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A New Strategy for Canada's Retail Debt

Notes for a presentation by Jacqueline C. Orange, President, Canada Retail Debt Agency

June 26, 1996
Toronto, Ontario

About the Canada Retail Debt Agency

The Canada Retail Debt Agency (CRDA) is a newly created Special Operating Agency within the Department of Finance responsible for the retail component of the federal government's debt obligations. As such, it is accountable for the largest retail debt program in Canada and has overall responsibility for developing and executing the marketing strategy, product requirements and distribution associated with that program.

Retail distribution is an important component of the government's overall debt strategy. Given the scale of debt operations, the government needs to ensure as broad an investor base as possible for the cost effective management of the debt.

As part of the February 1995 budget, the government announced the launch of a new retail debt program, with the objective of providing individual Canadians better access to Government of Canada securities. The CRDA was established shortly thereafter, in August of 1995, with the mandate to reverse what has been a declining trend in retail holdings of federal securities and to increase the retail share of the total Government of Canada debt.

With its head office planned for Toronto, the CRDA will be a small, business-oriented organization that has the flexibility to react in today's quickly changing marketplace.

Canada Retail Debt Agency
140 O'Connor St.
Ottawa, Ontario
K1A 0G5
Telephone: (613) 992-5035
Facsimile: (613) 992-1672

Biographical Notes - 
Jacqueline C. Orange

Jacqueline C. Orange is a financial industry executive with 19 years of progressively senior experience in the banking, trust and life insurance industries in Canada. She has also been a consultant to major financial institutions in both Canada and the U.S.

Prior to her appointment as Founding President and Chief Operating Officer of the Canada Retail Debt Agency, Ms. Orange was a senior officer with the Canadian Imperial Bank of Commerce, Personal and Commercial Bank.

The focus of Ms. Orange's career in the financial services industry has been on marketing - in particular, product management in the savings and investment field. She has launched a wide range of new savings and deposit vehicles, including various types of investment savings accounts, fixed income products, mutual funds, discount brokerage services, and retirement vehicles. Her most recent work centred on developing new approaches to segmenting the market for increased profitability.

Ms. Orange also has broad experience in all aspects of marketing communications, with a strong focus on strategic market positioning.

Active in the community, Ms. Orange has for five years served on the board of the Tafelmusik Chamber Orchestra and as deputy co-chair of the most recent fundraising campaign for Women's College Hospital.

Ms. Orange obtained an MBA from the Richard Ivey School of Business (formerly Western School of Business) at the University of Western Ontario, and a BA Honours from the University of Toronto.

She has two children, Christopher, a recent graduate of McGill University, and Michelle, in her third year at the University of Toronto.

A New Strategy for Canada's Retail Debt

Good morning, ladies and gentlemen. Thank you for taking this opportunity to learn more about the federal government's evolving retail debt program, and the role of the Canada Retail Debt Agency.

We're a Special Operating Agency formally established last August - and the new kids on the financial block.

We were created as part of the government's decision to revamp and revitalize its retail debt program. And by retail debt, we mean the sale of government securities - such as savings bonds, T-bills and marketable bonds - to individual Canadians.

Because we're a new agency with a challenging mandate, I wanted this timely opportunity to share our thinking and start-up goals.

The debt management challenge

Finance Minister Martin set out one of our key goals in his 1995 budget. He said we were:

"... to provide Canadians with greater opportunity to invest in Canada thereby reducing the reliance on foreign investors."

There's an important point to make here. By definition, businesses are born because they see a commercial opportunity. But the Retail Debt Agency is a response to something quite different - a national policy imperative.

The fact is, federal government market debt now exceeds $460 billion. And while the government has taken tough, dramatic action to bring down deficits and stop that growth, this turn-around is a slow process.

The cost of this excessive debt hurts us all. It's measured in higher taxes, higher interest rates, and diminished sovereignty. That's why deficit and debt cutting are so vital.

And about 25 per cent of this debt is held offshore. This relatively large share boosts our vulnerability to volatile capital flows and currency "shocks".

Clearly, Canada must manage the debt in a cost-efficient, stable and secure manner. That's where the retail debt program - and the Retail Debt Agency - come in.

Given the scale of Canada's debt, good fiscal management clearly demands maintaining as broad an investor base as possible. And that means priority must be given to help broaden that base here at home, to the widest range of Canadians.

That's a view supported by many Canadians as well - from all walks of life, and every region. Many of them have written to the government with proposals and ideas for recreating war bonds or similar ventures to help reduce our reliance on foreign borrowing.

Clearly, Canadians do care about the financial health of our country. And that means there's much we can do to get them to respond to new opportunities that our Agency can create - as long as we offer fair value and innovative approaches.

Let me put the challenge another way. Retail debt is like a ship's ballast. You need its steadying weight to keep you stable - especially on today's stormy financial seas.

And that ballast has to be distributed evenly. When it's too narrowly concentrated, it can actually make you more vulnerable if you're hit by a sudden wave of speculation, or a surge in interest rates.

That's the perspective the government holds. And that's why it has set a strategy of strengthening its retail debt performance. The political will is real.

The business problem

Now, I've set out the policy imperative we answer to. But there's another imperative for change involved. Our approach to retail debt has failed to keep pace with new competition.

The blunt fact is, over the last decade, the retail share of federal debt has plunged dramatically.

Just eight years ago, that retail share was 33 per cent of total federal market debt. Last year, it was down to 21 per cent.

And as part of that decline, sales of Canada Savings Bonds have declined by 40 per cent over the same period.

We all recognize the competitive forces at work. The savings and investment marketplace has evolved at a dramatic pace.

We've seen mutual funds grow to a $165-billion market - up over 500 per cent from the mid-1980s. When you pick up the mutual fund reports in the papers, there are almost as many as there are equity issues on the TSE.

And it's not just government debt that has been affected.

Banks and trust companies have seen consumers shift from savings deposit instruments to mutual funds and other higher-yielding vehicles. But while the financial sector responded with funds of their own and other services - such as discount brokerages - the federal government stuck by the status quo with its "old reliable": the Canada Savings Bond.

We also face growing competition from provincial government offerings.

Ontario has just completed its second sales campaign, including the launch of a new variable-rate product. And Quebec is also becoming more active - including a new payment approach for their bonds based on direct bank account deductions.

The bottom line is clear. There are more sellers offering more products and using newer technologies to build relationships and talk to customers 24 hours a day, 365 days a year. No wonder that individual investors - who are increasingly sophisticated - have been diversifying, and diminishing the share of CSBs they buy.

The CRDA goal

All this brings me to the Canada Retail Debt Agency. We are an innovative component of the federal government's strategy to reinvigorate its retail debt management approaches.

Our first task is clear: to regain a reasonable share of that lost ground in the retail debt sector.

Our immediate objective is to stop the decline: to hold on to the 3per-cent share of market we still have.

Once we've achieved that anchor - and can apply the experience of developing new products and new channels - we will move to setting realistic and reasonable longer-term targets.

Obviously, as we come into play, there will be competitive implications for market share. But I don't think these implications should jeopardize the partnership opportunities we can pursue together.

Let's remember, we're dealing with an expanding financial universe. The retail marketplace is predicted to grow about 8 per cent a year.

Yes, we're after a share of that growth. It's in the interest of all Canadians - all taxpayers - that government debt be managed with bottom-line discipline. But that doesn't mean seeking a dominant market share.

Incidentally, a more active retail focus by Ottawa is not only in keeping with domestic market trends. It also echoes what is going on in other countries.

In the U.K., for example, the government offers 10 different debt vehicles for consumers - including a lottery bond, whose holders can win up to £1 million in a single "interest" payment.

In the U.S., we see savings bonds sold year-round. And the U.S. Treasury has just announced it will shortly launch an inflation-indexed bond that will also be available directly to consumers.

Current retail thrusts

I've set out this background because I think it's important to understand why the Agency exists - and that the political and economic forces at work are very real.

So, where is the retail debt program and CRDA today?

• Two years ago, the government announced its enhanced CSB, with the three-year interest escalator.
• Last year, the government introduced the CSB-RRSP option.
• Then there was the establishment of the Canada Retail Debt Agency itself - the decision to create a small, professional group to identify and implement new opportunities.
• And that's been further focused with my appointment in April as chief operating officer - to provide long-term commitment and direction, and solidify the Agency team.

So, we've been putting in place the organization - lean, business-oriented and market-centred. And we're working on a first tier of initiatives that we will be ready to talk about later this year.

But right now, the direction of our over-all business strategy is already clear.

First, we need to reposition and establish the "brand".

That means carving out in the consumer's mind a unique 'space' for the value we can offer.

One helpful step here will be to develop a more effective, consumer-oriented identity for the Agency itself - definitely including a less Ottawa-ese name.

Another step will be establishing our head office in Toronto - staffed by a small group of marketing and sales professionals - starting this summer, with an official opening this fall. We intend to be part of the financial action, and that means being part of the financial centre scene.

And our strategy for change also means:

• adding value back into our product line, by enhancing the CSB, and developing new offerings;
• and expanding consumer access to those products through:
  • revamping the Payroll Savings Plan to reduce administrative burdens,
  • looking at new ways of partnering with our existing channels,
  • examining options for new distribution channels, and
  • moving to year-round sales.

When I talk about new products and channels, let me point out that we are still in the R&D stage. But we do intend to seize opportunities as quickly as possible.

And the products we launch - especially in the medium term - will be products aimed at meeting consumer needs that are not now being served.

Earlier on, I mentioned the partnership opportunities we can pursue together. And I'm sure you want to know more about what I mean.

The history of CSB sales has been a process of "one size fits all". But to achieve our business goals, that's going to have to change.

We know we have to listen more, and to be more flexible. For example, we'll have to be willing to look beyond plain vanilla offerings, to those that are institutionally branded in conjunction with specific partners.

Again, let me emphasize that we're still at the ramp-up stage. What's important is that we're open to your ideas and inputs. And that's the starting point for a real partnership process.

Conclusion

Creativity and innovation are not values some of you might expect from a government agency. But those are going to be our values. That's what is expected of us, because it is the only way to meet the policy imperatives set out.

Yes, we intend to be more of a presence in the financial marketplace than in the last 10 years. And that should be welcome news.

The business community that championed deficit reduction and spending cuts should recognize that it's also important to undertake a more active, consumer-centred debt strategy that helps meet those goals.

We must encourage government to do a better job in areas where we all have a vested public interest - and the debt is one of those.

Let me finish off this overview - and turn to your questions - with one last point.

Access to the market is a key driver for any product or service. We need to ensure our access is as complete and cost-efficient as possible.

Relationship building is a key aspect of the financial dynamic. We need partners who can help us build those relationships - partners such as Canada's financial institutions. But to do that, our partners must be willing to help us grow, and help us grow the market.

Ladies and gentlemen: This is the 50th anniversary of the Canada Savings Bond - and that also means five decades of partnership between the government and financial institutions on CSB sales.

Recent decades have seen your sector evolve dramatically. And now, that's the agenda for the government's retail debt program.

The Canada Retail Debt Agency exists because the political will for a more effective, bottom-line debt strategy is real and concrete.

I am convinced that fair, appropriate competition in the debt sector can only strengthen our country, and all stakeholders in the savings and investment marketplace.

And I am also convinced that working together - the Agency and the financial institutions - we can share in new opportunities that will benefit us all.