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© Copyright 2000 Rogers Media. The following article first appeared in the August 2000 edition of
BENEFITS CANADA magazine.
Industry
Shake-up at RT Capital
Former federal finance minister Michael Wilson is the new chairman and CEO of RT Capital Management Inc.
The news is part of a major shake-up at RT Capital, which approved a group settlement with the Ontario
Securities Commission (OSC) in an effort to end the high closing scandal that has plagued Canada's second
largest pension fund manager.
Four RT employees involved in the settlement--Peter Larkin, senior vice-president, Canadian equities; Gary
Baker, vice-president, Canadian equities; Patrick Shea, equity trader; and Marion Gillespie, equity
trader--have resigned from the company
In addition, Timothy Griffin, president and chief executive officer (and member of benefits canada's
editorial advisory board) was handed an 18-month suspension from being a director or officer of any market
participant. Griffin has resigned his position at RT Capital. Wilson, Griffin's replacement, is a
vice-chairman and director of RBC Dominion Securities, the corporate and investment banking arm of Royal
Bank Financial Group.
Meanwhile, Peter Rodrigues, vice-president, finance and operations, retired. Donald Webster, senior
vice-president, fixed income, retired in March 2000.
"The mood at RT is extremely positive," says David Moorcroft, the company's senior vice-president of
corporate communications. "It's because of the appointment of Michael Wilson. People have forgotten there
are 92 other employees at RT [not involved in the ordeal]. For them, to hear the issue has been dealt with
and that someone with Michael Wilson's stature and integrity is on board shows the company is aggressively
committed to developing the business."
Moorcroft adds that Wilson's first order of business is to restore trust with clients.
"The settlement clearly indicates that all of the parties have taken the matter seriously. RT Capital and
the individuals involved have agreed to significant penalties, and everyone in this business has been given
a strong reminder of the need to continuously improve compliance," says John Cleghorn, chairman and chief
executive officer of Royal Bank Financial Group.
A number of improvements to trading compliance have already been introduced at RT over the past 18 months,
and as part of the deal with the OSC, the company has hired Deloitte & Touche to review its trading
practices.
"We will continue to enhance our compliance capabilities," says Reay Mackay, vice-chairman and head of
Royal Investment Services, the division of Royal Bank responsible for RT. "Our goal is to ensure that RT
Capital is a leader in regulatory compliance as well as performance."
Mackay says RT's main objective now is to restore client confidence. "We appreciate the patience that our
clients have shown during this past period of uncertainty," he adds.
"We also appreciate the dedication of the employees in RT Capital not involved in this situation who have
made client service their top priority. We can once again put all our energies into providing our clients
with the service, integrity and performance they have the right to expect from one of Canada's leading
institutional investment management companies."
The firm admitted in a statement in June that it engaged in the practice of high closing. The trades were
executed on the Toronto Stock Exchange by various independent brokers, says the statement, and "these
transactions had the effect of overstating the value of certain portfolios for the quarters in question."
The practice of high closing is rumoured to be quite common in the industry. Typically, the practice
involves late-day purchases of small stocks already held by the fund to boost the stock's market price at
the end of a month or quarter, when asset managers report their performance numbers.
"What happens is other people transact in that stock based on that price. If you're a seller, you're happy
but if you happen to be a buyer, you're paying more for the stock than you really should have," says
Patrick Walsh, senior vice-president with SEI Investments in Toronto. "This type of activity brings the
operation of the market into disrepute. Because the market's in disrepute, people don't have confidence
that the prices they're seeing in the market are fair, they hesitate to transact, liquidity disappears and
the stock market doesn't allocate capital the way it's supposed to."
The OSC statement of allegations against RT Capital claimed the firm "intentionally engaged in trading
activity on 53 occasions designed to create or maintain an uptick in the closing price of a security; or
alternatively, to prevent or rectify a downtick in the closing price of a security." Furthermore, claimed
the regulator, RT Capital employees Peter Larkin, Patrick Shea, Gary Baker and Marion Gillespie "acted
without fear of detection by anyone at RT Capital and/or safe in the knowledge that RT Capital impliedly
condoned their activity or was wilfully blind to it." Also damning is the OSC's allegation that RT Capital
reconfigured its telephone taping system once it knew it was under investigation so the calls of Larkin and
Baker to and from Shea and Gillespie would no longer be recorded.
The OSC took RT's board of directors to task for playing what it called "a largely ceremonial function."
The statement of allegations claims the "board did not monitor, or ensure that systems were in place to
monitor, the trading activities and practices of RT Capital's portfolio managers and order executioners."
RT Capital's clients, meanwhile, were waiting for more information before making any decisions about
whether to retain the money manager. Elaine Leufkens, senior consultant, benefits and pensions in the human
resources department of Sony Canada Ltd. in Toronto, says that while she is not concerned about the
investment returns of Sony's pension fund, she is concerned about RT Capital's reputation over the long
term. To date, she says, Sony has not received any inquiries from plan members regarding the OSC's
investigation of RT Capital.
The University of Western Ontario has posted a statement on its plan member Web site, though it has not
received any indication from employees that they are concerned.
"It's basically just informing our members of the issue and that the board is taking the matter seriously,
that the pension assets, in our view, are not in jeopardy and that until we can get more information, just
as a precautionary measure, we're not adding any new allocations to RT's management," says Louise Koza,
manager of pension investments and plan policy at the University of Western Ontario in London, Ont.
"There are some possible actions we could take but they're assessed on a case-by-case basis," she adds.
"This is what the investment policy committee has been delegated to do [with RT Capital]. It's starting the
process of reviewing so I can't say what they're going to be doing but we do have several documented
potential actions."
--with files from Kathryn Dorrell
Scandal won't affect sale
t's business as usual for Royal Trust Global Securities Services in terms of its purchase of SEI
Investments' performance measurement business. The deal is still being finalized, despite the furor
surrounding Royal Trust's sister company, RT Capital.
"We're two very separate organizations, so it's not affecting the deal at all," says Royal Trust's senior
vice-president, José Placido. "It has nothing to do with that particular situation."
Placido says negotiations for the sale are moving along more quickly than anticipated. SEI's Funds
Evaluation Service serves more than 300 institutional clients and employs about 30 people.
Watson Wyatt buys
KPMG benefits biz
onsulting firm Watson Wyatt Canada has announced plans to acquire the Toronto-based actuarial and benefits
business of KPMG. With the acquisition, Watson Wyatt will take on KPMG's 200 actuarial and benefits clients
and almost $9 million in revenue. Approximately 50 staff from KPMG will move over to Watson Wyatt.
"This [acquisition] helps us strengthen our core business and build our market share in Toronto," says
Brian Kennedy, managing director with Watson Wyatt Canada in Toronto. "The group and healthcare side has
been a profitable piece of KPMG as well and strengthens us dramatically in that area."
KPMG decided to offload its actuarial and benefits business to focus on its core business, namely tax
accounting and financial advisory services.
"The culture of Watson Wyatt is very much providing broad service to clients, not just actuarial clients
but also all sorts of services in the human resources area and that appealed to us," says Ian Markham, a
former senior vice-president with the actuarial and benefits business of KPMG, who will be moving over to
Watson Wyatt.
Feedback from KPMG clients has been positive so far, says Markham. "The actuarial and benefits side of KPMG
was not a core business and I think clients were well aware of that. It was just time in the clients' minds
to consolidate and so there seems to be a great degree of enthusiasm for this move to Watson Wyatt."
E-trade acquires Versus
American-based E-trade Group, Inc. has signed an agreement to acquire Toronto-based Versus Technologies
Inc. As part of the deal, E-trade will gain access to the Versus retail and institutional client base, as
well as the Versus network, a proprietary electronic trading platform that will be incorporated into
E-trade's product offerings worldwide. In addition, Versus shareholders will be entitled to receive
approximately US$174 million of E-trade common stock.
The deal marks E-trade's second foray into the institutional world. In August 1999, the company purchased
TIR Securities, a U.S.-based institutional brokerage firm. TIR covered 650 institutional customers in 33
markets.
Canadian institutional investors using the Versus trading platform represent over 75% of Canadian listed
equity under management. E-trade plans to incorporate Versus technology into its global cross-border
trading platform, enabling institutions and investment dealers worldwide to route orders through the Versus
and E-trade networks. E-trade also plans to use the technology in a Web-enabled institutional product
currently under development.
"We will be able to use our technology, integrating it with [E-trade's] global institutional franchise and
the strength of the E-trade brand," says Colleen Moorehead, president of Versus Technologies Inc.
Versus and E-trade have been partners since 1997, when E-trade Canada was formed as the first E-trade
licensee worldwide. Operating as a service of Versus Brokerage Services, Inc., E-trade Canada offers
Canadian and U.S. stock and options trading and Canadian mutual fund trading to the Canadian retail
investor. Versus has also developed electronic trading technology which is used to connect market
participants, including investors, institutions, investment dealers, exchanges, as well as alternative
liquidity pools.
"The culture of a technology company like Versus is best-suited to match with a company like E-trade, which
shares similar vision of a level playing field, customer advocacy and executing the strategy through
technology," says Moorehead.
Versus is expected to be renamed E-trade Canada Ltd. and to operate as a wholly-owned subsidiary of
E-trade. The deal is subject to shareholder and regulatory approvals in the U.S. and Canada.
Ottawa-run drug plan proposed
Drug plans were a popular topic at a recent national healthcare roundtable that featured former federal
Health Minister Monique Bégin and former Ontario premier Bob Rae.
"We have to address the question of drug costs and coverge and homecare," says Rae. "Governments are
terrified of the cost implications." He adds that Canada has a "patchwork quilt" of provincial drug plans,
which Ottawa should take over. At the very least, he points out, this would eliminate 10 provincial
bureaucracies controlling drug plans. Rae also called on the federal government to develop a national drug
formulary and tie accessibility to the income tax system.
Many participants at the conference agreed with Rae's proposal, but pointed out that the concept of one
buyer and one payer would scare the pharmaceutical companies. Michael Decter, chair of the national board
of the Canadian Institute for Health Information, says "[President] Clinton's efforts [to revamp the
healthcare system in the U.S.] were largely derailed by money from the drug companies. It's a hell of a
good idea but do we have that much willpower?"
"In the U.S. we have a relatively ineffective system that could be made more efficient. Bob Rae is
absolutely right that you have to focus on the management of the system," says Arnold Relman, a former
professor of medicine and social medicine at Harvard Medical School.
However, others pointed out that the real issue of containing the cost of drugs has to be tackled at the
prescribing end and that doctors don't like taking direction from government or employers.--Kathryn
Dorrell
Balancing work and life
The majority of Canadian organizations believe they can play in helping employers balance work and life
responsibilities, but benefits such as flex hours that help achieve this goal are left up to the discretion
of individual managers within those organizations.
"That [finding] is key because [middle managers] are the ones who implement policy," says Kim Bachmann,
author of the Conference Board of Canada's latest study Work-Life Balance, Are Employers Listening?
The report reveals less than one-quarter of organizations surveyed reward managers for supporting workers'
needs. "A lot of work has to be done in terms of how the organization is run and how management works out
people issues," adds Bachmann.
The survey of 220 public and private sector organizations asks employers about benefits offered to
non-union staff and compares it with research conducted a decade ago. Key findings include: 88% of
organizations now offer flexible scheduling compared to 49% in 1989; job sharing is up to 52% from 19% and
telecommuting is up to 50%, marking a 39% jump. Meanwhile, the percentage of employees able to take
advantage of a compressed work week is up by 20% to 48%.
Results in the area of childcare and other dependent-care show significantly less progress. The study
reveals only 15% of organizations have a daycare on site or near their office--up 5% from 10 years ago.
Almost half of the respondents who don't offer these programs have never considered doing so.
"Childcare and eldercare hasn't taken off at the same rate as flexibility in the workplace," says Bachmann.
"[I think] organizations do realize that they have a role to play. I just think a lot of them are
struggling with what that role is, and how to make it work within the organization."
The major growth area on the dependent-care front is in referral services such as employee assistance
programs. About one-third of companies offer these services for eldercare, childcare and care of relatives
with disabilities--up 10% or less in these categories from a decade ago. "There's a lot of information [on
resources] out there but assessing it is very difficult," says Bachmann.
Jane Petruniak, senior consultant with Watson Wyatt Canada in Toronto, adds that her firm is coming out
with a study, Staying@Work, this fall and preliminary findings reveal that "sandwiching issues," in
which employees are caring for both their young children and ill or elderly parents, are "particularly
acute."
In terms of how companies implement benefits such as flex hours to help employees cope, Petruniak says it's
cultural rather than management issues in the organization that need to be addressed.--Kathryn
Dorrell
Standard Life remains mutual
tandard Life policyholders voted 54% in favour of mutuality recently, ensuring the firm remains a mutual
company. The company, which has about 67,000 participating policyholders in Canada, came under pressure
this year from vocal policyholders in favour of turning Standard Life into a public, shareholder-owned
company.
Some 1.1 million policyholders voted, most by mail. Fred Woollard, a Monaco-based businessman, led the
charge in favour of demutualization. He created a group called the Standard Life Members Action Group,
which urged the company's 2.3 million policyholders to vote in favour of demutualization. While 46% did so,
it was far short of the 75% needed.
Standard Life's chairman, John Trott, vowed to speak more often of the benefits of mutuality in the future.
"We recognize up to today we didn't explain to our policyholders the benefits of mutuality and we will be
doing so in the future."
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