Why is the interest in Segregated Funds growing?

Investors are always searching for somewhere safe to shelter their investments. And at this particular point in 2023, with stubborn Inflation and uncertainty about where interest rates are heading and for how long, the markets certainly lack any component of reliability or stability. The guarantee benefits of segregated funds really provide some protection in this time of volatility.

Segregated funds (commonly called Seg Funds), once thought to be a high-fee investment, have lately become less expensive — competitive, even, with most other investments in many scenarios, especially for high-net-worth clients.

Over the past few years, the discrepancy between segregated funds and mutual funds — or even a fee-based stock portfolio — has decreased significantly. Fee compression has occurred on all sides of the Investment industry.

And as life expectancy rises, more aging investors are turning to seg funds for their favourable features with regard to estate planning, probate and taxation.

We are currently experiencing a time where the population of individuals over the age of 65 is at an all-time high and growing. There are many people giving their estate plan some serious consideration. Benefits [like] quick and easy transfers of death benefits to avoid the estate and probate are at the top of many people’s lists.

Seg Funds won’t only benefit older investors. It also addresses the younger generation’s planning and wealth protection needs. There are compelling reasons for business owners — many of whom have creditors as they start and expand their companies — to consider segregated funds.

As you are pulling out profits, and removing them from the business structure, you want to think about protecting those assets. Segregated funds can provide creditor protection for personal assets invested by naming a specific beneficiary from the “designated class”. The value Seg Funds bring to the planning side of the business is invaluable.

Seg funds have distinct advantages over GICs.

Segregated funds allow Individuals to participate in the stock market, which may allow for more growth, and different types of income, like dividend income and capital gains, which are subject to a lower tax rate or have a lower income inclusion rate.

Segregated fund options also include a variety of management styles, broad geographic coverage, and availability in most major asset classes. For many investors, risk-conscious portfolio construction is critical, while others have a greater appetite for risk, in the search for higher returns. Portfolio can be customized accordingly.

As for end-of-life planning, seg funds have long proven their value.

Segregated funds allow for named beneficiaries, which will allow the death benefit to flow to your desired beneficiaries directly and quickly. This flow of funds will be paid directly to the beneficiary and bypass the estate and probate, if required, in as little as five to 12 business days.

In contrast, the average length of time to expect a distribution from an estate is at least a year.

GICs and guaranteed interest options (GIOs) — an insurance-based version of GICs — have long been a staple investment for cautious investors and those preparing for retirement and end of life. But segregated funds are an increasingly popular option as the capital protection, ease and efficiency of estate planning benefits you obtain make them even more valuable.

Special thanks to John Yanchus of Canada Life. This post is inspired by an article he wrote for Investment Executive