If Ottawa allows Canadians to make voluntary contributions to the Canada Pension Plan in exchange for a bigger payout down the road, banks and other wealth managers could face a new, low-cost competitor for retirement savings.
However, the industry reaction so far is that the competition would be welcome if it encourages Canadians to save more.
"We think it's a good proposal," said Graham Smith, senior policy adviser at the Investment Funds Institute of Canada, which advocates on behalf of the investment industry.
Ian Russell, president and chief executive of the Investment Industry Association of Canada, also sounded upbeat.
"It provides Canadians with another option," he said.
But the CPP is potentially more than just another option.
The CPP Fund, which is managed by the investment arm of the CPP, has $265-billion in assets, putting it among international giants. Its holdings are diversified geographically and across asset classes, delivering returns at a cost that pales next to the typical management-expense ratio of a mutual fund.
The CPP Fund announced last week that it delivered a return of 18.3 per cent in its fiscal year ended March 31, with costs of just 0.4 percentage points.
Don Drummond, a professor at Queen's University and former chief economist at Toronto-Dominion Bank, pointed out that mutual fund fees are particularly hard for investors to stomach in a low-return environment.
The industry would likely have to respond to competition for savers' assets by cutting fees, or creating new genres of investment vehicles that stand apart from what the CPP Fund offers.
Mr. Drummond said people will love the option of contributing extra funds to the CPP, which could override any concerns voiced from the investment industry during the upcoming consultations on the issue.
In any case, he noted, the investment industry tends to chase people who have savings of more than $600,000 – a relatively small slice of the population that might not be significantly swayed by the potential for a bigger CPP contribution.
Still, the banks would likely feel the presence of the CPP if it starts taking voluntary contributions, given the importance they have placed on expanding their wealth-management units.
Today, banks and credit unions have a 47.5-per-cent share of mutual fund assets, up from 31 per cent a decade ago, according to Investor Economics.
"I do think this could pressure retail wealth management sales/commissions, which would directly impact all of the banks," Peter Routledge, an analyst at National Bank Financial, said in an e-mail.
"The key question is how big will the voluntary program be? I am skeptical that the voluntary increase would be large enough to truly disrupt the economics within the banks' wealth-management arms."
But some in the investment industry believe another source of competition would be unlikely to upset incumbent wealth-management providers.
"The retirement savings industry is very competitive already," Mr. Smith said. "People have lots of choices about where they can put their money, so I don't think our industry would be upset about that."
Mr. Russell also pointed out that the CPP Fund would not necessarily be attractive to all investors.
For one thing, the asset composition of the fund would be fixed for all investors, making it unsuitable for those who want a more customized approach that is tailored to their age and risk tolerance.
"Return is important, and I think the ability to customize in a private-sector fund normally would be an advantage," Mr. Russell said.
"I don't think the industry would be opposed to it because the industry already caters to a lot of Canadians, and delivers pretty strong performance."