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April 25, 2018


Canadians Lack Disability Insurance

The number of Canadians with disability coverage through workplace benefits has declined significantly since 2015, says an RBC Insurance survey. Fewer than half (48 per cent) of employed Canadians say they have disability coverage through their workplace benefits, compared to 57 per cent in 2015. Of those without disability coverage through their workplace, 84 per cent have not bought coverage themselves, leaving them at financial risk if unable to work due to a disability. “With the majority of employed Canadians indicating that they do not have disability insurance through their workplace benefits package, workers need to review what coverage they do have and take immediate steps to ensure that they are well protected in case something were to happen,” says Maria Winslow, senior director, life and health, at RBC Insurance. “Without the proper financial protection in place, Canadians are putting themselves and their families at risk if they are faced with a disability and have to take time off work.” A majority (68 per cent) of working Canadians acknowledge the possibility of serious financial implications for them and their families if they were to become disabled and unable to work for three months. In fact, when faced with a disability, 45 per cent of working Canadians would have liked to take time off due to disability but could not because of finances and 51 per cent said they were forced to go back to work earlier than they wanted because of their financial situation.

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CAAT Sees Assets Grow

Assets for the Colleges of Applied Arts and Technology (CAAT) Pension Plan reached $10.8 billion at December 31, 2017, compared with $9.4 billion the previous year. The ‘2017 CAAT Pension Plan Annual Report’ shows the plan earned 15.8 per cent net of investment management fees, exceeding its policy benchmark by 3.5 per cent to bring the five-year annualized net rate of return to 11.4 per cent and adding $1.1 billion in value above the policy benchmark during those five years. Consistently strong investment returns contributed significantly to the plan’s 118 per cent funded status, on a going-concern basis, plus a $2.3 billion funding reserve shown in the actuarial valuation as at January 1, 2018. This is the eighth consecutive year of building reserves and strengthening the plan’s funded position, further demonstrating its sustainability and the plan’s focus on benefit security. “Our primary focus is to secure the meaningful benefits our members and employers rely on. This drives everything we do,” says Derek W. Dobson, CEO of the CAAT Pension Plan.

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Factor Investing Can Drive More Precise Decisions

“Factor investing offers an alternative lens to asset class investing,” says Vincent de Martel, solutions strategist at Invesco Global Solutions. Speaking at the Benefits and Pensions Monitor Meetings & Events ‘Pension Investment Strategies’ session, he said it is a method of portfolio construction that has the potential to drive more precise investment and asset allocation decisions in an attempt to optimize a diversified portfolio targeting a specific risk/return objective. Unlike traditional stock picking, this investment approach seeks exposure to particular factors rather than focusing on sectors, geographies, or investment styles. He said there are three possible scenarios in factor investing – balanced or no factor exposure, unknown factor exposures, and unbalanced factor exposures. Factors are drivers of performance – quantifiable characteristics that can help explain the risk and return of a given asset or portfolio. “Macro factors are the baseline or the type of music you like,” he said. “Style factors are the style of music within the type. Alpha factors are the genus – the sauce that a manager is adding on top of everything, like a Justin Bieber or Neil Young. If you want a ready-made beat of reggae, a cheap manager can add that special sauce.” The investor can now unbundle these three types of factors and buy them individually. Choosing which one(s) to invest in will be different for every investor, he said. “It depends on what you’re looking for. We are still in the early innings of factor investing, although adoption is increasing.”

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U.S. Funds Running Risk

Despite having steadily boosted their funding levels over the past year, U.S. pension funds run the risk of losing their improved status if they don’t hedge their liabilities, says a report from Cambridge Associates. Although the gap between assets and liabilities has been reduced or, in some cases, closed, over the past few months, improved funding levels bring new challenges, particularly concerning the ratio of the market value of assets to the present value of liabilities. The funded status of the 100 largest defined benefit pension plans sponsored by U.S. public companies rose to 86 per cent in 2017 from 81.1 per cent in 2016. The gains could be squandered unless plan sponsors protect them with strategic adjustments to their liability-hedging portfolio to reduce the volatility of a plan’s assets relative to its liabilities as a result of changes in the discount rate. “Plan sponsors need to find a new balance between generating returns to close the asset-liability gap and protecting any incremental improvements in funded status,” says Alex Pekker, senior investment director at Cambridge Associates. “Until recently, closing that gap has rightly been the primary focus and now, since the funded status has improved for most plans, the balance should be shifting to the liability-hedging portfolio.” 

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Firms Should Focus On Material ESG

Stakeholder pressure, regulatory and political shifts, inter-generational beliefs, and the lifting of fiduciary clouds are all behind the growing interest in investing to align with beliefs, says Adam Hornung, associate director, investment strategy, at Russell Investments Canada Limited. He told the Benefits and Pensions Monitor Meetings & Events ʻPension Investment Strategiesʼ session that “as investors we want to be aware of what opportunities are going to present themselves as we make the transition from a higher carbon economy to a lower carbon economy.” When it comes to ESG characteristics, not all are material, he said. Typically, ESG scores were built for a variety of uses such as investors’ portfolio analysis and investment decision-making or corporations’ own sustainability performance and analysis of supply chain risk/vendors. What was needed was an ESG score with an explicit focus on identifying ESG characteristics that are considered financially material to a firm’s business. Material ESG scores are better predictors of stock return compared to traditional, non-material ESG scores. To determine what is material, Russell took 150 subcategories of issues measures, leveraged 30 Sustainability Accounting Standards Board (SASB) criteria, and came up with 10 sector-specific issues. This provides a rating up to 10, a different perspective than a traditional ESG score with is rated to 100. To incorporate the material score, Hornung said firms need to look at the data and the metrics and define what is important to them.

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Aggressive Plan Design Enhances Wellbeing Programs

As the need for enhanced wellbeing programs grows, a WorldatWork study finds U.S. employers adopting aggressive plan designs by adding ranges of modern features from telemedicine and stress reduction to weight management and health advocacy. The study shows 73 per cent of companies have added telemedicine services, up from 49 per cent in the past. Stress reduction programs have risen to 56 per cent, weight management programs to 58 per cent, and health advocacy programs, which help employees navigate medical and administrative issues, climbed to 60 per cent. Employers are also enhancing their benefits to attract the evolving workforce. Other programs seeing a surge include behavioural health plans and employee assistance programs (EAPs) with increases of 91 per cent and 96 per cent, respectively.

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ESG And Fixed Income Requires Research

Further research and development about incorporating environmental, social, and governance (ESG) factors into fixed income is needed to increase ESG fixed income investing, says a report from Japan’s Government Pension Investment Fund (GPIF) and the World Bank Group. It says while much ESG research has been concentrated on how to integrate those factors into equity investing, fixed income investors are applying ESG factors using various methods such as purchasing green, social and/or sustainable bonds, setting up ESG and/or socially responsible investment funds, following ESG indexes, and hiring active ESG managers. They are also embedding ESG factors into the entire investing process. The report cites multiple sources of research in saying there is a link between ESG factors and credit risk and how applying those factors should not undermine strong financial results. However, it says research on ESG in fixed income is still very limited and much of it is concentrated primarily on credit risk and there is very little concerning the relationship of ESG factors on areas such as income stability, inflation, liquidity, and market risks. It calls for more robust research on the impact of ESG factors in fixed income and also recommends the development of innovative products that accommodate growing demand for sustainable fixed income investments.

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Talk Turning To Action On Disruption

After years of talking about disruption, executives are determined to turn talk into action, says Mercer’s ‘2018 Global Talent Trends Study – Unlocking Growth in the Human Age.’ It found 93 per cent of Canadian companies have innovation on their core agenda this year and 96 per cent are planning organization design changes. At the same time, employees are seeking control of their personal and professional lives, with more than half asking for more flexible work options. As the ability to change becomes a key differentiator for success in a competitive global climate, the challenge for organizations is to bring their people along on the journey, especially as the top ask from employees is for leaders who set clear direction. “This year we saw palpable excitement from executives about shifting to the new world of work. They are pursuing an agenda of continuous evolution – rather than episodic transformation – to remain competitive,” says Ilya Bonic, president of Mercer’s Career business. “They recognize that it’s the combination of human skills plus advanced digital technology that will drive their business forward.” In pursuit of new technologies, executives must focus on the ‘human operating system’ to power their organization. The study identified key workforce trends for 2018 including preparing for disruption by working agility into their model and placing bets on flatter, more networked structures; having a strong sense of purpose; offering more flexible work options; and expanding their talent ecosystem to attract talent.

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TruSight Adds BNY Mellon

TruSight has added BNY Mellon as a key investor and client, joining the company’s founding members ‒ American Express, Bank of America, JPMorgan Chase, and Wells Fargo. TruSight was formed to simplify and streamline third-party risk assessment and establish industry-wide best practices. It offers comprehensive assessment services based on a standardized best practices questionnaire delivered over the company’s managed-services platform for the collective benefit of all financial institutions, their suppliers, partners, and other third-parties. It streamlines and simplifies third-party assessment by executing assessments once and delivering to many over a secure, shared-services platform.

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iA Launches Well-Balanced

iA Financial Group has launched Well-Balanced, a new group insurance health and wellness offer. Well-Balanced was designed to help organizations efficiently manage health-related issues. The range of tools and services available, including several that are offered free of charge in all its health insurance plans, provide plan members with access to various health-related resources and encourage them to take control of their health issues to improve their quality of life. For example, using an online information platform and a personalized telephone assistance service, insureds can find a doctor in their area, identify risk factors related to their lifestyle, and get tips to improve their health or support for mental health concerns. 

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ETF/ETP Inflows Grow

ETFs and ETPs listed in Canada gathered US$2.27 billion in net inflows in March 2018, says ETFGI. Year-to-date net inflows are at US$6.06 billion which is more than the US$4.93 billion in net inflows at this point last year. March 2018 marked the sixth consecutive month of net inflows into ETFs/ETPs listed in Canada. Assets invested in ETFs/ETPs listed in Canada increased by 0.89 per cent or $1.04 billion to $117.97 billion.

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OMERS Selling AWW Interests

OMERS Infrastructure, the infrastructure investment manager of OMERS, has entered into a definitive agreement to sell its interests in Airports Worldwide (AWW) to Vinci Airports. Active on two continents, AWW is a portfolio of airport assets and management contracts located in the United States, Costa Rica, Northern Ireland, and Sweden. OMERS first invested in AWW in 2009.

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CPPIB Makes Appointments

John Graham is senior managing director and will lead the credit investments team at the Canada Pension Plan Investment Board (CPPIB). In his 10 years at CPPIB, he has worked in both the total portfolio management group and in private Investments. Suyi Kim is senior managing director and head of Asia Pacific. She joined CPPIB in 2006, establishing its office in Hong Kong, China. Deborah Orida is senior managing director and global head of active equities. She joined CPPIB in 2009 and has held senior leadership roles including managing director, head of relationship investments international. Poul Winslow is senior managing director and global head of capital markets and factor investing. Previously, he was managing director and head of thematic investing and external portfolio management. Prior to joining CPPIB in 2009, he had several senior roles, including as chief investment officer at AP2 in Sweden.

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ACPM Looks At ‘Next 150’

‘The Next 150: Fortifying Retirement for the Future’ is the theme of the ‘2018 ACPM National Conference.’ It will address the current and future retirement income challenges in presentations on a variety of issues including pensions and public policy, infrastructure investment, risk from the member perspective, and changing capital accumulation plan behaviours. It takes place September 11 to 13 in Quebec City, QC. For information, visit Next 150

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April 24, 2018


Reforms Formalize Temporary Provisions

The bundle of proposed defined benefit pension funding reforms in Ontario follows on from other reform efforts across Canada that introduce or contemplate changes in legislation affecting funding, including solvency requirements. The proposed reforms in respect of plan solvency are essentially formalizing the temporary provisions that have been in place for the last decade, says Ryan Silva, director and head of pension and insurance, global client coverage, at RBC Investor & Treasury Services. Speaking at a panel discussion sponsored by the Association of Canadian Pension Management (ACPM), he said over the last decade, a series of temporary measures have been enacted to provide relief from the challenges facing the DB sector. The proposed changes largely affect single-employer DB plans of private companies; broader public sector plans; public sector plans with valuations dated on or after December 31, 2017, filed after the new rules come into force; and multi-employer plans that do not currently qualify as specified Ontario multi-employer pension plans. Jointly sponsored pension plans, target benefit multi-employer plans, and plans that are not subject to the Pension Benefits Act (such as supplemental executive retirement plans, federally regulated plans, or plans from out of province) are not impacted. Under the solvency and going concern reforms, a new lower solvency target (85 per cent, down from 100 per cent) will be established with deficits funded over five years with a 12-month deferral. For going concern reform, deficits are to be funded over 10 years (instead of the current 15), also with a 12-month deferral. Also proposed are new provisions for adverse deviations (PfAD). These rules propose new explicit margins to be applied when determining minimum contributions to both going concern liabilities and normal costs. These new provisions may result in additional employer contribution requirements. The reforms are expected to come into effect shortly, although no firm timeline has been announced.

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Pharmacare Has Strong Foundation

While Accompass President Sarah Beech supports the principle behind providing drug coverage in Canada for those who are currently without, she is worried the recommended course of action will have consequences that may outweigh the overall objectives, says ‘The Advisor’ from Accompass.’ Last week, the federal Standing Committee on Health released the ‘Pharmacare Now: Prescription Medicine Coverage for all Canadians’ report detailing numerous recommendations, one of which is to expand the Canada Health Act to provide universal coverage of prescription drugs. The majority of the committee believes that a single-payer universal public drug plan will help Canadians who are not covered by private or provincial plans, while providing the ability to negotiate lower drug costs and reducing the cost of prescription medicine in Canada. “I agree, there is a need for a form of coverage that will help those who are currently uninsured. The last thing a family should have to worry about is how they’ll afford costly prescription drugs when faced with a health issue,” says Beech. However, “We already have elements of a strong foundation within the private and public systems. Starting from the ground up may not be the best solution. What would that rebuild look like for taxpayers?”

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MFS Creates Advisory Council

MFS Investment Management has created an investment advisory council. The MFS Investment Advisory Council (IAC) is a group of current and former MFS investment professionals who will provide an added dimension of collaboration and consultation for the firm’s investment team. It will engage across a broad array of topics and provide access to experienced investment professionals for the firm’s leadership teams, portfolio managers, research analysts, and associates. The goals of the IAC are to enhance the MFS investment culture, provide consultation, and help develop the next generation of investors at the firm.

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APRIL Acquires Benecaid

Active on the Canadian Property & Casualty market for over 10 years, the APRIL group continues to export its expertise abroad via the acquisition of Benecaid, a managing general underwriter and third-party administrator specializing in group health insurance for very small entreprises (VSEs). Backed by over 20 years of experience and located in Toronto, ON, Benecaid serves over 22,000 clients. With this acquisition, APRIL strengthens its foothold on the Canadian complementary health insurance market. APRIL acquired a 93 per cent equity interest in Benecaid. The company’s management team, which remains unchanged, holds the remaining seven per cent.

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GFL Recapitalized

GFL Environmental Inc. (GFL and investors led by BC Partners, including the Ontario Teachers’ Pension Plan is being recapitalized. The $5.125 billion transaction makes GFL one of the largest environmental services companies in North America. It provides services in solid waste management, liquid waste management, and infrastructure management. Through its network of more than 140 facilities across Canada and in the state of Michigan, it provides cost-effective solutions that encourage greater environmental responsibility. It provides local services to more than 2.5 million households under municipal contracts and to more than 60,000 industrial, commercial, and institutional customers.

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Private Equity Activity Slips

A total of 1,403 private equity real estate deals were announced globally in the first quarter of 2018, worth an aggregate $67 billion, says Preqin. This marks a decrease from the fourth quarter of 2017 which saw 1,612 deals announced worth $101 billion. However, it is an increase from the first quarter of last year when 1,244 deals were announced for $56 billion. In fact, this quarter saw a five-year high for deal activity in an opening quarter, both in terms of the number of deals and their aggregate value.

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Redmond Joins Allianz

Aiden Redmond is managing director and head of institutional North America at Allianz Global Investors. He was previously managing director and head of North American institutional sales at Morgan Stanley Investment Management.

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Sessions Designed For Newcomers

The Toronto Area Chapter of the International Society of Certified Employee Benefit Specialists’ ‘Fundamentals of Group Benefits and Pension Plans’ is designed for those new to the benefits industry or looking to increase their knowledge of the benefits and pensions framework. It takes place over two days with the group benefits on the first day and pension plans on the second. It takes place May 10 and 11 in Toronto, ON. For information, visit Benefits Fundamentals

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April 23, 2018


OPTrust Launches DB Plan

OPTrust has launched a new defined benefit plan offering. OPTrust Select will offer a secure and reliable retirement solution at a moderate cost for both employers and employees. It will be targeted to Ontario workplaces in the broader public sector and not-for-profit groups that do not have workplace DB pension plans, but may have a defined contribution plan, a group RRSP, or no retirement savings arrangement at all. OPTrust Select members and employers both contribute to the plan with an annual pension accrual rate of 0.6 per cent of earnings. Earnings upgrades and cost of living increases will be dependent on the plan’s funded status and annual board approval.

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Targeted Reviews Signal Emphasis On Compliance

While the purpose of the targeted reviews is not to “catch” non-compliant plan administrators, the introduction of the reviews again signals an increased emphasis on compliance in Ontario, says Kim Ozubko, of Miller Thomson LLP. In late 2017, the Ontario pension regulator, the Financial Services Commission of Ontario (FSCO), announced that it was undertaking a series of “targeted reviews” of selected pension plans. There have now been two targeted reviews announced with more expected later this year. According to FSCO, the targeted reviews of selected pension plans will help ensure compliance with the Pension Benefits Act (Ontario) (PBA) and FSCO policies. It will also identify common issues and trends and determine if, and what, further guidance or education the industry may need. Upon completion and analysis of a targeted review, FSCO intends to share its findings with stakeholders on an aggregate basis. FSCO has not indicated the basis on which plans are being or will be selected for a targeted review, but has committed to posting a notification on its website before each targeted review begins. If a plan is selected for a targeted review, the plan administrator will be contacted by FSCO, by mail or eMail, and advised that its plan has been selected for review. The plan administrator will be advised that it has a defined period of time (30 days in both reviews undertaken to date) to provide requested information. She says this means plan administrators need to be aware of, and comply with, their obligations under the PBA.

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Only A Matter Of Time For National Pharmacare

National pharmacare is no longer an if, but a when, says Chris Bonnett, principal consultant with H3 Consulting. Speaking at The Benefits Alliance Group’s Spring 2018 AGM and Spring Conference ‘Climbing Higher,’ he said national pharmacare is an emotional issue for a lot of people and it’s something people have been talking about since post war. At that time, as part of a plan to rebuild the country, hospital insurance was introduced in 1957. No-cost physicians in 1958 and “drugs were supposed to follow, but didn’t.” Having pharmacare would have a big impact on families and businesses. He said we need to look at what problems we’re trying to solve to define the drivers. These include political popularity, costs, taxes, the relationship to private insurance, and improving health status and productivity. Would private insurance be terminated? Would there be universal access with reduced drug prices or cost? Would it be free or with a copay? There are all questions that need to be asked, he said. He said the Standing Committee on Health’s report, ‘Pharmacare Now: Prescription Medicine Coverage for All Canadians,’ released on April 18, “is coincident with developing a new national formulary of prescription drugs.” If the formulary is too rich, it may not leave enough to require insurance for clients, he said. He suggested combining public plans with private insurance. Public plans could offer superior health technology assessments and lower administration, drug, and pharmacy costs – but a budget-driven, one-size approach. Private insurance could then offer choice with better consumer technology but increasingly higher costs and limited innovation.

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Money Left On Table

Institutional investors are leaving money on the table by using familiar investment vehicles like bonds without first looking to see if they could obtain the same exposure more efficiently with another product like an ETF or a future, says a study from Greenwich Associates. ‘Beyond Liquidity: Optimizing Product Selection finds that 95 per cent of money managers use a manual process for instrument selection and two-thirds have no way to systematically compare instrument selection choices intra-day. Almost half the U.S. and European institutional investors participating in the study do not include choice of instrument as part of best execution reviews. “Portfolio managers and their trading desks primarily choose instruments based solely on personal experience rather than through an analytical process,” says Kevin McPartland, head of Greenwich Associates market structure and technology research and author of the report. “Meanwhile, brokers rarely suggest a better instrument to trade and usually just work to execute the order they were given.” While the knowledge of an experienced portfolio manager should not be undervalued, the report concludes that a move toward more systematic instrument selection would ultimately enhance fund returns by capturing alpha invisible to the naked eye. 

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GWL Acquires Strategic Holding

Irish Life Group Ltd., a subsidiary of Great-West Lifeco Inc. (GWL), will acquire a strategic holding in Invesco Ltd. (Ireland). Invesco currently has over 125 employees and manages the corporate pension plans of over 275 large corporations in Ireland, along with over 500 small- and medium-sized companies. It will continue to operate as an independent consultancy firm under its existing brand and with the same management team.

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Credit Spread Will Widen

Credit portfolio managers believe credit spreads will widen and credit defaults will rise this year due to a litany of concerns, including rising interest rates, trade concerns, and the U.S. political environment, says a survey from the International Association of Credit Portfolio Managers. The credit spread index jumped to -56.2 for the next 12 months in the most recent reading taken at the beginning of April, from -22 at the end of last year. The index for the next 12 months is -47.2, down from -30.3 in the previous quarter’s 12-month survey. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve. The outlook for North American high-yield spreads was especially one-sided, with 79 per cent of respondents expecting spreads to widen over the next three months. Rising interest rates are problematic because corporate debt has risen over the last several years, making highly leveraged companies vulnerable. And although the proposed trade tariffs are another worry, IACPM members are discovering that in many cases, the tariffs may not actually be imposed. Last year’s tax cuts are also a concern as IACPM members consider the impact of those cuts on the federal budget deficit.

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Conference Includes Mental Well-being Session

Shifting Landscapes in Health & Safety’ is the theme at ‘Partners in Prevention 2018.’ The conference features two days of keynote speakers, sessions, workshops, and professional development courses. Extended sessions will focus on legal access to marijuana and its impact on the workplace and stress and mental well-being. The trade show will feature more than 400 booths with the latest in market trends, workplace products and services, and interactive experiences for the health and safety professional. It takes place May 1 and 2 in Toronto, ON. For information, visit: Partners In Prevention

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April 20, 2018


Pension Benefits Major Factor In Accepting Jobs

Pension benefits are a major factor for most workers in North America when deciding whether to accept a job, says an Accenture survey. The research found that millennial workers are the most interested in pension benefits. Nearly four in five (78 per cent) of U.S. and Canadian workers and retirees with pension plans surveyed said that the availability of pension benefits was a critical factor in deciding whether or not to accept a job. Further, pensions remained a critical loyalty factor even after employees were hired, with nearly three-quarters (73 per cent) saying they stayed with an employer due to pension benefits. The survey found that pension benefits are relatively more important to younger workers than older workers, with 82 per cent of millennials (ages 20 to 37) and 81 per cent of Gen Xers (ages 38 to 52) citing the benefits as a critical factor in accepting a job, compared with 74 per cent of baby boomers (ages 53 to 71). Pension benefits also appear to be more important to public sector employees, with those workers more likely than ones in the private sector to say they stayed with an employer due to pension benefits (77 per cent versus 62 per cent) and that pension benefits were a critical factor in accepting a job (80 per cent versus 74 per cent). “The pension benefit may now be nearly as important to employees as their healthcare,” says Owen Davies, who leads Accenture’s global pension practice. “While health benefits have been the benefit most valued by job seekers and employees in recent years, pensions appear to be closing the gap.”

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Pension Trustees Need Process

Pension committee trustees don’t need to be perfect or right, they just need a process in place, says Deron Waldock, a partner at McCarthy Tetrault. He told ‘The Trustees’ Playbook: Ignite & Energize Your Team to Power Future Success’ session at the ‘CPBI Saskatchewan 2018 Regional Conference,’ the test is not perfection, it is the process and failing to follow the process can result in a breach of fiduciary duty. One of the duties of pension trustees is to act prudently. At a minimum, they must exercise the degree of care and diligence in carrying out their duties that a person of ordinary prudence would exercise in managing their own affairs. Prudence requires good judgement and directors need to feel comfortable with the decisions they make, he said. As well, delegation of duties is allowed and even encouraged. In fact, a failure to delegate may even be a breach of fiduciary duty. Prudent delegation to service providers requires that their credentials are checked, their fees are reasonable, and they are carefully monitored with their performance checked against relevant standards and benchmarks. However, this does not mean trustees need to micro-manage their providers. Trustees also need to be aware that standards change over time and what was acceptable 10 years ago may no longer be adequate.

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Pharmacare Approach ‘Very Expensive’

While the Canadian Life and Health Insurance Association (CLHIA) supports the goal of ensuring all Canadians can access their needed medications, the federal Standing Committee on Health‘s recommended approach is “a very expensive way to achieve the intended goal and would require governments to find in excess of $20 billion in tax revenues from Canadians,” says Stephen Frank, its president and CEO. The committee‘s report ‘Pharmacare Now: Prescription Medicine Coverage for all Canadians’ and the accompanying dissenting and supplementary opinions have been presented to the House of Commons. It recommends the creation of a universal, single public payer prescription drug coverage program for all Canadians. In issuing the report, the committee acknowledged governments would be taking on billions in drug costs currently borne by the private sector. However, referring to estimates from the federal parliamentary budget officer, the committee suggested a universal plan could realize $4.2 billion in savings. While it’s clear that there is alignment around the need for change, any reform “needs to be done in a way that protects taxpayers and doesn’t put Canadians’ health plans at risk,” says Frank.

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Closing Retirement Gap Challenging

Challenges to closing the retirement savings gap include access to coverage, the low long-term growth environment, and low financial literacy, say Samantha Cleyn and Luis Ramirez, of Mercer. Speaking at the ‘CPBI Saskatchewan 2018 Regional Conference’ on ‘The Changing Face of Retirement in a Defined Contribution World,’ Cleyn said the retirement gap the gap between what Canadians have saved for retirement and what they will likely need is currently $2.5 trillion. However, it will grow to $13.4 trillion by 2050. Ramirez said that currently only 40 per cent of Canadian employees are covered by an employer plan and this is expected to decline even more as Canada moves to GIG economy with more contract workers who do not have pension plans. To deal with this access to coverage, some sponsors are including contract workers in their pension plans. As well, with the average worker expected to hold about 12 jobs during their career, sponsors are looking to consolidate pension balances into their current company pension plans and allow workers to move their pension into the plan of their current employer. This benefits the sponsor by giving them more scale to manage their plans and keeps fees down for the members. Some are also looking at their pension plans as more than a core pension and moving to flexible savings plans with matching employer contributions which can be used to pay off mortgages or student debt. There is also a strong consensus that employees want and trust their employers to provide them with financial advice, he said. The low growth environment puts a lot of pressure on DC plans, said Cleyn, who is not sure members understand what the future holds and what the risks are. For those who have moved their assets into fixed income, they face the prospect of negative returns for the first time. Research shows the number of DC plan options is one problem as the more options there are, the increased likelihood there is of reduced returns. Instead, sponsors need to offer plans which identify the best option in each asset class to create intelligent diversification to meet return expectations while reducing risk. DC plan sponsors need to look at their plan design to address the needs of different generations and make plans more meaningful so members value them and their employer, she said.

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Investment Returns Should Be Priority

The Institute for Pension Fund Integrity, founded by a former U.S. state treasurer, is calling on pension fiduciaries to prioritize investment returns over political issues like divestment. Pension funds should focus solely on getting the best investment returns and ignore issues such as climate change and other political issues, says a white paper from the group founded by Christopher Burnham, a former United Nations undersecretary and Connecticut state treasurer and founder of venture firm Cambridge Global Capital. The institute has been launched as U.S. institutional investors, including pension funds, are increasingly incorporating environmental, social, and governance (ESG) factors into their manager selection and portfolio construction process. U.S. institutions have been slower to adopt such principles than their counterparts in Europe, who broadly view ESG factors as a critical component in building portfolios. Burnham says that when he was Connecticut’s treasurer and sole fiduciary of the state’s retirement system, activists wanted the pension fund out of stocks such as tobacco. Now pension funds are being advised to divest themselves of energy stocks. Politics have “no role to play” in managing retirement funds, he says, arguing that prioritizing anything but returns is a breach of fiduciary duty. Pension funds need to take a market or realistic approach to unfunded liabilities in state and municipal pension systems, he says.

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Recession Risk Remains Zero

Recession risk remains effectively zero for now, says HSBC’s ‘Canada Outlook.’ Overall, it thinks the economic environment continues to look positive and still maintains that the risk of recession remains effectively zero. The most important risk comes from the potential for rising inflation to prompt policymakers to raise interest rates more aggressively than expected. It sees the U.S. Federal Reserve (Fed) raising rates three or perhaps four times in 2018. It’s also important to keep in mind that rising inflation can signal better economic growth, it says. Oil and other key commodities should benefit. However, the economic tensions linked to U.S. President Donald Trump’s trade rhetoric are a key variable. As well, the Brexit talks and economic reforms in China are also major risks.

 

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Canadians Feeling Stressed

Working Canadians are stressed. The ‘TD Invest in Yourself Survey shows two-thirds say they experience moderate to high levels of stress at their job. An overwhelming majority of them (95 per cent) consider it important to invest in themselves, but over half (53 per cent) don’t do it as frequently as they’d like. Canadians working in healthcare and social assistance or finance, insurance, and real estate are more likely than average to say they experience high or moderate levels of stress at their job. Furthermore, 82 per cent of working Canadians said they would invest in themselves more if they had the financial resources to do so.  “Canadians recognize the importance of taking a break and doing something good for themselves, but often don’t because of the associated cost,” says Jennifer Diplock, associate vice-president, personal savings and investing, at TD Canada Trust. “It’s important to strike a balance in life, and one way to do that is for Canadians to view these expenses as an investment in their well-being.” While investing in yourself can mean something different to everyone, most working Canadians (81 per cent) say they’d prefer to take a vacation. Millennials, however, are more likely than average to want to start or continue a hobby (54 per cent).

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UK Pool Appoints Northern Trust

The Northern Pool has appointed Northern Trust to provide a broad range of custodial and administration services, including securities lending, private equity fund administration, compliance monitoring, and carbon reporting. The newly-created pool, comprising the Greater Manchester Pension Fund, the West Yorkshire Pension Fund, and the Merseyside Pension Fund, is one of the largest of eight local government pension pools in the UK and has £46 billion of assets under management.

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Private Debt Largest Part Of Impact Impacting

Private debt or fixed income instruments are the largest asset class in impact investing, says. a report by the Global Impact Investing Network (GIIN) and Symbiotics. It shows over a third of impact investors’ reported assets under management (AuM) were invested in private debt impact funds (PDIFs) and community development loan funds (CDLFs) in 2016. Both sets of funds produced stable returns with PDIFs averaging a 2.6 per cent return per annum since 2012 and the 90th percentile registering a 10 per cent return in 2016. CDLFs paid an average of 2.9 per cent on their notes, with the 90th percentile registering a 3.6 per cent return in 2016. Impact investments are made into companies, organizations, and funds with the intention of generating social and environmental impact alongside a financial return. Funds ranged in size from $3 million to more than $1 billion with a median just below $100 million as of December 2016, the report says.

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Davis Has New Role

Maggie Davis is manager, strategic investment research, at BCI. Most recently, she was manager, client risk management. She joined BCI in 2015 from Sun Life Financial where she was product manager, group retirement solutions market development.

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Session Offers Pension Strategies

Evaluating investments against ESG (environment, social, and governance) criteria; a practical introduction to the implementation of factor investing strategies; and OPTrust’s journey to achieve funding sustainability and stability using a member driven investing (MDI) strategy are the featured topics at the Benefits and Pensions Monitor Meetings & Events ‘Pension Investment Strategies’ session. The expert speakers are Vincent de Martel, solutions strategist, global investment solutions, from Invesco Ltd; Kevin Zhu, managing director and head of portfolio construction from OPTrust; and Adam Hornung, associate director, investment strategy, from Russell Investments. It takes place April 24 in Toronto, ON. For information, visit Pension Strategies

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April 19, 2018


Investment Statements May Be Meaningless

Jeremy Bell, a partner at George& Bell Consulting, is not really sold on statements of investment beliefs. They may work for some plans, he told the ‘Statements of Investment Beliefs: Powering Pension Investment’ session at the CPBI Saskatchewan 2018 Regional Conference. However, for many plans they may be meaningless as “it feels like you’re doing something, but I wonder if you are.” If it is not challenging a plan on how it is investing, why bother doing it, he asked. Statements of investment and beliefs outline the guiding principles for how a plans assets are invested, the framework for which all investment decisions are made. However, in Bell’s experience, he hasn’t seen this and a departure from the stated investment beliefs is more common. There are a number of practical issues, he said. Updating the statement can be mechanical, avoiding discussion on key issues like ESG (environment, social, and governance). There is also a hazy line between some beliefs and investment policy. Rather than setting out common beliefs like the investment return plus contributions need to support the current level of benefits, that over time investors should receive additional return for taking risk, and that investment strategy should be related to liabilities, he would like to see issues like ESG discussed in these statements. This is a useful area for discussion with a whole bunch of ideas on what should and can be done. He suggested that pension plans should also consider their portfolios as portfolios, a complete package of investments, not simply allocate their assets to buckets.

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Corporate Plans Winding Down

A global survey of 300 pension funds finds corporate plans are winding down as public plans are strengthening themselves for the long run. Conducted for BlackRock by the Economist Intelligence Unit, it reveals nine out of 10 public defined benefit plans in the study are open to new members, but only about one in 10 corporate plans is. In addition, nearly three-quarters of corporate plans overall say they are de-risking. Change is a major focus as both types of pension funds strengthen governance and investment policies. Nearly three-quarters of the pension funds have created or revised risk appetite and investment belief statements in the last three years, and while these best-practice tools are not new, their prevalence and prominence appear to have increased. More than 70 per cent of respondents say they have enhanced risk analytics and nearly as many have sought to improve their measurement of investment performance. Both types of pensions expect a greater role for hybrid approaches that combine DB and defined contribution elements. Around three-quarters of global public DB plans expect to offer a DC plan to beneficiaries in the medium term. A slightly smaller proportion of corporate plan respondents expect that over the medium term, their DC plans will be able to employ more of the strategies available to their DB plans.

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New Technologies Still Need Human Connection

The pace of change is accelerating and, although it is technology-driven, a human connection remains vital, says Xavier Debane, head of innovation and agile with Manulife. Speaking at The Benefits Alliance Group’s Spring 2018 AGM and Spring Conference ‘Climbing Higher,’ he said “the world has changed and it’s not going to stop. It will go even faster.” There are three categories to the major changes in the environment – technology, people’s expectations, and business model evolutions. Technology now provides “cool things” like big data, mobile, internet of things (IoT), and blockchain. Hiding within these technologies and data could be the knowledge that could change the life of a patient or the world, he said. Ultimately, it is important for businesses to capture the opportunity of these innovations while, at the same time, adapting to people’s rapidly changing expectations. “People are expecting digital experiences for everything. But we are hardwired for social connections and the desire to belong.” Manulife is currently testing new solutions such as its Zoom app, which allows employees to manage their group benefits. Although it is digital, it includes fun and human connection and is available 24 hours a day. It is also being tested for voice use via Amazon Alexa. Debane said by finding better solutions, companies can improve speed to market, improved efficiencies, and higher engagement.

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Engagement Starts With Definition

Engaging employees starts with defining what engagement is in an organization, says Trevor Davis, assistant director, pension programs, at the Public Employees Benefits Agency (PEBA). In the panel discussion ‘Energize Your Organization’s Future Communications’ at the ‘CPBI Saskatchewan 2018 Regional Conferencewith Katherine Strutt, general manager of the Saskatchewan Pension Plan, and Troy Milnthorpe, senior managing director of corporate funds at the Saskatchewan Teachers’ Federation, he said its definition is that it is a twoway relationship with members. “We push information out until a member takes action and communicates with us,” he said. It is easy to count web clicks. Instead, it looks at two-way relationships how many calls it receives, the number of transactions with members, attendance at presentations, and website visits. For Milnthorpe, plans often think they know what members want and “I don’t think we do.” However, there is no real way to determine a baseline for what members want as there is no exact method to determine what it wants to get engagement on. As a result, every organization has a push approach to get information out on what it thinks members need to know. Strutt said they made an assumption that people want information, but some feel it is too complex. Using short videos and weekly blogs, its baseline is that people want information that is simple and easy to understand.

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AIMCo Achieves Net Premium Return

The aggregate return achieved by the Alberta Investment Management Corporation (AIMCo) on behalf of its 14 Alberta pension and endowment balanced fund clients was 10.4 per cent net of all costs. AIMCo actively selects the assets it invests in within each class and measures its performance relative to a standard passive benchmark for each class. In 2017, AIMCo achieved a net return premium of 1.3 per cent for its balanced fund clients, over and above the composite benchmark. Its investment strategies are designed to deliver premium returns over an extended time horizon, not just for a single year or two. Over the last five years, AIMCo achieved a net return premium of 0.9 per cent, placing it in the top quartile of its peer investment managers based on the most recent analysis by CEM Benchmarking. “As a long-term investor we are proud of the sustained value add that we have delivered to our clients since the province made the bold decision to establish AIMCo 10 years ago,” says Kevin Uebelein, its chief executive officer.

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Employers Need Transgender Best Practices

Asking transgender employees what names and pronouns the want employers to use should be part of the best practices for the workplace, says Taylor Buckley, a lawyer with Dentons Canada. Speaking in the ‘Gender Identity and the Workplace: A Legal Perspective’ at the ‘CPBI Saskatchewan 2018 Regional Conference,’ he said in the past year every jurisdiction in Canada has added one or more provisions regarding gender identity to their human rights legislation. It is estimated that onehalf of one per cent of Canadians identify themselves as transgender. In developing best practices, he said, however, employers should not change names on employment records and legal documents until the employee legally changes their name. As well, employers should refrain from asking prospective employees about their gender although they can ask simple questions to clarify why names on degrees and or letters of reference are different than the name an applicant is using. Employees in transition should also be allowed to wear the clothing they are most comfortable in and to choose when they want to start wearing clothes consistent with new identity. The best solution is to have a dress code that is gender neutral. Employers also have a duty to accommodate these employees to the point of undue hardship. However, a lot of gender identity employees don’t need accommodation other than keeping their gender confidential, he said.

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Canadian Growth Downgraded

The International Monetary Fund projects moderate economic growth for Canada this year and next, albeit at a rate lower than last year’s and significantly slower than in the United States. Its ‘World Economic Outlook’ foresees growth in Canada of 2.1 per cent this year and two per cent next year. That represents a downgrade from January’s outlook of 2.3 per cent growth forecast for this year and it’s less than the strong three per cent growth Canada experienced in 2017.

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Target Date Funds Actively Managed

The three most important considerations when selecting a target date fund are deciding whether to go active or passive, the underlying funds, and the glidepath. And these are all wrong, says Zaheed Jiwani, a principal at Eckler. He told the ‘A Perfect Match: The Right Target Date Fund for Your Plan’ session at the ‘CPBI Saskatchewan 2018 Regional Conference’ that, to start, every target date fund is actively managed. There is no such thing as a glidepath that is passively managed as this is an active and long-term strategic decision. So saying that determining whether a target date fund is active or passive is one of the most important decisions is wrong, he said. And it is not what the glide path looks like or the underlying holdings, it is how it is constructed. Sponsors need to determine how the fund managers develop their glide path because over time they will make decisions using that process. The key point in selecting a target date fund is determining how much of what is being said are “buzz words.” There is a lot of marketing out there with target date funds, he said, and sponsors need to get to know them to see if they know what they are doing and if there is substance around their products.

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Metro Using Caisse Capital

Metro Supply Chain Group Inc. will use Caisse de dépôt et placement du Québec capital after a growth capital transaction between them. It will use the Caisse’s capital to pursue its growth strategy, notably to accelerate business acquisitions. The terms of the financing are not disclosed. Over 40 years ago, Metro began as a warehousing solutions provider in the Quebec marketplace. It is now the largest privately held and Canadian-owned third-party logistics company.

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VC Off To Rousing Start

Venture capital (VC) investment in Canada is off to a rousing start in 2018, topping $800 million in the first quarter of the year. KPMG Enterprise’s ‘Venture Pulse Q1 2018’ report noted the Canadian market saw a number of higher value deals this quarter, accounting for the second-highest quarter ever for total capital invested, although total deals edged down to 72 in the quarter. “Domestic and international VC investors have their sights set on Canada and have taken note of the country’s early leadership in breakthrough fields such as AI, fintech, healthtech, and biotech,” says Sunil Mistry, a partner in the enterprise and technology, media and telecommunications practices at KPMG in Canada.

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Bullish Advisors On Decline

After a volatile quarter, the number of Canadian investment advisors who are bullish on Canadian equities, U.S. equities, and a number of other industry benchmarks, has declined significantly, says the ‘Q2 2018 Advisor Sentiment Survey’ by Horizons ETFs Management (Canada) Inc. The bullish sentiment of Canadian investment advisors fell for both Canadian and U.S. equity indices, likely due to increased volatility in the first quarter of 2018, a period which ended March 31, 2018. For the second quarter, 48 per cent of advisors stated they were bullish on the S&P/TSX 60 Index, compared to 65 per cent who were bullish in the first quarter. This was consistent with performance where the index fell 5.28 per cent over the first quarter. For U.S. equities, advisors’ bullish sentiment for the S&P 500 Index also dropped significantly to 56 per cent from 65 per cent last quarter. Similarly, the percentage of advisors bullish on the NASDAQ 100 Index declined to 57 per cent from 65 per cent. “The high levels of volatility that we recently saw in the Canadian and U.S. equity markets has likely reduced the enthusiasm that advisors have for North American stock markets,” says Steve Hawkins, president and co-CEO of Horizons ETFs.

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Waste Drives Up Drug Costs

Traditional strategies like generic substitution will not work to sustain drug plans today, says Helen Stevenson, founder and CEO of the Reformulary Group. Speaking at the ‘CPBI Saskatchewan 2018 Regional Conference’ on ‘Drug Plan Sustainability and Employee Engagement,’ she said drugs are not covered in the Canada health act and the growth in spending is outpacing the growth of spending on doctors and hospitals. Employers are currently spending $67 billion and there has been a 50 per cent increase in benefit plan cost in the last 10 years. However, even though they are spending more, they are getting less value because of rising drug costs, she said. While this is due in part to higher cost drugs, there is also growing waste resulting from high cost drugs being prescribed when a lower cost drug is just as effective. As a result, some employers are cutting benefits or capping plans and, in Ontario, formularies are delisting high cost drugs in the hopes the province’s Trillium will pick up the cost of the higher drugs. Generic substitution is not the solution because what is really needed is brand substitution to use less expensive, but just as effective drugs. As well, managed formularies where employees are educated and co-pays direct them to preferred drug programs are another solution.

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Dialogue Starts On Changing Nature Of Work

The Public Policy Forum (PPF) and TD Bank Group have launched a three-year initiative to advance a pan-Canadian policy dialogue on the changing nature of work. PPF will conduct new research and engage policy networks, thought leaders, and decision-makers to explore ways in which Canadians can adapt and thrive in a changing workplace. “The Future of Work Initiative will help identify steps we need to take as a society to open doors for all Canadians to adapt and prosper,” says Bharat Masrani, group president and chief executive officer at TD Bank Group. With some jobs being automated, others now considered antiquated, and new ones created every day, the impact and implication of these changes are far-reaching and far from being fully understood.

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In-demand Tools Help Hire Young Talent

Employers now have a set of in-demand tools to recruit, select, and retain the young, diverse talent they need in their organization. Dozens of employers including BMO, McCarthy Tetrault, and KPMG have signed up to use HireNexts tools. HireNext helps employers by providing templates, best practices, and business case studies to foster and inform youth-focused solutions to their hiring needs. It also includes a free, quick and easy online assessment for employers that provides customized next steps to adopt youth-friendly hiring. Ontario has over 300,000 youth between the ages of 15 and 29 not in employment, education, or training. At the same time, 70 per cent of employers said their biggest challenge to filling entry-level roles was finding applicants.

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Inflows Slow Slightly

ETFs and ETPs listed globally gathered US$18.99 billion in net inflows in March 2018, says ETFGI’s March 2018 global ETF and ETP industry insights report. Year-to-date net inflows are at US$137.12 billion which is less than the US$197.28 billion in net inflows at this point last year. March 2018 marked the 50th consecutive month of net inflows into ETFs/ETPs listed globally. The majority of these net inflows have gone into low cost, core, and market cap ETFs/ETPs 

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Somaskandan Joins RBC I&TS

Kumi Somaskandan is managing director and head of client operations, Canada, at RBC Investor & Treasury Services (I&TS). Previously, she was with Citco where she was most recently managing director, head of Citco Alternative Investor Services, North America.

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Morley Featured Speaker

Chris Morley, vice-president of government relations at the OMERS Pension Plan, will be a featured speaker at the National Institute on Ageing’s Transitions: Ageing Across the Life Course. The two-day event provides an opportunity for members of the community, clinicians, academics, researchers, practitioners, students, seniors, and business leaders to come together to network, exchange new ideas, introduce insights and innovations, and transfer knowledge and best practices with the goal of improving the care of older adults. It takes place April 30 and May 1 in Toronto, ON. For information, visit Ageing Transitions

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