Mutual fund companies target insurance sector for growth opportunities

par Donna Glasgow | October 18 2006 07:57PM

As insurers and advisors increasingly diversify their business activities into wealth management, Canada’s mutual fund players are paying attention. Many of these companies are vying for exposure on insurance companies’ shelves to benefit from this growing trend.

In particular, as baby boomers close in on retirement, they not only want to keep growing their wealth, but also protect it. Experts agree this reality explains the rising popularity of segregated funds. To manage these funds, insurers often turn to mutual fund companies for their investment expertise and capitalize on their well known brand names.

Duane Green, vice-president, strategic alliances with Franklin Templeton Investments says, “In my opinion insurance companies are really hitting that sweet spot because of demographics… My role is to work with and try to partner with insurance companies and focus on their wealth management strategies.”

He does this in different ways. Sometimes the insurer-partner wants to use Franklin Templeton’s brand name products wrapped in a seg fund or as investment options within their universal life product line-ups. Sometimes the insurer wants a white-label product managed by Franklin Templeton. Franklin Templeton offers retail, institutional or customized funds.

Whatever they choose, Mr. Green emphasizes that when it comes to alliance business, the product belongs to the insurance company. “It is not our product. They’ve hired us to manage the product. They’ve hired us for our investment expertise.”

Currently, Franklin Templeton works with 12 life insurers and its alliance business is presently in excess of $3 billion and growing.

Previously employed by Standard Life Canada, Mr. Green was hired by Franklin Templeton to develop the company’s alliance business because of his knowledge of the insurance industry. He sees a lot of opportunity for his company to increase ties with insurers. “I don’t think our business is mature. We’re still in growth mode.”

This sector as a whole is expanding, he adds. “There are plenty of insurance companies expanding out their wealth management strategies. The insurance companies and advisors are well positioned to take advantage of wealth management.”

Clear Strategy

Drew Wallace, executive vice-president, sales of AIM Trimark, says establishing alliances with insurers is “a very clear strategy for us.” While a number of mutual fund companies manufacture and distribute their own products, AIM Trimark does not have its own distribution channel. This means building alliances with insurers and other financial institutions to tap into their distribution networks is essential. “Our future and ability to grow is tied with developing alliances.”

He says AIM Trimark’s independence (in not having its own distribution channel) and its global reach, are big selling points for the company with insurers. He says AIM Trimark does business with all the major lifecos in Canada. Mr. Wallace declined to reveal figures of the size of its alliance business with insurers. “It’s a growing percentage and a very important segment for us – the results are strong there.”

The opportunity in this sector is increasing not only due to demographics and the coming wealth transfer that is boosting retail sales, but also because of insurers’ involvement in the growing market of defined contribution group plans, Mr. Wallace points out.

Also attractive to mutual fund companies is the high professionalism of the insurance distribution channel. Mr. Wallace says insurance advisors are capable of providing the detailed financial planning guidance that a growing number of Canadians want to access.

Brian Gooding, senior vice-president, alliance distribution, Fidelity Investments, also sees growing opportunities for mutual fund companies in insurers’ wealth strategies. Life insurance remains the core business of insurers, but their secondary focus is diversifying into wealth management, he says, adding, “especially as we enter into the retirement boom that is on our doorstep.”

Mr. Gooding says Fidelity has representation in both the segregated fund and universal life markets although the “universal life market is very, very small” in comparison to segregated funds.

All the big insurers have formed money management divisions to capitalize on the coming baby boom wealth transfer, Mr. Gooding observes. At the same time, from the perspective of a mutual fund company, building alliances with insurers is highly strategic. “It allows us to diversify our business.”

He adds that Fidelity has co-branding relationships with insurers. “With co-branding they want to draw on your name because the Fidelity name means service and performance.” The insurers also want to draw on Fidelity’s international investment management expertise, he adds.

Geraldo Ferreira, vice-president, investment products development and marketing, for AEGON Fund Management and Transamerica Life Canada agrees that insurers are looking for investment management and a powerful brand name from their mutual fund company partners. “The reason why mutual fund companies go to insurers is for the distribution. We go to mutual fund companies to leverage their investment expertise and the strength of their brand.”

Mutual fund companies have a sales and service culture with marketing as their primary focus, he says. This has led to consumer awareness of mutual fund brands which insurers can benefit from through their third-party segregated fund lines.

Reaching advisors

As the face of Franklin Templeton’s alliance business, Mr. Green spends much of his time criss-crossing the country meeting with insurance company representatives and giving presentations to their advisors. Getting out into the field to work with the people who are actually doing the sales, is “a key, integral” part of his role. “It’s more of a supporting the sale, not making the sale,” he adds.

In addition to field support, Franklin Templeton also offers insurers marketing support. The insurer decides on the level of distribution or marketing support involvement they require from his company, he adds. “It all comes down to the fact that it is their product, not ours.”

Mr. Gooding of Fidelity also says it’s up to the insurer to decide how much support it wants, especially when it comes to working with the distribution channel. “Some firms have captive distribution – they set up the rules of engagement. Others, they don’t care, the more the merrier.”

When Fidelity works with insurance agents or advisors, Mr. Gooding says the goal is to help them build their investment businesses by providing advice and guidance. A primary focus in these efforts over the past two years has been Fidelity’s retirement initiative to train advisors on the various risks faced by retiring Canadians that might lead them to outlive their assets.

Fidelity has a wholesale team working in the insurance sector on this retirement training program. For example, the company offers public seminars for insurance advisors who wish to host meetings with prospects (groups of 50 to 200).

Mr. Wallace of AIM Trimark says offering business solutions geared to advisors, such as financial planning software, is a key part of its alliance strategy. The company also conducts professional education seminars.


But aren’t segregated funds and mutual funds competing for the same investment dollar?

Mr. Green of Franklin Templeton says he doesn’t see mutual fund companies and insurance companies as competitors. “It’s the era of co-optition.”

Mr. Gooding of Fidelity also uses the term co-optition to describe insurer-mutual fund company relationships. He adds that segregated funds and mutual funds meet different needs for investors. Working with insurers allows mutual fund companies to gain exposure to a different, increasingly important sales force. “Life insurance agents, who arguably have terrrific relationships with clients, are becoming a more powerful investment sales force.”

Mr. Ferreira of Transamerica says access to life insurance advisors is important for fund companies because the baby boomers are looking to protect their wealth and insurance advisors and segregated funds are benefiting from this trend.

He cites a recent Investor Economics study that showed year-over-year net segregated fund sales rising by 14% as at July 2006, while during the same period net mutual fund sales declined. “This speaks to the fact that there been a renaissance in seg funds,” he says. Mr. Ferriera believes that aging investors’ fear of risk, explains this increased interest in segregated funds. The memory of the last bear market is still lingering in their minds, he adds.

For life insurance advisors, the benefit of these alliances between insurers and mutual fund companies is that they can offer segregated funds with well known third-party brand names without being obliged to have a mutual fund licence, Mr. Ferreira says.


Besides the benefits, there are challenges for mutual fund companies and insurers doing business together. “The biggest challenge we have is that we’re one step removed from the advisors,” explains Mr. Gooding of Fidelity. Because it is the insurer’s products being sold, it means that the mutual fund company is not aware of specific information, for example, business volumes of specific producers and daily trades.

“In a perfect world we would like to know who is writing the business and the trades everyday,” Mr. Gooding says. This would enable Fidelity to customize support to these advisors’ needs and be more cost-effective, he explains. It would also enable it to recognize its biggest producers. “The hardest thing is that we can’t call up and say thank you for your business.”

But, do insurance advisors expect mutual companies to know when they are selling segregated funds with the Fidelity brand name? “They always expect that you know,” replies Mr. Gooding.

To deal with this challenge, Mr. Gooding says his company strives to get to know insurance advisors in other ways, such as through holding joint meetings with its insurer-partners and their sales networks. An example of this was the 10-city tour Fidelity did this year in conjunction with Canada Life. It also partnered with Manulife Financial to do a joint presentation for a large group of Canadian agents in Boston. “We’re looking for ways to partner that are mutually beneficial to insurers, mutual fund companies, advisors and investors.”

While the detail of information made available to mutual fund companies on the sales of third-party segregated funds varies, Mr. Gooding says realistically he doesn’t expect the kind of sales information that he would love to have from insurers anytime soon. “I don’t see it in the foreseeable future,” he says, adding that this is simply a reality of the alliance business.