The policy has two phases: A savings phase where there is a guaranteed withdrawal balance The guaranteed withdrawal balance provides a guaranteed rate of growth in the savings phase and; a 2016 study found that 60% of respondents didn’t know that segregated funds provided both opportunities for growth and guarantees on investment capital. Additional protection for your investments. Benefits of segregated funds Segregated fund contracts are sold by insurance companies, which means they provide several insurance benefits that mutual funds do not. It’s also one of the main reasons that in-the-know Canadians are choosing them over mutual funds. In addition, reporting materials are often constructed such that they are covering exactly the right level of detail. • Effecting change Segregated account clients are able to work in partnership with the investment manager in terms of implementing changes in their portfolio during stress periods. Estate benefits Segregated fund contracts are insurance (annuity) contracts and as such a beneficiary can be named to receive any proceeds on the death of the life insured (annuitant). Put the benefits of segregated fund policies to work for you. The term to benefit from this guarantee is usually 10 years. The risk … Mr. Yates says another major benefit of seg funds for estate planning relates to probate. This interaction allows the client far greater possibility to appreciate the nuances of the hedge fund world and how to best approach the opportunity set afforded. Generally speaking, you need to have held the investment for a minimum of ten years for this protection to apply and it often costs extra to benefit from this guarantee. As the correlation of asset classes moved to 1, and as the impact of deleveraging in a falling and illiquid market was painfully experienced, investors inevitably concerned themselves primarily with stabilizing their portfolios. Your principal investment is protected: Because of the guaranteed payout that protects your initial … As clients’ comfort with the investment style increases, they can take the opportunity to change the risk appetite within their portfolio, to create a core-satellite approach to hedge fund investing, and to truly integrate their long-only investments with their portfolio of hedge funds. Along with the benefits of a mutual fund, a definite sum is assured upon maturity/death of the insured to make it a dual benefit product. Unique client requirements such as preferred service providers (with the potential to mitigate counterparty risk), annual dividend requirements, eliminating exposure to hedge funds with side-pockets, foreign exchange hedging, etc. Seg funds have attractive benefits, including probate minimization and creditor protection. It is typically the case that the greater one of these risks is, the more it exacerbates other risks. 2008 – A story of more than just drawdowns All market participants have faced a tremendously challenging year. A segregated fund policy includes both a maturity guarantee and a death... Growth potential and flexibility. The starting point for this is always to ensure that the client has direct access on a regular basis to an investment decision-maker. intelligent, diverse investments significantly reduce risk, the contents of wills can become public if they are probated, segregated fund policies offer benefits and guarantees. Segregated funds are known to provide two guarantees to protect investors from market losses, a maturity guarantee and a death benefit guarantee. Some types of segregated funds include reset options. Seg funds are … Segregated funds–such as RBC Guaranteed Investment Funds (GIFs)–offer unique benefits that can help you reach your retirement goals. Some funds also offer income at regular intervals such as during post retirement life. If the value of your investment drops below the guaranteed level, the investor will be able to get back the shortfall after a specific term which is usually ten years. What is produced is not ‘standard’ but instead a dedicated investment solution. This is the most beneficial of segregated funds. With segregated funds, 75% or 100% of the money you invest * can be guaranteed when your investment matures (the “maturity benefit guarantee”) or when you die (the “death benefit guarantee”). Creditor protection: Segregated fund contracts have the potential to protect your assets from creditors.If a family class or irrevocable beneficiary to the contract is named, the segregated fund contract may be protected from the owner’s creditors during his/her lifetime. Benefits of Segregated Funds Want to protect, grow and preserve your money? Segregated Funds guaranteed return of premiums of anywhere between 75% to 100%, depending on the insurer. However, because segregated fund contracts are insurance contracts, they have special benefits that mutual funds do not. This investor version of musical chairs thus leads to a suboptimal outcome for all. To ensure even deeper knowledge and to inspire further confidence, clients can also benefit from meeting managers with whom their portfolio is invested. It’s possible to designate more than one beneficiary, and if several beneficiaries are designated in the contract, it … However, there are a few key benefits to seg funds that you can’t get with their mutual fund counterparts. Maturity Guarantee On the maturity date of the contract, which is typically 10 years, the policy owner is guaranteed to receive at least 75% of the amount that they deposited to the contract. Diversification and risk reduction. Let’s unpack that a little bit. Individual clients will have individual concerns and requirements; in general, the elements that investors will most likely focus on are: risk appetite/tolerance, exposure preferences, liquidity requirements, and elimination of heightened indirect exposure. • Transparency Clients take confidence in knowing the exact names and types of exposure which comprise their portfolio. And that holds true, no matter how much the markets underperform. Importantly, this evolution of exposure always takes into account the clients’ individual requirements. This is achieved by giving a detailed outline of each individual hedge fund position as well as detailed attribution and contribution analyses. The magnitude of market movements has been unprecedented as has the volatility. For older investors, segregated funds provide the benefits of a low-risk option with good returns. Importantly, the client is still invested in the fund vehicle of the underlying hedge funds (as opposed to a “managed account”) and can still be anonymous vis-à-vis the hedge funds as these are bought/sold using a nominee name. Automatic death benefit resets* on the 100% guarantee level lock in the increased value of your investments as they grow. Segregated funds come with their own set of unique features. In some instances, this can lead to higher cash levels than usual during turbulent times; in other instances, it can lead to a more consolidated list of high quality managers, moving away from a more diversified portfolio. In the standard game-theory problem, each participant makes a rational calculation that no-one wishes to be left with the illiquid ‘rump’ portion of a portfolio and consequently all participants redeem. Furthermore, the segregated account format can – depending on the set-up required – result in clients benefitting from a lower cost structure. Keith Masterman , LLB, TEP is vice-president, Tax, Retirement and Estate Planning at CI Investments. Clients have recognized a preference for greater control of their investments than typically experienced in commingled funds such that risks can be better mitigated and a greater scope for action can be enjoyed. The value of the insurance contract of a deceased policyholder can be … Take control of your retirement and income by guaranteeing your income for life. Protection of the amount invested at maturity of the investment and at death Segregated funds differ from mutual funds, however, in that they have a built-in guarantee for either all or part of your investment, potentially offering a more secure option. Pooled funds allow smaller institutions to access asset classes … The circumstances of 2008 have re-introduced the traditionally more mundane risk considerations of: • Counterparty risk• Liquidity risk• Redemption risk; and• Information shortage risk. 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