TORONTO — Sun Life Financial Inc. is setting up a stand-alone mutual fund company and bringing a series of new funds to Canada to expand its wealth management services in the country.
Canada’s third-largest life insurer (TSX:SLF, NYSE:SLF) said Thursday the move includes adding the investment services of MFS Investment Management, the company’s U.S.-based asset manager, to the Canadian market.
It will also bring together products and management expertise from Sun Life’s global partners, including Toronto-based McLean Budden and Birla Sun Life Asset Management Co. of India.
“What this company does for us is it allows us to take some of that capability, whether it’s at MFS in the U.S. or McLean Budden here in Canada or even in India, or with our third-party partners, and package it up for retail investors in Canada,” Kevin Dougherty, president of Sun Life’s Canadian division, said in an interview.
The new fund line-up will be available in the fall of 2010.
As Canadians get older and many more head closer to retirement, wealth management has become a lucrative and rapidly growing business for banks, insurance companies and money managers.
Volatile stock markets and a dizzying array of investment options have also created increased demand for financial advisory and investment services among the broader public.
“Coming through the downturn, Canadian investors are looking for products and funds that will be resilient in stormy times, and we’re certainly in stormy times,” said Dougherty, who is also president of the insurance company’s global investments unit.
“Between our affiliated companies and our third-party relationships, we believe that we can add a group of funds that will really add to the offering that we already provide.”
The mutual fund business is extremely competitive and financial companies are constantly seeking new ways to grow, either through consolidation, new services or other competitive advantages to lure new clients.
Currently, Sun Life sells mutual funds and other investment products through its wholesale distribution network of about 3,000 financial advisers in Canada as well as through the company’s strategic partnership with CI Investments, a big Toronto-based mutual fund company.
In late 2008, Sun Life sold its 37 per cent stake in CI Financial (TSX:CIX) to Bank of Nova Scotia (TSX:BNS) for $2.3 billion in cash. However, the insurer and mutual fund operator still maintain business ties.
Dougherty said the partnership with CI continues to be “at the core” of Sun Life’s wealth management business, and the two firms are currently developing the next generation of their joint SunWise Elite Plus financial products.
“What we’re talking about here is adding different funds on top of what we use as very much our core in our individual retail business,” he said.
He added that Sun Life’s wealth management business already accounts for almost half the company’s Canadian earnings and is “the envy of almost every other financial institution in Canada.”
Sun Life Financial generated a net profit of $409 million in the first quarter, reversing a $213-million loss last year. The multinational company was helped by a stronger economy and growth across its businesses as well as a major turnaround in its U.S. operations.
More than 58 per cent of the global company’s earnings came from the Canadian division, which increased profits to $238 million from $194 million a year earlier. The division’s bottom line was helped by its strong wealth management and core insurance operations.
Thursday’s announcement will further Sun Life’s long-term corporate strategy, added Dougherty.
“This does add to our presence in the wealth management businesses, and that’s an important strategic goal for the company,” he said.
Later Thursday, Sun Life announced that it will sell $250 million worth of its preferred shares, which yield 4.35 per cent annually, at a price of $25 per share. The underwriters of the offering also have the option to purchase an additional two million shares, raising the proceeds to $300 million. The proceeds will be used for general corporate purposes.
The Toronto-based company operates around the world and has about 16,500 employees, including 7,000 in Canada. The insurer has about $438 billion in assets under management, including $35 billion in workplace-related investments such as defined-contribution pension plans, group RRSPs and non-registered savings plans alone.
It ranks third in size among Canadian insurance companies, behind Manulife Financial (TSX:MLF) and Great-West Lifeco Inc. (TSX:GWO), a unit of Montreal-based Power Financial (TSX:PWF).
Shares in Sun Life fell 37 cents to $30.59 in Thursday trading on the Toronto Stock Exchange.