Advisors pleased with banks’ pension plans

Although this lags the 9.0 importance rating for the category, suggesting that expectations are not being met, the picture becomes clearer when separating the banks and credit unions. On average, the banks were rated at 8.3 in the category vs 7.1 for the credit unions, which simply don’t offer the same sort of retirement programs to their advisors and likely never will.

In terms of compensation and retirement packages, advisors who ply their trade with the banks and credit unions could have reason to feel slightly aggrieved. Although they sell the same types of products, by and large, as most advisors at brokerage and dealer firms — that is, mostly mutual funds — banking-channel advisors aren’t compensated in the same way.

Advisors with banks and credit unions, of course, are paid mostly by salary. And when they retire, there are no trailer fees to keep or a book of business to sell; rather, they just have a simple pension.

Still, the top scores given to the banks reflect the fact that advisors are pleased with the defined-benefit pension plans that many firms still offer — sometimes along with optional company equity-ownership plans and profit-sharing programs.

“It’s a very good package,” says an advisor in Ontario with Montreal-based National Bank of Canada, “with clear information and a very well-explained equity program.”

To review, a DB plan guarantees a set income after retirement based on the number of years that an employee has worked with the company. The employer funds the pension from a conservative investment portfolio and assumes all liabilities.

In contrast, a defined-contribution program is a more variable retirement package because it’s based on variable employer and employee contributions and portfolio performance. A DC plan is generally cheaper and less risky to provide, from the employer’s point of view.

In a DC plan, the advisor chooses the amount he or she would like to contribute to his or her plan’s portfolio — within certain limitations. Depending on the advi-sor’s years of service, the employer will make a matching contribution to the portfolio, which is defined by the employee’s individual risk tolerance and preference.

More and more, public companies are converting their pension plans to the DC model. Although this sort of plan can be just as generous as the DB model, a DC plan makes the employees responsible for the investments’ return and shifts the liability squarely onto their shoulders.

Still, there is variety among the banks. Although they’ve all maintained their DB plans, Toronto-based Royal Bank of Canada also has introduced a DC plan — and advisors are allowed to switch between them once in their careers.
@page_break@Also, RBC offers a share-purchase plan in which the bank will match contributions to purchase stock — either inside or outside an RRSP. All this flexibility might account for RBC’s slight edge over the competition, as it had the highest rating (9.0)in the “firm’s succession/retirement program for advisors” category.

In fact, an RBC advisor in Atlantic Canada rates the firm a perfect 10 in the category “because of choice and flexibility of the DB plan, [as well as] the share-purchase plan.”

The rest of the Big Six banks also offer share-purchase plans, which allow employees to buy shares at certain times of the year. But not all offer profit-sharing programs.

For advisors participating in these share-purchase plans, their impressions are no doubt affected, to some extent, by the company’s share price performance. This could be a reason why advisors with RBC and Toronto-based banks TD Canada Trust and Bank of Nova Scotia are satisfied with their firms’ retirement programs, as these banks’ shares have held up rather well.

“We have a share ownership program in which every $1 we put in, the bank puts in 50¢,” says a Scotiabank advisor in British Columbia. “[We also have a] non-contribution pension retirement package, so even if you’re not contributing, you get a pension. And to me, that’s awesome.”

On the flip side, Bank of Mon-treal and Canadian Imperial Bank of Commerce, both based in Toronto, have seen more volatility in their share prices over the past three years. Although that fact alone may account for both banks’ lower scores in the category, their advi-sors made a few comments, too.

For instance, a CIBC advisor in Alberta complains that the DB pension income is defined by the “last five years of employment” instead of the advisor’s five best years.

Dissatisfaction also reigned among advisors at the credit unions. Vancouver-based Vancouver City Savings Credit Union recently introduced a DB pension plan to complement its group RRSP.

“What is good is it now offers a DB pension plan,” says a Vancity advisor in B.C. “There is a lack of support for employees who are managing that plan, but [Vancity is] working on it.”

As for the group RRSP, Vancity advisors complain that it doesn’t offer a lot of choice and the plan isn’t serviced well internally.

Meanwhile, advisors with Ed-mon-ton-based Servus Credit Union are still waiting for a pension plan, which the firm says it’s developing. Until then, its advi-sors can only depend on their group RRSP program. “It’s good, as group RRSPs go,” says a Servus advisor in Alberta, “but it’s not a pension.”

IE