Monday, May 30, 2011

(No.154) CI Financial & Sun Life: another point of view

In my most recent column on (No. 153 posted May 24,2011) "Sun Life numbers: kumquats & apples", I referred in part to the sale by Sun Life at the end of 2008 of its approximately 1/3 interest in CI Financial. I had offered opinions about what I consider to be -- from a Sun corporate perspective -- both the timeliness of Sun's actions and its previous mishandling of aspects of its relationship with CI Financial vis-a-vis Sun's own Canadian career agency distribution system in Canada.

I received from a successful Sun Life agent who is active in the asset product business, including CI's mutual funds, a thoughtful response to my views. Indeed a number of the points he makes (e.g., sale of life insurance and mutual funds are complementary) are ones with which I agree.

When I was with Sun in an agency-related role I often heard from agents about their support for CI and why. Hence, based on my experience I think this agent's pro-CI Financial views reflect those of many if not a significant majority of the considerable number of Sun career agents who are active in the mutual fund market-place. His is a perspective shaped by a successful agent's experience with Sun, CI Financial and mutual funds. The views I expressed -- and still hold -- are shaped by a focus on Sun Life per se and the health and enhancement of its career agency distribution system.

Because understanding of relevant issues is furthered by a thoughtful exchange of views, followers of should have the opportunity to read the Sun Life agent's comments prompted by my views of Sun and CI Financial. Please note that italicized words within square brackets have been added by me for purposes of clarity.

"I always enjoy your columns," he wrote,"and frankly I usually agree with your comments. However, I would like to offer a different perspective on your comments about Sun Life's sale of CI back in 2008 and about the relationship between CI and the advisors of Sun Life. I speak as someone with a very large book of asset business both with CI and with Sun Life ....

"I feel that Sun's sale of CI in 2008, while profitable at the time was and will continue to prove to be very short-sighted. The investment income that SLF [Sun Life Financial]received from its investment over the 6 years they held their shares was massive and growing year over year. Unlike the insurance business which has been stagnant in Canada for decades, Sun was actually participating in a growth industry. It may be true that the [mutual fund] Dealer operation did not generate any income for Sun, however the ownership of the [CI Financial] shares provided a handsome payout year after year.

"As for the distraction of advisors from selling insurance business, I'm not sure the facts would support this. I don't think it is any coincidence that many of the top wealth advisors in the SLF [career agency distribution] channel are also top insurance sales people. It seems axiomatic that those clients that have assets also have a need (and an ability to pay) for larger amounts of permanent [life] insurance. It seems that the two businesses go hand in hand. Sun Life would seem to agree as they have been consistently promoting the "holistic" model to their advisors for almost 5 years now. In fact, it it weren't so why would [SLF CEO] Don Stewart and [Sun Canada president] Kevin Dougherty want to get back into the wealth game by introducing Sun Life Global Investments?

"My feeling (and the feeling of many of my peers) is that Sun Life blew it when they sold [Sun shares in CI] in a panic in the fall of 2008. It was 'sold' to the [Sun Life career agency] sales force as being an 'opportunity' and that the money would be reinvested in the company and/or used for major acquisitions at bargain prices. Well what has happened since?! Nothing. Sun Life, like the most unsophisticated investors, was paralyzed by fear when the markets were at their most perilous and was frozen into inaction.

"Now Sun Life misses the large dividend cheques they were receiving from CI. They miss the 'juice' they were used to sharing as being part of the manufacturing process of mutual funds because that's where the real money is. While it is true that they did not enjoy 100% of the juice, they at least enjoyed 36% of the juice. Part of something is better than all of nothing.

"Today they are investing millions of dollars to create a [mutual fund] company from scratch. They are trying to compete in an industry where scale matters and they have none. Their assets under administration are much smaller than other competitors who are struggling and who either have been or will be bought out. For how long will the board of directors and shareholders wait patiently for Sun Life Global Investments to become profitable in this industry with high barriers to entry?

"Let me help you understand the relationship between CI and 'wealth active' Sun Life advisors:
CI has provided excellent, above average results to our clients;
CI has provided far superior service to advisors and clients, especially when compared to what we were used to from Mutual/Sun;
CI has said "thank you" to us for our business, something that was a foreign concept to us prior to 2002;
CI has treated us with respect and has earned our business, not mandated it.

"The "sweet deal" to which you refer may be so but if it is, it was earned. And Sun Life profited mightily from the relationship.

"I have many friends that work for Sun Life Global Investments and I do not wish them ill. However, I think this venture is ill conceived and I fear for its long term success. I guess only time will tell who is right.

"Thanks for listening and I look forward to more columns."

Finally, as a counterpoint to the foregoing reader response to my "Sun Life numbers" column (No.153), I also received the following email from a Canadian financial journalist about the same column: "Exceptionally astute and clear. Very, very much so."

by Alastair Rickard