SunWise changes draw fire

A decision by Sun Life Financial to increase the required fixed income allocation within its SunWise Elite Plus guaranteed minimum withdrawal benefit product is meeting resistance in the advisor community.

The insurer announced on Wednesday that the minimum fixed income allocation in the product was rising from 10% to 30%, effective July 31 for new contract. For existing contracts, clients have until December 2011 to rebalance their portfolio.

“This is a big issue for us right now,” says Thor Hervieux, a chartered financial analyst with Raymond James. “To see these changes, I can’t tell you how significantly this will negatively impact our business.”

He says his firm recently embarked on a sales drive focused on SunWise, which resulted in about $4 million in sales, with some of that money still in transit. Last year he placed about $9 million with the product.

At the time the money was placed in the product, the portfolio only required a 10% fixed income allocation. Now his clients will need to raise that to 30%.

“We have to sell about 15% to 20% of their equities, depending on the client, at market lows. We bought at highs,” he says. “At the same time, we have to buy fixed income, when fixed income is offering its lowest yields in history. How could we possibly put a positive spin on that?”

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Hervieux now has to move more than $1 million, among his various clients’ accounts.

He says his clients are conservative investors, and their SunWise investments were intentionally overweighted in equities because of the associated guarantees. Their investments outside of the product are overweighted to fixed income, so moves made within SunWise may require a counterbalancing shift in their other investments.

“We positioned them well in advance for this sort of downdraft, and to have to go to them now and say we have to sell equities and buy fixed income when we just hammered home what a bad time it is to be doing so, it’s not an option,” he says.

Sun Life informed advisors of the changes via e-mail, which he has forwarded to his firm’s legal department, although he admits there is likely a loophole to allow the retroactive requirements.

He compares the contracts to hedge fund offering memoranda, which include a contingency for almost any circumstance. The difference, he says, is when a hedge fund enacts one of its provisions, it means the fund is virtually dead.

“News goes around fast. It’s all institutional investors; everyone wants their money out; the fund closes,” he says. “On the retail side, they think they can get away with it, because half the advisors will not even pay attention. But we spent a lot of time modeling this to make sure it was a good fit for our clients.”

For new contracts, the asset allocation requirements do not come into force until July 31.

“Our clients are a high-net-worth base. They have a lot of things on their mind, and unfortunately, when we try to get a hold of them with this stuff, they don’t instantly get back to us,” he says.

The ability to overweight equities is what attracted him to the SunWise product in the first place. The guarantees associated with the product come at a cost, and he sees little point in paying that price for the fixed income component of the portfolio.

He looked at Manulife’s Income Plus product as well, but decided that the balanced funds on offer were simply too conservative to merit the cost of the guarantee. The new SunWise requirements eliminate the product’s competitive advantage.

“At least with [SunWise], I don’t mind paying 2.5% or 3% on equities as I do fixed income,” he says. “Paying 3% on the 10% fixed income portfolio is not horrible. At Manulife, it was the same fee, but it was on about 40% of the portfolio, in fixed income. On SunWise, that was one of the big selling features, you only had to have 10% fixed income.”

If the 30% fixed income requirement was being applied only to future sales, Hervieux says he could have lived with it and may have continued to offer SunWise to clients. That option is now off the table.

“It’s dead. We could never use this going forward,” he says. The move has not only affected his opinion of Sun Life, but CI Financial as well. “How can I ever trust them again?”

(05/29/09)