One year since HOOPP opened access to Ontario incorporated physicians, John Soutsos explains why his clients stayed out of it
For just over a year now, the Healthcare of Ontario Pension Plan has been open to incorporated physicians. The defined benefit (DB) plan is one of the so-called “Maple Eight” with $123 billion in net assets and a 111 per cent funded status as of the end of 2024. Despite the apparent appeals that come with joining a DB plan, including a set of benefit guarantees and longevity protections, none of the incorporated physicians that make up more than three quarters of John Soutsos’ practice even asked him about joining the plan.
Soutsos, a Portfolio Manager at IPC Securities Corporation in Mississauga, has long prided himself on beating the markets with a stock-picking approach to equities. Coming off a year where his Med-Wealth Defensive Growth model outperformed the S&P 500 by ten per cent, Soutsos explained why he thinks a DB plan is less beneficial for physician clients. He explained how performance factors into that outlook, while also addressing questions around decumulation, guarantees, and the psychological safety that can come with a DB plan.
“In my experience, and I've been at this for decades, there are two types of people. There are people who are optimistic about the future, and there are people who fear the future. And people who fear the future are always looking for security. So if you're interested in security, I think defined benefit pension plans are good. Is it the most productive use of your money? I don't think so. But I think if the trade-off is psychological comfort, I think they have great value,” Soutsos says. “the problem with HOOPP is that it’s a group plan. A physician's contribution is disproportionately higher than nurses and other medical professionals working at the hospital, and when the second of the two spouses dies, that money stays in the plan.”
Soutsos noted a recent presentation he gave on the various retirement options available to physicians. That includes using a DB plan like HOOPP, as well as a traditional RRSP-focused investment approach, and an individual pension plan (IPP). He argued that the latter-two approaches are more advantageous for incorporated physicians.
Looking at average incomes and benefits in a DB plan like HOOPP, Soutsos notes that an incorporated physician earning the average salary of $240,000 would receive an annual pension benefit of $155,000. While that may seem like a large benefit, he argues that the draws on a retired physician’s income, from their own lifestyle as well as a growing set of obligations to other generations, be they aging parents or adult children, will quickly erode that benefit.
Because Soutsos has his track record of market outperformance, he thinks a case can be made for the RRSP-based approach, especially if an advisor can outperform. That model can allow for a greater allocation to equities, which can help a client beat inflation. It also allows for full control of assets and eliminates the risk that unclaimed benefits will end up back in the plan as opposed to the client’s estate.
For those advisors with clients who are not as concerned about guarantees, Soutsos says that an IPP model is worth considering. These plans, set up by the physician’s corporation, can be managed with greater investment choices by the advisor, which allows more growth potential. He argues that IPPs are the obvious best choice for physicians who employ a family member in their medical corporation. They can be used to add other family members as beneficiaries, provided they work for the corporation in some capacity. There are higher limits on contributions, which can actually rise with age unlike an RRSP or a DB plan, and the plan can remain connected to the family after the client and their spouse both pass away provided another family member has been declared a pension beneficiary.
The rising appeal of joining a DB plan like HOOPP, Soutsos says, comes from a mixture of envy for what others have and what he sees as the commoditization of the wealth management industry, where clients are given cookie cutter solutions. If advisors can provide their physician clients with significantly higher rates of return over time, Soutsos says that the prospect of joining a plan like HOOPP loses all its appeal.
Accumulation, however, is often not what people seek from their pension plan. Instead, they’re drawn to a DB plan by its guarantees and longevity protections. Soutsos argues, however, that those guarantees are simply a veneer and that a significant economic crisis could fundamentally impact these plans, leaving these pension beneficiaries with far less than they expected. Beyond that risk, he argues that an approach using more equities can manage longevity risks.
For advisors answering physicians’ questions about HOOPP, Soutsos argues that an IPP approach may suit them best, offering some of the benefits that come with a traditional DB plan, but with greater control and ownership.
“I think you're far better off in an IPP where you have control. You can still have your all-in-one portfolio solutions. Your 60/40, 70/30, whatever. You can have whatever makes you sleep at night,” Soutsos says. “But you have assets that will be passed on to your beneficiaries when you’re gone, and you control how much you put in.”
