How total cost reporting fits in Manulife’s product construction, advisor education

How Manulife is managing costs

Just as they emphasize value in their investment products, Bankay and Wernic explain that their firm is seeking to bring costs down wherever possible. Bankay explains that Manulife’s ETF team has rolled out a suite of ‘Smart ETFs’ which use systematic investment techniques driven by a quantitative model. More of the management work is done upfront to build those models, but once they’re running the work becomes somewhat more straightforward. Regular pieces of portfolio maintenance like rebalancing can be done for less cost.

“In terms of how we trade, how we rebalance, all of that gets factored into how we construct the portfolios,” Bankay says. “The actual models themselves won’t be static over time, it’s just how we execute will be more efficient over time.”

The Manulife team are also looking for ways to add AI and automation into their processes to control costs. As they do so, however, Bankay stresses that they want to maintain human control and decision-making at the core of their approach. AI, he says, can be a helpful tool to keep costs in check, but it’s not something they want to use to make their decisions for them.

How asset managers, advisors can communicate value

Cost remains a factor, but not the driving force behind how Manulife constructs their investment products. Bankay says they begin their design process by asking how they can deliver value above their fee. That doesn’t always mean pure outperformance. It can be a specific outcome that suits a certain kind of investor. Bankay uses the example of a dividend fund, noting that an index of the highest dividend payers may not be the stocks an investor wants to own. Instead, they can seek out the hallmarks of dividend growth and construct a portfolio that adds that value over time.

Wernic explains that for advisors, the new onus is to communicate that value should they elect to recommend a higher fee strategy. He notes that certain dividend strategies, especially on the Canadian market, can create a huge amount of overlap with other index funds, inadvertently creating concentration risk. He highlights the value that comes from a more differentiated dividend strategy, for example, as a key communication point that advisors can use to explain why certain strategies cost what they do.