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Chevreau Critques BMOs New “Lifetime Deposit Notes”

Posted by on Jan 19, 2011 in Investments | 0 comments

Jonathan Chevreau, Financial Post · Tuesday, Jan. 18, 2011

While Canadian banks can’t directly sell life insurance or annuities, BMO Financial Group came close this week when it formally announced the annuity-like BMO Lifetime Cash Flow for investors aged 55 to 70.

These unsecured “Lifetime Deposit” notes offer longevity insurance and stock market protection. It’s fair to put them in the category of Guaranteed Minimum Withdrawal Benefit (GMWB) products popularized by Manulife Income Plus, says certified financial planner Alexandra Macqueen, of Toronto-based QWeMA Group Inc.

GMWBs are a type of variable annuity that provide stock market upside but downside protection.

Strictly speaking, BMO’s notes are not annuities because “there’s no life insurance component but it is annuity-like, absolutely, because there is a guaranteed lifetime payout, ” Macqueen says.

BMO uses a different mechanism than classic annuities because there are no mortality credits, said Macqueen, coauthor with finance professor Moshe Milevesky of Pensionize Your Nest Egg. Milevesky himself declined comment because he is a consultant to BMO. Read more

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