Manulife financial Corp.’s July 6 internal e-mail announcement that the company will phase out Equinox Financial Group Inc. by the end of 2007 is viewed by the financial services industry as unexpected but not surprising.

Equinox does not fit with either Manulife’s business model or the present industry trend toward consolidation. So, it was just a matter of when and how — not if — Manulife would cut ties with Equinox.

“We just didn’t see the long-term financial viability of this entity,” says Bill MacLean, vice president of corporate accounts at Manulife. “That was the driving force behind the decision we made.”

From the perspective of a Manulife carrier, he says, the Equinox system has the highest acquisition costs of any of its channels.

Equinox has not seemed as stable since Manulife took it over from Maritime Life Insurance Co. in April 2004. “Since Manulife took over, nothing much surprises me,” says Boyd Anderson, an advisor with Equinox managing general agent Atlantic Marketing Centre in Newfoundland. “This is just one more in a long list of announcements. You get used to it. I’m ambivalent. ‘Quiet resignation’ would be my response.”

Equinox Doesn’t Fit

Since Equinox was established by Aetna Life Insurance Co. of Canada in 1990, it has acted as a venue through which MGAs have access to multiple carriers and a variety of support services. Aetna was bought by Maritime Life in 1999. In 2004, Manulife amalgamated with Maritime Life’s parent, John Hancock Financial Services Inc., making Equinox a Manulife entity.

Manulife has been struggling with the issue of phasing out Equinox ever since, says Byren Innes, senior vice president and director of NewLink Group Inc., a business consultancy to the financial services industry. “Manulife has a very focused distribution strategy, and Equinox does not fit where it is going.”

Manulife’s strategy focuses on three distinct channels: a national accounts channel made up of larger member firms of the Investment Dealers Association of Canada and the Mutual Fund Dealers Association; an independent advisors channel; and a corporate accounts channel made up of MGAs. Equinox fits into none of these.

“It’s this weird animal out there,” Innes says. “It’s this shared service support organization for multiple-sized MGAs. So you look, and you fast-forward the whole thing to what Manulife wants, and you think, ‘Does that really need to be there?’”

Not when it’s distancing Manulife from its clients, says MacLean. “Every carrier wants to be as close to its clients as it can, and Equinox provided a layer between the carrier and the MGA, marketing centre and advisor that gets in the way of that to some extent,” he says. “We would prefer to be closer to our clients in some regard.”

With the end of Equinox, the 36 distributors under that company’s umbrella will be left to establish their own contracts with their choice of the four carriers Equinox dealt with: Manulife, RBC Insurance, AIG Life of Canada and Standard Life Assurance Co.

MacLean says Manulife plans to offer some level of support to each MGA.

“We certainly want to sustain the business relationship we have, the sales momentum that we have with these entities, so that’s going to be paramount in our minds as we go forward with creating a plan for each one of them,” he says.

Equinox will be sitting down with each MGA over the following months to determine what kind of business relationship each wishes to pursue with the four carriers. But what those contracts will look like, and where MGAs will get their support services, is uncertain.

“We are investigating joint ventures with other marketing firms,” says Alex Nam of Vancouver-based All Canadian Insurance Services Inc., one of Equinox’s smaller distributors. “As far as I’m concerned, we’re moving ahead, anyway. Whatever relationship we can have, we will move that way. We have no choice, anyway.”

Maintaining Relationships

Neil Skelding, president and CEO of RBC Insurance, says not much will change between RBC and each of the distributors, despite the absence of Equinox.

“Over the years, we’ve built very good relationships with the underlying MGAs who were members of the Equinox family, and we expect to maintain those relationships,” he says. “In fact, many of the relationships were already somewhat direct, or we were certainly supportive in some direct ways, so we’ll be able to continue that.”

@page_break@Although Manulife would like to maintain relationships with all MGAs under Equinox, Innes says, that won’t necessarily mean everyone is offered a Manulife corporate account MGA contract.

“[Manulife] wants to focus on larger, fewer MGAs who can give it substantial amounts of business,” Innes says.

This attitude reflects a trend in the marketplace toward larger distributors and manufacturer-owned distributors.

“In the past year, I would say every month we have someone calling us to help with an acquisition, saying ‘We need to grow our business, we need to change our business, we need to get bigger’,” says Innes.

Firms are looking for financial security amidst the soaring costs of technology and compliance. And Manulife’s announcement that it is phasing out Equinox will accelerate some of these trends.

“A huge amount of activity has been triggered by the announcement,” says Innes. “Firms that were considering an acquisition a year from now are saying, ‘Whoops, maybe I should jump right now because there are a bunch of guys that might be on the street. If I don’t act now, my competitors might.’ Advisors who were saying, ‘I’m going to retire in five years’ now are saying, ‘Do I want to fight this out for five more years? Maybe I’ll just sell out now.’

“The status quo is not an option for most of these firms,” Innes adds. “They must rethink their businesses.” IE