Issue 41 - February 2001
CCRA and RRSP Season
| Statistics Canada Pension Research
| Trends in Individual Pension Plans
| CAIFA on Seg Funds
| Cross Border Trading
| Future of
R.F.P. Designation Uncertain?
| Internet and Financial Advisors on Equal Footing
| New Products
CAIFA on Seg Funds
The Canadian Association of Insurance and Financial Advisors (CAIFA) has suggested that advisors prepare for an influx of consumer questions prompted by the likely shake-out in the segregated fund market.
New capital requirements from the Office of the Superintendent of Financial Institutions (OSFI). (Reported in the October 2000 issue (#37) of the Financial Planner newsletter.) will likely make it more expensive for most life insurance companies to offer the special features of their segregated funds. Many life insurers are responding to increases in their reserve requirements by raising the Management Expense Ratio (MER), or by reducing the 100 per cent guarantee to 75 per cent, or by putting a limit on the number of resets allowed.
"The market for mutual funds and segregated funds may be at the mature stage of a product cycle", noted Jim Rogers, chair of CAIFA. "Both product types have to compete harder to increase their share of the retirement savings dollars of Canadians. If the cost of investing in a seg fund rises, or the benefits provided by seg funds are trimmed back, the competitive advantage of seg funds relative to mutual funds will be reduced", he added.
Rogers suggests that advisors need to put more emphasis on the potential creditor proofing and estate by-pass features of seg funds, since these features remain unimpaired by recent changes to the seg fund products on the market.
In a news release issued earlier this month, CAIFA went on to say that a trained financial advisor should be able to explain any restructuring in segregated fund features or MERs to their clients, and suggested that consumers pose the following questions:
- What is the difference between a seg fund and a mutual fund?
- Why are these changes happening?
- How will segregated funds change?
- Will all segregated funds be affected?
- Are segregated funds still a good investment?
The answers to all of these questions are posted on the CAIFA Web site at www.caifa.com.
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