Manulife "pension builder"

[fraser]

I would not sign up for a 2.75MER. It basically means that your money is working harder for them than it is for you, and if subsequent year returns are lower than expected they get paid, you don't. Yet you have taken the risk. It is like being second in line on a bankrupcy..the secured creditor gets his money before anyone else.

I have no doubt that the salesperson will earn a very good commission on this...for a reason. It is very lucrative for Manulife and they encourage their salespeople to sell it by making the commission very attractive.

[Wealth Advisor]

My adviser did cover the points you have mentioned.

I like the peace of mind of steady cash flow for life and not having to care about what the markets are doing. Of course, I would not put all my eggs in this basket. Only a good portion.

He did also admit the management fees are high. If I understood more how these fees are collected and what I in reality would end up with after 10 years, maybe I would feel more comfortable with this plan. Right now I'm sitting on the fence.

The Pension builder fund holds a bunch of bond funds. History isn't much of a guide when looking at these funds. I'm willing to wager that you won't see 5% returns over the next 10 years with this fund. Especially considering an investor is paying 2.75% in MER. Perhaps, you should do a better DD before selling your clients this product.

I agree with you, that is the reason why people should not look at this as a return oriented type of investment. This is mainly income stream guarantee for life, while at the same time giving you the flexibility to cash out in case of emergency / leaving it to your beneficiary, while comparing to annuities that do not allow you any flexibility and beneficiary choice.

Income stream guarantee is still the same feature as annuity, just it is an enhanced version of annuity that gives you extra choices.

Therefore, return of portfolio is not the main focus there. However, it is good for people to know there will still be a great chance of net positive return (while you enjoy the guarantee cash flow for your whole life for sure already) if you need to cash out prior to the end of your life.

Keep in mind, your spouse could be less sophisticated in investment decisions, if you have passed away, wouldn't you want him/her to be less worry about what to do with the money to generate enough to cover all the daily retirement expense? or at least not to take another big hit while the market goes down like 2008? (Your income is permanent loss already since you passed away)

[Wealth Advisor]

I would not sign up for a 2.75MER. It basically means that your money is working harder for them than it is for you, and if subsequent year returns are lower than expected they get paid, you don't. Yet you have taken the risk. It is like being second in line on a bankrupcy..the secured creditor gets his money before anyone else.

I have no doubt that the salesperson will earn a very good commission on this...for a reason. It is very lucrative for Manulife and they encourage their salespeople to sell it by making the commission very attractive.

Just to let you know, if you are in this field, you will find out the commission that they are paying to brokers are actually lower than regular mutual funds in all different levels.

Note: I am not a Manulife advisor, I am a private client broker (that I am licensed to buy/sell almost everything) from one of the biggest five Canadian banks.

And approximately 1 / 4 of retirees are looking into these type of products already.

e.g. if you buy in fixed income portfolio in Manulife Income Plus under DSC term, regular fund company will pay you 5%, this one only pay 2.5%.

Skeptical is great, but I suggest contacting Manulife itself for details. You would have missed out something great potentially.

[wooly]

Wealth Advisor.

I sent you a private message.

[blin10]

bet you'd be better off just loading up $100k in ipl.un at 5.53% divi... sure there is a risk, but like you said you got 10+ years to wait... it could easily double or do a split in that time too

[OhGreatGuru]

The payout is guaranteed for as long as either me or my spouse lives. The investment risk is entirely theirs. That's why my adviser is telling that I then don't have to worry what the markets are doing.

Here is a Manulife video that explains it.
http://events.snwebcastcenter.com/ma...andingmpb.html

But if they are going to shave 2.75% in management fees off the principal, I don't see the advantage???

Then I go back to my original alternative interpretation. If it is a guaranteed return, I don't understand why they are even telling you what the notional annual return and MER are. Something doesn't add up here. Is there a possibility they will pay more than the guaranteed amount, depending on how the fund(s) perform?

[fraser]

There is an old saying in the IT business that I was in prior to my retirement.

'Where there is mystery, there is margin' I think this holds true in many businesses-especially financial planning, financial instruments, and investments.

I lead a simple life. If I am investing in the market, I understand the risks. If I am investing in some other vehicle other than fixed rate etc. I get very nervous when the explanation becomes long and complicated. Call me a simpleton, but I suspect that some of the schemes, including some of the whole life pitiches, are really designed to move my focus off the hidden MER's and the lower returns. At least, this has been my experience to date when I have actually sat down to understand the scheme, understand the implicit rate of return, and understand the risk.

[David_A]

I'm also looking at the PensionBuilder product, but for a client. I advise clients from a conservative perspective, where my interest in maintaining the client's capital, and take growth as we can get it.
fwiw I started in this business, on the insurance side, back in the early 90s in England. I do a lot more investments now, probably 80% of my business, but still do some insurance for those clients who need it. btw I have only ever sold 1 whole life policy, but own 3 myself.
My take on markets is far more pessimistic than you will find from most advisors. Recently I did a pension transfer for a client, who saw 5 other advisors before picking me. All the bank advisors showed him projections of 10% returns going forward (for the rest of his life), so did the couple other independents he saw. I told him that we all have the same software and can plug in whatever numbers we want, but I felt that 10% return over the next 20+ years was insanely optimistic. I said that my projections would show a 5% return, and I would structure his portfolio to include some guaranteed products, some cash, some Value funds, some dividend, some global income, a few ETF funds, etc. Of paramount importance to him is knowing that his money will not be drained by markets or fees.
fwiw those people saying that annuities are a bad choice, may not be aware of the serious tax benefits of an annuity over a GIC. GICs and other interest products, like bonds, are taxed at 100% of your tax rate. Dividends and capital gains are taxed are (roughly) half that (in the 23%). Well, annuities created from non registered money are paid back as interest AND return of capital. For most people that makes the overall rate similar to dividends/capital gains, which can be hugely beneficial over a 30 year payout.
Back to the PensionBuilder (and other seg fund GMWB type products). It is not for everyone. Ask your advisor to do a few scenarios for you. Markets grow 5% annually for 20 years. Markets stay range bound (no growth) for 20 years. Markets lose 5% a year for 20 years.
Ask him to show you the comparison figures, and include the remaining cash if you died in 10 or 20 years.
Yes, your advisor will be paid commission OR if he is a CFP, you can often arrange to pay an upfront fee instead.
One thing not mentioned so far is the tax treatment of the notional 5% 'gain' for each year of deferred payments. Even though the pensionbuilder is an income product, the notional value is not and has a different tax treatment. When last I checked, CRA was still looking at it, but the insurance lobby was working hard to get it treated as non-taxable ROC, or treated as dividends...either of which is better than GIC/govt. bonds tax treatment.
I don't personally believe that you should put all your eggs in a single basket.
Diversify your investments traditionally and across companies as well. If Europe turns into a real disaster the trouble will hit everywhere, that is, all financial companies.
I'm not sure how helpful this is, but I hope it fills in a few answers.
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Note I am here as a curious observer, and hope to learn from others if I can. If I feel I have anything to add, I will add, with the caveat, that my information is general, and does not apply to anyone's specific situation. Check with your advisor. I am not giving advice.

[kcowan]

If Europe turns into a real disaster the trouble will hit everywhere, that is, all financial companies.

I am interested in the use of the word "if". What do you think a real disaster would be compared to the financial meltdown we are seeing at present?

You seem to be an expert on annuities. Can you tell us how much company profit puts a drag on potential returns? I assume your 5% is net growth after the company profit has been taken out. What about the selling commission to the rep that books the business? These are not rhetorical questions. I would really appreciate your estimates.

[steve41]

client, who saw 5 other advisors before picking me. All the bank advisors showed him projections of 10% returns going forward (for the rest of his life),

10%? Come on! I simply can't believe that. This is not my experience at all.