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Study shows Canadian investors in the dark on seg-funds

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David Keelaghan | 27 Jan 2017, 09:33 AM Agree 0
Only 17 per cent of respondents to RBC Insurance study said they were exploring segregated funds as part of their retirement plan
  • Mark | 27 Jan 2017, 12:03 PM Agree 0
    Unfortunately, almost all of the companies are pricing themselves out of the market with high MERs but more importantly, useless Maturity Guarantees and restrictive Death Benefit Guarantees and investment options. What was once a product that could be argued was worth the higher MERs because of the guarantees (and also with creditor protection and probate bypass, with a named beneficiary) is now hard to justify to a client and very hard to compete in the current low MER marketplace and illustrations showing the effects of the MERs on long-term returns. Companies now offer a 100% maturity guarantee at age 100 or 105. try explaining that to a client. Death Benefit guarantees are at 75% for Equity products and restricted to Balance and Bond funds to obtain 100% guarantee. Resets of the guarantees, a valuable feature, are non-existent or have been separated out from the MER as an extra charge, but the MER in most cases hasn't decreased. Unless the Insurance Companies revise their products to suit the changing marketplace, what was a very valuable if not well-known investment option will never gain the market share it should have based on client needs.
  • Brian | 27 Jan 2017, 02:35 PM Agree 0
    With the US election still recent it reminds me of the continuous sayings of Donald Trump with the "Crooked Media" in other words lots of incorrect information that someone posts, and others read it and take it for gospel. How unfortunate. I have been licensed for Seg funds and mutual funds for many, many years. I have witnessed the benefits of the seg funds with many clients ranging from a 100% maturity benefit topping off a clients account that was guaranteed to be $80,000 but at maturity was only worth $39,000 meaning the insurance company topped up $41,000 so client was whole. I have paid death claims in a time where the guaranteed death benefit was much higher than the fair market value, including the fair market value had the client bought a mutual fund instead. I have clients that would never have invested in the market except they did because they felt safe having these guarantees only available in a seg fund. Seg funds are far from useless. There are many life companies offering seg funds and most differ with various features and benefits over and above what the government mandate to qualify as a seg fund. For example I deal with one that has resets. And they have many investment options. And the death benefit does not reduce as the client gets older. And the seg funds I talk to clients about has a 100% death and maturity in year 15, not age 105. Read the summary information folder of every companies seg fund offering before incorrect information is spread. And yes, there is a seg fund out there that has a lower MER than it's mutual fund equivalent. Do your own research to find out which fund I am referring to. Do some research to find the real benefits of seg funds rather than come across like "crooked media". And with upcoming CRM2, the company I use most often separates out the extra fee for the seg fund benefits meaning they provide full disclosure. And they do not restrict which funds are available for 100% equity vs having to have a percentage in bonds or fixed income. Start with contacting your local Equitable Life Regional Investment Sales Managers for up to date correct information. And NO, I am not a Regional Investment Sales Manager from Equitable Life
  • Tapi | 27 Jan 2017, 03:24 PM Agree 0
    With all due respect Mark, the one thing I agree with from your statement is the the useless feature of the maturity guarantees. On the other aspects however, I beg to differ. Our company's seg funds actually check all the other boxes which you mentioned as generally lacking: 100% death guarantee of principal from day 1 until age 90, and available to all funds including equity, not just balanced or fixed income, plus death guarantee reset option at every anniversary for 0.11-0.21% extra cost - which in my opinion is worth every penny.
    As of the returns being affected by the higher MERs I can say 2 things: for many people at a certain age it becomes more important to have the guarantees and estate benefits than to chase higher returns. Their wealth is in the "preservation" and not in the "accumulating" phase. Secondly, a properly diversified portfolio of seg funds can actually have higher net after-fees returns than other low-fees portfolios of mutual funds or ETFs. I have seen countless portfolios (from banks of private wealth management firms) overly-diversified in 15-20 different funds and ETFs, but having a highly positive correlation, and they are most often under-performing properly diversified portfolios of similar risk, but having lower correlation, which minimizes the downside potential.
    Bottom line, investment choices have to be individually assessed and catered, and not a "one size fits all" thing. I welcome Ipsos' survey and its findings and I think it is time that our clients need to be made aware of all the options, with all their pros and cons, and then decide together with their advisor what's best suiting their situaton and goals. Unfortunately, right now, the much touted and advertised ETFs and lower-fees mutual funds are the 2 main options made available through the media and our banks' information channels.
  • Bob W. | 28 Jan 2017, 02:15 PM Agree 0
    Simply put, segregated funds ( variable Annuity contracts) are another asset type, which have some very interesting benefits, found under the Insurance act, that you cannot have with mutual funds, and stocks and bond portfolios. They act just like a trust . You can name beneficiaries on non-reg assets, and they can bypass probate. With preferred beneficiaries they take on creditor proofing benefits ( based on case Law).

    They do provided guarantees at maturity, which today does not provide much of a value compared to the first generation seg funds. And the income guarantees are not great, but when comparing to current GIC rates, are pretty attractive, in most cases 2 & 3 times that of a GIC.

    Most importantly they are a asset type that may be a benefit to certain clients under certain conditions, So for someone to say they are no good, or they are the only thing that a person should own, there is great likely hood that the person only offers Mutual funds or only offers Seg Funds to their clients, and that tells me there is great likely hood the advisor is not licensed to sell both, and if that is the case they are policy peddling compensation driven sales people, and not a true advisor.

    Unfortunately the industry regulators are to blame for advisor choosing to stop offering mutual funds, because the costs of offering the mutual fund products have soared over the pat 5 years and regulations have become stupidly complex and regulators are chasing foreign policy models that do not belong on the Canadian market place.

    Advisors in all areas of the financial market place need to observe what is going on, give serious intelligent thought to the consequents for them and their clients. In addition Government from all levels need to understand the negative impact to their economies and GDP and take action now before regulators make an damming, possibly an irrevocable negative impact on the financial services industry and the provincial and federal economy.

    The gravitation to selling more segregated product will occur as the Mutual fund regulations get stupider, and that will come from the aging advisors who are looking to retire and want to make their lives simpler. Is it right? Maybe it is, because they will be able to continue to have the time to serve their clients, and advice is proven to have greater value for the client. So will the MER matter if advice saves on the taxes they pay, the probate to estates, the orderly distribution of assets in a timely fashion with outwill variation and other Estate issues.

    Just my opinion and you are free to share it with your MLA or MP, and ask them what they think about the impact that the changing financial landscape will have on their ridings the citizen's of their province, their Canada. I cannot encourage any reader strong enough to get off your "assets" and look around you as to what is happening and ask yourself "what have I done to make a difference for my clients and myself"?

    We can all discuss the pros and cons of product type, that is not what is important, that should be more of a discussion of how to apply the product type in a particular situation.

    What is important is to have a healthy, fair, common sense, ethical, and professional financial services industry. If you are not prepared to think and consider what is going on and stand up, speak up and be a voice heard, then leave the business, because you are part of the problem.

    My opinion with 41 years experience.

    Bob White, CLU
    member of Advocis since 1977
  • Anonymous | 16 May 2017, 09:47 PM Agree 0
    The main reason to get into a segregated fund isn't for the guarantees or the returns but for the estate planning side of it. The guarantees are really hollow guarantees because most segregated funds you have to be in it for at least 10 years to get the guarantees. If you"re in any type of investment for that long of a time period most likely will be higher than your principal amount so the guarantees segregated funds offer don't really matter. It's a great product for people who have funds set aside for the next generation. It avoids their estate entirely, no one can ever contest the named beneficiary getting their money, and the funds get to the named beneficiaries generally in less than a month time.
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