Week in review: November 24-28, 2008

The news in review

It’s been an active news week for industry watchers and investors. In his first fiscal update since the October election, Federal Finance Minister Jim Flaherty announced a series of spending cuts and proposed introducing a one-time measure for this tax year that would allow registered retirement income fund holders, many who’ve seen asset values collapse in recent months, leave more of their money invested. The one-time break would reduce the amount they must withdraw from their RRIFs, allowing them to keep assets invested longer, in the hope values will rebound. Read Advisor.ca’s coverage of the event and industry feedback here.

The deal to take BCE private is in doubt once again this week, after KPMG announced that the leveraged buyout, led by the Ontario Teachers’ Pension Plan, would put the telecom company’s solvency at risk. A positive solvency opinion is a condition for the deal to close, and if KPMG is unable to revise that opinion before December 11, the transaction is unlikely to proceed.

CIBC meanwhile has admitted, in a report from the Office of the Privacy Commissioner, that the bank is not sure whether it lost track of customer information when two removable hard drives were sent to Montreal from Toronto. One package arrived without incident, while the other package arrived empty. The bank is not sure whether the second drive was misplaced, or even if it ever existed.

The proposed plan to restructure third-party asset-backed commercial paper missed another key deadline this week. Purdy Crawford, chairman of the investor’s committee championing the plan, says the "spirit of co-operation" continues, but that the large number of participants involved, the complexity of the restructuring and the current market conditions are stalling the process.

The Superior Court of Ontario will be asked to approve a class-action settlement next month between Manulife Securities Investment Services and Société Générale (Canada), over the SocGen’s role in the collapse of Portus Alternative Asset Management Inc. The bank continues to deny all allegations in the suit, but has agreed to repurchase the defunct investment’s underlying deposit notes, currently held by Portus’s bankruptcy trustee KPMG, for $611 million.

In another story of failed alternative investments, the Investment Industry Regulatory Organization of Canada (IIROC) has set a hearing date for William John Marston, a central figure in the failed Mount Real group of companies. Mount Real was originally spun out of Norshield and had been issuing promissory notes since 1993, claiming they were exempt securities. At first, it issued the notes on its own; later the issuance was transferred to three other companies.

Products, manufacturing

It’s fairly safe to say that tax-free savings accounts are one of the biggest new developments being implemented in the product industry. There is some question, however, about whether or not all dealer back offices are up to the task of managing the new processes and systems. Although "everyone is going to say they are offering a TFSA, they might not be letting you know that it’s going to be a totally different process than what [advisors are] used to," says and industry expert. New research from one of the industry’s manufacturers shows that interest in the new accounts is growing, but is not evenly distributed across the country – close to half of British Columbians who are aware of TFSAs plan to open a new account, compared to 36% of Ontarians and 35% of Quebecers. Less than one in four Atlantic Canadians say they are likely to open a TFSA.

The Government of British Columbia, meanwhile, introduced legislation to protect registered funds from creditors. In the province’s 10-point economic plan, B.C. will make amendments to the Court Order Enforcement Act and the Pension Benefits Standards Act to keep registered retirement savings plans and similar funds inside other registered plans from being seized by creditors. It also plans to make amendments that will ensure TFSA beneficiary designations will be honoured when account holders die.

MFS Investment Management is the latest company to announce layoff plans. This week, the division of Sun Life said approximately 90 jobs across the organization, representing approximately 5% of its workforce, are being eliminated in an effort to keep company costs in line with revenues.

Products

The dramatic decline of the markets has sparked a cascading wave of what are called "protection events" on products that offer principal or maturity guarantees. One of the asset categories most dramatically affected by this is the relatively new and popular group of target-date or lifecycle funds.

Mackenzie’s Destination +2025 fund announced it won’t accept any more new money after December 31, joining BMO Financial, which placed its BMO LifeStage Plus 2015 Fund in protected status in October, and other sponsors have followed suit in an attempt to lock in the required capital for guaranteed payments at maturity.

Mackenzie announced the launch of five new portfolio products that extend its existing Symmetry Portfolio service; ScotiaFunds introduced a Premium Class for the Scotia Money Market Fund, which will require a minimum initial investment of $100,000, and RBC Insurance introduced two new segregated fund options – the RBC Balanced Growth GIF and the RBC O’Shaughnessy All-Canadian Equity GIF. The bank also announced changes to underlying investments in the RBC Guaranteed Investment Portfolios.

Meanwhile, RBC’s management team is getting a shakeup. Brenda Vince, who currently heads RBC Asset Management, has been appointed the head of wealth management for the entire company. Doug Coulter has been appointed president of RBC Asset Management, and Damon Williams has been appointed president of subsidiary fund company Phillips, Hager & North.

Economy

In an event separate from the fiscal update this week, the finance minister asked all federally regulated institutions to help spread the word that seniors do not need to sell assets in their RRIF to make mandatory withdrawals. These can be made in kind, with the investor simply transferring assets out of the registered account into a non-registered account. No sale of the investment is required. Flaherty expressed concern that some financial institutions were not advising clients about this option.

Other economic news remains as dismal as ever, with the Conference Board of Canada saying consumer confidence is falling to levels similar to those recorded in 1982 and 1990. A report from the Organization for Economic Co-operation and Development says Canada will likely been in a full-blown recession in 2009. The group predicts Canada’s gross domestic product will decline until the end of the second quarter next year before returning to growth. Employers surveyed by Mercer meanwhile, say they plan to cut back on salary increases next year – on average, planned wage increases have fallen to 3%. Inflation, though, moderated somewhat in October, thanks largely to falling gasoline prices.

News from Quebec

National Bank of Canada released fourth quarter numbers this week, revealing before-tax charges of $237-million, including a $117-million hit related to asset-backed commercial paper, plus $120-million for streamlining plans and a write-down of tangible assets. Along with the fiscal problems, Quebec media is reporting that the bank is cutting 400 jobs.

Meanwhile, reports say the Caisse de dépôt et placement du Québec was forced to sell assets into falling markets, realizing losses over the course of the past two months. In response to the Globe and Mail article that first raised concerns, Caisse representatives point out in a letter to Conseillier.ca that the institutional investor carries out transactions worth several billion dollars every day, in an effort to produce positive, long-term results for depositors. The letter goes on to say it, like other large institutional investors, must adjust the pension fund’s strategies, relative to the current financial crisis, to protect future pension recipients and reduce overall risk levels.

Finally, Desjardins economists report that the Quebec real estate market will lose strength in 2009 but will not collapse in the way real estate markets have south of the boarder.

To read these stories and others like them from our sister publication, click here/clic ici, to subscribe to Conseiller.ca or sign up for our French language e-mail service.

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Quick links: Advisor.ca news, November 24-28, 2008.

Flaherty offers more restraint than stimulus BCE privatization in doubt CIBC unsure if client data lost ABCP plan misses another deadline SocGen settles on Portus suit IIROC sets Mount Real hearings Inefficient technology could derail TFSA business BC’ers most likely to open a TFSA: Survey B.C. introduces legislation to protect registered funds MFS announces job cuts

Flaherty allays ‘forced selling’ fears Consumer confidence falls Commodities hit hard in October CPI growth edges lower in October Full-blown recession for Canada: OECD The downside of guarantees hits target-date funds RBC tweaks seg fund lineup RBC tweaks wealth management team Mackenzie launches Symmetry One Scotia offers premium money market Mackenzie closing 2025 target-date fund

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New features this week:

If you’re going to be cautious, get paid
Market-timers who say they’ve found the bottom are just as likely to have the floor fall out from under them. Instead, investors should be looking at ways to maximize their earnings from more conservative investments, portfolio managers say. Full story.

There’s no ‘perfect form’ for KYC
Advisors need to worry less about the specific form used and focus more on building a relationship with their clients so that they truly know them on a personal level, according to speakers at the Advisor Group’s Fall Compliance Conference. Full story.

DAC: Communication key to couples planning
For some financial planners, their client’s gender doesn’t have an impact on how they work. But one advisor argues that sex matters. Full story.

Institutional replication could smooth returns
One of the key highlights from this downturn may very well be the performance difference between portfolios modelled after a traditional asset allocation mix, and those that emulate an institutional asset mix. Advisors may have to take a hard look at their client asset allocation and consider emulating institutional portfolios. Full story.

Legally speaking: OSC states the obvious
In a recent decision, the OSC made a definitive statement about advisor obligations, laying to rest the notion and common legal defence that clients are responsible for their own unsuitable investments. The duty of care is on the advisor. This may seem obvious to anyone familiar with professional association rules, but it’s worth noting that a new, clear line has been drawn for advisory, compliance and dispute-resolution purposes. Full story.

(11/28/08)