Canada's deposit-taking institutions are providing their financial advisors with lacklustre retirement programs, and the results of this year's Report Card on Banks and Credit Unions reveal that these firms continue to fall well short of meeting advisors' expectations.
Since Investment Executive first began asking advisors with the banks and credit unions to rate their "firm's succession/retirement program for advisors" in 2010, little progress has been made toward establishing pension programs that are in lockstep with advisors' expectations. In fact, it appears that the gap between expectations and the firms' performance is widening.
This year, advisors rated their firms' retirement programs at 7.7 overall on average in performance while rating the category at 8.9 overall on average in importance. That "satisfaction gap" is the largest such gap in any year since the category was introduced in this Report Card, and is more than double the gap of 0.5 of a point in 2012, when advisors rated their firms at 8.0 in performance and the category at 8.5 in importance.
Advisors continued to be concerned that the total assets they manage, the bonuses they earn and their duration of service to their firms are omitted from the calculation used to determine their pension. Other advisors voiced uncertainties about the scaling back of health benefits and the amount their firms contribute to their pension plans, as well as anxiety over the fact that those pensions are not, in many cases, indexed to inflation.
As more deposit-taking institutions look at fine-tuning their pension plans to ensure their long-term sustainability, advisors clearly are concerned about any potential shift away from lucrative defined-benefit (DB) plans and toward defined-contribution (DC) plans.
In addition, advisors with firms that are keeping their DB plans in place are concerned about the changes being made to these plans. For instance, advisors with Toronto-based Canadian Imperial Bank of Commerce (CIBC) are quite displeased by some of the firm's recent tinkering to its DB plan, and gave their firm the lowest rating in the category this year, at 6.5.
"They've made some changes on how the pension will be paid out, based on years of service," says a CIBC advisor on the Prairies. "I'm grandfathered, but I'm still a part of the new calculations; so, as the years go forward, I'll get less."
Adds a colleague in Ontario: "They've revamped everything. In the past, I could've had my full pension three years before I can collect now."
As for the top-rated firms in the category, each also has maintained a DB pension plan in one way or another - particularly for their most senior staff - and paired it with a share-ownership program and some flexible health benefits.
In fact, Toronto-based TD Canada Trust, whose rating was the best in the category this year at 8.5 (tied with Royal Bank of Canada [RBC], also based in Toronto), went against the grain a few years ago by expanding its pension program. As part of this move, TD made it mandatory that employees get into the firm's DB program, says Sandy Cimoroni, president, TD Mutual Funds.
"I like the flexibility," says a TD advisor in Atlantic Canada. "You can decide how much you want to top up your premiums and such. I also like the tools they have for it."
In contrast, RBC has tilted slightly in the opposite direction. It has preserved its DB plan for advisors currently enrolled in it; however, new employees have to enroll in a DC plan instead.
"I'm on the older, grandfathered program, which is better than the new one," says an RBC advisor in Atlantic Canada. "But it isn't indexed [to inflation]."
This type of policy is part of a changing landscape that many advisors fear could soon become the norm. For instance, St. Catharines, Ont.-based Meridian Credit Union is in the process of making the transition to a full DC plan for its advisors by 2014.
"At the end of the day, we can't afford the liability," says Bill Whyte, senior vice president and chief, member services, with Meridian. "Nobody likes it, but all companies are moving toward [a DC plan] for the obvious fiscal reasons."
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