Insurers fight for bigger slice of wealth pie

When Bernard Letendre walked into his new office last year as the first employee of Manulife Private Wealth in downtown Toronto, all he had around him were a few empty cubicles and a call centre. Now, as head of the division, he has private banking and investment counseling teams in Toronto and Vancouver, with plans to expand to other Canadian locations over the next couple of years.

Sun Life Financial, on the other hand, was simply selling other companies’ mutual funds three years ago. Now, Manulife’s top rival boasts 52 mutual funds of its own and plans to crack the millionaire market early next year through its asset management arm, Sun Life Global Investments (SLGI).

These are just some key developments at Canada’s largest insurance houses, which have been fighting for a bigger slice of the wealth business for the past few years.

As of Q3 alone, Manulife’s overall wealth sales grew 34% from last year, while its insurance business eked out 4% sales growth during the quarter on a year-over-year basis, according to the company’s latest earnings report. Sun Life’s wealth sales, on the other hand, rose by 25% in Q3, buoyed by strong mutual fund sales, while sales of insurance grew by a meager 6%.

Insurers can’t be blamed for turning toward wealth products. Ongoing low interest rates have been battering revenues, and Canada’s stringent capital requirements have burdened many players.

“The idea with wealth management—its capital market exposure is a little bit less [than insurance] and the revenues are more stable,” says Dan Hallett, principal with investment counseling firm High View Financial Group. He sees the insurance business improving in coming years, but, at the moment, the wealth business will keep insurers alive. “It’s offsetting some weakness for now,” says Hallett.

Competing with banks

In aiming for a bigger slice of the wealth market, insurance giants will have to contend with the banks, which are deeply entrenched in the wealth business, particularly the millionaire segment. The banks offer one-stop-shop banking and asset management service, coupled with strong capital markets capabilities essential to offering broader services and products.

“Manulife made a decision when it decided to launch Manulife Private Wealth that it would not let our competition have a field day on the post,” Letendre says. After all, Manulife has its own banking unit and a globally focused asset management arm. The Toronto-based insurer also has a trust company and tax and estate planners across the country, and a capital markets team that deals with private business owners. Manulife also has a mutual fund business (separate from Manulife Private Wealth) that has distribution ties with both independent advisors and the banks.

But unlike its major competitors, who have captive advisors, Manulife’s private wealth unit gets referrals solely from independent insurance and investment advisors. “We’re not even seeking distribution agreements with [the banks],” says Letendre. “They are the competition, but everybody else is actually a potential distribution channel.”

“Collaborating” with the banks

Sun Life, on the other hand, has a different approach. Kevin Dougherty, president of Sun Life Financial Canada, notes it competes directly with banks in some markets and collaborates with them in some others by forging distribution agreements with them.

Dougherty said Sun Life’s line-up of mutual funds, segregated funds and payout annuities is widely used by advisors in the independent and bank-owned brokerages, including those who cater to millionaire clients. “We’re already in the high-net-worth market,” says Dougherty.

Canada’s second-largest insurer by market cap has its own swath of roughly 3,800 advisors, many of whom are licensed to sell both insurance and mutual funds. By 2015, Sun Life aims to have about 4,000 advisors, says Dougherty.

Its mutual fund arm, SLGI, has been primarily manufacturing funds with $500 investment minimums. It launched corporate-class funds this year.

Sun Life set up SLGI in 2010, eight years after it sold its two mutual fund subsidiaries, Spectrum Investment Management Ltd. and Clarica Diversico, to CI Investments in 2002.

SLGI has become one of the firm’s fastest-growing units, with mutual fund sales increasing 78% during the third quarter alone, compared to the same quarter the previous year.

Rick Headrick, president of SLGI, says the insurer keeps risk management and capital protection at the core of its investment solutions. “When we do take on risk, we do so in a measured way,” says Headrick.

Overall, the insurance giant sees a rosy future for the wealth business as boomers scramble for ways to accumulate assets in advance of retirement. Then, there’s the ongoing appetite for income-focused investment funds for yield-hungry yet risk-conscious investors.

“Imagine a continuum of 100% fund-based solutions and 100% insurance-based solutions and combinations in between,” Dougherty says. “That’s where the industry will be playing and that’s where advisors have a huge role to play.”

Evelyn Juan is a Toronto-based financial writer.