This combination of experience is coming together in an interesting way in his new role as part owner and president.

Unique perspective
He says having an outside view of the industry gives him a unique perspective on things. “It’s not in my nature or Kevin’s nature (Kevin Cott is the QFS CEO) to keep doing things the same way just because they’re working,” he says, adding that such reasoning can become a bit of a trap. “It’s great that things are working, but I’m always thinking that things can be better. There are things that can make the organization better. I think I can add a lot of value here because I’m not your traditional thinker.”

At a glance, QFS is almost a throwback to the career-shop days where advisors are mentored. There is also a certain level of enthusiasm which only seems to come with active sales force cultivation.

Advisors are sales-oriented, but they’re specialists or have access to specialists which allows them to show a level of expertise that isn’t always present in such a sales-driven atmosphere.

Mr. Cott is a notably hands-on figure as well, who’s been known to personally mentor many of the firm’s best advisors.

“We have some huge success cases with advisors who have come to QFS. They were just average advisors but after working with Kevin, Don (Don Hart is executive vice president, brokerage development) and David (David Spector is director of wealth management), they have really become the best in the industry.”

Here’s the challenge: QFS completed the acquisition of Ontario-based Marketing Concepts Group in June 2011, effectively doubling the firm’s advisor force. QFS office staff has also doubled in size to handle the new business. Although this is a positive development for the firm, the question is whether or not Mr. Cott and Mr. Simone will be able to institutionalize such mentorship so it can be scaled across a much larger workforce.

There are other challenges too that Mr. Simone says he’s noticed about the MGA channel in general, which almost any MGA manager will recognize.

First, he says, one of the biggest challenges is dealing with advisors who are constantly looking for a better compensation structure and fielding those who travel from one MGA to the next, looking for a higher payout.

“We tell advisors, right from the beginning, that we don’t give the highest comps. We’re very competitive but we don’t give the highest comps. Instead, we’re going to give them proper service and help them grow their business,” he says.

To that end, the firm holds new broker training sessions every Tuesday which, he says, are suitable for relatively seasoned pros and rookies alike. The firm also makes new business and field specialists available to its sales force to help with special cases and advanced planning. He adds that the brokerage services administrative team will go out of their way to help with quotes, illustrations and comparisons.

“We provide those resources. That’s the difference.” In the office too, he says “we pay above industry standards to our staff and we have very little turnover. We create an environment where they want to work with the advisors.”

To maintain the mentorship atmosphere established when the firm was smaller, Mr. Cott has established broker study groups to discuss business, sales techniques and professional development.

Compliance issue
Compliance, meanwhile, is another growing issue that MGA managers will recognize and identify with.

The profession’s reputation is a challenge Mr. Simone says the MGA channel is still grappling with. Although he commends the work Advocis and CAILBA have done to advance the profession, he says insurance salespeople are still not always held in the highest regard by members of the public.

“We’re really trying to change that. Our advisors are top professionals. They’re not out there to force a $30/month term policy on you,” he says. “I think the industry has come a long way in the past 10 years or so, but there was still a negative connotation about insurance sales people. I believe that organizations like Advocis and CAILBA have done a tremendous, tremendous job in changing that perception.”

Acquisition opportunities
Finally, he says MGA owners are aging. His solution to that “problem” though, is to look at more acquisition opportunities for the firm: “We believe that we’re well-positioned to acquire some of those smaller firms that are simply not interested (in compliance, etc.) or that have lost their focus or enthusiasm.”

As for maintaining the firm’s culture and enthusiasm for the business, he says the executive team continues to be motivated by and focused on its advisor force. He adds that the effort to separate itself from other firms is conscious and ongoing. “We talk about that almost daily, even with the service and admin staff.”

Training opportunities (certification and accredited courses) and a concerted effort to bring the traditionally isolated independent advisor into the fold and make him or her feel like part of the larger organization is all part of that effort.

“It’s a culture that I’m strengthening. QFS was pretty good at it but I’ll be putting more emphasis on it,” he says.

“I think that we’re showing leadership,” he adds. “Is it a form of recruiting?” Sure, he says. “We hope good advisors come our way. We’d love to see that but that’s not our reason. We’re just trying to make people better at what they do.”

It isn’t. The multiple sales interview approach in life insurance sales developed from the fear of being too pushy. Organized, targeted, polished and professional sales presentations were replaced with long planning processes that don’t work as hoped anyway.

A new advisor I know wanted to sell a family member a large term insurance policy. The trainer said the only way to do so was with an elaborate 3 interview system. Never mind that the client wasn’t interested in it, that’s what had to be done. The interview never happened and the prospect bought from someone who made just one call.

The multiple interview strategy also forgets that time is more precious today for prospects and advisors than ever. Some situations may require multiple interviews – say complicated corporate-owned insurance for complicated tax purposes. But is that what the majority of consumers want? Do you suppose they would spend hours over multiple interviews in their limited spare time working things out if they had an alternative?

When I trained advisors we would make this offer: “Mr. Prospect, we have two approaches to determine your insurance needs. One is an in-depth 3 to 4 hour process over two interviews. The other is a 30 to 40 minute summary approach that usually comes up with similar numbers. I will do either one. Which would you prefer?” Almost always, the prospect chose the shorter one.

Truly, most insurance planning is not rocket science, despite what you might hear. People with similar backgrounds and in similar situations have similar needs. That’s why we can know in advance what their needs might be and attract their attention with it. This “focused needs package approach” can save everyone a lot of time and aggravation and get the same results. You just have to know when to use it and when not to.

Like in medicine, there are primary, secondary and tertiary financial needs. “Primary” is for basic family and small business needs. “Secondary” is for the estate planning and corporate market. “Tertiary” refers to highly specialized tax-related and complicated product situations. The shorter approach is particularly useful in “primary financial needs” situations. This is where the vast majority of prospects, some 50% of all consumers fall today.

Something else might help alleviate some of the horror over one interview – the “one and a half interview” sale. The first, the “half interview”, is over lunch or a long coffee break to sell the prospect on the general problem and us as potential solvers of it. The second, but full interview was set with all decision makers to figure out the specific problem and solve it. This worked very well in primary situations. No one was being brow beaten to buy but they did and insurability risk was addressed.

Consider your prospect’s needs first when deciding on your interview approach. Take care of them and they’ll take care of you.

I’ve heard that an advisor should only speak about 20% of the time in an interview and the prospect 80%. How does that work?

“Rules” like these are thrown at us from time to time but you don’t want to be “thrown” by them. This one would be confusing if it applied to every new communication. Fortunately, it doesn’t apply to every interview. It applies more to the whole of your relationship with a prospect and not to every single communication opportunity.

Each new communication has its own time share split. During a fact-finding interview, you want to get a prospect started about their situation and then let them talk. Get the “hard” and “soft” facts about the client – their facts and feelings – out on the table. You might do some active listing (That’s interesting, can you tell me more about that…) to help them stay on topic, but clearly they have to talk. They might do 90% of the talking. Your job is to pay attention to what they say, what they don’t say and how they say it so you really understand them as people.

When you are asking for the business is another time when the prospect needs and wants to be involved. They will likely talk as much as you do. Maybe that’s a 50/50 split here. But this is very dependent on the actual situation, the nature of the sale and the personality of the client. If you get a ton of questions, what are you supposed to do? Keep asking them more questions? I don’t think so. You have to be responsive.

There is also a time when you will likely do most of the talking – the initial approach. This is when you are selling yourself and your service to the prospect so they will work with you. There is no way that they can judge who you are, what you stand for and how you can help them unless you are talking. That’s OK.

In addition, with compliance and disclosure being what it is, initial interviews must entail a fair bit of “boilerplate” that you just have to say. This is a new reality that you have to make work for you and that the old proverb didn’t contemplate.

Finally, at the beginning of a relationship you have to declare what you stand for and say enough to get a prospect’s attention, interest and desire. Sure you can ask a few questions in the process and so can they, but at the beginning, you must say something to get them interested in working with you. Again this can’t come just from asking questions and listening. It takes talking. Talking is communication too. In this initial interview, you may very well do 80% of the talking. But after all, you are an advisor. You have to give advice.

Don’t be paralysed by proverbs without perspective. These are rules of thumb that may apply overall but not to every part of your relationship. Strictly sticking to these rules can make for clumsy and forced communication. It won’t help you help prospects. Don’t be afraid to communicate.

The year after your clients set up RRIFs, they will have to withdraw a yearly minimum amount from their accounts. For RRIF holders under the age of 71, the yearly minimum is calculated according to this formula: the market value of the RRIF divided by 90, minus the owner’s age. At 71, the minimum withdrawal rate jumps to 7.38% and gradually escalates to 20% at age 94 and over. And because the payments are considered taxable income, they could put your clients into a higher tax bracket and expose them to clawbacks to the Old Age Security benefit.

“Because there was a tax advantage to contributing to an RRSP, clients need to recognize that they cannot avoid being taxed on withdrawals from their RRIFs,” said David Ablett, director, tax and retirement planning, Investors Group Financial Services Inc. in Winnipeg. “But there are some things they can do to mitigate the tax hit.”

One of them is the age your client states on the RRIF application. He can either use his own age or the age of his spouse or common-law partner. “If the spouse is younger, your client has the opportunity to make smaller mandatory withdrawals based on the younger person’s age, allowing for a longer period of tax deferral,” Mr. George noted.

Another strategy is requesting increased withholding tax on RRIF payments. RRIF payments are subject to a withholding tax of up to 31% depending on the province of residence and the amount redeemed. “If your client is receiving rental income, capital gains and dividend income, there’s no withholding tax on this income and it will be subject to tax at the end of the year,” notes Mr. George. “He can contact his RRIF issuer to request having more tax withheld on his RRIF payments to prepay the tax that would be owing at the end of the year.”

And clients who are 65 and older and receiving RRIF income can claim a pension credit for up to $2,000 of RRIF income. The federal credit is worth $300 and can be used to offset tax payable on any form of income. “And the client can split the RRIF income with his spouse on their respective tax returns, regardless of the spouse’s age,” Mr. George said. “And the spouse can also claim the $2,000 pension credit. So the family could be accessing $4,000 of the federal pension credit on one income.”

Jackie Read, a financial advisor with Edward Jones in Vancouver, noted that clients who don’t require their withdrawals for living expenses can contribute the money to a tax-free savings account where it can grow tax-free. “Or they can contribute the payments to a grandchild’s registered education savings plan. Like income-splitting with a spouse, this is a strategy to shift money from an individual in a high tax bracket to a person in a much lower tax bracket.”

Annuities
A way in which clients can completely avoid mandatory RRIF withdrawals is by purchasing life annuities with their RRSP assets. Annuities provide a set monthly income determined by the interest rates when the annuity is purchased. Some insurance companies offer inflation-protected annuities. And annuities can also be purchased with guarantees of up to 25 years; if the holder dies before the guaranteed period, annuity payments are made to his estate for the duration. Inflation protection and guarantees come with an added cost.

“Annuities give the holder a guaranteed level of income that may be important for the person who didn’t have an employer-sponsored pension plan and who is concerned about the possibility of outliving his savings,” said Mr. Ablett.

He provided a quote for a single life annuity with a ten year guarantee period from a large Canadian insurance company for a single, childless, 65-year-old woman who never participated in an employer-sponsored plan and has $300,000 in an RRSP. The annual income in this particular case would be close to $19,000 per year. “With CPP income of about $10,000 a year and OAS of about $6,000, she’d have a guaranteed combined annual income of about $35,000. But if she converted the $300,000 in RRSP assets to a RRIF, the amounts she’d receive would be heavily dependent on the investment returns that were generated. And, as the capital in the RRIF decreased, she’d be getting lower payments,” he comments. But buying an annuity wouldn’t make sense for clients who have a company pension, he added. “I’d advise them to convert their RRSPs to RRIFs, and do some tax planning.”

Clients who like the idea of a guaranteed income should consider annuities in conjunction with RRIFs, Ms. Read said. “If they put all their assets into annuities, they wouldn’t have access to large sums of money for emergencies.

“And annuities are not for anyone who wants to leave an inheritance because the holder is giving up his assets for an income stream,” she added.

The advisor needs to determine whether it’s crucial for the client to know that he has a guaranteed income for the rest of his life, Mr. George said.

Beneficiaries named on RRSP applications do not automatically carry over to RRIFs. “If your client doesn’t name a beneficiary for a RRIF, upon his death the assets will flow through the estate and not directly to beneficiaries, and they will be subject to probate tax in the provinces in which probate is applicable,” said Mr. George.

“Clients who want their spouse or common-law partner to inherit a RRIF can highlight the option to name the spouse or partner as either ‘successor annuitant’ or ‘beneficiary’ on the RRIF application,” he added.

“The successor annuitant designation allows spouses and common-law partners to receive the deceased’s RRIF based on the plan’s original terms and conditions, such as minimum payments based on the deceased’s age.”

Mr. George stressed the importance of making one last RRSP contribution in the year in which clients are converting RRSP assets to a RRIF. “They’ll get the tax deduction for the year and they’ll also get more money into the investment for future income needs.

“And clients who are over 71 and have a younger spouse can still contribute to a spousal plan. This is becoming more important as some people are now working well into their 70s.”

Shifting to equities
Now, however, even within the banks, some of this money is shifting to equity investments such as mutual funds. “Where savings and fixed term deposits at first accounted for 96% of the assets, mutual funds have steadily increased their share and now they account for 17% of the assets within the retail bank channel,” says Mr. Gosal (see tables, page 29).

Mr. Gosal does not have a specific breakdown of what percentage of assets are going into equities via brokerage channels – full service brokerage, online discount brokerage and financial advisors – but he says these channels are certainly steering more TFSA money into equity investments. “From our discussions with these companies, most of the money is in equities, so that could be anything from directly held securities, to ETFs (exchange traded funds), to mutual funds.”

In terms of assets, Mr. Gosal says assets invested through the online discount and full service brokerage channels are growing quite quickly. Back in early 2009, some of these brokerage firms had not enabled TFSA sales on their platforms, so they were a little late out of the gate in allowing their investors to open these accounts. All of them now have enabled TFSA sales, he adds.

Banks, meanwhile, were strongly promoting TFSAs from the outset and some were offering promotional interest rates. ING Direct, for example, was an early leader in this market among retail banks and branchless institutions due to its strong promotion and a pre-registeration strategy. ING was ranked second in the TFSA market in early 2009 but is now ranked fifth, notes Mr. Gosal.

Number of accounts
As of June 2011, the number of TFSA accounts opened were just over 8.5 million. Mr. Gosal, underlines, however, that this does not mean that there are 8.5 million Canadians who have opened TFSAs, since it is possible to open multiple accounts within the same financial institution and across different financial institutions.

Another interesting fact revealed by Investor Economic’s data on TFSAs is that 12.5% of TFSA accounts within the retail bank channel have no balance – they are open but not yet funded. “The reasons for this vary,” says Mr. Gosal. “One possible explanation is that perhaps when people go to a bank to open a new bank account, they’ll open a TFSA at the same time because the paperwork is very streamlined.”

Balance amounts
With respect to TFSA balance amounts, people generally have balances below $5000 or over $10,000, Mr. Gosal adds. “There is not too much in the middle. Only about 17% of accounts have a balance between $5,000 and $10,000; about a third have a balance over $10,000, and 37% of funded accounts have a balance of less than $5000 and 12% have no balance at all.”

Total assets from all channels have grown from just under $10 billion at the end of March 2009 – the first quarter in which they were launched – to just over $54 billion at the end of June 2011.

What’s important to note, says John Wickett, senior vice president of standards and certification at the FPSC, is that the document is not just for CFP candidates or curriculum planners. “This is not just a ‘nice to have’ guiding document. This is very explicitly (going to be) used in handling complaints and evaluating conduct,” he says.

A review of the FPSC standards takes place every five years, in consultation with existing CFP professionals (17,000 in Canada), allied industry groups, regulatory bodies and at least six different consumer advocacy groups. An active committee of experts, including a number of lawyers, did the upfront work needed to revise the standards.

The changes are not overly dramatic or drastic but they do include a few small details that will likely change the way some planners conduct business.

The first, and perhaps biggest change, is a good example. Although the ‘client first’ principle has long been an implicit guide, the code of ethics now explicitly states the obligation of CFP holders to place the client’s interest ahead of their own, “regardless of the legal relationship between the client and the CFP professional; CFP professionals must always put their clients’ interest ahead of their own.”

The code goes on to say the principle applies, even in instances where the CFP professional may not be clearly undertaking a financial planning engagement. In these cases, a further revision, one that is more prescriptive than principles-based, states that CFP holders “shall implement only those strategies that are both prudent and appropriate for the client unless the client provides specific written instructions to the contrary.” Such written instructions will likely need to be kept on file in cases where a planner is simply transacting business on behalf of a client.

Mr. Wickett says the change is essentially a codified balance to existing industry compensation practices and other pressures which can influence an advisor’s day-to-day business.

“In the interest of not leaving anything unsaid, we decided to just clearly state it. This is principle number one,” says Mr. Wickett.

Overall, he says the document, which merges or compiles the existing FPSC Code of Ethics, Rules of Conduct, Fitness Standards and Financial Planning Practice Standards into one, is a midway compromise between the different prescriptive and principles-based approaches to oversight. Although the code of ethics is very much a principles-based document (this piece, along with the rules of conduct and practice standards are rooted in and based on existing international standards), the more prescriptive rules of conduct help in instances and particular workplace scenarios that can pressure professionals and the plans they create. These provide more direct guidance but Mr. Wickett says the overarching approach is principles-based.

“The code of ethics supersedes the remainder,” he says, “but where there’s a benefit of more clarity, again, always in the vein of protecting the public, we add specificity.”

Given that changes appear minor on the surface, some might be compelled to put off giving the standards serious consideration but there are practical concerns CFP advisors will need to take into consideration. For example, says Mr. Wickett, planners “might need to tweak, a little, how they handle the process of disengaging from a client or the way they hand off a client portfolio to another planner.”

Specific changes to each document merged into the Standards of Professional Responsibility, are clearly outlined at the beginning of each section.

In addition to the code of ethics client-first principle, and the rule about requiring written instructions, other notable changes to the rules of conduct include new disclosure and communication requirements and new supervisory requirements when a CFP professional delegates or assigns responsibility to a subordinate or third party. Finally, it has also been made explicit that the fitness standards apply to all CFP professionals, not just to candidates.

A review of these standards takes place every five years to ensure their continued relevance.

At a time when interest rates are low and the new International Financial Reporting Standards (IFRS) are being implemented, SSQ stands out from the crowd. Taking over a portfolio of individual life insurance may seem daring, but Mr. Hamel said he believes it is still a good time to make this kind of purchase.

“We see ourselves primarily as risk takers. What distinguishes an insurer from other financial institutions is its ability to offer consumers products with long-term guarantees – and respect them,” comments Mr. Hamel. When the Quebec insurer’s CEO stopped by The Insurance and Investment Journal’s offices in mid-January, the head of SSQ said that he believes this kind of risk assumption is an insurer’s fundamental role.

Among the conditions that are worrying many insurers are low interest rates and the new International Financial Reporting Standards (IFRS). Insurers can manage the first by raising prices, says Mr. Hamel. These price increases make long-term guaranteed products less attractive. He believes that this is a temporary situation.

“The need for long-term protection remains. We are not just there for the next two years. By buying AXA, we have taken a long-term position in the market for individual life insurance,” says Mr. Hamel. “In time, interest rates will eventually rise.”

For Mr. Hamel, the IFRS question is much more troublesome. He is concerned that Canadian rules governing the valuation of actuarial liabilities will be particularly affected by the proposed standards.

“Currently, we have the best of both worlds: liabilities are matched to assets,” he says. If the insurer is obliged to pay $40 million dollars of insurance compensation in 22 years, it buys a bond that reaches this value at maturity. No matter what interest rates do in the meantime, the asset will still be worth $40 million in 22 years.”

However, IFRS rules will set a benchmark rate that insurers must use to assess their liabilities each year. This rate can vary from year to year, regardless of the value of the underlying assets. When the benchmark rate falls, the liability increases significantly for a given year. This injects a significant dose of volatility in the financial performance of insurers.

“The IFRS rules come from Europe, where insurers are not subject to this interest rate leverage because they take mostly short-term risks.Their activities are more like those of the banks. If the IFRS were to be applied in full, they would totally destroy the capacity of Canadian insurers to offer long-term products.There is a strong commitment in our industry to protect the supply of these kinds of products.”

Synergies
The first task that he has set for himself is to revamp AXA’s individual life insurance products. “We want to update products that have lost their appeal,” he says.
Strongly influenced by orders from its parent company in France, AXA had put certain long-term products on the sidelines in Canada. However, the portfolio still contains these products, notes Mr. Hamel.

“Our desire to support them is greater than that of the previous owner. By buying AXA, we are playing to our strengths: we are focusing on risk assumption.This strategy has made ​​us one of the most successful insurers in the last ten years.”

SSQ also has geographical reasons for this acquisition. Already present in the Toronto area, SSQ will inherit offices in Vancouver, Calgary and Dartmouth. At the same time, the insurer will expand its distribution capabilities. AXA had a network of just over 2000 representatives. The insurer also wants to take advantage of synergies between the distribution of individual life products and its traditional network of fund distributors.

“The marriage of two reputable companies will give us access to new advisors. We see growth potential. Before, the AXA representative had a briefcase of life insurance products and the SSQ advisor had a briefcase of investment products. Today, both have one full briefcase.”

Mr. Hamel also believes that SSQ will sell more individual life insurance than AXA had anticipated in its own projections.“In five years, we believe we can increase sales by four to five times, and we can double the fund sales thanks to the AXA network. Having both product lines will bring us new advisors who did not want to deal with a supplier who had only one or the other,” he explains.

SSQ also acquired a $50 million block of group insurance business that will generate some interesting synergies. This is a specialized portfolio, focused on expatriate workers, critical illness, as well as death and dismemberment coverage. SSQ is present in the more traditional group insurance market. “They have developed a niche of products but there are also some large clients who are spread across the country,” says Mr. Hamel.

SSQ first highlighted its intention to acquire a block of individual life insurance in 2010, when it was revising its 2008-2012 five-year plan. Its primary criteria was that the target had to offer complementary functions.

“We’re a player specialized in group life insurance and savings, but we did not have the background in individual insurance. We decided to acquire the expertise and products that would complement our activities,” comments Mr. Hamel.

Before AXA, SSQ’s individual insurance activities were limited to products designed for group plan members who were retiring. SSQ will maintain this business.
SSQ’s first foray in the individual sector dates back to the launch of its first segregated funds in 1997, the Astra funds. Early on, there were only a handful. Now, there are nearly 80 funds in the lineup and most of them are available to members of group savings plans as well as to individuals.

SSQ has also made itself more available to advisors and private sector enterprises. “Emerging from the crisis of the early 1990s, the public sector accounted for more than 80% of our business,” says Mr. Hamel. The private sector now accounts for 55% of its insurance business.

Financial profile
In 2011, SSQ’s in-force premiums came to $1.4 billion in group insurance and deposits (annually), while its investment funds reached $1 billion. With the AXA acquisition, the insurer has an individual insurance portfolio with about $100 million of in-force premiums. Assets under management in segregated funds were $ 3.5 billion at the end of 2011.

As for the market outside Quebec, which is increasingly important for the Quebec-based insurer, it generated $300 million of group insurance premiums and savings deposits, and another $250 million of annual deposits in investment funds for 2011.

SSQ estimates that profits realized in 2011 came to between $35 and $40 million. This year, the acquisition will have the effect of increasing earnings by 50%. In addition to the $40 million in profits that SSQ expects to deliver in 2012, there will be another $20 million in profits from AXA. The reason lies in the balance sheet, where the value of AXA shares has been fueled by the sale of securities.

SSQ paid $300 million for AXA thanks to a liquidity injection from the Fonds de Solidarité FTQ, a shareholder owning 71% of SSQ (the SSQ mutual holding company is the other shareholder, holding the remaining 29%). AXA was not able to achieve the $190 million in sales that had been expected for 2011, partly because it had sold its portfolio of credit insurance.

New team, new name
On Jan. 1, AXA became SSQ Insurance Corporation, and will report to its parent SSQ Life Insurance Company. Along with SSQ Home and Auto, these companies are run by SSQ Financial Group. SSQ Financial Group is not a separate entity, but simply a name, explains Mr. Hamel.

Bernard Tanguay, an actuary who has worked at SSQ for 15 years, was appointed head of SSQ’s individual division. He will take over the individual insurance operation at SSQ Financial Group, where he will also continue to oversee all the activities of the investment and retirement department.

A steering committee of eight executives will support Mr. Tanguay in his new role. Among them is Marc Trépanier, vice president of national business development. Besides Mr. Trépanier, who is also from SSQ, all other members of the committee are transplants from AXA. Gilles Loiselle will be vice president of customer service and administration. Sylvain Charbonneau will be vice president of actuarial and new business selection. Jennifer Hurst will be vice president of business development for Ontario and Western Canada. Karl Amoakon will be senior director of group pricing and operations.

Three members of the executive committee will become first vice-presidents of SSQ Financial Group, dealing with institutional services, finance and real estate, as well as human resources and internal communications. These people are Marcel Gaudet, vice president of corporate actuarial, Claudine Yelle, director of business control and Isabeau Normandin, director of human resources.

Mr. Hamel says that SSQ plans to retain most AXA staff. He expects, however, that there will be other cuts as the integration approaches its final stage. “I cannot yet say how many but it will not be a large number,” he says. As for technology, AXA’s system will prevail in individual life insurance, where it is the most up-to-date. On the group side, business will be done using SSQ’s systems.

In corporate services (human resources, finance, etc.) SSQ came to an agreement with Intact Financial Corporation, where the latter will manage the transition and continue to provide these services to people from AXA.

A total of 20 jobs across Canada were cut plus the two executive positions. Not all of these jobs were on the wholesale sales and marketing side. Some were operational and support roles. The positions that were cut represent about three per cent of the company’s Canadian workforce.

Doug Paul, executive vice president sales, and chief marketing officer, and Robert (Bob) Aggio, vice-president sales and independent distribution, left the company on Jan. 18, the same day that changes were announced to the company’s seg fund lineup, said Ray McKenzie, Transamerica’s senior vice president, retail sales, during an interview with The Insurance and Investment Journal.

With respect to these executives’ departures, Mr. McKenzie said the company is looking to more tightly integrate product development, sales and marketing. “We needed to do a few moves in order for this integration to take place.”

Mr. Paul had been with Transamerica for about 10 years, said Mr. McKenzie. Meanwhile, according to his LinkedIn profile, Mr. Aggio had been with Transamerica almost six and a half years.

Product changes
As well as closing Five for Life, the company has also capped additional deposits at $25,000 for existing policyholders on its imaxxGIF, TIP, and GrowSafe products. These products were already closed to new sales.

Mr. McKenzie says the company will continue to service its in-force investment business and the investment products for which it is still accepting new business. These are: Transamerica GIF seg funds, mutual funds, single premium immediate annuities (SPIAs) and Guaranteed Interest Accounts (GIAs). “Our call centre at our head office will support that. We just will slowly discontinue the wholesaling support…”

A transition team will be available to help with what is expected to be a short-term, higher volume of questions from advisors. This team is available until the end of April.

In terms of the investment products which remain on Transamerica’s shelf, Mr. McKenzie said the company will no longer be “proactively selling or marketing them.”

Does this mean the company has effectively exited the seg fund market? “That’s not entirely true,” says Mr. McKenzie. “We still have a seg fund product; we still have our product line; we still take new accounts; we still take new money…” However, he adds, the company is obviously concentrating its energies on the life insurance side of the business now.

“We feel these changes will help us focus on the insurance side so that we can focus on expanding our product line, expanding our service offering, as well as our tools and relationships on the insurance and production side in Canada.”

Is Transamerica planning to sell off its block of seg fund business now that it is no longer a focus? Mr. McKenzie responds, “There are no such plans.”

Market conditions
Pierre Vincent, senior vice president, product strategy and business profitability with Transamerica Canada, says various market conditions led to the decision. “When we did our strategic review there were three main factors: the economy, particularly the low interest rates impacted our decision; the competitive environment and most importantly the limited scale that Transamerica Life Canada had on the segregated fund side.”

The company’s segregated fund business totaled $2.4 billion in assets as of Sept. 30, 2011. Five for Life assets were $375 million, or 15% of seg fund assets.

On the life side, meanwhile, business is good, Mr. Vincent adds, so the company has decided to focus on what it does best. “The life business is thriving. We are a top five player and we have more than a half million policyholders.”

In particular, Mr. Vincent says Transamerica’s strengths are in term and universal life insurance products for the middle market. “But of course we want to continue expanding our product line so we will look at providing other products to our advisors and to consumers.”

MGA reaction
Asked about Transamerica’s recent decisions to withdraw Five for Life and eliminate its investment wholesale team, Tony Ryan, executive vice-president of managing general agency Financial Horizons Group, responded, “It is disappointing to see carriers disappear or stop participating in a marketplace; competition is needed.”

Is he concerned that other insurers might also withdraw their GWB products? He does not think so, but believes that insurers will make significant changes to these products.

With respect to Transamerica’s strategy to focus on the life business, Mr. Ryan commented, “It will be good to see them regain their strength in the life market. We hope they will be a long term player.”

Terri DiFlorio, president of Hub Financial, says she is not surprised by the withdrawal of Five for Life. GWB products are a challenge for all carriers, she adds. Insurers have been making changes to their GWB products and she believes this will continue. “If the product was not profitable for Transamerica, then I think their decision is a responsible one. I was, however, surprised by their decision to basically exit the segregated fund market by withdrawing all support.”

She says she has not heard much concern from advisors about the withdrawal of Five for Life. “Transamerica segregated funds made up a very small portion of our new deposits. Their product was not highly competitive and our advisors typically supported other products.”

However, she adds that some advisors expressed concern that this might be the first of other GWB product withdrawals in the market. Does she think other insurers may follow suit? “It certainly would not surprise me,” says Ms. DiFlorio.

Ultra-competitive market
With regard to Transamerica’s decision to focus on their life business, Ms. DiFlorio believes companies must focus where they excel. “If their strengths and resources allow them to be great at risk products, then that is where they should be. The market is ultra competitive. You can’t be mediocre at something and succeed.”

The last several months have seen many insurers withdraw or adjust products and raise pricing. Ms. DiFlorio says the impact of these continual changes on the distribution channel is two-pronged. “In the short-term, they create fire sales and reasons for advisors to get out there and talk to their clients. In the longer term, it concerns me about the viability of segregated funds in general. I think the product is excellent and certainly has a place in the market. We just all have to figure out how to make it a win-win.”

Bruce Hammond, chairman and CEO at Performins Canada, also expects the GWB market to continue to see changes. “There is no question that this product is kind of morphing a bit and it’s going to be a little different in the future. I am hopeful that the insurance companies are going to stick with it because I think it is a great product for the clients…”

He says about 50% of Performins’ business is in the seg fund market and about half of that is GWB products.

He added that he isn’t concerned about the loss of Transamerica’s GWB product in particular though, since it did not have much success in the market.

He adds that the problems that Transamerica has experienced in the past few years with its maturing block of seg fund business probably had an impact on its ability to attract new seg fund business.

In 2010, Transamerica Life Canada saw seg fund redemptions of about one billion dollars as a result of maturing policies, which was approximately one-third of its total seg fund block. In addition, the company had to pay top ups over the market value of these policies totalling another billion (See The Insurance and Investment Journal, March 2011, page 11).

Mr. Hammond says he thinks the maturing block problem made a lot of advisors fearful and caused them to turn away from the company’s seg funds. “In fairness, Transamerica made good on everything. There were no issues at the end of the day, but there was an awful lot of concern, which created a lot of uncertainty about the company’s viability and, as a result, I think a lot of business went elsewhere.”

Paul Isaacson, president of Daystar Financial says the fact that Transamerica is cutting off support to its block of investment business raises the possibility of an eventual sale. “Without any support out there in the world, that book of (investment) business is probably going to bleed off and so they’ll probably look at selling that at some point in time.”

No structure or support
Mr. Isaacson adds that with no structure or support for Transamerica’s seg fund business, advisors will likely get nervous about the situation. “A lot of people will kind of look at it and say ‘Maybe I shouldn’t have that kind of business with these guys.’”

However, he adds that advisors will look at the best interests of their clients before moving any business. If a client is invested in an older product – where some of the features and benefits are significantly better than some of the newer products – then they wouldn’t want to make any changes, Mr. Isaacson explains. “Not everybody’s going to react the same way to this…”

Daystar does not currently have a contract with Transamerica, although Mr. Isaacson says they are re-opening negotiations on that front.

He points out that while Transamerica has stepped away from the investment business, Standard Life has recently gone the other way by leaving the individual life business to focus on its strength in the investment market (See The Insurance and Investment Journal, January 2012, pages 34 & 35).

Mr. Isaacson says these kinds of decisions all boil down to risk management and profitability. “There’s not a lot of margin in the products these days…You need a lot of scale and a lot of volume to be able to make money at it…They’ve got an ROE they need to achieve from a shareholder perspective.”

The accounting firm Grant Thornton will act as liquidator in this case. According to Grant Thornton, the insurer “faced unique challenges, business risks and insufficient capital to ensure long-term viability, which caused it ultimately to seek court protection.”

“We will be focused on arranging the transfer of the policies to another life insurance company expeditiously in order to ensure the policyholders continue to be served seamlessly. In the interim, operations of Union of Canada Life will continue from its head office in Ottawa,” said Michael Creber, the Grant Thornton partner in charge of the liquidation.

The liquidator says that it will work closely with Assuris. “In general, during the transition period, policies will continue and benefits will be paid. It is also anticipated that the policyholders will suffer no loss of benefits.”
“However, if full recovery of policyholders’ benefits is not achieved in the transfer process, Assuris is committed to providing its protection to all policyholders,” said Gordon Dunning, president and CEO of Assuris.

All policyholders will receive a letter directly from the liquidator that will explain how their benefits are protected. Other parties affected by the liquidation order will also receive a separate letter. In the meantime, the insured parties must continue to pay their premiums as usual to avoid any interruption in their life insurance coverage.

Grant Thornton has also stipulated that insurers, brokers and agents are prohibited from soliciting or transferring a policy issued by the bankrupt insurer. “Given that your clients’ interests are protected by Assuris and a transfer of the existing policies will be arranged, it is clearly not in your clients’ interest that such solicitation or transfers be made,” says the accounting firm.

Name confusion
The similarity of its name to that of Union of Canada Life has prompted Canada Life, the Great-West Lifeco subsidiary, to issue a memo to its sales force to explain what to say if a client has confused the two companies. Advisors can tell such clients that Canada Life has no ties to the failed insurer. The memo adds that any questions concerning Union of Canada Life should be directed to Assuris.

“Fundamentally we still find that many Canadians don’t realize that TFSAs are more than just a savings account,” he explains.

TFSAs can hold nearly anything that an RRSP can, such as mutual funds, GICs, stocks and individual bonds, yet many people still think of a TFSA as a pure savings vehicle.

“They deposit it and get a relatively low rate of return, whereas in fact if you used it as part of a retirement plan, then TFSAs could be very, very effective if invested for the long-term.”
Mr. Golombek believes the reason for this lack of knowledge has a lot to do with the name Tax Free Savings Account and that “Tax Free Investment Account” would have been a better choice.

Advisors’ role
But since the TFSA name is ingrained in legislation, Mr. Golombek doubts it will ever be changed. So, education is the solution to helping Canadians better understand this investment vehicle and advisors play a key role in this process. As people begin to understand the investing flexibility offered by TFSAs, they will start to use them more effectively, Mr. Golombek believes.

“Let’s be honest, the main feature of TFSAs is that they are tax free. If you are using them as a savings account and you’re getting 1.2% interest in our low rate environment, you haven’t saved a lot of tax…”

Mr. Golombek says he advises using TFSAs in conjunction with a long-term savings plan. He generally recommends putting the investments that are expected to have the highest possible returns inside of the TFSA. “That’s really your best benefit. So I think advisors need to educate clients in that regard.”

The most effective way to get individuals to better use TFSAs is to include them as part of a financial plan, says Mr. Golombek.

“Every single client meeting that I have I ask, ‘Have you set up and maximized TFSAs for yourself, for your spouse or partner and for all your children who are 18 (or over)? That’s the first question I ask as part of a planning meeting. And, everyone should ask that question.”

He adds that his clients – who come to him for a financial plan and advice – are generally more sophisticated than the average investor and are putting equities into their TFSAs.

“But I think the problem is that many people don’t deal with an advisor…and I think people really need to get the advice to do this properly.”

For Mr. Golombek, the second major area of confusion is a technical point. Many TFSA holders have gotten themselves into trouble when transferring money from one TFSA account to another and were assessed over-contribution penalties as a result. Advisors need to educate clients on the rules regarding transfers to avoid such penalties, Mr. Golombeks says.

A person can transfer money from one TFSA account to another either within the same financial institution or between various financial institutions or various advisors. However, this has to be done via a direct transfer, he explains. Taking money out of one branch and depositing it into another account the next day would be considered a withdrawal. The rule is that withdrawn money can’t be redeposited until the following calendar year, unless the person had enough unused TFSA contribution room to make such a deposit without incurring a penalty.

“So if you want to move money from Advisor A to Advisor B in different TFSAs, you don’t simply take the money out of A and put it into B. That would be considered to be an over-contribution if you’ve fully maxed out your contribution room. What you would do is tell Institution A that you want to do a direct transfer to Institution B. If it is sent via direct transfer it is coded differently and should not result in an over-contribution penalty,” Mr. Golombek explains.

Canadians ages 18 and over can invest $5000 annually in a TFSA. For those who have never made a contribution, their maximum TFSA contribution room would be $20,000 as of January 2012.

Vancouver-based Anthony Windeyer, business, insurance and estate planning specialist with Coast Capital Insurance Services Ltd and a certified financial planner, says that he goes over the contribution rules carefully with clients so that they don’t incur the penalty which is 1% per month levied on the over-contributed amount.

In particular, he warns that if a client is using his TFSA as an emergency fund and taps into it during the year, then he must not try to redeposit the money that same year.

“They have to wait until the following year…otherwise they can incur that penalty.” This applies to clients who have maxed out their TFSA contributions and do not have the room to redeposit the funds withdrawn.

Meanwhile, David Phipps, a senior financial advisor with Assante Capital Management in Ottawa, says that a common misconception he runs into is that TFSAs are always a good idea when often they are not.

“In my opinion, Tax Free Savings Accounts are oversold, not undersold,” says Mr. Phipps. For example, he often sees people who have money sitting in a TFSA who also owe money. They may be paying out perhaps interest of 4.5% in a line of credit. He asks these clients where they can get a guaranteed rate of return of 4.5% in their TFSA? The answer is they can’t. “There is no guaranteed investment that offers a yield equal to the cost of borrowing because there is always a spread. That is how banks make their money.”

So who needs a tax free savings account? Mr. Phipps says it is the person who has paid off all their debt and maxed out their RRSP. “There aren’t that many of those.”

Low-income Canadians
Mr. Phipps underlines that he would adjust this advice in the case of a low-income person. “For poor people, the Tax Free Savings Account should probably be used before the RRSP. Having an RRSP could impact their Guaranteed Income Supplement in retirement, he notes.

Mr. Windeyer also underlines that TFSAs are not for everyone. “When we sit down with a client the first thing to do is a fact find and figure out exactly what their situation is and discuss what their goals are, identify what their cash flow is and then produce a financial plan for them. From there, we discuss the various tax shelters they should be considering. If a TFSA is a good fit for them, we would set one up and start funding it.”

He also says that TFSAs are often the best option for lower income Canadians since TFSAs do not affect GIS qualification.

“A tax free savings account is a fantastic solution for someone with low income, as well as for someone with extremely high income. Then of course there are the people in between where it could be applicable or not, depending on the circumstance,” says Mr. Windeyer.

What’s important to note, says John Wickett, senior vice president of standards and certification at the FPSC, is that the document is not just for CFP candidates or curriculum planners. “This is not just a ‘nice to have’ guiding document. This is very explicitly (going to be) used in handling complaints and evaluating conduct,” he says.

A review of the FPSC standards takes place every five years, in consultation with existing CFP professionals (17,000 in Canada), allied industry groups, regulatory bodies and at least six different consumer advocacy groups. An active committee of experts, including a number of lawyers, did the upfront work needed to revise the standards.

The changes are not overly dramatic or drastic but they do include a few small details that will likely change the way some planners conduct business.

The first, and perhaps biggest change, is a good example. Although the ‘client first’ principle has long been an implicit guide, the code of ethics now explicitly states the obligation of CFP holders to place the client’s interest ahead of their own, “regardless of the legal relationship between the client and the CFP professional; CFP professionals must always put their clients’ interest ahead of their own.”

The code goes on to say the principle applies, even in instances where the CFP professional may not be clearly undertaking a financial planning engagement. In these cases, a further revision, one that is more prescriptive than principles-based, states that CFP holders “shall implement only those strategies that are both prudent and appropriate for the client unless the client provides specific written instructions to the contrary.” Such written instructions will likely need to be kept on file in cases where a planner is simply transacting business on behalf of a client.

Mr. Wickett says the change is essentially a codified balance to existing industry compensation practices and other pressures which can influence an advisor’s day-to-day business.

“In the interest of not leaving anything unsaid, we decided to just clearly state it. This is principle number one,” says Mr. Wickett.

Overall, he says the document, which merges or compiles the existing FPSC Code of Ethics, Rules of Conduct, Fitness Standards and Financial Planning Practice Standards into one, is a midway compromise between the different prescriptive and principles-based approaches to oversight. Although the code of ethics is very much a principles-based document (this piece, along with the rules of conduct and practice standards are rooted in and based on existing international standards), the more prescriptive rules of conduct help in instances and particular workplace scenarios that can pressure professionals and the plans they create. These provide more direct guidance but Mr. Wickett says the overarching approach is principles-based.

“The code of ethics supersedes the remainder,” he says, “but where there’s a benefit of more clarity, again, always in the vein of protecting the public, we add specificity.”

Given that changes appear minor on the surface, some might be compelled to put off giving the standards serious consideration but there are practical concerns CFP advisors will need to take into consideration. For example, says Mr. Wickett, planners “might need to tweak, a little, how they handle the process of disengaging from a client or the way they hand off a client portfolio to another planner.”

Specific changes to each document merged into the Standards of Professional Responsibility, are clearly outlined at the beginning of each section.

In addition to the code of ethics client-first principle, and the rule about requiring written instructions, other notable changes to the rules of conduct include new disclosure and communication requirements and new supervisory requirements when a CFP professional delegates or assigns responsibility to a subordinate or third party. Finally, it has also been made explicit that the fitness standards apply to all CFP professionals, not just to candidates.

A review of these standards takes place every five years to ensure their continued relevance.