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Segregated funds now more flexible

By Alain Thériault | January 28 2014 06:31PM

The year-end ushered in more flexibility and transparency for segregated funds. One example: Manulife Investments closed star product IncomePlus and replaced it with a new adaptable product.Introduced in late October, Manulife Investment’s RetirementPlus is a segregated fund that adapts to different phases of clients’ retirement planning. It is aimed at investors who plan to retire in 5 to 15 years. The launch coincides with the insurer’s closing sales of the insurer’s guaranteed withdrawal benefit product IncomePlus.

Steven Parker, assistant vice-president, Product and Marketing, Individual Insurance at Manulife Investments, underscores that RetirementPlus is an innovation, not a replacement. “It’s a new category for seg funds. It’s not a new GMWB product or a replacement product of IncomePlus. It’s a flexible accumulation product with an option for income,” he told The Insurance and Investment Journal in an interview.

The changes ring familiar. The product guide mentions that RetirementPlus comes with an optional guaranteed lifetime income.

RetirementPlus targets people who expect long-term interest rates to rise, Parker continues. “RetirementPlus is a product for those consumers who are a bit more optimistic about markets, looking for growth and that want to participate in potentially rising interest rates. They don’t want to lock-in low interest rate products.”

The Manulife segregated fund is structured in three phases that, the company says, reflect clients’ evolution: savings, preservation and income.

In the accumulation phase, clients choose their degree of stock market exposure, up to 100% equity. During preservation, clients can freeze interest rates by transferring all or some of their savings to a guaranteed fixed income fund.

Clients make this transfer to prepare for the retirement income phase. They can choose when to begin receiving this income. They may opt to withdraw partial or total retirement income starting at age 50.

Pivotal Select

Equitable Life Insurance of Canada launched a new series of segregated funds in October called Pivotal Select. This launch sparked the closure of the current series Pivotal Solutions segregated funds and Pivotal Solutions DSC (deferred sales charge) to new sales on October 25.

Holders of units of the closed funds may continue to make deposits to the funds with no additional restrictions, says Scott Stobo, director, product development and marketing, savings and retirement at Equitable.

The new fund series includes products in the Estate class with 100% guarantee at death and 75% at maturity, and the Investment class, with guarantees at death and maturity of 75%. Less generous guarantees (75-75) mean that Equitable life can reduce the costs of funds in the Investment category.

The series Pivotal Select also foresees more options for older clients, Stobo says. “Investment Class is available for new contracts up to age 90 and Estate class is available for new contracts up to age 80, but additional deposits are available until age 85,” he points out.

Pivotal Select funds have a more transparent structure, the insurer says. Insurance costs are presented separately from management fees, in client statements for example. The costs are “now charged directly to the contract as a redemption of units on a monthly basis,” Stobo adds. The new series also offers options without front-end load and with deferred charges.

Fee based pay

In November, Standard Life tacked additional options to its Ideal Segregated Funds Signature 2.0 series, to target clients beyond its traditional market.

Notably, it opened this fund line to advisors who opt for fee-based pay by integrating an F Class Option. “We wanted to build on our current success with our segregated funds to expand the offer to more investors and advisors, including those who work with a fee-based model, Marie Gauthier, assistant vice-president, segregated funds, marketing and client solutions at Standard Life told The Insurance and Investment Journal in an interview.

Gauthier adds that Standard Life posted the strongest segregated fund net sales in Canada in 2013 “and even in 2012.” From Jan. 1 to Sept. 30, 2013, segregated fund assets soared by 25% at Standard Life to reach about $4.5 billion. “That’s $1 billion in one year. Our market share is growing month-to-month. Today it is hovering at 5%,” Gauthier said when interviewed in November.

Alongside the F Class, Standard Life is offering benefit guarantees in retirement income funds within its nominee accounts. In this business model, advisors manage clients’ funds, Gauthier explains. They invest in different manufacturers on the client’s behalf and provide a single account statement. Under this payment guarantee, clients are certain to receive income equal to 100% of the amount they paid into their retirement income fund.

“In this widespread model in the mutual fund sector, the client deals with the advisor in the form of a nominee,” Gauthier explains. “We wanted to extend it to segregated funds. The fee-based management model is also typical of mutual funds, particularly in the full-service securities sector.

Expanded line

The insurer also expanded the line of Ideal Signature 2.0 segregated funds to include a prospectus exempt fund. The UK import is called the Ideal Global Absolute Return Strategies Fund or GARS Fund.

The GARS Fund is designed to generate a positive absolute return over the medium and long term, regardless of market conditions, the company explains. The fund promises “lower volatility than a traditional long-term global equity portfolio, with no performance fee.”

Since its launch in the United Kingdom in 2006, the GARS fund has garnered assets under management of over $47 billion. In Canada, Standard Life Investments and Standard Life Mutual Funds have been offering this fund since the summer in the form of an exempt product, to institutional and individual investors alike. The GARS fund is available as a segregated fund only in the Ideal 75/75 Series, which offers capital guarantees at maturity and death of 75%.

“This product sparked great interest in the United Kingdom,” Gauthier points out. “We initially offered it to pension plans and more recently to private placements.”

This expansion fueled by the new Class F fund and the income guarantee targets more than just clients with high net value and entrepreneurs, Gauthier underlined. She thinks that all clients could appreciate the flexibility, choice and level guarantees that segregated funds provide.

Growth of the potential market for segregated funds can also benefit advisors “who practise according to other business models and who do not necessarily serve sophisticated investors,” she adds.

Standard Life also added two other segregated funds to the Ideal 75/100 Series and Ideal 100/100 Series: the Ideal Diversified Income Fund and the Ideal U.S. Monthly Income Fund. The latter fund was launched as a mutual fund earlier this year. Managed by Standard Life Investments, these two funds focus on asset and geographical diversification.

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