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Northern Exposure - Manulife Financial ups ante in guaranteed investment funds


Manulife Financial, the first insurance company to offer brand name mutual funds with insurance features, is raising the competitive stakes in the hottest selling segment of the Canadian investment fund industry. It has announced a new family of guaranteed investment funds (GIFs) that for the first time will offer escalating death benefits. These benefits mean that a policyholder's estate will get back more than the original amount invested.

The enhancements to Manulife's GIF program were made after consultations with retail financial advisors who have been selling the original product. Under the new program, the death benefit guarantees that a beneficiary will receive at least the original deposit plus four percent interest on principal for each year of the contract.

Known as "GIF encore," the new products are a competitive response to incursions by mutual fund companies such as BPI, C.I., Talvest, Templeton and Trimark. These companies, following Manulife's lead, have joined forces with insurance partners to introduce segregated funds with brand name funds as their underlying assets.

"We decided we wanted to continue to maintain our leading edge position in the industry," said Marie McLaughlin, assistant vice president of segregated funds at Manulife.

Skittish investors have been flocking to insured funds (commonly known in Canada as segregated funds) because of their maturity guarantees and death benefits. Manulife, whose family of guaranteed investment funds has grown to $3.2 billion

(Canadian) in assets under management since their introduction in January 1997, has been a major beneficiary of this product trend.

Manulife, based in Waterloo, Ont., currently offers 35 funds managed by 10 money managers. They include AGF, AIM GT, C.I., Dundee, Fidelity Investments Canada, O'Donnell, Sceptre, Talvest, and Trimark , as well as Manulife subsidiary Elliott & Page.

Manulife plans to introduce additional GIFs which could be managed by other fund companies that are not yet part of the Manulife program, McLaughlin said. Among the most likely newcomers will be asset allocation funds, which have been one of the industry's best selling categories this year.

Manulife's multi-manager approach has enabled its participating fund companies to get into the segregated funds business without having to set up a full marketing operation. But some, including C.I., Talvest and Trimark, have taken a two-pronged approach. They have created their own families of segregated funds while at the same time offering their funds in Manulife's guaranteed investment funds and so taken advantage of Manulife's distribution channel.

Manulife's upping of the ante on death benefits, one of the big draws of segregated funds, is being accomplished without raising fees.

"We will be holding the line on MERs," said McLaughlin. Nonetheless, the next generation of Manulife GIFs - as would be expected - will continue to be significantly costlier than the underlying funds. In most cases, adding the insurance features results in expense ratios that are anywhere from half a percentage point to a full point higher than the uninsured mutual funds.

Manulife's guaranteed investment funds, with and without the death benefit enhancement, also includes a 100 percent guarantee of principal for all policies held for at least 10 years. That alone sets it apart from a key competitor, Great-West Life. The maturity guarantee at Great-West is only 75 percent of the original investment and the death benefit is 100 percent. Nevertheless, Great-West Life of Winnipeg has not said it will match or otherwise respond to Manulife's enriched death benefit innovation.

Murray Taylor, Great-West's senior vice-president of retirement and investment services, said the company has decided for now not to change its benefits to avoid additional costs. He said MERs on his firm's segregated funds are generally in line with advisor-sold mutual funds, and lower than segregated funds whose sponsors have adopted aggressive insurance provisions. But, Taylor said Great-West is continuing to consider offering improved benefits on its GIFs. He added that the company's sales have not suffered from competitors offering better benefits.

Talvest acquires Millennium

Talvest Fund Management, the 26th largest Canadian fund complex with $2.1 billion in assets, has acquired the Millennium family of funds of Toronto. Previously sponsored by independent investment counselor Morrison Williams Investment Management, the Millennium funds, with only $57 million in total assets despite above-average investment performance, could benefit from joining the much larger company with its greater marketing strength.

Talvest has hired Barry Morrison and Les Williams to manage a new Millennium family of funds to be introduced under the Talvest name in January. The acquisition gives Talvest an opportunity to eliminate one of its under-performing funds, Talvest Canadian Leading Industries Fund, which is to be merged with Millennium Next Generation Fund. Millennium Income Fund, which invests in income trusts, will continue as a stand-alone specialty fund. A third fund, Millennium Diversified Fund, will be merged into Talvest Canadian Asset Allocation Fund, which has been an above-average performer over the past five years. The acquisition is subject to regulatory and unitholder approval. Special unitholder meetings are scheduled for mid-December.