Guidance from Ontario regulator highlights need for consumer clarity – and advisor education – around novel retirement solutions
While recent guidance from Ontario’s financial services regulator around decumulation products represents neither an endorsement nor a condemnation of the new retirement solutions, it does validate their role in Canadians’ financial planning, according to voices from the industry.
Earlier this month, the Financial Services Regulatory Authority of Ontario (FSRA) released guidance around decumulation products, a relatively novel type of investment designed to help people avoid outliving their savings in retirement.
Those products, the regulator said, include “investments that purport to offer regular payments to investors as long as they live” and “tontine”-type investments that pay out only to investors who live until a certain date.
“[T]hese products may be offered as mutual funds,” FSRA said in its guidance. “Consequently, consumers who invest in these decumulation products do not have the same regulatory protections that exist for insurance products or registered pension plans.”
Validation for decumulation products – in Ontario and beyond
Speaking to Wealth Professional, Guardian Capital LP’s Chief Retirement Architect Dr. Moshe Milevsky, who collaborated with the firm on its GuardPath Longevity Solutions – which include a managed decumulation fund and a tontine fund – said FSRA’s guidance is not an endorsement of decumulation products, but he views them as a validation of their role for investors.
“They’re recognizing it. They're saying they're aware of it,” Dr. Milevsky (pictured above, left) says. “To me, that legitimizes them … these products exist. They're being used; they're being offered.”
Fraser Stark is president of the Longevity Retirement Platform at Purpose Investments. He oversees the Longevity Pension Fund, which is the world’s first income-for-life mutual fund designed to provide retired Canadians with income security.
“We’re pleased to see more organizations supporting responsible innovation in retirement security, and helping Canadian investors understand the full range of products now available to them,” Stark (above, right) told WP in emailed comments.
“The Organisation for Economic Co-operation and Development (OECD) has highlighted the important role that this type of variable income for life fund can play in boosting retirement security globally, and has showcased the recent innovation coming out of Canada,” he said.
Regulatory clarity, consumer education vital
Given the innovative thinking and strategy behind decumulation products, Dr. Milevsky says it’s important to determine how they should be regulated.
“When a new category of consumer product comes out, industry and regulators – and the government, to a certain extent – have to decide who's going to be the regulator for this new category.”
In its guidance, FSRA said decumulation products may include words such as “annuity,” “pension” or “tontine” in their marketing materials, but they are not insured products and therefore do not fall under its regulatory umbrella.
“While we have not received any complaints, it was important for FSRA to proactively inform consumers about the distinctions between decumulation products and pension or insurance products,” Stuart Wilkinson, FSRA’s chief consumer officer said by email.
“This was especially important because there can be risks associated with these products and they are likely to become more prevalent as Ontario’s older population increases.”
FSRA’s guidance explained that uninsured decumulation products are typically structured as mutual funds or other securities, which are designed and sold according to provisions under the Ontario Securities Act. Therefore, those products are overseen by the Ontario Securities Commission (OSC).
“There are important trade-offs embedded into all financial products or programs, and with greater clarity around those choices, investors and their advisors are able to make the best decision for their situation,” Stark said.
“Consumer protection is FSRA’s top priority,” Wilkinson said. “We encourage consumers to take the time to fully understand any investment they are considering.”
Dr. Milevsky, meanwhile, emphasizes that the investment industry should play a role in explaining not just what decumulation products are, but how they differ from insurance products like pensions and annuities.
That education, he argues, should touch on why decumulation products might make sense for a particular situation, and how those products would not involve certain costs associated with pensions or annuities, among other areas.
“The pedagogy around what an advisor needs to know has to be modified for the 21st century to account for some of these decumulation products,” Dr. Milevsky says. “I envision a day where all of the credentialing bodies will have, as part of their curriculum around retirement, a proper discussion of decumulation products.”
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