RRSP season market rally is good news for money managers

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Canadian assets managers couldn't ask for better timing for the current market rally.

For starters, it kicks off the new year with some hope, something that is much needed after such prolonged doom and gloom.

More importantly, it coincides with Canadian RRSP season, which drives the majority of their mutual fund sales. Despite lasting only two months, RRSP season accounted for more than half of all long-term mutual fund sales for the past three years, notes National Bank Financial analyst Shubha Khan. Should that trend continue, the more optimistic market outlook could convince more people to invest before the March 1 contribution deadline.

By no means are the asset managers in the clear. The Canadian market was also strong early in 2012, rising about 10 per cent from the start of January until the end of February, but then plummeted 11 per cent as the latest round of the European debt debacle unfolded. Plus, the U.S. debt ceiling debate might only be kicked down the road rather than solved, leading to more market volatility. But five years into the financial crisis, investors may be more accepting of a pitch from an adviser, considering that the S&P/TSX composite index has climbed 8 per cent since mid-November.

The real question for asset managers is whether they'll all benefit from a strong RRSP season, or if the banks will dominate sales. According to Investor Economics, from 2007 to 2012 the banks' market share of long-term mutual fund assets rose to 40 per cent from 30 per cent. Will they eat more market share, or can the independents stand their ground?

And the industry has to wonder if there will finally be net inflows into equity funds. Last year fixed income funds were all the rage, and the stats for the past four years are quite staggering when you see them lined up side by side. Since 2009, there hasn't been a single year where equity funds had more money pouring into them than leaving, and the average outflows amount to about $4-billion annually over the past four years. In 2012 more than $25-billion poured into fixed-income funds.

That's troublesome for asset managers – but good for investors – because equity funds have the highest management fees. The more money that leaves them, the tighter the wealth managers' margins become.

(Tim Kiladze is a Globe and Mail Capital Markets Reporter.)