Segregated Funds and What They Mean for your Client

The seg-fund space has evolved considerably in recent years and where all types of equity, fixed income and balanced mandates used to only exist as a mutual fund, they now have an analogue in the segregated fund realm as well. Using a segregated fund as an investment vehicle opens the door to a host of features for your client and offers them protection throughout their life and beyond. Most of these features are unique to insurance-based investment products and may not be available through traditional investments like a GIC or mutual fund. So what are some of these great features of a segregated fund?

Some seg-fund benefits to discuss with your client include:

  • The ability to guarantee up to 100% of the invested amount upon death or maturity. Your client can also reset their guarantee amount periodically throughout the holding period. For example, if your client deposits $100k into a segregated fund and after one year, it increases to $105k, they can lock-in the value at $105k and even if the market corrects, that $105k is guaranteed to them, regardless of what was originally invested. However, be sure to let your client know that like maturity and death guarantees, the frequency of resets can vary between carriers.
  • There are no probate fees payable upon death. All proceeds of the segregated fund pass directly to your client’s named beneficiary – there is no estate to deal with and assets are not subject to probate. This provision is baked-in at contract level, not at the account level, as is the case for non-insurance based investment solutions. Proceeds are paid to the beneficiary without the stress and without the delay of probate.
  • No DSC (deferred sales charge) penalties. In some cases, a fund is purchased on a DSC basis, meaning that the account holder is forced to pay a penalty if the assets are redeemed early, even upon death. With a segregated fund, the DSC penalty is waived upon death of the annuitant.
  • Segregated funds allow your client strict confidentiality. Turns out, death is a matter of public record. In fact, anyone can gain access to your client’s estate and beneficiary designations when a will is probated – a privacy breach that may make your client feel more than a little uneasy. By investing in a segregated fund, your client’s designations remain confidential.
  • Investments held through an insurance carrier can offer unique protection from creditors. During your client’s life, their investment is protected in the event of bankruptcy, lawsuit or any other unforeseen circumstance, provided that the beneficiary is an immediate family member. Upon death, the investment is paid directly to your client’s beneficiary, entirely bypassing the estate and any creditors who may have a claim to the estate. A major advantage for your client.

For a similar article on this topic, including a video you can share with your clients, please read Helping Your Clients Understand Segregated Funds and for more information about segregated funds, contact your local PPI office.

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