How seg funds can offer more clarity, confidence and stability

Open this photo in gallery:

Frank Ryan didn’t begin his career as a financial advisor. He trained in geophysics, a field in which scientists study the forces shaping the ground beneath our feet. Investors, too, can face conditions that often feel seismic: volatile market swings, geopolitical shocks and an endless terrain of online advice.

Mr. Ryan, a certified financial planner at Ryco Financial in St. John’s, N.L., says the challenge is knowing what really matters to clients and how to keep their financial plans on solid ground. In his view, a segregated fund (or seg fund) can form a significant part of that financial bedrock.

“They’re an awfully compelling answer for many,” he says.

With many Canadians feeling anxious about their finances, even losing sleep over market volatility and planning for the future, advisors play an important role beyond managing money.

They can help ease their clients’ stress by providing guidance and creating a plan. The use of seg funds is one way advisors can offer more clarity, confidence and financial stability.

A seg fund may look much like a mutual fund or exchange-traded fund (ETF), with underlying holdings in equities, bonds or balanced strategies. Legally, however, it’s an insurance contract issued by a life insurer. Depending on the contract, 75 per cent to 100 per cent of eligible deposits may be guaranteed at death or on a specified maturity date.

Withdrawals can reduce the guaranteed amount and investors who exit early generally receive the market value, less applicable charges.

Seg funds may have higher fees than comparable mutual funds or ETFs because they include insurance benefits. A comprehensive selection of mandates from quality asset managers can help advisors tailor the underlying portfolio to a client’s goals and risk tolerance, says Carrie Milne, national vice-president, sales, guaranteed wealth solutions at Manulife Canada.

To give advisors and their clients more choice, Manulife continuously reviews the funds available to reflect both investor sentiment and market dynamics. Manulife includes active, passive and ETF strategies from its affiliated asset manager, Manulife Investments, and has exposure to funds from BlackRock Asset Management Canada Limited and Fidelity® Investments Canada ULC in its seg fund lineup.

Open this photo in gallery:

For younger and risk-tolerant investors, mutual funds or ETFs held in a TFSA or RRSP may be more efficient. But for other investors with more sophisticated planning needs, factors such as defined guarantees and the ability to name beneficiaries become priorities, Ms. Milne says.

Clients approaching retirement can have a particular need for seg funds. After they’ve accumulated their life savings, they may care less about matching an index than preserving a lifestyle or avoiding a panic sale. A seg fund might serve as a desirable financial vehicle alongside liquid reserves, growth assets and income-generating investments as part of a well-balanced portfolio.

With many Canadians experiencing longer retirements, planning discipline is becoming more important. Longevity and what some call “healthspan” – the quality of life lived within those years – are critical in investment management decisions.

The financial security seg funds provide through features like guarantees can do more than create peace of mind, Ms. Milne says. They can also allow clients to preserve flexibility elsewhere in the portfolio, remaining invested and growing assets for a longer period.

The clearest benefits of seg funds often emerge after a client passes. With a named beneficiary, proceeds are administered outside the estate, offering enhanced privacy and speed, while avoiding the delays and fees (if any) that come with the probate process, if applicable. That can give a family liquidity when they need it most, while other estate assets remain tied up.

Successor provisions have several advantages. They may allow a spouse to continue a contract instead of receiving a payout and having to make a new investment decision during their bereavement. Plus, the successor benefits from the asset avoiding the estate of the deceased owner.

Primary and secondary beneficiaries can address different family scenarios. Settlement options may provide either a lump sum or a pre-authorized income stream for a young, vulnerable or financially inexperienced beneficiary.

“It’s the reassurance that holders can achieve the outcomes they want, for their loved ones and for themselves that make seg funds a powerful planning solution,” Ms. Milne says.

While a seg fund doesn’t replace a will, trust, or power of attorney, it can be an excellent complement to or part of an overall estate plan. Clients should seek professional legal and tax advice and review their plan and its beneficiary designations regularly.

When you consider what seg funds combine – diversification, downside protection, estate planning advantages, and quicker and more cost-effective wealth transfers – these benefits all contribute to a client’s overall financial health.

That makes the product central to financial resilience, especially in an environment defined by uncertainty.

Mr. Ryan, referring back to his geophysics studies, says the strongest elements are revealed when the ground shifts, both in geology and in life.

Seg funds aren’t bedrock simply because they carry a guarantee, he says. They earn their place when the protection has real work to do. As Mr. Ryan puts it, their value often appears during “life’s most difficult times.”

Advertising feature produced by Globe Content Studio with Manulife. The Globe’s editorial department was not involved.