Taking managed solutions to the next level

With multiple options in its managed solutions suite, Canada Life is giving advisors more ways to meet the evolving needs of clients

Taking managed solutions to the next level

Since 2008, investors have increasingly been turning to managed solutions. Allocations toward managed solutions grew from approximately 12% in 2009 to 25% in 2019, according to Investor Economics, and are expected to surpass 31% by 2028. It’s an area that Canada Life has taken note of, developing multiple solutions for advisors to leverage the trend and find the best option for their clients. 

“I think there are three main reasons [for this trend],” says Steve Fiorelli, SVP of wealth solutions at Canada Life. “One is the challenging market conditions. You simply aren’t going to get the big returns from an all-bond portfolio like you would 15 years ago. You need to diversify thoughtfully and cast a wider net when looking for return opportunities. You also have to put the right buffers in place so that client portfolios remain resilient.”

That means advisors must stay on top of constantly changing market dynamics – and managed solutions help take some of that burden off the advisor. 

The second reason Fiorelli believes managed solutions have gained popularity is because they significantly improve business efficiency. By eliminating some of advisors’ administrative load associated with portfolio monitoring and rebalancing, it frees up time for them to focus on other value-added activities, such as holistic planning. 

“[Managed solutions] are turnkey solutions that offer advisors simple, scalable ways to carry out portfolio construction and management responsibilities,” Fiorelli says. 

The third area that has propelled managed solutions’ popularity is increasing regulatory expectations. With the incoming client-focused reforms, there is greater onus on advisors to understand and document the cost, risk and suitability of investment products that they recommend. Managed solutions can help reduce this burden in that they are often a simple, easy to understand investment solution that advisors can match to a client’s unique goals and risk tolerance, since most provide a spectrum of portfolios by risk level and growth potential.

To meet the needs of advisors, Canada Life has a full spectrum of managed solutions. The company aims to cater to the unique needs of each advisor and their client base. 

“We offer straightforward balanced funds, target risk asset allocation funds, more sophisticated risk-managed strategies and our goals-based investing managed program, called Constellation, for advisors who want that immersive customizable experience for clients,” Fiorelli says.

Canada Life has recently expanded its balanced fund category to offer advisors even more choice. It launched five global balanced segregated funds in May 2020 and 7 new mutual funds in September 2020. 

The target risk asset allocation funds are single-ticket solutions designed to provide diversified portfolios focused on return within a target risk level. Available in conservative, moderate, balanced, advanced and aggressive options, they look for best-in class investment strategies and managers from around the world and combine them in a mix that aims to achieve strong, consistent returns. 

Canada Life’s three Risk-Managed Portfolios (conservative, balanced and growth), launched last fall, are similar to the target risk asset allocation funds; however, they bring together traditional and non-traditional investments. 

“These have gained traction with advisors because they can offer clients more predictability and consistency in their portfolio,” Fiorelli says. “This is important to retirees and pre-retirees who have a shorter time horizon where they do not have the time to make up significant losses. The portfolios seek to mitigate risk without forgoing the upside returns.” 

What makes Canada Life Risk-Managed Portfolios unique is that they go beyond the traditional diversification typically found within most balanced funds. They leverage four distinct risk-management levers. The first is a risk reduction pool that uses an option strategy, specifically puts and calls, to create an upper and lower limit to equity returns helping to mitigate extreme equity volatility. The second lever utilizes lower-volatility equity mandates. The third, a global tactical equity solution, is designed to reduce equity exposure in response to market volatility. Finally, liquid alternatives seek to provide positive absolute return through uncorrelated sources of return.

What takes Canada Life’s offering to the next level is Constellation Managed Portfolios–a goals-based managed investment program that provides advisors with a digital tool to select model portfolios and customize the investment fund mix to meet the unique needs of their clients’ financial goals. 

When it comes to building managed solutions, Fiorelli says Canada Life starts with a client-first mentality. “We look at challenges that investors are facing currently (e.g. low yield environment), what challenges they might face in the future (e.g., continued volatility, potential for rising rates and threat of inflation) and we design solutions that help advisors address these issues for their clients.” Next, Canada Life designs their managed solutions around risk-aware portfolio construction. 

“If you look at what we are facing today – uncertainty combined with low returns – it is hard for advisors to generate the returns clients expect,” Fiorelli says. “There are also expectations from clients to reduce losses. So, we thoughtfully engineered a risk-aware approach with growth potential.”

Fiorelli believes the time for managed solutions is now, and he feels Canada Life is ushering them to new heights, especially with Constellation. 

“Digital capabilities are becoming increasingly important,” he says. “We have this interactive, goals-based investing digital interface for both advisors and investors, so advisors can give a first-rate experience to clients while also gaining efficiencies for their practice. We built our model portfolios in Constellation based on forward-looking capital market return assumptions and had them back-tested.   We monitor these portfolios to ensure they continue to meet our return expectations. Advisors can select the right model portfolio that aligns with the client’s goals, time horizon and risk tolerance, and customize the underlying investment mix with a diverse selection of funds.” Client portfolios in Constellation are monitored daily and rebalanced if an asset class deviates from its target weighting in the portfolio. This is an important process to ensure clients’ goals remain on-track, notes Fiorelli.

Our client portfolios are made up of taxable, tax-exempt and tax-deferred accounts.  Built into Constellation is a tax-efficient asset allocation strategy, known as asset location, that considers the different tax treatments on different investment income types and optimizes the allocation of assets within each account to help maximize after-tax returns.”

Through these features, Constellation helps advisors create a very disciplined approach to investment management–and it’s also a very efficient way for advisors to run their practice because it reduces some of the back-office support needs. And the program’s digital goals-based approach, which Fiorelli believes is a true enabler of successful investment planning, gives clients greater visibility into their plans by allowing them to digitally track progress towards goals. 

“When we think about risk, we think about standard deviation of a portfolio, but risk should also be viewed as investors not reaching their goals,” he says. “It must be relatable, and the industry has lost that a bit. Risk is crucial in fund performance, but ultimately the most important measure of risk is not being able to pay bills or meet retirement needs. Constellation gives advisors a meaningful way to help clients visualize progress towards their goals and see the likelihood of reaching them, which can be way more important than any particular year’s return.”

Canada Life Pathways funds and Canada Life Risk-Managed Portfolios are available through a segregated funds policy issued by Canada Life or as a mutual fund managed by Canada Life Investment Management Ltd. offered exclusively through Quadrus Investment Services Ltd. Make your investment decisions wisely. Important information about mutual funds is found in the Fund Facts document. Please read this carefully before investing. Commissions, trailing commis-sions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guar-anteed, their values change frequently, and past performance may not be repeated. A description of the key features of the segregated fund policy is contained in the information folder. Any amount allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.

*Canada Life Constellation Managed Portfolios, Canada Life Pathways, Canada Life and design are trademarks of The Canada Life Assurance Company.