I’ve shown great restraint. It’s been seven months since I wrote specifically about principal-protected notes (PPNs). But I came across two things last week which reinforced that the structured product lunacy (including PPNs) continues unabated in the Canadian wealth management industry.

First of all, I read a research note by an analyst that attended Manulife’s Investor Day last Monday. He said in his note that a dollar of sales in a high margin product like ‘Income Plus’ (that has been heavily promoted on television and elsewhere) is worth several dollars of mutual fund sales (maybe as high as $10). I don’t know the specific definition of the word “worth,” but I assume it is the contribution to current and future profitability. In any case, I found that number to be mind-boggling given that Manulife’s mutual funds are not cheap.

As the analyst pointed out to me, Income Plus has an insurance element to it and some other added-value features. Fair enough, but if it is that profitable to the issuer, the client must be able to replicate the key elements of Income Plus for a fraction of the price.

The Income Plus product is a good segue into the second thing that spurred this posting. In his column in the Saturday Globe, Rob Carrick mentions the success of the product ($1.5 billion of assets since its launch last October). That success comes in the context of the wealth management market that now has over 600 products and $14 billion of principal protection products.

I thought his column was right on the mark with regard to the cost of investment guarantees. The column had three themes and they all reinforce our long held view that these products should not be bought (except in very specific cases).

1. Capital-protected investments are calibrated to make money for the issuer, not necessarily the investor.

2. Capital-protected investments are expensive to own.

3. These investments have miscellaneous other costs.

If you want to go beyond my rantings to research principal-protection products, I encourage you to read Rob’s column and think twice before you buy a product like Manulife’s Income Plus.