The CAP industry in Canada is beginning to mature. But another growth spurt could be just around the corner. The 2005 Capital Accumulation Plan Report looks at what’s driving an increasingly competitive market.

When the Capital Accumulation Plan(CAP) industry underwent a wave of consolidation two years ago, many plan sponsors had concerns that competition would fall by the wayside, leading to higher fees. But now that the dust has had a chance to settle on the high-profile unions of Sun Life Financial and Clarica, Great-West Life and Canada Life, and Manulife Financial and Maritime Life, the industry has emerged more competitive than ever.

That fierce competition is due to the fact that, while growth in assets remains healthy—with a 17.4% increase in total CAP assets under administration between 2004 and 2005—few big plans are entering the market. The number of clients with 1,000 employees or more reported by providers for BENEFITS CANADA’s 2005 Capital Accumulation Plan Report climbed by only 11% over the past two years to 559 in 2005 from 501 in 2003. So providers have been forced to focus inwards—on their existing plans—for revenue growth. And they’re also looking to win business away from each other.

“There are fewer cases out there that are coming to market,” says Anthony Cardone, senior vice-president, group savings and retirement at Standard Life in Montreal. “When they do come to market, there’s a heightened awareness that they’re there. And the incumbents are very aggressive in trying to retain the assets. Obviously the newer players are trying to steal it away,” he says.

Joan Johannson, managing director and senior vice-president, Integra Group Retirement Services in Toronto, confirms that the market is tightening. “We’re ending up with few competitors in the marketplace,” she says. “So now we have four or five big players, all of whom have large growth expectations. Unless the industry itself continues to grow at 20% to 25%, it’s very hard for all of them to grow so substantially.”

That competitive spirit is a boon for plan sponsors as it has meant more attractive fees, better service and slate of new product offerings, says Stephen Lewis, senior consultant at Towers Perrin in Toronto.

“I think plan members are being better served. And so far we’re finding that it’s becoming more price competitive rather than less,” says Lewis. He adds that the introduction of the CAP Guidelines by the Joint Forum of Financial Market Regulators has meant providers are competing to offer the highest levels of support to their plan sponsor clients. But while the mergers have translated into greater competition now, the road to consolidation has been far from smooth for plan sponsors, according to Jean-Daniel Côté, a principal with Morneau Sobeco in Montreal. He points out that consolidation has been a very difficult process for many plan sponsors, creating more work, communication issues and plan member frustration, and that providers could have done a better job easing the transition.

“[Plan sponsors] have gone through conversions in terms of systems, in terms of product offerings,” says Côté, adding that many sponsors had no say in how or when such conversions would be done. “It’s over now, but I think there’s still a bad taste after all that experience.”


Increased competition in Canada’s CAP industry has also spawned new products, as providers have begun to offer lifecycle, or retirement-date funds—funds that adjust the portfolio asset mix as the member approaches retirement.

Manulife Financial is among the latest carriers to introduce such a product. Last month it launched its series of retirement-date funds for new sales, and plans to roll the funds out to its other clients in 2006, says Mike Collins, vice-president, marketing group savings and retirement solutions with Manulife Financial in Waterloo, Ont. “It’ll be a while before we see what [their] uptake will be inside current plans.”

Lewis says lifecycle funds can definitely play a role for some types of plans. “They can help simplify the investment decision [plan members] have to make. But you really have to look at it on a group-by-group basis.” He adds that the rush to offer such funds isn’t over. “A number of other providers are talking to us about their intentions of offering something in the near future. So I think we’re going to see more for sure.”

But Côté says price may act as a deterrent for some plan sponsors. “In terms of fees, they are generally very expensive,” he says. “I think there’s not that much value compared to going to an asset allocation family and slowly working your way from an aggressive [fund] to a moderate [fund] five years later.”


While the DC industry continues to grow at a healthy pace, the nature of that growth is taking on a different dynamic than in the past.

“We have not seen many DB to DC conversions of late,” says Mary DePaoli, Sun Life Financial’s vice-president, group retirement services in Toronto. “What we have seen are new DC plans being created where the defined benefit(DB)plan is being closed to new hires.”

Côté cites two reasons for the slowdown in conversions. First, more DB pension funds are in a deficit position than a few years ago, making it difficult to convert. Second, DC plans were more attractive prior to 2000 because market returns were “just extraordinary.”

That sentiment is echoed by Manulife’s Collins. “I think [the conversion to DC] has stalled as the glory days of the investment returns slowed down and members started to see the reality of the risk. And I haven’t seen that pick up.”

Where providers are realizing gains is in their existing plans—plans that were started up years ago with little cash flow, but that are now starting to pay off in a significant way as plan members’ bi-weekly or monthly contributions begin to accumulate.

“We do an awful lot of work in the small- and medium-sized case market and a lot of these plans are starting to mature,” says Bill Kyle, senior vice-president, group retirement services, Great-West Life/London Life/Canada Life in London, Ont. And maybe [those plans] didn’t look all that attractive three or four years ago, but it starts to compound.”

The growth among existing plans speaks to the fact that Canada’s CAP industry is growing up, says DePaoli. “It’s gone from being a new industry to something nearing a mature industry.”

She notes that many employees who hadn’t bothered to enrol for their DC plan in the past are beginning to realize what they’re missing out on. “It was not unheard of five or 10 years ago for a company to offer a very generous match—50 cents on the dollar for instance, or a 100% match up to a maximum of, say, 6%—and plan members weren’t taking advantage of it. But I think as the population nears retirement, there’s a greater awareness around the fact that DC plans, especially those with a match, offer an incredible benefit to them in retirement.”

Christopher Cartwright, senior manager, marketing and product development, group savings and retirement at Standard Life Assurance in Montreal, adds that other Canadians are simply “waking up” to the fact that they’re reaching retirement age. “And if they don’t put their good ol’ retirement program on steroids, they’re not going to be in good shape five or 10 years down the line.”


It was perhaps, in part, due to this realization that the CAP industry grew to $75.1 billion in assets under administration as of June 30, 2005, a $11.1 billion jump from $64 billion in 2004. This industry total includes defined contribution(DC)pension plans, group registered retirement savings plans(GRRSPs), deferred profit sharing plans(DPSPs), and employee profit sharing plans(EPSPs)and is based on approximately 40 responses to a survey of service providers across Canada.

The greatest beneficiary of the growth during that 12-month period was Great-West Life/London Life/Canada Life, which saw its assets under administration climb by $3.5 billion to $17.5 billion in 2005, an increase of 25.4%. In terms of percentage growth, Integra Group Retirement Services was the leader with an increase in CAP assets under administration of 46.1% over 2004. SEI Investments, with a 37.2% increase in CAP assets, was the second fastest growing provider by percentage.

While Great-West Life/London Life/Canada Life saw the greatest dollar increase over 2004, Sun Life remained at the top of the list, reporting total CAP assets of $23 billion under administration. It also had the most assets under administration in all sub-categories, with $11.2 billion in DC assets, $8.6 billion in Group RRSP assets and $2.4 billion in DPSP assets.

Rounding out the top four providers were Great-West Life/London Life/Canada Life with $17.5 billion in CAP assets under administration, Standard Life with $8.2 billion, and Manulife Financial with $6 billion.

DC assets totaled $32.1 billion in 2005, an increase of $4.4 billion or 15.8% from 2004. Total reported group RRSP assets grew by 16.1% over the previous year to $35.2 billion. And DPSP assets came in at $5.5 billion in 2005, up almost 20% from 2004. As for EPSPs, total assets reported were $2.3 billion—up from $1.3 billion a year ago.

The industry also reported total aggregate deposits/transfers into the market of $8.2 billion, exceeding withdrawals of $5.6 billion. Total net investment gains accounted for $4 billion of the industry’s growth in assets under administration between 2004 and 2005.(These numbers do not correspond with the industry totals because a number of companies did not report deposit, withdrawal or net investment data.)

There were 4 million lives covered in Canadian CAPs in 2005, up slightly from 3.7 million lives in 2004.


Although the CAP industry didn’t see a great number of large DB plans make the jump to DC between 2004 and 2005, many predict that such conversions are going to be the driver of future growth as many employers struggle with their underfunded DB plans. A study released last month by the Certified General Accountants Association of Canada showed that the funding shortfalls in large private-sector DB plans climbed significantly in 2004, to $29 billion from $26 billion in 2003.

“I think we’re just entering a dramatic growth phase which is going to run for years and years of people moving their plans to [DC plans] from DB,” says Patrick Walsh, president and chief executive officer of SEI Investments Canada in Toronto. “I just think we’re at the front edge of a lot happening.”

Kyle agrees. “In the next two to three years, you’re going to see, at a minimum, a lot of plans offering at least a DC alternative. Even in large companies, I think you’re going to see new employees are going to be offered a DC plan.”

Another significant source of future growth will be the previously untapped rollover dollars that free up as members begin to retire, says DePaoli. “We’re going to see large dollar amounts at play,” she says, noting that the rollover market is going to be one of the “single largest growth areas” in the retirement industry—including the DB and DC markets. “One of our top priorities over the next two years is retaining the assets and educating people who are reaching retirement,” notes DePaoli.

Whatever the source of future growth in the CAP industry, one can be certain that the major providers will be battling tooth and nail to maintain their share of it. And that should only benefit plan sponsors.


Turning a profit difficult with small plans

One of the most prevalent features of Canada’s CAP industry is the fact that the vast majority of plans are small. Of the 46,519 plan sponsor clients reported by providers for BENEFITS CANADA’s 2005 Capital Accumulation Plan Report, almost 44,000 of those plans are with organizations that have fewer than 200 employees. More than 37,000 plan sponsors have fewer than 50 employees.

But, for CAP providers, good things don’t always come in small packages. That’s because small plans don’t offer the same economies of scale provided by larger plans.

“It’s really very economically difficult for any provider to go to a really small plan and do absolutely everything that you’d like to do for them,” says Patrick Walsh, president and chief executive officer of SEI Investments Canada in Toronto.

Some of the greatest challenges of servicing small plans are from a back-office standpoint, says Anthony Cardone, senior vice-president, group savings and retirement at Standard Life in Montreal. “[Plan members] have a lot of questions. They don’t have their own HR departments in some cases so they’ll call up the manufacturers to ask about certain aspects of the plan. He adds the processes associated with a small plan are more often manual than automated, and that the transaction sizes are smaller.

Serving small plans also means providers have to make a geographic commitment, says Bill Kyle, senior vice-president, group retirement services, Great-West Life/London Life/Canada Life in London, Ont. “You have to be prepared to have feet on the street in a lot of locations.”

Technology can also help, says Joan Johannson, managing director and senior vice-president, Integra Group Retirement Services in Toronto. “If you have a number of far-reaching locations, you can do a lot through teleconference and the Web.

Managing expectations is another key ingredient when working with small plans. “You want to ultimately help them have the patience to see the program flourish over time. There’s always an impatience,” says Christopher Cartwright, senior manager, marketing and product development, group savings and retirement at Standard Life Assurance in Montreal. —Don Bisch


On track
Plan sponsors are in good shape in terms of compliance with CAP Guidelines, say providers.

Even with the deadline for compliance with the Joint Forum of Financial Market Regulators’ Guidelines for Capital Accumulation Plans looming just around the corner, Christopher Cartwright says most plan sponsors have little to worry about.

“It’s like the Canada Food Guide,” says Cartwright, senior manager, marketing and product development, group savings and retirement at Standard Life Assurance in Montreal. “And when we use the word deadline with a voluntary code of practice, it sort of makes me think, what’s the deadline for the implementation of the Canada Food Guide? We do it every day and we were doing it before.” He says some plan sponsors have fallen prey to what he calls the “fear factor” but that most are heading into the Dec. 31, 2005 deadline confident that they’ve done all they can.

“When the Joint Forum decides to take another look and see how things are going, they’re going to find that there’s a high level of awareness, that there’s a high level of engagement,” says Cartwright.

While Patrick Walsh, president and CEO of SEI Investments, agrees that most plan sponsors are compliant, he suspects there are still some who have avoided dealing with the issue. “I have a suspicion that there is a pretty good number who are just burying their heads in the sand and hoping it would go away.”

Part of the credit for plan sponsors’ general readiness can be attributed to the CAP providers, says Steven Lewis, senior consultant with Towers Perrin. “I think because of support being provided by the insurance companies and other providers, [plan sponsors] are well on the way if they’re not completed.”

Since the guidelines were released, CAP providers have showered their plan sponsor clients with everything from CAP Guidelines checklists and simplified plan documents to education and training sessions. And they’ve taken steps to better disclose fees. “We can stand quite tall as an industry, says Bill Kyle, senior vice-president, group retirement services, Great-West Life/London Life/Canada Life in London, Ont., adding that the process to comply with the CAP Guidelines has provided clients with a better understanding of what goes on “behind the scenes.”

“Whether it’s reviewing and staying on top of various fund managers, or other compliance-type activities, I think there’s a bit more of an appreciation of the value of some of that.”

Jean-Daniel Côté, a principal with Morneau Sobeco in Montreal, acknowledges that the industry has done very well in delivering on the responsibilities that were delegated to it under the CAP Guidelines. But he says they could have gone further to help with those responsibilities left to the plan sponsor, such as plan maintenance and governance.

Lewis agrees that plan governance is an area where plan sponsors are most likely to be falling short of compliance with the guidelines. “There’s certain review criteria or certain types of policies that are required. And I think it’s expected that the plan sponsor will be drafting [policies] themselves rather than relying on their provider,” he says. —Don Bisch

Don Bisch is the editor of BENEFITS CANADA.

For a PDF version of this article, click here.

© Copyright 2005 Rogers Publishing Ltd. This article first appeared in the December 2005 edition of BENEFITS CANADA magazine.


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