As the July 1 official launch of Voluntary Retirement Savings Plans (VRSPs) approaches, the industry needs to convince advisors to distribute the plans. Insurers contacted by The Insurance and Investment Journal have agreed to pay advisors commissions despite the modest fees foreseen by the regulation. At press time, future VRSP administrators still had not seen the regulation that would determine ahead of time whether they could pay commissions on plan sales. Insurers interviewed by The Insurance and Investment Journal confirmed that they will pay front-end and trailing commissions for all VRSPs sold by advisors.
The draft regulation stipulates that these fees must be at most 1.25% for the default investment option – the lifecycle approach (asset allocation based on age) – , and 1.5% for other options. Certified Pooled Registered Pension Plan (PRPP) administrators must charge the same fees for VRSPs as for PRPPs.
Insurers expect the legislator to remove some hurdles, notably the Quebec sales tax. “If any, they want it to be collected net fees to leave more room for advisor compensation”, senior vice-president, Quebec Affairs for the Canadian Life and Health Insurance Association, Yves Millette, said in an interview.
Millette is confident the industry will be ready on July 1. “There shouldn’t be a delay, the Régie des rentes du Québec (RRQ) told us,” he says. The RRQ approves pension plans. “It even launched an advertising campaign saying there’s a new way to save starting July 1,” Millette adds. Without having seen the regulation, insurers confirm they will pay a commission whatever their margin. “We have not taken a public position on compensation, but we certainly intend to pay an initial commission and a trailing commission, to encourage advisors to sell VRSPs in the long-term,” says Jean-François Pelletier, regional vice-president, Quebec, Group pension plans at Sun Life Financial. “We have a level commission system in the career network. It would clash with our philosophy to offer only an initial commission,” he continues.
Sun Life will offer the VRSP through its career advisor and managing general agent network.
Robert Tellier, regional vice-president, Group Savings and Retirement Solutions at Manulife Financial, will distribute VRSPs via the independent advisor and managing general agent network. The insurer has agreed to offer initial and training compensation despite the slim margin.
“Fact is, some advisors probably won’t be motivated to sell it. Advisors receive up to 1.5% commissions on plan sales. A fee ceiling of 1.5% does not give us much leeway. Others will offer VRSPs to reinforce their relations with business customers and to prospect for new customers. Advisors who introduce a VRSP at an SME can then offer their services to the employees,” Tellier points out.
Some insurers see direct distribution as another option. Desjardins Insurance has announced that it intends to use the caisse network and the proximity provided by payroll services at many SME. “We want to make VRSPs affordable, and easy to administer for all SMEs,” says Éric Filion, vice-president of Development, Marketing and Investment Strategies Group Retirement Savings division at Desjardins Insurance.
“We foresee two customer profiles: employers that already have advisors and others. We assist our advisors at serving the first group through our expertise centre. The other employers can buy VRSPs themselves by telephone or online, with support from this centre,” Filion explained. The Centre will adopt a multi-network approach that includes direct distribution, distribution by advisor members of the SFL Partner of Desjardins Financial Security network, and by active group pension advisors.
Philippe Toupin, vice-president, Group Solutions at Standard Life, also favors direct distribution. “We offer a simple self-service approach where employers can create VRSPs in minutes on our micro-site and enter their workers themselves,” he says. Workers can also join an existing VRSP on the same site, he adds.
To allow this type of distribution, Standard Life signed a non-exclusive agreement with payroll services supplier Ceridian. “We wanted to gain a bridge to exchange data, on contributions, for example, with our employer customers that use the Ceridian payroll service,” Toupin says.
Standard Life will also use its advisor network, but, like Desjardins, envisions two markets. “Group pension advisors can steer customers toward the pension product best suited to them, but the VRSP market contains many small business customers. Will they instinctively hire an employee benefits advisor? To comply with the requirement, employers will probably ask their accountants for advice instead,” Toupin says.
Only professionals who hold group pension plan advisor permits or insurance and group pension permits are authorized to recommend and offer pension plans to customers. The Chambre de la sécurité financière, the Quebec self regulatory organization that protect consumers by maintaining discipline and overseeing the training and ethics of advisors, categorizes these advisors under group savings brokerage. According to the Chambre’s 2013 annual rapport, more than half of its members fall into this category, at 23,089 out of 31,677. Most sell mutual funds in the individual market exclusively.
Insurers insist that only about 100 group pension permit holders actively serve this market in Quebec. To avoid a bottleneck after the launch of the VRSP, the Autorité des marchés financiers, Quebec's financial markets regulator, expanded the categories of authorized professional distributors: holders of life insurance or group insurance permits can distribute the VRSPs for the next 18 months.
However, these representatives may not plan, compare, or recommend group retirement products for customers. The regulator has stated that only insurance and group pension or group pension plan advisors can provide this service and advise employees under the distribution rules.