A much-needed dose of guaranteed downside protection

by Leo Almazora12 Nov 2019

Recently, The Empire Life Insurance Company expanded its offering of segregated funds by introducing six new multi-strategy guaranteed investment funds (GIFs), along with two new standalone GIFs.

The Empire Life Multi-Strategy Funds, which include three equity and three global balanced funds, each offer exposure to ETFs and other investments from third-party managers that include passive, smart-beta, and active strategies. Aside from potential diversification through multiple investment styles, they can be used for tactical management to take advantage of market opportunities.

Meanwhile, the two standalone funds — the Empire Life Global Dividend Growth GIF and the Empire Life Short Term High Income GIF — offer customers an opportunity to diversify their holdings within the fixed-income and global dividend areas.

When presented with this information, the average Canadian investor might ask “so what?” After all, they already stand to enjoy multi-asset diversification, tactical management, and exposure to fixed income and dividends from investing in ETFs and mutual funds. But what they may not realize is that segregated funds may address many investor needs.

“In many independent surveys, Canadians consistently indicate that they value having some or more of their retirement savings guaranteed,” explained Geoff Gibson, Director, Investment Marketing and Product Development at Empire Life. “And segregated funds/GIF contracts, unlike mutual funds and ETFs, provide investors with a raft of valuable guarantees and estate-planning benefits.”

Within the company’s shelf of offerings, one such guarantee is a guarantee of principal, which lets the investor recover 75% or 100% of their principal investment at maturity and at death if there are no withdrawals, regardless of the underlying investment portfolio’s performance — a valuable buffer against market downturns. They also offer a death benefit guarantee of up to 100% of an annuitant’s investment, with the annual resets available up to the annuitant’s 80th birthday to lock in market gains.

“The death benefit guarantee may be especially important for investors with families, dependents, or beneficiaries that are counting on that investment ‘nest egg’ being there for their financial support should the investor pass away,” Gibson said.

From an estate-planning perspective, the ability of investors to name beneficiaries on their segregated fund contracts is an excellent tool. By specifying the individuals to whom the insurance company will directly pay the death benefit proceeds, it bypasses the estate and probate processes, thus saving time and avoiding any probate taxes that may be otherwise applicable on the investor’s assets.

Given the aging Canadian population, longer life expectancies for both men and women, and a recession that is increasingly likely to come sooner rather than later, one might think that the benefits of segregated funds would be greatly appreciated. But for many, that’s not the case.

“Awareness of segregated funds/GIFs is extremely low,” Gibson said. “One survey last year reported that about two thirds of Canadians didn’t know what they are.”*

And while advisors may be aware of the products, they may harbour misperceptions that prevent them from recommending seg-funds to their clients. According to Gibson, many think that segregated funds are very expensive, when the reality is that the costs of many segregated funds are only slightly higher than that of a similar mutual fund. There’s also an expectation of limited investment choice, which is upended by Empire Life’s diverse menu of GIF options.

“And all of our GIF products are available in customer-friendly options including No Load and an ‘F-Class’ option for advisors,” he said. “As more Canadians enter the pre-retirement or retirement phase of their financial planning, we think there is a tremendous opportunity for investors to use Segregated Funds/GIFs which may provide the protection they are looking for.”

 

* Greenwald & Associates, Cannex – 2018 Canadian Guaranteed Lifetime Income Study (GLIS)

This document reflects the views of Empire Life as of the date published and is subject to change without notice. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice.

The Empire Life Insurance Company and its affiliates assume no responsibility for any reliance on or misuse or omissions of the information contained in this document. Information obtained from and based on third party sources are believed to be reliable, but accuracy cannot be guaranteed. Please seek professional advice before making any decisions. Empire Life Investments Inc. is the Manager of the Empire Life Mutual Funds (the “Funds”) and the Portfolio Manager of the Empire Life Segregated Funds and is a wholly owned subsidiary of The Empire Life Insurance Company. The units of the Funds are available only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such units. 

A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a Segregated Fund is invested at the risk of the contract owner and may increase or decrease in value. Policies are issued by The Empire Life Insurance Company.