Sun Life’s wealth-management focus

The price tag may seem like small change for Sun Life, Canada’s third-largest insurer, but, says David Hughes, financial institutions analyst with Toronto-based DBRS Ltd., “The size isn’t material. [The deal] just shows how much attention [Sun Life is] paying to the wealth-management business.”

Boosting wealth management requires less of a financial commitment from an insurer than increasing insurance sales, for which capital must be set aside to handle future claims. Says Hughes: “By acquiring McLean Budden, [Sun Life] can add earnings capacity without adding capital risk. At a price of $144 million, it’s nothing for it to do that.”

The acquisition will expand Sun Life’s wealth-management business in terms of both research and products, says Kevin Dougherty, president of Sun Life Global Investments, as well as president of Waterloo-based Sun Life Financial (Canada) Inc. “Our enterprise strategy is to find synergies between our businesses and find a way to lever those synergies.”

Sun Life, the parent insurer, will be able to add new mutual funds to the Sun Life Global Investments lineup. And MFS will have access to McLean Budden’s Canadian fixed-income platform, giving its clients exposure to Canadian sectors such as mining and energy they didn’t have before.

As Canada is among the largest markets for pension fund investment worldwide, it is advantageous for MFS, which has a large pension fund business, to expand its footprint into Canada via McLean Budden, says Tom MacKinnon, insurance industry analyst with Toronto-based BMO Capital Markets Corp.: “In the institutional business, you need time to build up brands, relationships. And without McLean Budden, MFS would be starting from scratch.”

It would have taken MFS about a decade to build up the contact base, branding and expertise in the Canadian market that McLean Budden already has, adds Dougherty. Under the deal, MFS will use the contact base that McLean Budden already has in place to solicit new business.

In exchange, McLean Budden can offer its clients MFS research and products. As MFS is a global investment manager, it has expertise in markets abroad that McLean Budden managers would not have access to otherwise.

Once the deal closes, Martin Beaulieu, vice chairman and head of global distribution at MFS, will become chairman and CEO of McLean Budden. He will succeed Roger Beauchemin, president and CEO of McLean Budden since 2008, who stepped down earlier this year.

Although the management change could cause concern among McLean Budden clients, Dougherty says, the investment approach of the two companies will merge seamlessly: “We acquired McLean Budden because its investment approach is very close to that of MFS and Sun Life Global Investments — the goal is risk-adjusted greater returns.”

Part of the reason Sun Life, which purchased a majority stake in McLean Budden in 1997, anted up for the rest of the latter firm at this time is that Canadian baby boomers — who are living longer than previous generations, on average — need access to a broader basket of wealth-management products, which the acquisition provides, says Dougherty: “People used to be asking insurers, ‘What happens if I die?’ Now, the question is, ‘What happens if I live?’ [Clients] want products that offer higher returns for longer periods of time.”

Sun Life began expanding its wealth-management business in the early 1980s, when it acquired MFS in 1982 for the latter firm’s investment-management and mutual fund business. The McLean Budden acquisition adds $30 million to MFS’s current assets under management of $231 billion. IE