the same period in 2011.
One major factor driving the net sales decline is redemptions within the company’s maturing segregated fund portfolio, explains Kari Holdsworth, vice president individual wealth, Sun Life Financial. “We have an in-force seg fund block that’s relatively mature among Canadian insurers – over a decade old.”
Ms. Holdsworth adds that as policies mature, the money redeemed does not necessarily leave the company. Increasingly, she says, clients are embracing a more diversified portfolio of wealth products. For example, the company is seeing increasing sales of annuities, GICs and mutual funds through its new fund company Sun Life Global Investments.
She adds that there seems to be an increasing awareness of the suitability of including a combination of products in a client’s overall financial plan. “That awareness may also be leading to a trend away from seg funds for new sales.”
Is this product diversification trend related to demographics and the aging population? Ms. Holdsworth says this is partly true. “Because the age of the client is getting older, it may be that they will want to move into a portfolio that has more of a guaranteed income level.”
Another factor is advice given by advisors. “I think advisors aren’t recommending that seg funds be the only product in their suite…” This means there may be a smaller buy-in to seg funds. “It still may be a recommended part of their portfolio but maybe not as significant part as it has been.”
Ms. Holdsworth adds that Sun Life is also doing its part to encourage increased product diversification. Seg funds remain an important product category for the company, but it is one of many products in a well diversified portfolio for clients, she underlines, adding that diversification is also good for the insurers. Segregated funds are the riskiest product in Sun Life’s wealth portfolio in terms of its financial strength, so product diversification is also a form of risk mitigation.
Risk mitigation should also be a focus for the industry as a whole, Ms. Holdsworth adds. There may be new entrants that are coming into the seg fund market “with aggressive, competitive products, but I believe across the industry we need to look at the long-term, and it’s in everyone’s best interest for the Canadian insurance industry to remain financially strong.”