It appears more advisors are turning to segregated funds in a move to increase commissions once CRM2 regulations take effect, according to a new report.
Overall net assets in segregated funds reached $113.1 billion as of March 2015, compared with $104.3 billion the previous March. In addition, a report by Desjardins Securities reveals that net sales of segregated funds reached $243 million in March 2015, the highest monthly tally since February 2012.
“I think it is a fair assumption that with CRM2 on the horizon, we may see more dually licensed advisors focusing on selling seg funds, but we don’t expect to see a massive shift,” says Julie Yoshikuni, VP of retail investment products and marketing for Empire Life. “It will become more complicated, particularly for advisors who have clients with both seg and mutual funds, to manage and explain the different fee disclosures to clients.”
ETFs are also an option – new information from the Australian Stock Exchange paints a very vibrant ETF scene down under that’s flourished under increased regulation and reform that’s similar to CRM2. While the data doesn’t specifically track the decline of mutual fund sales, analysts rightly point out that any increase in ETF sales has generally come at the expense of higher-MER mutual funds.
The phenomenon has Canadian advisors looking at the Australian story as writing on the wall for their move through the same sort of reform process.
Advisors are already jumping on the seg fund bandwagon in droves, believing them to be a good way to diversify client portfolios.
“Seg funds offer unique benefits that can play an important role in a diversified portfolio, which puts a dually licensed advisor in a good position to offer clients solutions to meet their needs,” Yoshikuni says. “Many investors want to participate in the growth of the markets, but they also want protection if markets head south.
“Seg funds offer peace of mind, with the maturity and death benefit guarantees to add protection in all markets,” she continues.
“Other unique benefits include estate planning and the ability to bypass probate, saving time and money.”
And while they are currently overlooked by regulators, Yoshikuni believes it’s only a matter of time until seg fund disclosures are more closely scrutinized.
“We expect that regulators will eventually follow suit with similar fee disclosure requirements on seg funds; we saw this on a smaller scale, but in reverse, with point-of-sale fund facts disclosure for segregated funds and then for mutual funds. However, based on history, the harmonization of fee disclosure is likely a few years away.”